Application for Excise Tax Refunds of Mobil (Phils.), Inc.

February 5, 1998 BIR RULING [DA-038-98] MEMORANDUM DATE : January 13, 1998 FOR : The Commissioner FROM : Deputy Commissioner Sixto S. Esquivias IV SUBJECT : Application for Excise Tax Refunds of Mobil (Phils.), Inc. This refers to your handwritten Note requesting the official stand of this Bureau on the Memorandum of Atty . Estrella V . Martinez, Asst . Chief; Collection Programs Division , in effect, denying the application of Mobil (Phils . ), Inc . for excise tax refunds emanating on the latter's marine fuel oil deliveries to international carriers covered by TCC Nos. 1665, 1670 and 1672. cdta For a better understanding of the case, it is necessary to state the antecedent facts germane to the issue to be resolved herein. On September 17, 1991, BIR Ruling No. 190-91 was issued by this Office denying the claim of Petron Corporation for tax credit/refund of the excise taxes it originally paid on petroleum products sold and delivered to Mobil (Phils . ), Inc . net of excise tax. These petroleum products were later on sold and delivered by Mobil (Phils.), Inc. to international carriers also exclusive of excise tax. In the dispositive portion of said BIR ruling, which was signed by former Deputy Commissioner Eufracio D. Santos in his capacity as Officer-In-Charge, it reads: "Accordingly, since in the case of your sale to Mobil of said petroleum products, you did not directly sell the same to the international carriers, you are not the party entitled to claim the tax credit/refund of the excise tax. On the other hand, since Mobil which directly sold the product to the international carrier is not the manufacturer/producer, it is not the party liable for the excise tax; hence, it has, likewise no personality to claim the tax credit/refund of the corresponding excise tax paid by you. (BIR Ruling dated June 7, 1989)" Sometime in August 1991, Mobil filed a claim -for tax refund/credit in the amount of P1,342,813.54 representing payment of the ad valorem taxes on jet fuel and diesel fuel products sold and delivered to international carriers for the month of March 1989. The said claim was eventually granted by virtue of a Memorandum Decision of the Chief, Legislative, Ruling & Research Division (now Law Division) which was approved by the Special Review Committee (Committee) created under RSO No. 1-89 with former DCIR Eufracio D. Santos as Chairman and former DCIR Victor Deoferio, Jr. and then Assistant Commissioner Pedro C. Aguillon of the now defunct Special Operations Service as members. The reasons for approving the claim of Mobil are briefly stated hereunder, to wit: 1. Section 132 of the Tax Code, as amended, is clear and explicit in its grant of exemption on petroleum products sold to international carriers. It does not qualify that only manufacturers selling products to international carriers are exempt from tax. Ergo, since the law does not distinguish, we should not distinguish. 2. The Philippines is a signatory to various existing Bilateral Air Agreements exempting fuel, lubricant and other items intended for use by aircraft in international operation on the basis of reciprocity from all taxation. 3. Specific tax is a tax on the article or product itself and not on transaction involving said product. Thus, exemption from excise tax attaches to the petroleum product itself and not to the persons or entities entering into transaction with respect to said product. 4. No gain for excise tax revenues will result if the claim for tax credit/refund of MPI is denied because all that the international carriers will do is to purchase their petroleum requirements from the manufacturer whose sales are exempt from excise tax. It must be pointed out herein that before the Committee approved the said Memorandum-Decision of the Law Division on December 11, 1991, the same was reviewed by then Executive Assistant V (now Judge of the Court of the Tax Appeals) Amancio E. Saga who was then detailed at the Office of former Commissioner Jose U. Ong. In his Memorandum dated November 11, 1991, (copy attached) which was acquiesced in by former Commissioner Ong, Mr. Saga fully concurred with the recommendation of the Committee in granting the refund to Mobil on practically the same grounds as aforestated. Since then, Mobil has been able to secure a yearly permit to withdraw petroleum products from manufacturers for delivery to international carriers for their use outside the Philippines without prepayment of excise taxes, pursuant to Section 132 of the Tax Code. Atty. Martinez is now assailing the aforesaid Memorandum-Decision on the ground that the same has deviated from the provisions of Sections 126, 127(a) and 132 of the Tax Code to the end that it has impliedly repealed BIR Ruling No. 190-91; that only another BIR ruling can only revoke an existing BIR ruling; and that repeal of tax laws specially BIR rulings should be express while RS0 1-89 is silent on the matter. In addition, she cited four (4) "valid reasons for