III.

Other Business Taxes

A. Percentage Tax
Commissioner of Internal Revenue vs. Philippine Airlines, Inc. (July 14, 2009)

China Banking Corporation vs. Commissioner of Internal Revenue (February 27, 2013)

B. Excise Tax
Republic of the Philippines vs. Caguioa (October 15, 2007)
FACTS: In 1992, the SBF and SBMA were created pursuant to RA 7227. Business enterprises within the
zones had the privilege of exemptions from payment of local and national taxes (but required to pay 3%
on gross income in lieu).
In 2005, RA 9334 was enacted which had the provision: The provision of any special or general law
to the contrary notwithstanding, the importation of cigars and cigarettes, distilled spirits,
fermented liquors and wines into the Philippines, even if destined for tax and duty free shops,
shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon.
This shall apply to cigars and cigarettes, distilled spirits, fermented liquors and wines brought
directly into the duly chartered or legislated freeports of the Subic Economic Freeport Zone,
created under Republic Act No. 7227
As a consequence, the business therein protested and filed a special civil action with the RTC of Olongapo
for declaratory relief to have certain provisions of R.A. No. 9334 declared as unconstitutional alleging that:
(1) R.A. No. 9334 should not be interpreted as altering, modifying or amending the provisions of R.A. No.
7227 because repeals by implication are not favored;
(2) a general law like R.A. No. 9334 cannot amend R.A. No. 7727, which is a special law;
(3) the assailed law violates the one bill-one subject rule embodied in Section 26(1), Article VI of the
Constitution as well as the constitutional proscription against the impairment of the obligation of contracts.
They prayed for the issuance of a writ of preliminary injunction and/or Temporary Restraining Order (TRO)
and preliminary mandatory injunction to enjoin the directives of the BIR and the Collector of Customs.
The opposition however alleged that:
(1) tax exemptions are not presumed and even when granted, are strictly construed against the grantee;
(2) an increase in business expense is not the injury contemplated by law, it being a case of damnum
absque injuria;
(3) the drawback mechanism established in the law clearly negates the possibility of the feared injury.
(4) courts are enjoined from issuing a writ of injunction and/or TRO on the grounds of an alleged nullity of
a law, ordinance or administrative regulation or circular or in a manner that would effectively dispose of
the main case.
They maintained that greater injury would be inflicted on the public should the writ be granted.
Nonetheless, the application for the issuance of a writ of preliminary injunction was granted.
ISSUE: Whether the issuance of the writ was valid.
RULING: No.
(1) Every presumption must be indulged in favor of the constitutionality of a statute.The burden of
proving the unconstitutionality of a law rests on the party assailing the law. In passing upon the
validity of an act of a co-equal and coordinate branch of the government, courts must ever be mindful
of the time-honored principle that a statute is presumed to be valid.
(2) There is no vested right in a tax exemption, more so when the latest expression of legislative intent
renders its continuance doubtful. Being a mere statutory privilege, a tax exemption may be modified
or withdrawn at will by the granting authority. To state otherwise is to limit the taxing power of the
State, which is unlimited, plenary, comprehensive and supreme. The power to impose taxes is one so
unlimited in force and so searching in extent, it is subject only to restrictions which rest on the
discretion of the authority exercising it.
(3)

As a general rule, tax exemptions are construed strictissimi juris against the taxpayer and liberally in
favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove
that it is in fact covered by the exemption so claimed. In case of doubt, non-exemption is favored.

