Title
Silkair Pte. Ltd. vs. Commissioner of Internal Revenue
Case
G.R. No. 184398
Decision Date
Feb 25, 2010
Silkair sought a refund for excise taxes on aviation fuel, claiming exemption under tax laws. The Supreme Court denied the claim, ruling Silkair failed to prove its authority to operate in the Philippines and was not the proper party to claim the refund, as excise taxes are the manufacturer's liability.
excise taxes
aviation fuel
authority to operate

Case Summary (G.R. No. 184398)

Factual Background

Silkair (Singapore) Pte. Ltd. is a foreign corporation organized under Singapore law with a Philippine representative office in Cebu City and operated international routes including Singapore-Cebu-Singapore and Singapore-Cebu-Davao-Singapore. Petitioner purchased aviation jet fuel from Petron Corporation for the period June to December 2000 and paid excise taxes which it later characterized as erroneously paid. Petitioner relied on BIR Ruling No. 339-92 (December 1, 1992), which declared the Singapore-Cebu-Singapore route an international flight and advised that petroleum products purchased by petitioner should not be subject to excise tax under Section 135 of the NIRC.

Administrative Proceedings before the BIR

On June 24, 2002, Silkair filed an administrative claim with the Bureau of Internal Revenue for refund of PHP 3,983,590.49 in excise taxes allegedly erroneously paid. The BIR took no action on the claim. To preserve the two-year prescriptive period under Section 229 of the NIRC, petitioner filed a petition for review with the CTA on June 27, 2002.

CTA First Division Proceedings

In a Decision dated July 27, 2006, the CTA First Division found that petitioner could be qualified for exemption under Section 135(b) subject to reciprocity by Singapore under Article 4(2) of the Air Transport Agreement. The court, however, denied relief because petitioner failed to prove it was authorized to operate in the Philippines for the period June to December 2000. The First Division declined to admit several exhibits offered by petitioner that consisted of photocopies, notably Exhibit “A” (petitioner’s Securities and Exchange Commission registration) and Exhibits “P,” “Q” and “R” (documents identified as operating permits or flight schedules submitted to the Civil Aeronautics Board covering October 1999 to October 2000). The First Division denied petitioner’s motion for reconsideration in a Resolution dated January 17, 2007.

CTA En Banc Proceedings

Petitioner sought relief before the CTA En Banc. The En Banc initially dismissed the petition for review on May 17, 2007 for failure to establish authority to appeal but reinstated the petition in a September 19, 2007 Resolution. On May 27, 2008, the CTA En Banc denied the petition for review, affirmed the First Division’s decision for petitioner’s failure to prove authorization to operate in the Philippines for the material period, and added that petitioner was not the proper party to file the refund claim. A concurring and dissenting opinion by Presiding Justice Ernesto D. Acosta agreed that petitioner was exempt under Section 135(b) and Article 4(2) but concluded the petition should be denied for failure to prove operational authority. The CTA En Banc denied reconsideration on September 5, 2008.

Issues Presented

The petition to the Supreme Court raised two issues: (i) whether petitioner substantially proved its authority to operate in the Philippines for the period June to December 2000; and (ii) whether petitioner was the proper party to seek refund or tax credit of the excise taxes it allegedly paid.

Petitioner's Contentions

Petitioner contended that the CTA had admitted its Foreign Air Carrier’s Permit as Exhibit “B,” which showed CAB approval for issuance of a regular operating permit. Petitioner asserted that Exhibits “P,” “Q” and “R” were flight schedules submitted to CAB and not operating permits, and that only photocopies were introduced through inadvertence. Petitioner asked the CTA to take judicial notice of its SEC registration because the same document had been offered and admitted in evidence in similar cases before the CTA. Substantively, petitioner argued that the exemption under Section 135(b) and Article 4(2) was a personal privilege granted to it and, as the entity that paid the excise taxes, it was the proper party to claim refund or tax credit.

Respondent's Contentions

Respondent maintained that the admission of Exhibit “B” did not remedy petitioner’s failure to present original copies or certified true copies of Exhibit “A” (SEC registration) and Exhibits “P,” “Q” and “R” (CAB documents) as required by the Rules of Court. Respondent further argued that excise tax is an indirect tax and that the statutory taxpayer and proper claimant for refund is the manufacturer or producer — here, Petron Corporation. Respondent emphasized that any amounts billed by Petron to Silkair that reflected excise tax became part of the purchase price and were not themselves taxes entitling the purchaser to a refund.

Court’s Findings on Evidentiary Issues

The Court affirmed the CTA En Banc’s refusal to admit the photocopied documents. The Court agreed that petitioner admitted the inadvertent introduction of photocopies and did not present originals for comparison in violation of Section 3, Rule 130 of the Rules of Court. The Court also endorsed the CTA’s exposition of the limits of judicial notice under Rule 129, explaining that Section 1 enumerates matters of mandatory judicial notice and that discretionary judicial notice under Section 2 is limited to matters of public knowledge or capable of unquestionable demonstration. The Court observed that Section 3, Rule 129 requires a hearing before judicial notice may be taken of any matter that is decisive of a material issue. Given petitioner’s failure to present originals or request a hearing for judicial notice, the CTA correctly excluded the disputed exhibits and correctly concluded that petitioner failed to establish authority to operate in the Philippines for the period in question.

Court’s Findings on the Proper Party to Claim Refund

On the second issue, the Court reaffirmed its prior rulings that the proper party to question or seek refund of an indirect tax is the statutory taxpayer on whom the tax is imposed — ordinarily the manufacturer or producer. The Court cited its earlier decisions in Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue and related cases to hold that Petron Corporation, not Silkair, was the statutory taxpayer liable for the excise tax under Section 130(A)(2) and therefore the proper claimant for refund. The Court explained that when a manufacturer shifts the economic burden of an excise tax to a purchaser by including it in the price, the transferred amount becomes part of the purchase price and not a tax that transforms the purchaser into the statutory taxpayer.

Legal Basis and Reasoning

The Court grounded its ruling on the distinction between direct and indirect taxes and on the express provisions of the NIRC. It reiterated that excise taxes are principally taxes on production, levied on manufacturers or producers upon removal of taxable goods, and that

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