Surigao Consolidated Mining Co., Inc. vs. Collector of Internal Revenue

Republic Act No. 81's condonation of unpaid royalties, ad valorem, or specific taxes on minerals lost by reason of war does not authorize a refund of taxes already paid; such condonation is in the nature of a tax exemption and must be expressed in explicit terms and strictly construed. In a suit for recovery of taxes allegedly illegally or erroneously collected, the burden is on the taxpayer to establish the facts showing the illegality of the tax or that the determination thereof is erroneous.

Surigao Consolidated Mining Co., Inc. was a domestic corporation with its principal office in Iloilo City, operating mining concessions in Mainit, Surigao. Under Section 246 of the Internal Revenue Code, royalties or ad valorem taxes were paid on minerals removed each calendar quarter, based on the market value stated in returns and subject to adjustment upon smelter returns showing the actual market value of minerals shipped to the United States. Republic Act No. 81 condoned unpaid royalties, ad valorem, or specific taxes on minerals mined from mining claims or concessions existing and in force on January 1, 1942, and lost by reason of war or circumstances arising therefrom, while Commonwealth Act No. 722 allowed returns for minerals removed during the last quarter of 1941 up to December 31, 1945 and payment of ad valorem tax to February 28, 1946. Republic Act No. 1125 created the Court of Tax Appeals.

Before the outbreak of World War II, Surigao Consolidated Mining Co., Inc., a domestic corporation with its principal office in Iloilo City, was operating its mining concessions in Mainit, Surigao. Pursuant to Section 246 of the Internal Revenue Code, which prescribes the time and manner of payment of royalties or ad valorem taxes, it filed a bond and had been regularly filing its returns for minerals removed from its mines during each calendar quarter and paying ad valorem tax thereon within 20 days after the close of every quarter. In each case, computation of the ad valorem tax was based on the market value of the minerals set forth in the returns, subject to adjustment upon receipt of the smelter returns showing the actual market value of the minerals shipped to the United States.

Due to the interruption of communications at the outbreak of the war, the principal office of Surigao Consolidated lost contact with its mines and never received the production reports for the fourth quarter of 1941. In order to avoid incurring any tax penalty, the company, on January 19, 1942, deposited a check in the amount of P27,000.00 payable to and indorsed in favor of the City Treasurer of Iloilo in payment of the ad valorem taxes, with the approximate adjustment to be made when circumstances allowed, for the fourth quarter of 1941.

After the termination of the war, Commonwealth Act No. 722 was enacted, providing for the filing of returns for minerals removed during the last quarter of 1941 up to December 31, 1945 and the payment of ad valorem tax on said minerals to February 28, 1946. Availing of the provisions of that Act, Surigao Consolidated, on December 28, 1945, filed its ad valorem tax returns for the fourth quarter of 1941, declaring as its tax liability the amount of P43,486.54. Applying the amount of P27,000.00 previously deposited with the City Treasurer of Iloilo, the returns indicated an unpaid balance of P16,486.54 as the tax subject to revision. On February 26, 1946, it filed an amended ad valorem tax return, under which it declared a reduced ad valorem tax in the amount of P37,189.00; crediting itself with the P27,000.00 previously deposited, it paid the remaining balance of P10,189.00.

On September 24, 1946, Surigao Consolidated filed a statement of adjustment allegedly containing figures and data of the complete smelter returns for minerals shipped to the United States. In the accompanying letter, a request was made not only for reduction of tax but also for refund of P18,107.87. On October 19, 1946, another statement of adjustment was filed reducing the claim for refund to P17,158.01. Finally, on March 15, 1947, a third statement of adjustment was submitted further reducing the claim for refund to P17,051.14. The claim comprised P1,191.46 for ad valorem tax on minerals removed from the mines but allegedly lost in transit on account of the war; P15,609.73 for ad valorem tax on minerals extracted from the mines but allegedly looted during the Japanese occupation; and P249.95 for alleged overpayment of ad valorem tax on minerals shipped to the United States.

