Philippine-American Drug Co. vs. Collector of Internal Revenue

The bank premium paid by an importer to a local bank for the purchase of foreign exchange necessary to effect importation forms part of the landed cost of imported articles and must be included in the computation of the advance sales tax under Section 183(B) of the National Internal Revenue Code, as it constitutes one of "all similar charges" that increase the cost of completing the importation, and the doctrine of ejusdem generis must yield to the manifest legislative intent to tax the total landed cost.

Philippine American Drug Company is an importer that purchased foreign exchange from local banks to pay for its importations. Under the Parity Exchange Law (Republic Act No. 77), the legal rate of exchange was P2.00 for every US dollar, but banks charged a premium of P0.015 per dollar, so importers effectively paid P2.015 per dollar. Section 183(B) of the National Internal Revenue Code, as amended by Republic Act No. 594, requires importers to pay advance sales tax based on the "import invoice value" of merchandise, "including freight, postage, insurance, commission, customs duty, and all similar charges," plus a prescribed mark-up percentage. The Collector of Internal Revenue had issued a ruling dated June 21, 1954 interpreting this provision to require inclusion of the bank premium in the taxable landed cost.

Philippine American Drug Company is an importer that, during the period from February 14, 1951 to December 31, 1954, purchased foreign exchange from local banks to pay for its importations. The legal rate of exchange under the Parity Exchange Law (Republic Act No. 77) was P2.00 for every US dollar, but the banks charged a premium of P0.015 per dollar, so the petitioner actually paid P2.015 for each dollar purchased. In computing the advance sales tax on its importations, petitioner did not include the P0.015 premium as part of the landed cost of the imported articles, treating only the value computed at the legal rate of P2.00 per dollar.

On November 4, 1955, the Collector of Internal Revenue issued Demand No. 13756, requiring petitioner to pay P10,243.13 as deficiency advance sales tax, representing the tax on the undeclared bank premium together with surcharges. The Collector relied on Section 183(B) of the National Internal Revenue Code, as amended, which requires the advance sales tax to be based on the import invoice value of the merchandise, including freight, postage, insurance, commission, customs duty, and all similar charges, plus a prescribed mark-up percentage. The Collector had previously issued a ruling dated June 21, 1954 interpreting this provision to require inclusion of the bank premium in the taxable landed cost.

The parties submitted a stipulation of facts to the Court of Tax Appeals, agreeing that the only question was whether the P0.015 difference representing the bank premium should form part of the landed cost for purposes of computing the advance sales tax. The Court of Tax Appeals rendered judgment upholding the Collector's assessment, finding it in accordance with Section 183(B) of the Revenue Code. Petitioner appealed to the Supreme Court.

• Ejusdem Generis: Petitioner contended that the P0.015 bank premium cannot be included in the assessment because it is not similar to the charges specifically enumerated in Section 183(B) — freight, postage, insurance, commission, and customs duty — invoking the rule of ejusdem generis which restricts general words to things of the same class as those specifically designated.
• Mark-up Absorption: Petitioner argued that even assuming the bank premium were a proper charge for inclusion, it should be deemed covered and absorbed by the corresponding mark-up percentage prescribed by law (100%, 50%, or 25% depending on the article).
• Change in Statutory Wording: Petitioner argued that Republic Act No. 594, which replaced the phrase "total value" with "import invoice value," indicated congressional intent to limit the scope of "all similar charges" and exclude bank premiums, since otherwise the amendment would be rendered meaningless.
• Invalidity of the 1954 Ruling: Petitioner assailed the legality of the assessment on the ground that retroactive effect was being given to the Collector's ruling of June 21, 1954, which was void for lack of approval by the Secretary of Finance and was being applied to transactions long closed in the taxpayer's books.
• Reassessment of Closed Transactions: Petitioner claimed that transactions long closed in the books of the taxpayer could no longer be examined for purposes of making a reassessment.

• Statutory Basis: Respondent Collector of Internal Revenue invoked Section 183(B) of the National Internal Revenue Code, as amended, which requires the advance sales tax to be based on the import invoice value including "all similar charges," contending that the bank premium falls within this phrase as a charge necessarily increasing the landed cost.
• Validity of the Assessment: Respondent maintained, through the Court of Tax Appeals' reasoning, that the validity or invalidity of the June 21, 1954 ruling was immaterial, since what was material was the correctness of the November 4, 1955 decision, which was in accordance with Section 183(B).
• Government Not Estopped: Respondent argued that the government is not estopped by error or mistake on the part of its agents and may correct an underassessment upon discovery of the error.

