BUREAU OF CUSTOMS

-petitioner
VS.
PILIPINAS SHELL CORPORATION
-respondent
I. THE CASE
The Bureau of Customs filed a case, last October 11, 2010 to the Customs, seeking
the P24.5 billion taxes from shell for alleged technical smuggling / misdeclaration of
imported goods (Light catalytic cracked gasoline and Catalytic cracked gasoline).

II. THE FACTS

The Bureau of Customs (BOC) has filed a complaint against officers and
employees of PSPC alleging that the latter intentionally misdeclared its 2005-2009
catalytic cracked gasoline (CCG) and light catalytic cracked gasoline (LCCG)
importations by using the tariff heading tetra-propylene to evade the payment of
the proper taxes and duties. The BOC has publicly accused Shell of technical
smuggling and of evading the payment of excise taxes and value-added tax.
In fact, in its statement, PSPC confirmed that CCG and LCCG are blending
components used to produce unleaded gasoline and, as there is currently no
customs classification code for either under the Philippines Tariff and Customs Code,
the company used a comparable product tariff heading for tetra-propylene instead.
However, PSPC has also confirmed that, in its opinion, it has paid all
appropriate taxes and duties on all its imports. Even if the tariff heading number of
tetra-propylene was used for CCG/LCCG importations, it consistently declared that
the product imported was CCG/LCCG in the documents it submitted to the BOC. The
BOC then reviewed and assessed proper tariffs and taxes to be paid by PSPC, based
on the product declaration of CCG and LCCG.
Therefore, it said, PSPC accordingly paid the tariff duty assessed by the BOC
and, as such, there was never any revenue loss to the government since it collected
either the higher duty of 3% or the relevant tariff rate for CCG and LCCG based on
the applicable Executive Orders.
Secondly, PSPC states that there were no excise taxes due on these 20052009 CCG and LCCG imports since each importation is covered by a Bureau of
Internal Revenue (BIR) directive to the BOC not to assess Shell excise taxes on these
imports. CCG and LCCG are not subject to excise taxes, since these are not final
products but raw materials used by Shells refinery to produce petroleum products.
From 2004 until December 2009, the BIR did not assess excise taxes on these
imported raw materials upon importation, but collected the excise taxes from Shell
upon the withdrawal of the finished products from Shells refinery.

This latter assertion harks back to the previous PHP7.3bn excise tax
assessment by the BOC either this year on imports of CCG and LCCG, which is under
dispute and pending before the Court of Tax Appeals. For PSPC, the question
remains an issue of double taxation, that is, whether CCG and LCCG imports are
excisable by BOC upon importation, in addition to a BIR assessment upon
withdrawal of the finished products.
PSPC affirms that is has always acted according to its business principles,
and has built and protected its reputation for many years. It is itself threatening to
file cases for gross negligence, gross incompetence, and defamation.

III. ISSUES
Feeling aggrieved, the petitioner alleges in his Memorandum, that the appellate
court committed these reversible errors:
[I]n the declaration of imported gasoline by the PIlipinas Shell Corporation, the Light
Catalytic Cracked Gasoline and Catalytic Cracked Gasoline were raw materials and
not considered as a finished product.
[I]n paying the excise tax, the Pilipinas Shell Corporation should pay the P24.5
billion excise taxes of LCCG and CCG since 2004-2009.

IV. RULINGS
First Issue: LCCG and CCG as raw materials
The Department of Energy (DOE) maintained on Monday that Pilipinas Shell
Petroleum Corp.s catalytic cracked gasoline (CCG) and light catalytic cracked
gasoline (LCCG) products are blending components for its unleaded premium
gasoline.
These are interim products that need to be processed to produce final or
finished products. It is similar to crude oil, which is a raw material, Zenaida
Monsada, DOE oil industry management bureau director told reporters.
Second Issue: Excise tax on LCCG and CCG
SEC. 148. Manufactured Oils and Other Fuels. There shall be collected on
refined and manufactured mineral oils and motor fuels, the following excise taxes
which shall attach to the goods hereunder enumerated as soon as they are in
existence as such:
(a) Lubricating oils and greases, including but not limited to, basestock for
lube oils and greases, high vacuum distillates, aromatic extracts, and other similar
preparations, and additives for lubricating oils and greases, whether such additives
are petroleum based or not, per liter and kilogram respectively, of volume capacity
or weight, Four pesos and fifty centavos (P4.50): Provided, however, That the excise
taxes paid on the purchased feedstock (bunker) used in the manufacture of

excisable articles and forming part thereof shall be credited against the excise tax
due therefrom: Provided, further, That lubricating oils and greases produced from
basestocks and additives on which the excise tax has already been paid shall no
longer be subjected to excise tax: Provided, finally, That locally produced or
imported oils previously taxed as such but are subsequently reprocessed, rerefined
or recycled shall likewise be subject to tax impose under this Section.
(b) Processed gas, per liter of volume capacity, Five centavos (P0.05);
(c) Waxes and petrolatum, per kilogram, Three pesos and fifty centavos
(P3.50);
(d) On denatured alcohol to be used for motive power, per liter of volume
capacity, Five centavos (P0.05): Provided, That unless otherwise provided by special
laws, if the denatured alcohol is mixed with gasoline, the excise tax on which has
already been paid, only the alcohol content shall be subject to the tax herein
prescribed. For purposes of this Subsection, the removal of denatured alcohol of not
less than one hundred eighty degrees (180) proof (ninety percent (90%) absolute
alcohol) shall be deemed to have been removed for motive power, unless shown
otherwise;
(e) Naphtha, regular gasoline and other similar products of distillation, per
liter of volume capacity, Four pesos and eighty centavos (P4.80): Provided,
however, That naphtha, when used as a raw material in the production of
petrochemical products or as replacement fuel for natural-gas-fired-combined cycle
power plant, in lieu of locally-extracted natural gas during the non-availability
thereof, subject to the rules and regulations to be promulgated by the Secretary of
Energy, in consultation with the Secretary of Finance, per liter of volume capacity,
Zero (P0.00): Provided, further, That the by-product including fuel oil, diesel fuel,
kerosene, pyrolysis gasoline, liquefied petroleum gases and similar oils having more
or less the same generating power, which are produced in the processing of
naphtha into petrochemical products shall be subject to the applicable excise tax
specified in this Section, except when such by-products are transferred to any of the
local oil refineries through sale, barter or exchange, for the purpose of further
processing or blending into finished products which are subject to excise tax under
this Section;
(f) Leaded premium gasoline, per liter of volume capacity, Five pesos and
thirty-five centavos (P5.35); unleaded premium gasoline, per liter of volume
capacity, Four pesos and thirty-five centavos (P4.35);
(g) Aviation turbo jet fuel, per liter of volume capacity, Three pesos and sixtyseven centavos (P3.67);
(h) Kerosene, per liter of volume capacity, Sixty centavos (P0.60); Provided,
That kerosene, when used as aviation fuel, shall be subject to the same tax on
aviation turbo jet fuel under the preceding paragraph (g), such tax to be assessed
on the user thereof;

(i) Diesel fuel oil, an on similar fuel oils having more or less the same
generating power, per liter of volume capacity, One peso and sixty-three centavos
(P1.63);
(j) Liquefied petroleum gas, per liter, Zero (P0.00): Provided, That liquefied
petroleum gas used for motive power shall be taxed at the equivalent rate as the
excise tax on diesel fuel oil;
(k) Asphalts, per kilogram, Fifty-six centavos (P0.56); and
(l) Bunker fuel oil, and on similar fuel oils having more or less the same
generating power, per liter of volume capacity, Thirty centavos (P0.30).

WHEREFORE, the Office of the Solicitor General (OSG) confirmed before the Court
of Tax Appeals (CTA), the Bureau of Customs acceptance of the Pilipinas Shell
Petroleum Corporations (Pilipinas Shell) offer to post a surety bond in lieu of cash as
security for its alleged tax deficiency worth P24.5 billion.