Who Can Claim the Section 135 Excise Tax Exemption: Lessons From the Shell Pilipinas Jet A-1 Refund Case

The CTA Special Second Division’s August 7, 2026 decision confirms that the Section 135 excise tax exemption for fuel sold to international carriers benefits the importer or manufacturer legally liable for the tax — not only the carrier that buys it. The court ordered the Bureau of Internal Revenue (BIR) to refund Shell Pilipinas Corp. (formerly Pilipinas Shell Petroleum Corporation) ₱96.49 million in excise tax paid on imported Jet A-1 aviation fuel later sold to international air carriers.

What the CTA ruled #

The CTA Special Second Division’s 27-page decision, promulgated August 7, 2026, granted Shell Pilipinas’ petition for a ₱96.49-million refund of excise tax it had paid as the statutory taxpayer on Jet A-1 fuel it imported and later sold to international carriers. The court held the amounts were erroneously or illegally collected and therefore refundable.

Shell Pilipinas imported the fuel between November 2020 and February 2021 and paid excise tax on it as the statutory taxpayer at the point of importation. Between December 2020 and March 2021, portions of that fuel were sold and delivered to international air carriers. Shell then sought a refund of the excise tax attributable to those sales, arguing the fuel qualified for the Section 135(a) exemption once it left Shell’s hands bound for a qualified international carrier’s use abroad.

What Section 135 actually exempts #

Section 135(a) of the National Internal Revenue Code (NIRC) is the excise tax carve-out at the center of this case: it removes petroleum products from excise tax when they are sold to international carriers for consumption outside the Philippines, subject to conditions on storage and disposal that the BIR prescribes. The exemption is narrower than a blanket fuel exemption — it applies only to the specific volumes actually delivered for a qualifying international carrier’s own use.

The relevant text of the provision reads:

“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…”

To invoke this exemption, a claimant generally must establish two things: proof of the international carrier’s foreign registry — or, for a Philippine-registered carrier, its authority to operate international flights — and proof that the petroleum products were in fact used or consumed outside the Philippines. In Shell’s case, the CTA found this second element satisfied through aviation service records showing that the carriers receiving the fuel operated flights between the Philippines and other countries, corroborating that the Jet A-1 delivered was actually burned on international routes rather than diverted to domestic use.

The key dispute: who may claim the exemption #

The CIR’s central argument was not that Shell’s fuel failed the use-and-consumption test, but that Section 135(a) exempts the sale to an international carrier — meaning, in the CIR’s reading, only the carrier-buyer could invoke it, not Shell as the upstream importer that had already paid the tax before the sale even happened. The CTA rejected that reading, holding instead that the exemption attaches to the qualifying transaction and its benefit flows back to whichever party actually bore the excise tax cost — here, Shell as the statutory taxpayer — once the fuel is shown to have reached a qualified international carrier for consumption abroad.

As quoted in BusinessWorld’s report on the ruling, the CTA framed the underlying logic this way:

“Upon petitioner’s sale of its imported Jet A-1 fuel to various international air carriers, the status of the said sold petroleum product as tax-exempt solidifies.”

The practical effect: an international carrier that buys jet fuel typically never itself pays excise tax on that fuel as a separate line item — the cost is already embedded in what the supplier charges, because the supplier paid it upstream at importation. If the exemption could only be claimed by the carrier, no one would realistically be positioned to recover it once the tax has already been passed through the supply chain. By allowing the importer or manufacturer that is legally liable for the excise tax to claim the refund — once it proves the fuel actually reached a qualifying international carrier — the ruling keeps the Section 135(a) exemption meaningful rather than practically unclaimable.

A worked example: how this applies to a fuel supplier #

Consider a hypothetical Philippine fuel importer, “Luzon Aviation Fuels Corp.,” that imports Jet A-1 aviation fuel and pays excise tax on it at the point of importation, the same “pay-as-you-remove” posture Shell was in. In one quarter, Luzon Aviation Fuels imports 500,000 liters of Jet A-1 and pays excise tax on the full volume. Of that volume, 300,000 liters are later sold and delivered to a foreign-registered international airline operating flights out of Clark International Airport to destinations abroad; the remaining 200,000 liters are sold to a domestic charter operator flying only within the Philippines.

Following the reasoning applied in Shell’s case, Luzon Aviation Fuels — not the airline — would be the party entitled to claim a refund of the excise tax attributable to the 300,000 liters sold for international use, provided it can document, through delivery records and the airline’s flight data, that the fuel was in fact consumed on international routes. The 200,000 liters sold domestically would remain taxed; there is no international consumption to support an exemption claim on that portion. This is exactly the kind of transaction-level tracing — tying specific volumes sold to specific proof of international use — that a real refund claim has to survive, not just the general legal argument that the exemption exists.

How this differs from other posts on this site #

This case should not be confused with two other topics this site has covered involving international carriers and excise tax refunds, even though the fact patterns sound similar at a glance.