• Inclusion of Bank Premium: Whether the P0.015 per dollar bank premium paid by the importer for purchasing foreign exchange should form part of the landed cost of imported articles for purposes of computing the advance sales tax under Section 183(B) of the NIRC.
• Ejusdem Generis: Whether the doctrine of ejusdem generis restricts the phrase "all similar charges" so as to exclude the bank premium.
• Mark-up Absorption: Whether the prescribed mark-up percentage absorbs the bank premium so that separate inclusion is unnecessary.
• Change in Statutory Wording: Whether the amendment introduced by Republic Act No. 594, replacing "total value" with "import invoice value," limits the scope of taxable charges to exclude bank premiums.
• Validity of the 1954 Ruling: Whether the Collector's ruling of June 21, 1954 is void for lack of approval by the Secretary of Finance and cannot be given retroactive effect.
• Reassessment of Closed Transactions: Whether transactions long closed in the taxpayer's books can no longer be reassessed.

• Inclusion of Bank Premium: Yes. The bank premium of P0.015 per dollar paid by the importer to a local bank for purchasing foreign exchange must be included in the landed cost for computing the advance sales tax, as it falls under "all similar charges" in Section 183(B).
• Ejusdem Generis: No. The doctrine of ejusdem generis does not restrict the phrase "all similar charges" to exclude the bank premium, because the manifest intent of Congress was to include all charges that increase the landed cost, and the doctrine must yield to that intent.
• Mark-up Absorption: No. The mark-up prescribed by law is in addition to the invoice value and all incidental expenses of importation; it does not absorb or substitute for the bank premium.
• Change in Statutory Wording: No. The change from "total value" to "import invoice value" does not limit the scope of taxable charges, because whether "all similar charges" are treated as a component of the value or as a separate item added to it, the result is the same: the tax is based on the total landed cost.
• Validity of the 1954 Ruling: Not material. The validity of the June 21, 1954 ruling is immaterial because what is decisive is the correctness of the November 4, 1955 decision, which was found to be in accordance with Section 183(B).
• Reassessment of Closed Transactions: Yes, reassessment is proper. The government is not estopped by error or mistake on the part of its agents and may correct an underassessment upon discovery, without prejudice to the defense of prescription in appropriate cases.

• Inclusion of Bank Premium: Section 183(B) requires the advance sales tax to be paid based on the import invoice value, "including freight, postage, insurance, commission, customs duty, and all similar charges." The phrase "all similar charges" was interpreted, consistent with the prior ruling in Genato Commercial Corporation vs. CTA, to encompass every charge an importer must pay to complete the importation. The P0.015 premium paid to the bank for purchasing foreign exchange is such a charge, because without it the importation could not have been effected at the actual cost incurred. The intention of Congress was to include in the assessment all charges, whether specified or otherwise, that would necessarily increase the landed cost. The importer could have paid only the legal rate, but having chosen to pay a higher rate, the difference must be declared because it increases the cost of completing the importation.
• Ejusdem Generis: The doctrine of ejusdem generis is a rule of construction adopted as an aid to ascertain legislative intent when that intent is uncertain or ambiguous, but it is not of universal application. Its application must yield to the manifest intent of Congress. Here, the legislative intent was clear: to include all charges that an importer pays to bring the importation into the country. Applying ejusdem generis so as to exclude the bank premium would defeat the purpose of the law, which is to tax the total landed cost. The doctrine therefore cannot operate to restrict the general words "all similar charges" beyond the evident legislative purpose.
• Mark-up Absorption: The law requires the importer to pay the advance sales tax based on the import invoice value, including the enumerated charges, plus a mark-up of 100%, 50%, or 25% depending on the classification of the article. The mark-up is thus imposed on top of the total value (invoice value plus all charges); it is not a substitute for any component of the landed cost. Treating the bank premium as absorbed by the mark-up would be contrary to the clear import of the law, which adds the mark-up to the total value rather than using it to offset or absorb individual cost components.
• Change in Statutory Wording: Before Republic Act No. 594, the tax was based on the "total value" of the articles, including the enumerated charges. Republic Act No. 594 changed the basis to the "import invoice value" while retaining the same list of charges. Whether "all similar charges" are interpreted as a component already included in the "total value" (under the old wording) or as a separate item added to the "import invoice value" (under the new wording), the result is identical: the tax is based on the total landed cost. The amendment did not signal an intent to narrow the scope of taxable charges; it merely rephrased the base upon which the enumerated charges are added.
• Validity of the 1954 Ruling: The validity or invalidity of the Collector's ruling of June 21, 1954 is not material to the case. What is material is the correctness of the decision of November 4, 1955, which is the decision appealed from. Even if the June 21, 1954 ruling were invalid for lack of approval by the Secretary of Finance — a question on which no opinion was expressed — it would not affect the correctness of the November 4, 1955 decision, which was found to be in accordance with Section 183(B).
• Reassessment of Closed Transactions: The underassessment of the total landed value was caused by the importer's own failure to add the bank premium to the landed value, and the discrepancy remained undetected until the taxpayer's records were investigated in connection with its claim for credit for overpaid sales tax. The government is not estopped by error or mistake on the part of its agents, as explicitly ruled in Pineda vs. Court of First Instance of Tayabas. The discovery of the error permits a corrected assessment, without prejudice to the defense of prescription in appropriate cases.