The Collector of Internal Revenue denied the refund on the ground that the money already paid as ad valorem tax was legally due to the Government, which led Surigao Consolidated to seek recovery in court. The Court of Tax Appeals found that the amount sought to be refunded had been lawfully collected. On the first item, the evidence of loss in transit consisted merely of testimony of witnesses who did not have personal knowledge of the circumstances giving rise to the loss. On the second, the evidence was limited to general and uncorroborated statements of plaintiff's officers who had no direct supervision over the handling of the minerals and no personal knowledge of the loss. On the third, the smelter returns themselves, admittedly in petitioner's possession, were not produced during trial.

• Condonation and Refund: Petitioner argued that because Republic Act No. 81 condones taxes due from taxpayers who failed to pay, it would be unfair to deny the same benefit to taxpayers who had been prompt in paying their taxes; petitioner therefore sought refund under Section 1(d) of Republic Act No. 81.
• Loss in Transit: Petitioner claimed P1,191.46 representing ad valorem tax paid on minerals removed from the mines but allegedly lost in transit on account of the war, invoking Section 1(d) of Republic Act No. 81.
• Looting: Petitioner sought P15,609.73 representing ad valorem tax paid on minerals extracted from its mines but allegedly looted during the Japanese occupation.
• Overpayment on U.S. Shipments: Petitioner contended that the statements of adjustment allegedly containing the figures and data set forth in the smelter returns were adequate evidence of the actual market value of minerals shipped to the United States; it claimed overpayment of P249.95, computed from an original payment of P20,387.81, actual market value of P416,895.28, allowable deductions of P1,828.34, and correct tax of P20,137.86.

• Tax Legally Due: The Collector of Internal Revenue denied the request for refund on the ground that the money already paid as ad valorem tax was legally due to the Government.

• Refund of Ad Valorem Tax: Whether Surigao Consolidated is entitled to the refund of ad valorem tax in the total amount of P17,051.14.
• Condonation under Republic Act No. 81: Whether Section 1(d) of Republic Act No. 81, which condones unpaid royalties, ad valorem, or specific taxes on minerals lost by reason of war, authorizes a refund of taxes already paid.
• Loss in Transit: Whether the evidence sufficiently established that minerals removed from the mines were lost in transit on account of the war, entitling petitioner to refund of P1,191.46.
• Looting: Whether the evidence sufficiently established that minerals extracted from the mines were looted during the Japanese occupation, entitling petitioner to refund of P15,609.73.
• Overpayment on U.S. Shipments: Whether the statements of adjustment are adequate evidence of the actual market value of minerals shipped to the United States and whether petitioner proved an overpayment of P249.95.

• Refund of Ad Valorem Tax: No. The Court of Tax Appeals did not commit error in denying petitioner's claim; petitioner failed to establish entitlement to the refund.
• Condonation under Republic Act No. 81: No. Section 1(d) refers to condonation of unpaid taxes only; it does not authorize refund of taxes already paid, and tax exemptions are strictly construed.
• Loss in Transit: No. The evidence consisted of testimony of witnesses without personal knowledge of the loss and was insufficient to establish that the minerals were in fact lost.
• Looting: No. The evidence was limited to general and uncorroborated statements of petitioner's officers who lacked personal knowledge and direct supervision, and was insufficient to prove loss.
• Overpayment on U.S. Shipments: No. The best evidence of actual market value are the smelter returns; petitioner failed to produce them, giving rise to the presumption that they would be adverse, and the statements of adjustment were properly given no probative value.

• Refund of Ad Valorem Tax: The claim was for the total amount of P17,051.14, itemized into three components. The Court of Tax Appeals denied the claim after finding that the amount sought to be refunded had been lawfully collected. The Supreme Court affirmed, holding that the Court of Tax Appeals did not commit any error in denying petitioner's claim. In a suit for recovery of taxes or any portion thereof as illegally or erroneously collected, the burden is upon the taxpayer to establish the facts showing the illegality of the tax or that the determination thereof is erroneous. Petitioner failed to show that the amount of taxes sought to be refunded had been erroneously collected.
• Condonation under Republic Act No. 81: Section 1(d) of Republic Act No. 81 provides that all unpaid royalties, ad valorem or specific taxes on all minerals mined from mining claims or concessions existing and in force on January 1, 1942, and which minerals were lost by reason of the war or circumstances arising therefrom, are condoned, provided that if said minerals are recovered by the miner or producer, the taxes on the same immediately become due and demandable. The provision clearly refers to the condonation of unpaid taxes only. The condonation of a tax liability is equivalent to and in the nature of a tax exemption; it should be sustained only when expressed in explicit terms and cannot be extended beyond the plain meaning of those terms. Petitioner failed to point to any portion of the law that explicitly provides for a refund to taxpayers who had paid their taxes on the items and under the circumstances mentioned in the provision. Thus, the benefits of the provision do not extend to petitioner. Even assuming arguendo that Republic Act No. 81 authorizes the refund of taxes already paid, petitioner would still not be entitled to the refund sought under the first item.
• Loss in Transit: Even assuming that Republic Act No. 81 authorizes the refund of taxes already paid, petitioner's evidence of the alleged loss in transit merely consisted of testimony of witnesses who did not have personal knowledge of the circumstances which gave rise to the loss. Such evidence cannot be considered sufficient to establish that the minerals were in fact lost. The Court of Tax Appeals remarked during trial that to hold otherwise would create a dangerous precedent. Accordingly, the claim for P1,191.46 was properly denied.
• Looting: On the alleged looting of the minerals, the Court of Tax Appeals found that petitioner failed to present adequate evidence to prove such loss. The evidence, if at all, was merely limited to the general and uncorroborated statements of plaintiff's officers that the minerals were lost in the mines. These testimonies could not be taken at their full face value, especially because the officers had no direct supervision over the handling of such minerals at the time of the alleged loss and had no personal knowledge of the loss. The Supreme Court found no reason to disturb these findings, there being no showing that they were not substantiated by the evidence. With this observation, it became unnecessary to delve into the issue of whether ad valorem tax should be paid on minerals extracted from the mines but not removed therefrom. The claim for P15,609.73 was thus denied.
• Overpayment on U.S. Shipments: The ad valorem tax on minerals shipped to the United States is subject to adjustment upon receipt of the smelter returns showing their actual market value. Petitioner contended that the statements of adjustment allegedly containing the figures and data set forth in the smelter returns were adequate evidence of actual market value. The best evidence of the actual market value of the minerals shipped to the United States are the smelter returns themselves. These returns were admittedly in petitioner's possession, but for unknown reasons petitioner failed to produce them during trial. As there was no credible and satisfactory explanation for the non-production of said returns, the presumption arose that if produced they would be adverse to petitioner. Under the circumstances, the Court of Tax Appeals cannot be said to have committed error, much less abused its discretion, in refusing to give any probative value to the statements of adjustment. Petitioner failed to show that the amount of taxes sought to be refunded had been erroneously collected. The claim for P249.95 was therefore denied.

• Condonation of Tax Liability as Tax Exemption — A law condoning a tax liability is equivalent to and is in the nature of a tax exemption. It is sustained only when expressed in explicit terms and cannot be extended beyond the plain meaning of those terms. In this case, Section 1(d) of Republic Act No. 81 condoned only unpaid royalties, ad valorem, or specific taxes on minerals lost by reason of war; it did not authorize a refund of taxes already paid.
• Strict Construction of Tax Exemptions — One who claims exemption from the common burden of taxation must justify the claim by showing that the Legislature intended to exempt him by words too plain to be mistaken. The Court applied this rule to deny petitioner's claim that the condonation of unpaid taxes should be extended to refunds for taxes already paid.
• Burden of Proof in Tax Refund Cases — In a suit for recovery of taxes or any portion thereof as illegally or erroneously collected, the burden is on the taxpayer to establish facts showing the illegality of the tax or that the determination thereof is erroneous. Petitioner failed to discharge this burden as to all three items of its claim.
• Best Evidence and Presumption from Non-Production — The best evidence of the actual market value of minerals shipped to the United States are the smelter returns themselves. Where such returns are in the taxpayer's possession but are not produced without credible explanation, a presumption arises that if produced they would be adverse to the taxpayer. The Court applied this to reject the statements of adjustment as proof of overpayment.
• Sufficiency of Evidence on Loss — Testimony of witnesses without personal knowledge of the circumstances of loss, and general uncorroborated statements of officers without direct supervision or personal knowledge, are insufficient to establish that minerals were lost in transit or looted. This supported denial of the first two refund items.