upholding BIR No. 190-91." We find the contention of Atty. Martinez untenable. Although BIR Ruling No. 190-91 was not expressly revoked, the Memorandum-Decision subsequently rendered by the Law Division and approved by the Special Review Committee had the effect of revoking the said BIR Ruling. In short, since the interpretation of Section 132 of the Tax Code by the BIR ruling in question is plainly erroneous, the same should be disregarded and the correct one adopted. It is axiomatic that laws should be given a reasonable interpretation, not one which defeats the very purpose for which they are created; and that "a literal interpretation is to be rejected if it would be unjust or lead to absurd results" (Soriano vs. Offshore Shipping and Mining Corporation, 177 SCRA 513) A reading of Section 132 of the Tax Code will readily show that to be entitled to exemption from the excise tax imposed therein, the following conditions should be present, to wit: (1) the petroleum products are sold to an international carrier for its use and consumption outside of the Philippines; and (2) that the country of said carrier exempts from tax petroleum products sold to Philippine carrier. Nowhere is there an explicit mention that only manufacturers or producers of petroleum products who sell their petroleum products to international carriers can avail of the tax privilege granted under the said provisions of law. Even a more jobber like Mobil, can avail of the privilege granted under the said provision of law as long as it has complied with the aforesaid requirements. Otherwise, we would be giving a different construction to a clear and unambiguous provision of law thereby resulting in the imposition of tax to an otherwise exempt transaction. It is a rule in statutory construction that a statute will not be construed as imposing tax unless it does so clearly, expressly, and unambiguously. A tax cannot be imposed without clear and express words for that purpose. Accordingly, the provisions of a taxing act are not be extended by implications. (Marinduque Iron Mines Agents, Inc. vs. Mun. of Hinabanag L-18924, June 30, 1964) aisadc Furthermore, in every case of doubt, tax statutes are construed most strongly against the Government and in favor of the citizen because burdens are not to be imposed beyond what the statutes expressly and clearly import. (Coll. vs. La Tondea, Inc. L-10431, July 31, 1962; Commissioner vs. Fireman's Fund Insurance Co., L-30644, March 9, 1987) We also beg to disagree with the contention of Atty. Martinez that Section 132 which is the main issue, should be interpreted in relation to Sections 126 and 127, all of the Tax Code. It will be recalled that on April 21, 1978, PD 1359 was passed amending then Section 134 of the Tax Code by adding a second paragraph which provides, viz: "HOWEVER, PETROLEUM PRODUCTS SOLD TO AN INTERNATIONAL CARRIER FOR ITS USE OR CONSUMPTION OUTSIDE OF THE PHILIPPINES SHALL NOT BE SUBJECT TO SPECIFIC TAX, PROVIDED , THAT THE COUNTRY OF SAID CARRIER EXEMPTS FROM TAX PETROLEUM PRODUCTS SOLD TO PHILIPPINE CARRIER." Section 134 of the Tax Code as amended by PD 1354 was later amended by PD 1994 by splitting it into sections the first paragraph became Section 109 (now Section 126) while the second paragraph became Section 115 (now Section 132). Obviously, the purpose was to make said Section 132 independent of the other provisions or sections of the Tax Code. In short, Section 132 can stand alone and independent of Section 127. Finally, the allegation of Atty. Martinez that the practice of Mobil to charge the specific tax payments to cost of sales and subsequently claim for a tax refund thereon would be tantamount to allowing Mobil to straddle between two exemption privileges is only imaginative. In the first place, there is no showing that Mobil has been charging its specific tax payments to cost of sales. But even assuming for the sake of argument that Mobil charges its specific tax payments to cost of sales, the grant of a subsequent tax refunds on such payments would not unduly benefit Mobil to enjoy two tax exemption privileges. This is so because the tax refund that Mobil would get would constitute a taxable income on its part which would negate any reduction in income tax that the tax payment charged to cost of sales would provide. Accordingly, this Office hereby reiterates the correctness of the previous Memorandum-Decision of the Law Division dated December 11, 1991 which was duly approved by the now defunct Special Review Committee created pursuant to RSO No. 189 and in the process, hereby revokes BIR Ruling No. 190-91. In view of the foregoing, it is respectfully recommended that the instant application of MOBIL PHILIPPINES, INCORPORATED for excise tax refunds on its delivery of petroleum products to international carriers covered by TCC 1665, 1670 and 1672 be immediately approved. LLcd Respectfully submitted: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group Approved: (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue