Cebu Portland Cement Company vs. Collector of Internal Revenue

Tax laws operate prospectively, whether they enact, amend, or repeal, unless the legislative intent to give retrospective effect is expressly declared or may clearly be implied from the language used. Republic Act No. 1299, which defined "minerals" and "mineral products" in Section 246 of the National Internal Revenue Code, had no retroactive application, and cement remained taxable as a manufactured product under Section 186 before the amendment's effectivity.

The petitioner, Cebu Portland Cement Company, was a domestic corporation engaged in the production of APO portland cement. Prior to the effectivity of Republic Act No. 1299 on June 16, 1955, the petitioner had been paying the sales tax (also known as percentage tax) on its cement products, computed at 7% of the gross selling price inclusive of the cost of the bag containers and gypsum used in the manufacture of the product. Republic Act No. 1299 amended Section 246 of the National Internal Revenue Code by defining the terms "minerals" and "mineral products." After the amendment, the petitioner stopped paying sales tax and instead paid the ad valorem tax on the selling price of the product after deducting the cost of the containers.

Cebu Portland Cement Company was a corporation producing APO portland cement. Since 1952, the petitioner had been protesting the imposition of the sales tax on its cement products, and on January 16, 1953, it also protested the payment of ad valorem taxes. Prior to the effectivity of Republic Act No. 1299 on June 16, 1955, the petitioner paid the sales tax computed at 7% of the gross selling price inclusive of the cost of the bag containers of cement and the gypsum used in the manufacture of the product. After the amendment, the petitioner stopped paying sales tax on its gross sales and instead paid the ad valorem tax on the selling price of the product after deducting the corresponding cost of the containers.

A written claim for refund of sales and ad valorem taxes paid by the petitioner was filed in September 1955, which was reiterated on July 26, 1956. Without awaiting the respondent's ruling on the claims for refund, the petitioner filed a petition for review with the Court of Tax Appeals on January 24, 1957, alleging that the percentage taxes collected were refundable since under Republic Act No. 1299, producers of cement are exempt from the payment of said tax. The petition was amended on October 24, 1959, and again on June 23, 1961, to include a claim for refund of ad valorem taxes alleged to have been overpaid through double payments.

The Court of Tax Appeals rendered judgment dismissing the petition for review, holding: (1) that the petitioner was not exempt from payment of the sales taxes on its APO portland cement prior to the effectivity of Republic Act No. 1299, it being then considered a manufactured product; (2) that the petitioner was not entitled to deduction from the gross selling price of the cost of raw materials, the value of the bag containers and gypsum in the absence of evidence that they had been previously subjected to the 7% tax; (3) that for so much of the sales taxes that were billed, charged to, and paid for by its customers, the petitioner was not the proper party to claim for refund; and (4) that the right to claim for refund of taxes alleged to have been erroneously paid was already barred by prescription.

• Retroactive Application of Republic Act No. 1299: Petitioner urged that since the purpose of the amendment was merely to clarify the meaning of the terms "minerals" and "mineral products," the section should be construed as if it had been originally passed in its amended form, so that cement should be considered as "mineral product" even before the enactment of Republic Act No. 1299, and therefore exempt from the sales or percentage tax pursuant to Section 188(c) of the National Internal Revenue Code.

• Deduction of Bag Containers and Gypsum: Petitioner argued that the gypsum and bag containers used in the production and sale of cement are deductible from the gross selling price in computing the 7% compensating tax levied on the sale of cement before Republic Act No. 1299.

• Proper Party to Claim Refund: Petitioner contended that it, not its customers, was the proper party to claim refund of the sales taxes that were billed, charged to, and paid for by its customers.

• Prescription: Petitioner disputed the ruling that the action for refund had prescribed, contending that the defense of prescription was belated in that it was raised for the first time in the answer of respondent when the original petition was amended to incorporate more explicitly petitioner's claim for refund of ad valorem taxes.