• "But the aforequoted section clearly refers to the condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of a tax exemption. Being so, it should be sustained only when expressed in explicit terms, and it cannot be extended beyond the plain meaning of those terms." — This passage states the ratio decidendi on why Republic Act No. 81 did not authorize a refund of taxes already paid.
• "It is the universal rule that he who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be mistaken." — This passage states the strict-construction rule applied to petitioner's claim for refund as an alleged beneficiary of the condonation law.
• "The best evidence of the actual market value of the minerals shipped to the United States are the smelter returns themselves. These returns are admittedly in petitioner's possession, but for unknown reasons, petitioner failed to produce them during the trial. As there is no credible and satisfactory explanation for the non-production of said returns, there arises the presumption that if produced they would be adverse to petitioner." — This passage explains why the statements of adjustment were properly denied probative value on the alleged overpayment.
• "It is a settled doctrine that in a suit for the recovery of the payment of taxes or any portion thereof as having been illegally or erroneously collected, the burden is upon the taxpayer to establish the facts which show the illegality of the tax or that the determination thereof is erroneous." — This passage states the controlling burden of proof in tax refund litigation, which petitioner failed to satisfy.

• Government of P.I. vs. Monte de Piedad, 25 Phil. 42 — Cited in the decision for the universal rule that one claiming exemption from the common burden of taxation must justify the claim by showing that the Legislature intended to exempt him by words too plain to be mistaken. The Court used this to support strict construction of Republic Act No. 81's condonation.
• Louisville Water Co. vs. Hamilton, 81 Ky. 517 — Cited in the decision, as cited in 6 American and English Ann. Cases, p. 438, for the rule that the application of a statute creating an exemption from taxation to taxes already assessed depends upon whether it is retrospective in operation; such a statute has no retrospective operation unless the legislature clearly intended the exemption to relate back to taxes already fixed. The Court relied on this to hold that Republic Act No. 81 did not authorize refunds of taxes already paid.

• Section 246, Internal Revenue Code — Prescribes the time and manner of payment of royalties or ad valorem taxes. Under it, petitioner filed a bond, regularly filed quarterly returns for minerals removed, and paid ad valorem tax within 20 days after each quarter, subject to adjustment upon smelter returns showing the actual market value of minerals shipped to the United States.
• Section 1(d), Republic Act No. 81 — Condones all unpaid royalties, ad valorem, or specific taxes on minerals mined from mining claims or concessions existing and in force on January 1, 1942, and lost by reason of war or circumstances arising therefrom; if the minerals are recovered, the taxes become due. The Court held it covers unpaid taxes only and does not authorize refunds of taxes already paid.
• Commonwealth Act No. 722 — Provided for the filing of returns for minerals removed during the last quarter of 1941 up to December 31, 1945 and payment of ad valorem tax on said minerals to February 28, 1946. Petitioner availed of this Act when it filed its December 28, 1945 returns.
• Republic Act No. 1125 — Created the Court of Tax Appeals. Upon its enactment, the civil action for recovery filed in the Court of First Instance of Manila was remanded to the Court of Tax Appeals for proper disposition.

Bengzon, C.J.; Padilla; Bautista Angelo; Labrador; Concepcion; Reyes, J.B.L.; Barrera; Paredes; Dizon; and Makalintal, JJ., concurred.