(4) A tax exemption cannot be grounded upon the continued existence of a statute which precludes its
change or repeal. Flowing from the basic precept of constitutional law that no law is irrepealable,
Congress, in the legitimate exercise of its lawmaking powers, can enact a law withdrawing a tax
exemption just as efficaciously as it may grant the same under Section 28(4) of Article VI of the
Constitution. There is no gainsaying therefore that Congress can amend Section 131 of the NIRC in a
manner it sees fit, as it did when it passed R.A. No. 9334.
(5) The rights granted under the Certificates of Registration and Tax Exemption of private respondents
are not absolute and unconditional as to constitute rights in esse those clearly founded on or
granted by law or is enforceable as a matter of law.
(6) These certificates granting private respondents a "permit to operate" their respective businesses are
in the nature of licenses, which the bulk of jurisprudence considers as neither a property nor a
property right.The licensee takes his license subject to such conditions as the grantor sees fit to
impose, including its revocation at pleasure. A license can thus be revoked at any time since it does
not confer an absolute right.
(7) As a rule, courts should avoid issuing a writ of preliminary injunction which would in effect dispose of
the main case without trial. This rule is intended to preclude a prejudgment of the main case and a
reversal of the rule on the burden of proof since by issuing the injunctive writ, the court would
assume the proposition that petitioners are inceptively duty bound to prove.
(8) A court may issue a writ of preliminary injunction only when the petitioner assailing a statute has
made out a case of unconstitutionality or invalidity strong enough, in the mind of the judge, to
overcome the presumption of validity, in addition to a showing of a clear legal right to the remedy
sought. Thus, it is not enough that petitioners make out a case of unconstitutionality or invalidity to
overcome the prima facie presumption of validity of a statute; they must also be able to show a clear
legal right that ought to be protected by the court. The issuance of the writ is therefore not proper
when the complainants right is doubtful or disputed.
(9) The feared injurious effects of the imposition of duties, charges and taxes on imported cigars,
cigarettes, distilled spirits, fermented liquors and wines on private respondents businesses cannot
possibly outweigh the dire consequences that the non-collection of taxes, not to mention the
unabated smuggling inside the SBF, would wreak on the government. Whatever damage would befall
private respondents must perforce take a back seat to the pressing need to curb smuggling and raise
revenues for governmental functions.
All told, while the grant or denial of an injunction generally rests on the sound discretion of the lower
court, this Court may and should intervene in a clear case of abuse.
One such case of grave abuse obtained in this case when public respondent issued his Order of
May 4, 2005 and the Writ of Preliminary Injunction on May 11, 2005 despite the absence of a
clear and unquestioned legal right of private respondents.
In holding that the presumption of constitutionality and validity of R.A. No. 9334 was overcome by private
respondents for the reasons public respondent cited in his May 4, 2005 Order, he disregarded the fact that
as a condition sine qua non to the issuance of a writ of preliminary injunction, private respondents needed
also to show a clear legal right that ought to be protected. That requirement is not satisfied in this case.
To stress, the possibility of irreparable damage without proof of an actual existing right would not justify
an injunctive relief.
Silkair (Singapore) Pte., Ltd. Vs. Commissioner of Internal Revenue
FACTS: Silkair files for tax refund for allegedly erroneously paid VAT. It contended that it was exempt from
the payment of excise tax pursuant to Section 135 (a) and (b) of the 1997 Tax Code, which provides:
SEC. 135. Petroleum Products Sold to International Carriers and Exempt
Entities or Agencies. Petroleum products sold to the following are exempt from excise
tax:
(a) International carriers of Philippine or foreign registry on their use or
consumption outside the Philippines: Provided, That the petroleum products sold to
these international carriers shall be stored in a bonded storage tank and may be
disposed of only in accordance with the rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax treaties, conventions and

