Pewj. Kiener Company, Ltd., et al. vs. €.Twa. Case No. 1140 the Collector of Intsakal Revenue

DECISION

On the basis of the tan exemption provision written in the Military Beses Agreement between the Republic of - the Philippines and the United States of America dated March 14, 1947, and pursued in the “Aide Memoire” bet- ween the two Governments on April 27, 1955, petitioners P. 5. Kiener Company, Ltd., International Construction Corporation and Gavino fT. Unchuan seek in this sult for the recovery of national internal revenue taxes alleged to have been erroneously or illegally collected the refund or tax credit of the following amounts, with legal interest, to wit:

a) 3,425.75 alleged to have been paid as sales tex on the dynamite and blasting caps bought from Macondray & Compeny, Inc.; b) 4,710.96 representing alleged advance sales tex on the gypsum imported and utilized by Republic Cement Corporetion on the cement sold to petitioners; and ec) P1,601.66 as payment of alleged tax on lime extractions by Republi Corporation on cement sold to petitioners, — de 445

DECISION «

CTA CASE NWO. 1140 =~ 2 » Petitioner P. J. Kiener Company, Ltd., a domestic . Limited copartnership with offices at Devao City and Quezon City; petitioner International Construction Cor- poration, a domestic corporation duly organized and existing under and by virtue of the lews of the Philippines with offices at Manila; and petitioner Gavino fT. Unchuan, a duly licensed civil engineer residing at Cebu City; all engaged, among others, in the business of contracting, entered into a joint venture as contrectors for the purpose of bidding, and were awarded the contract for, the construction of the Macten Airfield at Mactan Island, Opon (now Lapu-Lapu City), Cebu. And so, on February 19, 1958, the Republic of the Philippines, represented by the Chief of Staff, Armed Forces of the Philippines, entered into e contract with petitioners, the pertinent provisions of Article I of which states: “article I - That the advertisement, ins- tructions to bidders, eoeve , age made integrel parts o contract by incorporetion and reference respectively.” and Section 3-19 of the “Generel Conditions” forming an integral part of the contract provides: "3-19 Zaxes - In accordance with the Mutual Defense Agreement between the United States of America and the Republic of the Fhilippines, no tex of any kind or description will be levied on any material, equipment or supplies which may be or otherwise ecquired in connection with the project under contract, which meterial, pment or supplies are required solely for that project.”

DECISION +

a a During the period covering March 23, 1959 to March 7, 1961, petitioners purchased on terms from Macondray & Co., Inc., several cases of dynamite and several thou- sands of blasting caps at a total price of F101, 343.65 for the use, allegedly, in the construction of the Mactan Airfield, which purchase price, it is claimed, included the sales tax in the sum of 3,425.75 paid by the seller to the Bureau of Customs, Fetitioners likewise made purchases during the period covering September 1], 1959 to September 10, 1960 from Republic Cement Corporation through its distributer, Amon Trading Corporation, of 288,330 bags of portland cement at « total price of 7603,824,00. And from August 31, 1959 to August 29, 1960, petitioners aiso purchased from Republic Cement Corporation through another distributor, Theo H. Devies Co., Far East Ltd., some 300,835 bags of portiand cement at 6 total purchase price of P836,93%.00, all of which were allegedly used in the construction of the Mactan Airfield. The amount of P4,710.96 as advance sales tax was ellegedly paid on the gypsum imported and utilised by Republic Cement Corporation in the manufacture of the cement; while the sum of 1,601.66 representing a@ yalorem tax was allegedly paid on lime extractions used by Republic Cement Corporation in the manufacture of its cement, all of which were paid by Republic Cement Cor~- poration as manufecturer to respondent, but claimed to have been billed to petitioners as part of the purchase price.

447

DECISION «

CTA GASE RO. 1140 = 4 = Pursuant to the provisions of Section 3-19 of the "General Conditions" embodied in the above-mentioned contract, and aleo on the basis of their assertions that the prices et which the cement and explosives (dynamite - and blasting caps) were sold to thea included the internal cevenue taxes paid by the sellers to res,ondent, diredtly or through the Bureau of Customs, which were allegedly passed on to and shouldered by them, petitioners on September 22, 1961 requested the Collector (Commissioner) of Internal Revenue for the refund of the amounts of P4,710,96 and P1,601.66, supposedly paid by Republie Cement Corporation as advance sales tax upon the impor- tation of gypsum and ad walorem tax on lime extractions, respectively, used by Republic Cement Corporation in the manufacture of the cement purchased by petitioners, on October 6, 1961 petitioners also requested the Collector (Commissioner) of Internal Revenue for the refund of the enount of 3,425.75 as sales tax ellegedly paid by Macondray & Company, Inc. to the Bureau of Customs, as agent of respondent, on the explosives sold to them which were used in the construction of the Mactan Airfield.

