The Supreme Court has ruled that only the statutory taxpayer, the entity upon whom the tax is directly imposed, can claim a tax refund, even if the economic burden of the tax is shifted to another party. In Silkair v. Commissioner of Internal Revenue, the Court denied Silkair’s claim for a refund of excise taxes on jet fuel, clarifying that as an international air carrier which purchased jet fuel, it wasn’t entitled to the refund because the tax was directly imposed on the petroleum manufacturer. This decision emphasizes the principle that the right to claim a tax refund belongs exclusively to the entity legally mandated to pay the tax, reinforcing a strict interpretation of tax exemption laws.

Navigating Tax Laws: Who Really Pays, and Who Gets the Refund?

Silkair (Singapore) Pte. Ltd., an international air carrier, sought a refund of excise taxes it had purportedly paid on jet fuel purchases from Petron Corporation. The Bureau of Internal Revenue (BIR) did not immediately act on the claim, and Silkair sought redress before the Court of Tax Appeals (CTA). Silkair based its claim on Section 135(b) of the National Internal Revenue Code (NIRC) of 1997, which exempts petroleum products sold to international carriers from excise tax under certain conditions. Silkair argued that Article 4(2) of the Air Transport Agreement between the Philippines and Singapore also supported its claim to tax exemption. The CIR opposed the petition, arguing that the excise tax was the direct liability of the manufacturer (Petron Corporation) and became part of the price when passed on to Silkair. The CIR argued that if anyone could apply, it should be Petron Corp. However, Silkair contended that it bore the economic burden of the tax.

The CTA denied Silkair’s petition, and the case was appealed. In doing so, the CTA determined that the excise tax was imposed on Petron Corporation as the manufacturer, making it the appropriate party to claim any refund. The CTA rationalized its decision noting:

Since the excise tax was imposed upon Petron Corporation as the manufacturer of petroleum products, pursuant to Section 130(A)(2), and that the corresponding excise taxes were indeed, paid by it, . . . any claim for refund of the subject excise taxes should be filed by Petron Corporation as the taxpayer contemplated under the law.

The CTA further elaborated that while the tax burden may be shifted, the right to claim a refund remains with the entity that directly remitted the tax to the government. The Supreme Court upheld the CTA’s decision, clarifying fundamental principles of tax law. The Court addressed the procedural issue of the timeliness of the appeal, affirming that notice to the counsel of record (JGLaw), before official withdrawal, constituted notice to Silkair. Moreover, even on the merits, the Court found against Silkair, underscoring that the legal right to claim tax refunds resides with the statutory taxpayer—in this case, Petron Corporation.

The Court cited Section 130 (A) (2) of the NIRC, stating that the excise tax must be filed and paid by the manufacturer or producer before removing domestic products from the place of production. This provision directly contradicted Silkair’s assertion that they could claim the tax refund. The Supreme Court referenced prior cases, reinforcing that tax exemptions must be construed strictly against the claimant and liberally in favor of the taxing authority.

Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, and if an exemption is found to exist, it must not be enlarged by construction.

The Court dismissed Silkair’s reliance on the Air Transport Agreement between the Philippines and Singapore, emphasizing that the agreement did not explicitly grant exemptions from indirect taxes. The ruling clarifies the distinction between the statutory taxpayer (the one legally liable to pay the tax) and the one bearing the economic burden (the one who effectively pays the tax as part of a purchase). The Supreme Court reiterates that unless the law clearly provides for it, exemptions do not extend to those indirectly shouldering the tax burden. It sets a precedent that impacts how international agreements are interpreted in the context of domestic tax law.

FAQs

Who is considered the statutory taxpayer in this case?	Petron Corporation is the statutory taxpayer because it is the manufacturer of the petroleum products and directly liable for the excise tax under the NIRC.
Why was Silkair not entitled to a tax refund?	Silkair was not the statutory taxpayer, and the right to claim a refund does not automatically transfer to the entity that bears the economic burden of the tax.
What is the key provision of law in question?	Section 130 (A) (2) of the National Internal Revenue Code (NIRC) stipulates that excise taxes on domestic products shall be filed and paid by the manufacturer or producer.
What did the Air Transport Agreement state?	Article 4(2) of the Air Transport Agreement between RP and Singapore grants exemption from customs duties, inspection fees, and other duties or taxes, but the court did not construe this as including indirect taxes without express legislative intent.
How are tax exemptions generally interpreted by courts?	Tax exemptions are interpreted strictly against the claimant (taxpayer) and liberally in favor of the taxing authority (government), requiring clear and explicit language for exemptions.
Does shifting the tax burden transfer the right to claim a refund?	No, shifting the tax burden does not automatically transfer the right to claim a tax refund; this right remains with the statutory taxpayer unless explicitly provided otherwise by law.
What was the significance of JGLaw’s notice of withdrawal?	Since JGLaw was Silkair’s counsel of record when the CTA resolution was served, the notice was deemed legally served on Silkair, impacting the timeliness of the appeal.
Can international agreements override domestic tax laws?	International agreements do not automatically override domestic tax laws unless there is clear legislative intent indicating that such agreements should take precedence.
What kind of tax was being disputed in this case?	The tax in dispute was an excise tax, which is an indirect tax imposed on the manufacturer or producer of goods, not directly on the consumer.

The Supreme Court’s decision in Silkair v. Commissioner of Internal Revenue reaffirms the principle that tax refunds are strictly reserved for the statutory taxpayer. This clarification serves to guide international carriers and other businesses that may indirectly bear the brunt of excise taxes. This delineation reinforces the structure of tax compliance in the Philippines and limits who may seek remedies for perceived tax overpayments.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Silkair (Singapore) PTE. LTD. vs. CIR, G.R. No. 173594, February 06, 2008