• Prospective Application of Tax Laws: Respondent maintained that Republic Act No. 1299 operates prospectively, and that before its enactment, cement was not yet placed under the category of either "minerals" or "mineral products" and was therefore taxable as a manufactured product.

• No Deduction for Raw Materials: Respondent argued that the petitioner was not entitled to deduction from the gross selling price of the cost of raw materials, the value of the bag containers and gypsum, in the absence of evidence that they had been previously subjected to the 7% tax imposed by Sections 186 and 190 of the Tax Code.

• Prescription: Respondent raised the defense of prescription in its answer to the amended petition, arguing that the action for refund of taxes paid more than two years from the date the petition for review was filed with the Tax Court was barred.

• Retroactivity of Republic Act No. 1299: Whether Republic Act No. 1299, amending Section 246 of the National Internal Revenue Code, should be applied retroactively to exempt cement from the sales tax prior to its effectivity.

• Deduction of Bag Containers and Gypsum: Whether the cost of bag containers and gypsum used in the production and sale of cement should be deducted from the gross selling price in computing the 7% percentage tax.

• Proper Party to Claim Refund: Whether the petitioner, rather than its customers, was the proper party to claim refund of sales taxes that were billed, charged to, and paid for by its customers.

• Prescription of Refund Claim: Whether the action for refund had prescribed, and whether the defense of prescription was waived for failure to raise it in the original answer.

• Retroactivity of Republic Act No. 1299: No. Republic Act No. 1299 operates prospectively only, and before its enactment, cement was taxable as a manufactured product under Section 186, in connection with Section 194(x) of the National Internal Revenue Code.

• Deduction of Bag Containers and Gypsum: Yes. In computing the gross selling price of the cement as basis for the 7% percentage tax levied pursuant to Section 186, the cost of the bag containers used in the sale, and the gypsum used in the manufacture of cement, should be deducted.

• Proper Party to Claim Refund: Yes. The petitioner, and not its customers, was the proper party to seek refund of taxes erroneously paid under Section 186 of the Tax Code, since the tax is imposed upon the manufacturer or producer and not on the purchaser.

• Prescription of Refund Claim: Partially. The action for refund had not prescribed insofar as concerns the sales or percentage taxes paid after January 25, 1955, but had prescribed for sales or percentage taxes paid before that date, and for all ad valorem taxes alleged in the amended petition which were paid more than two years back from October 24, 1959.

• Retroactivity of Republic Act No. 1299: The Court applied the settled rule in statutory construction that a statute operates prospectively only and never retroactively, unless the legislative intent to the contrary is made manifest either by the express terms of the statute or by necessary implication. In every case of doubt, the doubt must be resolved against the retrospective effect. There was nothing in the context of the provision in question that would manifest the Legislature's intention to have the provision apply to taxes due in the past. The use of the word "shall" gave the unmistakable impression that the lawmakers intended this enactment to be effective only in futuro. The Court also examined the explanatory note to House Bill No. 3251 and the records of congressional discussions, which revealed nothing suggesting that the amendment was enacted to operate retrospectively. Like other statutes, tax laws operate prospectively, whether they enact, amend, or repeal, unless the purpose of the Legislature to give retrospective effect is expressly declared or may clearly be implied from the language used.

• Deduction of Bag Containers and Gypsum: The Court agreed with the petitioner that the gypsum and bag containers used in the production and sale of cement are deductible from the gross selling price in computing the 7% compensating tax. In the absence of any showing that the petitioner itself manufactured the bag containers, the inference was that these bags were bought from others from whom taxes had been levied for the original sale thereof. The same held true with the gypsum used in the process of the manufacture of cement, considering that said component was imported and subject to compensating tax.