After the issues were joined, the case wes aet for trial on the merite, After several postponements, however, petitioners, through counsel, manifested during the hearing of the case on August 11, 1970 that they are abendoning their claim for refund or tax credit of the 448

DECISION «

CPA CASE NO, 1140 ao § m= advance seles tax paid on the imported gypsum and ad yalorem tax on the lime extractions, covered under pa~ ragraph 9 of their petition for review, limiting their Claim only to the refund of the sales tax paid on the explosives (dynamite and blasting caps) purchesed from Macondray & Company, Inc, (Minutes of the session held by the Court of Tax Appeals on August 11, 1970, p. 104, CTA records; €.5.Nen PP. 2-3, hearing held on August Ail, 1970.) Thereafter, pefitioners proceeded to offer evi- dence, oral and documentary, in support of their clein for refund of the seles tax in question. Failing to present the ortgine’ receipts evidencing payment of the sales tax, petitioners however requested time within which te secure from the Bureau of Customs 2 certification of such payment, After several postponements of the trial of the case to afford them enough time to get the required certification, petitioners, during the hearing on February 18, 1977, finally submitted the case for decision without presenting the original receipts or certificetion of pay~ ment of the outes tex sought to be refunded, Por his part, respondent requested that he be given time to file a motion to dismiss, However, he eventually submitted this case for decision, vaeheus the motion to dismies, after filing his memorendum, Wo memorandum was submitted by petthinnens although they were given ample time to do se, Petitioners’ Claim that they are entitled to the ‘449 CTA CASE WO. 1140 refund or tax credit of the amount of P3, 425.75 repre~ senting alleged payment of the sales tax on the dynamite and blasting caps sold to them by Macondray & Compeny, InCe, is positively without basis.

As correctly pointed owt by respondent, the question involved in this case is not of first impression, In the case of Commissioner of Internal Revenue va. P. J. Kiener Company, Ltd., International Construction Corpo~ ration, Gavino tT. Unchuan and the Court of Tam Appeals, lem 24784, July 18, 1975, 65 SCRA 142, involving the same parties; the same tax exemption provision provided in the Military Seses Agreement between the Philippines and the United States, and pursued in the "Aide Memoire* of the two Governments; and the identical question of aeathes petroleum products purchased to run and maintain machineries and equipment are “materiais” or “supplies” “ourchased or otherwiae acquired in connection with" the construction of the Mactan Airfield and which "ma-~ terials” or “supplies” are required “solely* for such project for the exemption to apply, the Ssuprene Court ruled that only materials and supplies that are needed to be incorporated in the construction of the airfield are covered by the tax-exemption proviso, txplained by the Supreme Court in the fellowing rationale:

fhe sense which private reapondents (petitioners herein) proffer to attach to the terms “materials” and “supplies” eludes the jink welded into the Military Bases Agreement and "Aide Memoire” and recognized

=~ FT =

in section 3-19 of the “General Conditions". The Nilitary Bases Agreement states that “Ho import, excise; conswaption or other tax .eces shall be cherged on material, equipment, sup- plies OF Goods, secce @eeasé @eeeee e” provices: eeoee BO inter- mal taxes of any kind or description, except inecme taxes, shell be levied on any materiala, equipment, supplies and/or services which may be purchased or otherwise acquired in the /construction of the Mae Aire o + «© o" Section 13-9 of the “General cond tion” stipulates that °..... no tax ofany kiné or description will be levied on ee mate~ rial, equipment or supplies which may be chased or otherwise acquired sonmectio® wish the project ....." Reduced in @ terms, ~ the phrases continuously used in the two treaties end in the contract could only mean, Ses tie seine “construction” mateciala or supplies must necessarily be im the construction of the airfield. cr the terms “materials” and “supplies” refer to scome~ thing “going into or consumed” in the perfor- mance of the work such as mortar, cement, sand, bricks, lumber or naila, gless, hardware and a thousend other things that might be meant, which are necessary to the completed erection of a building or structure, x x * K Ks . > > a et xxKK XK - ee oe ee KX KKK Ke (aetittase the"materials" and : “supplies® must be for exclusive uee in, in con- nection with, and required for the cons- truction of the Mactan Airfield, In short, the “materials” and “supplies” need be incerporated im the construction for the exemption tc apply.

RAM M Ke

Since the subject dynamite and blasting caps were mot incorporated in the construction of the Mactan Air=- field but were used in removing rocks in the process of grading the airfield (t.2.m., pp. 41-42), we find no cogent and valid reeson to depart from the conclusion reached by the Supreme Court in the above-cited case as expressed in the above-cquoted opinion, and the same

Show ——

451

DECISION <

CTA CASE 80. 1140 ~» 6 « should resolve the identical preblem now brought be- fore us in this proceeding, It therefore results, as respondent contends, that petitioners’ cause of acticn da in effect now barred by price judgment.

