Pilipinas Shell alkalyte imports not subject to excise tax, VAT: CTA

• The Court of Tax Appeals ruled in favor of Pilipinas Shell Petroleum Corp. that its alkylate importations are not subject to excise tax and value-added tax

• The CTA invalidated documents issued by the Bureau of Internal Revenue and Bureau of Customs-Port of Batangas that sought to impose taxes on SHLPH’s previous alkylate imports

• The decision ruled that “alkylate is a product of distillation. Hence, its importation should not be subject to excise tax in the absence of a law which clearly, expressly and unambiguously impose such tax on the said article”

• The decision also took note of a Supreme Court ruling in the case of Petron that has already “categorically declared that alkylate does not fall under the category of ‘other similar products of distillation’ subject to excise tax”

• Once the decision becomes final, Pilipinas Shell said it will consider legal actions to recover amounts previously paid to the government under protest for its past alkylate importations

Pilipinas Shell Petroleum Corp’s alkylate importations are not subject to excise tax and value-added tax, according to a recent Court of Tax Appeals (CTA) decision.

In a regulatory disclosure, the petroleum company said it received on May 2 a copy of the CTA Special Second Division decision dated April 27 that ruled alkylate is not subject to excise tax and granted the company’s petition for review of a Bureau of Internal Revenue (BIR) ruling saying otherwise.

Pilipinas Shell said the CTA nullified Document No. M-059-2012 dated June 29, 2012 issued by the BIR commissioner, as well as the letter dated October 1, 2012 of Bureau of Customs (BOC) Port of Batangas district collector which sought to impose taxes on its previous alkylate importations. The BIR commissioner, BOC and Batangas port district collector, or any person acting on their behalf, were also enjoined from demanding or collecting excise tax and VAT on Pilipinas Shell’s alkylate importations.

A 43-page decision written by Associate Justice Jean Marie Bacorro-Villena, to which Associate Justices Maria Rowena Modesto-San Pedro and Lanee Cui-David concurred, said: “En totale, it cannot be said that alkylate is a product of distillation. Hence, its importation should not be subject to excise tax in the absence of a law which clearly, expressly and unambiguously impose such tax on the said article.”

In addition, the ruling noted that the Supreme Court in the recent Petron case against the Commissioner of Internal Revenue already “categorically declared that alkylate does not fall under the category of “other similar products of distillation” hence not subject to excise tax…”

Due to the SC ruling, “…it is now beyond dispute that alkylate  is not a product of distillation similar to naphtha and regular  gasoline hence not subject to excise tax under Section 148 (e) of the NIRC of 1997, as amended.” NIRC is the National Internal Revenue Code.

In a separate concurring opinion, Associate Justice Cui-David pointed out: “By tradition and in our system of judicial administration, the Supreme Court has the last word on what the law is. Any pronouncements made by the Supreme Court in its judicial decisions become part of the law of the land. Adherence to the principle of stare decisis et non quieta movere is mandated for all lower courts, including this Court.” The latin phrase means “stand by the thing and do not disturb the calm.”

Following the SC ruling for the Petron case, Cui-David said Document No. M-059-2012 should be reversed and set aside.

Once the decision becomes final, Pilipinas Shell said it will consider legal action to recover amounts previously paid to the government under protest for its past alkylate importations.

Currently, the petroleum company said it is no longer importing alkylate, a gasoline blending stock.

The case stemmed from a petition for review of a BIR ruling in August 2012. In Document No. M-059-2012 dated June 29, 2012, BIR held that alkylate is subject to excise tax upon importation, with Pilipinas Shell liable for the amount of P1.9 billion representing unpaid taxes on the importations of alkylate from 2010. Based on this, the BOC commissioner issued a circular directing the BOC-Batangas district collector to take “appropriate action”.

In October 2021, the petroleum company filed an amended petition for review seeking the reversal and nullification of Document No. M-059-2012 and the October 2021 letter of the BOC-Batangas district collector.

It further sought a declaration from the Court that Pilipinas Shell is not liable for any of the excise taxes and corresponding VAT and that the Internal revenue commissioner, BOC and its district collector, or any other person acting on their behalf, be enjoined permanently from demanding and/or collecting any and all duties, excise taxes and VAT on the petroleum company’s alkylate importations.

In December 2021, Pilipinas Shell remitted P3.49 billion to BOC as payment “under protest” for the alleged excise taxes and VAT due on its alkylate importations for 2014-2020.

RELATED READ: Pilipinas Shell to pay P3.49B in taxes under protest

The payment was made after BOC-Batangas sent a demand letter following the SC decision to dissolve the temporary restraining order previously issued in July 2014 as a result of the case being remanded to the CTA. The TRO barred government from imposing taxes on the importation of alkylate. – Roumina Pablo