• Proper Party to Claim Refund: The Court analyzed the nature of the percentage (sales) tax imposed by Section 186 of the Code. The Code states that the sales tax "shall be paid by the manufacturer or producer," who must make a true and complete return of the amount of his gross monthly sales. While the economic burden of the tax may finally fall on the purchaser, the purchaser does not pay the tax; he pays, or may pay the seller more for the goods because of the seller's obligation. The tax may not even be shifted to the purchaser at all, as a decision to absorb the burden of the tax is largely a matter of economics. It follows that the petitioner, and not its customers, may ask for a refund of whatever amounts it is entitled for the percentage or sales taxes it paid.

• Prescription of Refund Claim: The Court analyzed the pleadings filed by the parties in the Court of Tax Appeals. For the refund of the 7% sales or percentage taxes covering the period from November 1, 1954 to March 1955, the suit was deemed to have been instituted on January 24, 1957, when the original petition was filed. Counting two years back to January 25, 1955, all taxes paid after this date may still be properly refunded. As to the allegedly overpaid ad valorem taxes for the period from April 1955 to September 1956, the suit should be deemed to have been instituted only with the filing of the amended petition on October 24, 1959, which added as a new cause of action the recovery of said overpaid ad valorem taxes. The Court rejected the petitioner's claim that the defense of prescription had been waived, holding that the respondent's answer to the amended petition superseded the earlier answers, so that any defense raised in the latest answer would be considered as though contained in the original answer. The Court also rejected the contention that the ad valorem taxes were mentioned in the original petition, noting that they were only mentioned in Annex "A" as part of the tabulation of taxes paid, but the refund of said payments was not sought in the body of the petition.

• Prospective Application of Tax Laws — Tax laws operate prospectively, whether they enact, amend, or repeal, unless the purpose of the Legislature to give retrospective effect is expressly declared or may clearly be implied from the language used. The Court applied this doctrine in holding that Republic Act No. 1299, which defined "minerals" and "mineral products," had no retroactive application, and cement remained taxable as a manufactured product before the amendment's effectivity.

• Nature of the Sales Tax Under Section 186 — The percentage (sales) tax imposed by Section 186 of the National Internal Revenue Code is a tax on the manufacturer or producer, not on the purchaser. While the economic burden of the tax may finally fall on the purchaser, the purchaser does not pay the tax; the amount added because of the tax is paid to get the goods and for nothing else. The manufacturer or producer is the proper party to claim a refund of taxes erroneously paid.

• Prescription of Refund Claims Under Section 306 — The two requirements for recovery of tax erroneously or illegally collected — (1) filing of a written claim for refund with the Commissioner of Internal Revenue; and (2) institution of a suit or proceeding in court within two years from the date of payment — are mandatory and noncompliance therewith is fatal. The suit is deemed instituted on the date the original petition is filed for claims in the original petition, and on the date of the amended petition for new causes of action added by amendment.

• Effect of Amended Pleadings — An amended complaint and the answer thereto, when filed, take the place of the originals. The latter are then regarded as abandoned and cease to perform any further functions as pleadings. Thus, a defense raised for the first time in an answer to an amended petition is considered as though contained in the original answer.

• "It is a settled rule in statutory construction that a statute operates prospectively only and never retroactively, unless the legislative intent to the contrary is made manifest either by the express terms of the statute or by necessary implication. In every case of doubt, the doubt must be resolved against the retrospective effect." — This passage states the controlling doctrine on the prospective application of statutes, particularly tax laws, and is the basis for the Court's ruling that Republic Act No. 1299 did not apply retroactively.

• "Indeed, like other statutes, tax laws operate prospectively, whether they enact, amend or repeal, unless, as aforesaid, the purpose of the Legislature to give retrospective effect is expressly declared or may clearly be implied from the language used." — This is the canonical formulation of the doctrine of prospective application of tax laws, frequently cited in subsequent jurisprudence.

• "The tax provided under this section of the Code is imposed upon the manufacturer or producer and not on the purchaser." — This passage establishes the nature of the sales tax under Section 186 and the basis for the ruling that the petitioner, not its customers, was the proper party to claim the refund.