• Ejusdem Generis — Where general words follow a designation of particular subjects or classes, the meaning of the general words will ordinarily be presumed to be restricted to things of the same class as those specifically enumerated. However, the doctrine is not of universal application; it is but a rule of construction adopted as an aid to ascertain legislative intent when that intent is uncertain or ambiguous, and its application must yield to the manifest intent of Congress. In this case, the Court refused to apply ejusdem generis to exclude the bank premium from "all similar charges" because doing so would defeat the evident legislative purpose of taxing the total landed cost of imported articles.
• Government Not Estopped by Error or Mistake of Its Agents — If in assessing tax upon the return of the taxpayer an error is made resulting in an underassessment, the Collector has the power to reassess and collect the additional tax upon discovery of the error. The government is not estopped by error or mistake on the part of its agents. In this case, the underassessment was caused by the importer's failure to declare the bank premium, and the government was permitted to correct the assessment upon discovery, without prejudice to the defense of prescription in appropriate cases.

• "Indeed, the intention of Congress in enacting the above-quoted provision is to include in the assessment all charges, whether specified or otherwise, which an importer has to pay to complete his importation." — This passage articulates the ratio decidendi: the phrase "all similar charges" in Section 183(B) encompasses every charge necessary to complete the importation, whether or not specifically enumerated, because legislative intent was to tax the total landed cost.
• "The doctrine of ejusdem generis is but a rule of construction adopted as an aid to ascertain and give effect to the legislative intent when that intent is uncertain or ambiguous, but the same should not be given such wide application that would operate to defeat the purpose of the law." — This defines the limits of the ejusdem generis doctrine and explains why it yielded to the manifest legislative intent in this case.
• "The government is not estopped by error or mistake on the part of its agents." — This is the canonical formulation relied upon to uphold the corrected assessment despite the delay in discovery, frequently cited in subsequent tax jurisprudence.

• Genato Commercial Corporation vs. Court of Tax Appeals, et al., 104 Phil. 615; 55 Off. Gaz. (12) 2092 — Controlling precedent. The same issue — whether the bank premium on foreign exchange should be included in the landed cost for advance sales tax purposes — was resolved in the affirmative. The Court followed and applied its ruling therein, which held that "all similar charges" includes the difference paid by the importer to a local bank for purchasing foreign exchange.
• Pineda vs. Court of First Instance of Tayabas, et al., 52 Phil. 803 — Followed. Cited for the proposition that the government is not estopped by error or mistake on the part of its agents and may reassess and collect additional tax upon discovery of an underassessment.
• State vs. Prather, 21 L.R.A. 23, 25 — Cited in support of the principle that the doctrine of ejusdem generis must yield to the manifest intent of the legislature.

• Section 183(B), National Internal Revenue Code (as amended) — Requires importers to pay advance sales tax based on the import invoice value of imported articles, including freight, postage, insurance, commission, customs duty, and all similar charges, plus a prescribed mark-up percentage (100%, 50%, or 25% depending on the article classification). The Court interpreted "all similar charges" to include the bank premium paid for purchasing foreign exchange, as it is a charge that necessarily increases the landed cost.
• Republic Act No. 594 — Amended Section 183(B) by replacing the phrase "total value" with "import invoice value." The Court held that this change did not alter the scope of taxable charges, as the result — taxation of the total landed cost — remained the same.
• Republic Act No. 77 (Parity Exchange Law) — Established the legal rate of exchange at P2.00 for every US dollar. The Court noted that the existence of this legal rate does not preclude inclusion of the bank premium in the landed cost when the importer actually paid a higher rate.

Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Concepcion, and Endencia, JJ., concurred.