Title
Commissioner of Internal Revenue vs. Philippine Associated Smelting and Refining Corp.
Case
G.R. No. 186223
Decision Date
Oct 1, 2014
PEZA-registered PASAR sought excise tax refund for petroleum products used in export production; SC affirmed CTA ruling, granting refund under tax exemption laws.

Case Summary (G.R. No. L-70203)

Key Individuals and Context:

  • Petitioner: Commissioner of Internal Revenue (Bureau of Internal Revenue).
  • Respondent: Philippine Associated Smelting and Refining Corporation (PASAR), a domestic corporation engaged in processing, smelting, refining and exporting refined copper cathodes and other copper products; registered as a Zone Export Enterprise with the Export Processing Zone Authority (EPZA/PEZA).
  • Other parties: Petron (local fuel distributor from whom PASAR purchased petroleum products).
  • Core factual context: PASAR purchased petroleum products from Petron for use in its export manufacturing operations; Petron paid excise taxes on imported petroleum products and passed those excise taxes on to PASAR. PASAR sought refund/tax credit of excise taxes paid for the period January–October 2005, totaling ₱11,687,467.62.

Petitioner’s Procedural Posture and Relief Sought:

  • PASAR filed a claim for refund/tax credit in December 2006 with the Regional Director (Region XIV); the claim was denied on January 3, 2007.
  • PASAR petitioned the Court of Tax Appeals (CTA) Second Division; CTA Second Division initially granted the Commissioner’s motion to preliminarily resolve whether PASAR was the proper party and dismissed PASAR’s petition. PASAR elevated the matter to the CTA En Banc, which set aside the Second Division’s resolutions and remanded for reception of evidence and determination of refund amount. The Commissioner filed a Rule 45 petition to the Supreme Court seeking reversal of the CTA En Banc decision.

Key Dates (selected relevant factual and procedural dates, excluding the Supreme Court decision date in this header):

  • Period of purchases giving rise to claim: January 2005 – October 2005.
  • Claim for refund filed: December 2006.
  • Denial by Regional Director: January 3, 2007.
  • CTA Second Division resolution granting preliminary motion/dismissing petition: September 19, 2007; denial of reconsideration: December 3, 2007.
  • CTA En Banc decision setting aside Second Division and remanding: November 12, 2008; denial of CTA En Banc reconsideration: January 30, 2009.

Applicable Law and Precedent:

  • Governing statutory provisions: Section 17, P.D. No. 66 (Export Processing Zone Authority law), as subsequently embodied in or affected by R.A. No. 7916; appellate jurisdiction provision cited: Section 7, R.A. No. 1125 as amended by R.A. No. 9282.
  • Controlling doctrinal authorities relied upon by the CTA En Banc and discussed by the Supreme Court: Commissioner of Customs v. Philippine Phosphate Fertilizer Corp. (Philphos) and Philippine Phosphate Fertilizer Corporation v. Commissioner of Internal Revenue — both construing Section 17 of P.D. No. 66 and addressing entitlement to refunds for taxes passed on to PEZA-registered enterprises.
  • Constitutional framework: 1987 Philippine Constitution (applicable to decisions rendered in 1990 or later).

Issue Limited for Resolution:

  • The Supreme Court limited the scope of review to a single legal question: whether PASAR is the proper party to claim refund/tax credit of excise taxes passed on by Petron. The Court expressly declined to resolve, at this stage, other questions raised by the Commissioner concerning CTA jurisdiction over the BIR Regional Director’s denial or the factual sufficiency/timeliness of PASAR’s refund claim, because the CTA En Banc’s review concerned only the preliminary issue of PASAR’s legal capacity to seek the refund.

Relevant Facts Established and Uncontroverted:

  • PASAR is a PEZA-registered enterprise that uses fuel and petroleum products in its manufacturing processes for export products.
  • Petron paid excise taxes on the imported petroleum products it supplied to PASAR and passed those excise taxes on to PASAR in the sales price.
  • PASAR sought refund/credit of the excise taxes it paid indirectly by purchasing taxed fuel from Petron.

CTA En Banc Ruling (as summarized in record):

  • The CTA En Banc ruled that PASAR is a PEZA-registered enterprise entitled to tax exemption under Section 17 of P.D. No. 66 (and R.A. No. 7916), including exemption from excise taxes on petroleum products used in its operations; consequently, PASAR may seek refund or tax credit of excise taxes passed on by suppliers.
  • The CTA En Banc relied on precedent in Commissioner of Customs v. Philphos and Philphos v. Commissioner of Internal Revenue to support that an EPZA/PEZA-registered enterprise may obtain refunds for indirect taxes passed on to it when the law confers exemption from such taxes.

Petitioner’s Principal Contentions:

  • Jurisdiction: The CTA lacked jurisdiction over the Regional Director’s denial of PASAR’s refund claim because the CTA’s exclusive appellate jurisdiction, as defined by statute, pertains only to decisions of the Commissioner of Internal Revenue.
  • Misapplication of Precedent: The Commissioner argued that Philphos and the Commissioner of Customs cases were inapposite or distinguishable — Commissioner of Customs concerned customs duties (not excise taxes) and Philphos did not conclusively resolve whether excise taxes on petroleum products indirectly used and passed on to an EPZA enterprise were exempt.
  • Proper Party to Claim Refund: The Commissioner maintained that the statutory taxpayer (the person upon whom the tax was imposed and who paid it, e.g., Petron) is the proper party to claim refund; because Petron was the taxpayer who paid excise taxes, PASAR—being only the economic bearer of the passed-on tax—could not claim refund.
  • Substance of Exemption and Refundability: The Commissioner contended that Section 17 of P.D. No. 66 did not clearly exempt petroleum products delivered to EPZA-registered enterprises from excise taxes and that the petroleum products purchased did not become part of PASAR’s exported products; thus, the taxes were not refundable.

Respondent’s Principal Contentions:

  • Estoppel: PASAR argued that the Commissioner was estopped from contesting CTA jurisdiction in the posture of the case.
  • Applicability of Precedent and Entitlement: PASAR maintained that Philphos and related authorities applied; that it was the proper party to seek refund/credit; and that it enjoyed exemption from excise taxes under Section 17 because the statutory language covers supplies used directly or indirectly in zone operations.

Supreme Court’s Analytical Framework and Legal Reasoning:

  • Scope Limitation: The Court confined its review to the narrow question whether PASAR is the proper party to seek a refund of the excise taxes passed on by Petron, since that was the issue the CTA En Banc preliminarily resolved.
  • Precedential Application: The Supreme Court affirmed the CTA En Banc’s reliance on Commissioner of Customs v. Philphos and Philphos v. Commissioner of Internal Revenue. The Court emphasized that Commissioner of Customs interpreted Section 17(1) of P.D. No. 66 to provide tax exemptions covering “merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description” brought into the zone and used “whether directly or indirectly” in zone activities, and explicitly concluded such supplies “shall not be subject to customs and internal revenue laws and regulations.” The Court noted Philphos likewise recognized that an EPZA-registered enterprise is entitled to exemption from payment of excise taxes; the remaining dispute in Philphos had been evidentiary rather than the entitlement itself.
  • Distinction on Proper Party to Claim Refund: The Court addressed the Commissioner’s reliance on the rule that the statutory taxpayer is generally the proper claimant for tax refunds. The Court explained that this rule is not absolute; rather, the determinative question is whether the law confers exemption from both direct and indirect taxes. The Court drew on Philippine Airlines, Inc. v. Commissioner of Internal Revenue for the appropriate test: if the law confers exemption from both direct and indirect taxes, then a claimant who merely bears
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