We can press further the reason why petitioners are not entitled te the refund of the alleged sales tex in question besed on their failure to prove te the satisfaction of the — the fact of payment of the said tax, In the course of the triel of this case, petitioners heave offered in evidence Exhibits B, B~l to B-ll, which consist of photestatic copies of allevged receipts of payment of the sales tax of the dynamite and blasting caps made during the years 1959 to 1961 in the total emount of ©3,425.73 by Macondray & Com peny, Inc. to the Bureau of Customs, Being merely secondary evidence, and there being no proof that the criginals have been lost, destroyed or cannot be pro- duced in court, respondent objected to their admission, The Court therefore requested petitioners to present the original receipts, or in their abgence, to secure from the Bureau of Customs a certification of the fact of payment of the alleged eles tax sought to be refunded. (ts9.M., De 10, hearing on August 11, 1970.) while the trial of this case wes postponed several times to give petitioners the chance to present the required original receipts or certification from the Bureau of Customs, they (petitioners) never submitted

DECISION =

CTA CASE MO. 1140 any of these documents. Instead, during the hearing on February 18, 1977, petitioners submitted the case for decision without presenting proof pesitive on record of the payment of the alleged sales tax. Needless to say, there can never be a refund of a tax alleged to have been erroneously or illegally paid or collected without proof of payment thereof, And one who pleads payment has of course the burden of proving it. Petitioners heve therefore the burden of proof not ohly to show thet they ere entitled to the . refund of the sales tax in question but slso to estab- lish the fact of payment ef the said tax, Consequentiy, failure on their part to prove to the satisfaction of the Court the payment of the sceles tex alleged to heve been erroneously or illegally assessed or collected is fatal to their claim for refund, One who claims to be exempt from the payment of _@ particular tax must do so under clear and unmistakable terme found in the statute, Tax exemptions ere strictly construed against the taxpayer, they being highly dis- favored and may almost be said “to be odiove to the lew," He who claims an exemption must be able to point to some positive provision of law creating the right; it cannot be allowed to exist upon a mere vague impli- @ation or inference. (Asiatic Fetroleum vs, Llanes, 49 Phil., 466,471; Union Garment Co., Inc., VS. Court of Tax Appeals, b-16809, January 31, 1962, 4 SCRA 304;

DECISION «

CTA CASE WO. 1140 - 10 = Philippine Acetylene Co., Inc. ve. Commissioner of Internal Revenue, L-19707, August 17, 1967, 20 SCRA 1036; Republic Flour Mills, Inc. vs. Coemissioner of Internal Revenue, L-25602, February 16, 1970, 31 SCRA 520; Commissioner of Customs vs. Philippine Acetylene Co., * Court of Tax Appeals, L-22443, May 29, 1971, 39 SCRA 71; Davao Light and Power Co., Inc. vs. Com missioner of Custcma, L-28902, March 29, 1972, 44 SCRA 122.) The right of taxation will not be held to have been eurrendered unless the intention to surrender is manifested by words too plein to be misteken (Chic Life Insurance & Trust Co., va. Debolt, 60 Howard, 416), for the state cannct strip itself of the most essential power of taxaticn by doubtful words; it can~- not, by ambiguous language, be deprived of this highest - attribute of sovereignty (Zrie Railway Ce. vs. Conmon- wealth of Pennsylvania, 21 Wallace, 492,499). So, when exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and « wellfounded doubt is fetal to the cleim (Farrington va. Tennesse & County Shelby, 95 U.5. 679.686.) (See Asiatic Petroleum Go, vs. Llanes, gyupra: Manila Rlectric Company vs. Vera, 1-29987, October 22, 1975 & Manila Electric Company vs. Tabios, k-23847, Oc~ tober 122, 1975, 67 SCRA 351.) Especially when it is considered that for the Philippine Government, “the exception contained in the tax statutes must be —_—a ~ CTA CASE BM. 1140 strictly construed against the one claiming the exemption" (Union Garment Co., Inc. vs. Court of Tax Appeals, L-16809, January 31, 1962, 4 SCRA 304; Commissioner of Internal Revenue vs. Guerrero, L-20942, September 22, 1967, 21 SCRA 180; Republic Flour Mills, inc. ws. Commis- sioner of Internal Revenue, L-25602, February 18, 1970, 321 SCRA 320) because the Court “does not lcok with favor in tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be ais~ taken and too categorical to be misinterpreted." (Reagan vs. Commissioner of Internal Revenue, L-26379, December 27, 1969, 30 SCRA 968.)

WHEREFORE, we find no merit in wis appeal and the game is hereby dismissed at petitioners’ costs.

AMANTE FULLER

acting Presiding Judge

I CONCUR:

Associate Judge

43:5.