• "It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax." — This passage explains the distinction between the legal incidence and economic burden of the sales tax, supporting the conclusion that the manufacturer is the proper party to claim a refund.

• Central Azucarera Don Pedro vs. Court of Tax Appeals, G.R. Nos. L-23236 and L-23254, May 31, 1967 — Cited as controlling precedent for the proposition that a tax provision using the phrase "shall be assessed at the same time" became effective only on the approval of the amendment, supporting the prospective application of tax laws.

• Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue & Court of Tax Appeals, G.R. No. L-19707, August 17, 1967 — Cited for the analysis of the nature of the percentage (sales) tax imposed by Section 186 of the Code, establishing that the tax is on the producer or manufacturer, not the purchaser.

• Johnston Lumber Co., Inc. vs. Court of Tax Appeals, G.R. No. L-9292, April 23, 1957 — Cited for the rule that the two requirements for recovery of tax — filing of a written claim for refund and institution of suit within two years from payment — are mandatory and noncompliance is fatal.

• Guagua Electric Light Plant Co., Inc. vs. Collector of Internal Revenue, et al., G.R. No. L-14421, April 29, 1961 — Cited together with Johnston Lumber for the mandatory nature of the requirements for recovery of tax erroneously or illegally collected.

• Reynes vs. La Compania General de Tabacos de Filipinas, et al., 21 Phil. 416 — Cited for the rule that an amended complaint and the answer thereto, when filed, take the place of the originals, which are then regarded as abandoned.

• Universal Corn Products, Inc., et al. vs. Rice & Corn Board, G.R. L-21013, August 17, 1967 — Cited for the settled rule in statutory construction that a statute operates prospectively only and never retroactively, unless legislative intent to the contrary is manifest.

• Lorenzo vs. Posadas, 64 Phil. 353 — Cited for the proposition that tax laws operate prospectively, whether they enact, amend, or repeal, unless the purpose of the Legislature to give retrospective effect is expressly declared or clearly implied.

• Section 246, National Internal Revenue Code, as amended by Republic Act No. 1299 — The provision defining "gross output," "minerals," and "mineral products." The Court held that the amendment, which became effective on June 16, 1955, operates prospectively, and before its effectivity, cement was not yet placed under the category of either "minerals" or "mineral products."

• Section 186, National Internal Revenue Code — The provision imposing the 7% percentage tax on sales of articles not enumerated in Sections 184 and 185, to be paid by the manufacturer or producer. The Court applied this provision in holding that cement was taxable as a manufactured product before Republic Act No. 1299, and that the petitioner, as manufacturer, was the proper party to claim the refund.

• Section 188(c), National Internal Revenue Code — The provision excluding minerals and mineral products from the computation of the tax imposed in Sections 184, 185, and 186 when sold by the lessee, concessionaire, or owner of the mineral land. The Court held that this exemption did not apply to cement before the amendment of Section 246.

• Section 190, National Internal Revenue Code — The provision requiring the compensating tax to be paid on imported commodities, equivalent to the percentage taxes imposed on original transactions. The Court applied this provision in holding that the gypsum, being imported, was subject to compensating tax and therefore deductible from the gross selling price.

• Section 194(x), National Internal Revenue Code — The provision defining manufactured products. The Court applied this provision in holding that cement was taxable as a manufactured product before the effectivity of Republic Act No. 1299.

• Section 243, National Internal Revenue Code — The provision governing ad valorem taxes. The Court noted that the petitioner paid ad valorem taxes on the selling price of the product after deducting the cost of the containers.

• Section 306, National Internal Revenue Code — The provision governing recovery of tax erroneously or illegally collected, requiring a claim for refund to be filed with the Collector of Internal Revenue and a suit to be begun within two years from the date of payment of the tax. The Court applied this provision in determining the prescriptive period for the petitioner's refund claims.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Fernando, and Capistrano, JJ., concurred. Zaldivar, J., was on leave.