CTA upholds partial Petron excise tax refunds in twin rulings

THE Court of Tax Appeals (CTA) En Banc upheld two First Division rulings granting Petron Corp. partial refunds of excise taxes on petroleum products sold to tax-exempt entities after denying separate appeals filed by the oil company and the Commissioner of Internal Revenue (CIR).

In two separate decisions, both promulgated on July 2, the tax court upheld a refund of P727.33 million out of Petron’s roughly P773.90-million claim for excise taxes paid on locally produced unleaded gasoline and diesel fuel sold to Micro Dragon Petroleum, Inc. (MDPI), a Subic Bay Freeport enterprise.

It also upheld a refund of P2.77 million out of the company’s P9.55-million claim covering imported lubricating oils and additives that formed part of finished products later sold to tax-exempt entities.

In the first case, the CIR argued that Petron was not entitled to a refund because MDPI allegedly failed to satisfy a condition in its Subic Bay Metropolitan Authority (SBMA) registration limiting sales within the customs territory to 30% of its total income.

The En Banc rejected the argument, ruling that the 30% threshold pertains only to income tax and does not affect MDPI’s entitlement to an excise tax exemption under Section 135 of the National Internal Revenue Code.

The court, however, affirmed the disallowance of P46.57 million of Petron’s refund claim after finding that portions of the claimed diesel fuel removals could not be reconciled with the supporting documents, including SAP-generated Official Registry Books (ORBs) and excise tax returns.

The court said tax refund claims are strictly construed against the taxpayer and must be supported by documentary evidence establishing entitlement to the refund.

In the second case, the En Banc affirmed the refund of P2.77 million but denied Petron’s bid to recover an additional P3.73 million, ruling that the company could not expand its refund claim beyond the Aug. 1 to Dec. 31, 2019 period identified in its petition.

The court said granting relief beyond the period specifically pleaded would violate the CIR’s right to due process because the tax agency prepared its defense based on the refund period identified by Petron.

The En Banc also rejected the CIR’s appeal, reiterating that while excise taxes are imposed upon production or importation, manufacturers and importers may recover excise taxes paid on petroleum products sold to entities exempt under Section 135 of the Tax Code, consistent with the Supreme Court’s rulings in Chevron Philippines, Inc. vs. Commissioner of Internal Revenue and Pilipinas Shell Petroleum Corp. vs. Commissioner of Internal Revenue. — Mark Joseph M. Sanchez