other international agreements for their use or consumption: Provided, however,
That the country of said foreign international carrier or exempt entities or agencies
exempts from similar taxes petroleum products sold to Philippine carriers, entities or
agencies; and
x x x x (Emphasis supplied.)
And the Article 4(2) of the Air Transport Agreement between the Government of
the Republic of the Philippines and the Government of the Republic of Singapore (Air
Transport Agreement between RP and Singapore) which reads:
ART. 4x x x x
2. Fuel, lubricants, spare parts, regular equipment and aircraft stores
introduced into, or taken on board aircraft in the territory of one Contracting Party by, or
on behalf of, a designated airline of the other Contracting Party and intended solely for
use in the operation of the agreed services shall, with the exception of charges
corresponding to the service performed, be exempt from the same customs duties,
inspection fees and other duties or taxes imposed in the territory of the first Contracting
Party, even when these supplies are to be used on the parts of the journey performed
over the territory of the Contracting Party in which they are introduced into or taken on
board. The materials referred to above may be required to be kept under customs
supervision and control.
When it purchased jet fuel from Petron within the Philippines from July 1, 1998 to December 31, 1998.
The excise tax was in the amount of P5m.
The CIR however opposed, contending that Silkair is not the proper party to claim for the tax
credit/refund.
ISSUE: Whether Silkair is the proper party to claim for a tax credit or refund.
RULING: No. Petron is the statutory taxpayer as held in the two preceding cases involving also, petitioner
silkair.
The exemption of Silkair will not be put to naught if the following is complied with:
11.3 If Buyer is entitled to purchase any Fuel sold pursuant to the Agreement free of any taxes, duties or
charges, Buyer shall timely deliver to Seller a valid exemption certificate for such purchase. (Emphasis
supplied)
This provision instructs petitioner to timely submit a valid exemption certificate to Petron in order that
Petron will not pass on the excise tax to petitioner. As correctly suggested by the CTA, petitioner should
invoke its tax exemption to Petron before buying the aviation jet fuel. Petron, however, remains the
statutory taxpayer on those excise taxes.
The doctrine of precedence is being followed.
Exxonmobil Petroleum and Chemical Holdings, Inc.- Phil. Branch vs. Commissioner of Internal Revenue
FACTS: Exxonmobil is foreign with a branch in the Philippines. It purchases aviation fuel from Caltex and
Petron and later sells the same to international carriers. As far as its transaction with Caltex and Petron is
concerned, Exxonmobil pays for the fuel including the excise tax, but with respect to sale to international
carriers it sells fuel free from excise tax. Later, it claimed for a tax refund with the CIR amounting to
Php105,093,536.47, representing the amount of excise taxes paid on Jet A-1 fuel and other petroleum
products it sold to international carriers from November 2001 to June 2002.
Again the CIR opposed contending that Exxonmobil is not the statutory taxpayer of the VAT and hence,
not the proper party to seek for the tax refund.
ISSUE: Whether Exxonmobil is the statutory taxpayer.
DECISION: No. The SC agreed with the CTA when the latter cited the following cases:
Cebu Portland Cement Company v. Collector (now Commissioner) of Internal Revenue, where the Court
ruled that as the sales tax is imposed upon the manufacturer or producer and not on the purchaser, it is
petitioner and not its customers, who may ask for a refund of whatever amount it is entitled for the
percentage or sales taxes it paid before the amendment of section 246 of the Tax Code.

The Philippine Acetylene case was also cited in the first Silkair (Singapore) Pte, Ltd. v.
Commissioner of Internal Revenue case, where the Court held that the proper party to question, or to
seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law
and who paid the same even if he shifts the burden thereof to another.
In the Silkair cases, petitioner Silkair (Singapore) Pte, Ltd. (Silkair), filed with the BIR a written
application for the refund of excise taxes it claimed to have paid on its purchase of jet fuel from Petron. As
the BIR did not act on the application, Silkair filed a Petition for Review before the CTA.
In both cases, the CIR argued that the excise tax on petroleum products is the direct liability of
the manufacturer/producer, and when added to the cost of the goods sold to the buyer, it is no longer a
tax but part of the price which the buyer has to pay to obtain the article.
Therefore, as Exxon is not the party statutorily liable for payment of excise taxes under Section
130, in relation to Section 129 of the NIRC, it is not the proper party to claim a refund of any taxes
erroneously paid.
Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation (April 25, 2012)

Philippine Airlines, Inc. vs. Commissioner of Internal Revenue (July 1, 2013)

British American Tobacco vs. Camacho (August 20, 2008)

Commissioner of Internal Revenue vs. Fortune Tobacco Corporation (July 21, 2008; September 28, 2011)
C. Documentary Stamp Tax
Commissioner of Internal Revenue vs. Filinvest Development Corporation (July 19, 2011)

Philippine Banking Corporation vs. Commissioner of Internal Revenue (January 30, 2009)

Philacor Credit Corporation vs. Commissioner of Internal Revenue (February 6, 2013)