THE Court of Tax Appeals (CTA) has ordered the Commissioner of Internal Revenue (CIR) to refund or issue a tax credit certificate worth P96.49 million to Pilipinas Shell Petroleum Corp., now known as Shell Pilipinas Corp., for excise taxes paid on imported Jet A-1 fuel later sold to international air carriers.
In a 27-page decision promulgated on Aug. 7, the CTA Special Second Division granted Shell’s petition, ruling that the excise taxes were erroneously or illegally collected and refundable under Sections 204(C) and 229 of the National Internal Revenue Code (NIRC). The decision identifies the petitioner by its former corporate name, Pilipinas Shell Petroleum Corp.
The case involved excise taxes on Jet A-1 fuel imported from November 2020 to February 2021 and subsequently sold and delivered to international air carriers from December 2020 to March 2021.
Shell sought a refund of P96.49 million covering excise taxes paid on 24.12 million liters of Jet A-1 fuel. The company paid a total of P130.97 million in excise taxes on 32.74 million liters of imported fuel.
Section 135(a) of the tax code exempts from excise tax petroleum products sold to international carriers of Philippine or foreign registry for use or consumption outside the Philippines, subject to statutory requirements.
The CTA rejected the CIR’s argument that the exemption applied only to buyers and could not be invoked by Shell as the seller, saying the exemption attaches to the petroleum products themselves.
“Upon petitioner’s sale of its imported Jet A-1 fuel to various international air carriers, the status of the said sold petroleum product as tax-exempt solidifies,” the decision, written by Associate Justice Corazon G. Ferrer-Flores, said.
The court said the tax exemption under Section 135 should benefit the importer or manufacturer that is legally liable for the excise tax, rather than the buyer that merely bears its economic burden.
It found that Shell sufficiently documented the movement of the fuel from its Tabangao Import Facility to the Tabangao Depot, aviation storage facilities at the Ninoy Aquino International Airport and Clark International Airport, and ultimately to international air carriers.
The CTA said Shell established that 24.12 million liters of imported Jet A-1 fuel were delivered and sold to international air carriers from December 2020 to March 2021, corresponding to P96.49 million in excise taxes.
“The Court finds that petitioner sufficiently proved that the excise taxes it paid… in the amount of P96,494,288.00… were erroneous and refundable,” the CTA said.
For petroleum products sold to international air carriers to qualify for the exemption, the court said Shell had to establish that the fuel was stored in a bonded storage tank and disposed of in accordance with regulations; prove the foreign registry of international carriers or, for Philippine carriers, their authority to operate international flights; and show that the fuel was used or consumed outside the Philippines.
Shell submitted a Civil Aviation Authority of the Philippines certification confirming the countries of registry of its international airline customers. It also presented a Civil Aeronautics Board certification showing that Philippine Airlines, Inc. and Philippines AirAsia, Inc. were authorized to operate international flights.
The CTA said aviation service records showing flights between the Philippines and other countries established that the imported Jet A-1 fuel was used or consumed outside the Philippines, satisfying the third requirement for the exemption.
The petition, filed on Nov. 25, 2022, was granted, with the CIR ordered to refund or issue a tax credit certificate worth P96.49 million to Shell. — Mark Joseph M. Sanchez