• Petron v. CIR: A Freeport Buyer’s 30% Sales Cap Doesn’t Touch the Seller’s Excise Tax Exemption involves a different subsection of the same statute — Section 135(c), the exemption for fuel sold to buyers that are, by law, exempt from direct and indirect taxes (there, a Subic Bay Freeport locator) — and a different disputed question: whether a condition tied to the buyer’s separate income tax incentive can defeat the seller’s excise tax exemption. The Shell Pilipinas case instead applies Section 135(a), the international-carrier exemption, and resolves a different question: whether the importer/manufacturer, rather than the carrier-buyer, is the proper party to claim it.
• Gross Philippine Billings Tax: How BIR Taxes International Airlines and Shipping Carriers covers an entirely different tax — the 2.5% income tax under NIRC Section 28(A)(3) on an international carrier’s own transport revenue. That is a tax the carrier pays on what it earns; the Shell Pilipinas case concerns excise tax on fuel the carrier buys, paid upstream by the supplier. The two taxes have different tax bases, different taxpayers, and different legal provisions entirely.

What this means for fuel suppliers and other excise taxpayers #

If your business imports or manufactures a product subject to excise tax and later sells portions of it to a buyer that qualifies for a Section 135 exemption:

• Identify which specific Section 135 exemption category applies — international carriers under (a), tax-treaty-covered entities under (b), or entities exempt by law from direct and indirect taxes under (c) — since each carries its own proof requirements, as the Petron and Shell Pilipinas cases illustrate for (c) and (a) respectively.
• Keep delivery-level records that tie specific volumes sold to specific proof of the buyer’s qualifying status and end use — the CTA’s finding in Shell’s favor rested on aviation service records connecting particular fuel deliveries to particular international flights, not a general claim that “some volume” went to international carriers.
• Don’t assume only the buyer can claim the exemption. As the importer or manufacturer legally liable for the excise tax, you may be the proper party to file the refund claim under Sections 204(C) and 229 of the NIRC, once you can document the qualifying sale and end use.
• File and document claims promptly. Refund and tax credit claims under Section 229 are time-bound, and — as this and the Petron case both show — the CTA scrutinizes supporting documentation closely even where the underlying legal exemption is not seriously in dispute.

FAQ #

Who can claim the Section 135 excise tax exemption on fuel sold to international carriers? #

Under the CTA Special Second Division’s ruling in the Shell Pilipinas Jet A-1 case, the importer or manufacturer that is legally liable for the excise tax — not only the international-carrier buyer — may claim the Section 135 exemption and seek a refund, once it proves the fuel was in fact sold to and consumed by a qualified international carrier outside the Philippines.

What is the Section 135 excise tax exemption? #

Section 135(a) of the National Internal Revenue Code (NIRC) exempts petroleum products sold to international carriers of Philippine or foreign registry from excise tax, when those products are for the carrier’s use or consumption outside the Philippines, subject to conditions such as bonded storage and BIR-prescribed disposal rules.

How much was Shell Pilipinas awarded in its excise tax refund case? #

The CTA Special Second Division ordered the Commissioner of Internal Revenue to refund or issue a tax credit certificate worth ₱96.49 million to Shell Pilipinas Corp. (formerly Pilipinas Shell Petroleum Corporation), covering excise taxes on 24.12 million liters of imported Jet A-1 fuel sold and delivered to international air carriers.

What must a fuel importer prove to win a Section 135 refund? #

Based on the requirements the CTA applied in the Shell Pilipinas case, a claimant must show proof of the international carrier’s foreign registry (or, for a Philippine-registered carrier, its authority to operate international flights) and proof that the petroleum products sold were actually used or consumed outside the Philippines, typically through aviation service records and delivery documentation.

Is this the same legal issue as the Petron Freeport excise tax refund case? #

No. The Shell Pilipinas case applies the Section 135(a) exemption for fuel sold to international carriers, and turns on who may claim that exemption — the importer/manufacturer versus the buyer. The Petron case applies Section 135(c), exemption for fuel sold to Freeport-registered buyers, and turns on whether a buyer’s income-tax registration condition (a 30% domestic-sales cap) can defeat the seller’s separate excise tax exemption. Both involve Section 135 refunds, but different subsections and different disputed questions.

Summary #

The CTA Special Second Division’s August 7, 2026 decision in Shell Pilipinas’ favor confirms that the Section 135(a) excise tax exemption for fuel sold to international carriers benefits the party legally liable for the excise tax — the importer or manufacturer — once it proves the fuel reached a qualifying carrier for use or consumption abroad, awarding a ₱96.49-million refund on 24.12 million liters of Jet A-1 fuel. For related excise tax refund doctrine involving a different Section 135 exemption and a different disputed issue, see Petron v. CIR; for how BIR separately taxes an international carrier’s own transport revenue, see Gross Philippine Billings Tax.

Sources #

Primary sources

• Court of Tax Appeals — CTA Case No. 10352 decision documents portal (citation of record for the CTA Special Second Division decision promulgated August 7, 2026; the decision document could not be independently fetched in this research session due to a network restriction on direct access to court document downloads — the facts, figures, and quoted passage above are drawn from the secondary source below)

Secondary sources

• BusinessWorld Online — CTA orders P96.5-M excise tax refund to Shell Pilipinas