CTA Case No. 1172

DECISION -

CTA CASE NO, 1172 te adh York Sane 41,712,196.76 2e .

36 eed bite ugttsoe 8 WINK : ene gue Petitioner having paid the sum of #15,775.61 corresponding to the 2% deficiency percentage tax on the molesses removed and sold by petitioner, as edmitted in respondent's memorsndum (p. 17), the disputed tax assessnent is reduced to *61,163.57 and this involves the deficiency percentage tax and surcharge on the sugar removed by petitioner from its =uill warehouse and sold locally and abroad.

The pertinent controversial provisions of Section 199 of the Nations] Internal Sevenue Code at issue in For a better understanding of the application and interpretation of the foregoing provisions of law, we will state briefly the facts of the case, Petitioner, a corporation duly organized under the lews of the Philippines, is engaged in the production : 50

DECISION «

CTA CASE HO, 1172 3 end manufacture of sugar, and operates a sugar central et Canlubeng, Calamba, Laguna.

During the period from the *th quarter of 1951 to July 1957, petitioner milled a total of 4,557,64%3.59 pleuls of suger, 670,509,76 piculs of which belonged

to the Calambe Sugar Planter's Cooperative Marketing

Association as ite share. The share of petitioner was either resoved from its mill warehouse at Cenlu- bang, Calambe, laguna, and sold in Manila, or shipped therefrom and sold in New York. ‘The suger was sold at these points at prices quoted in Manile, if sold locally, or in New York, if sold therein.

In the shipment of the ongar to New York, peti- tioner incurred expenses for freight, interest, weigh- ing, mending, testing, sampling, stevedoring, customs entry and brokerage in the amount of °1,712,196.76 (ith. twl, pe 46, BIR rec.), known as New York ex penses, and it incurred expenses in senmling the sugar from the mill warehouse at Canlubang, Calamba, legume, to Manila, such ag lighterage, wharfage fees, freight and other handling expenses in the amount of °956,934.5% (Bxhe. 1-1 and 4-1, po 49, BIR rece; Bue ty De 2235 BIR recs; Bute 14 De 25 BIR rece).

Petitioner also paid F0.10 per picnl of sugar ' gmounting to 901,518.06 under Section 15 of Republic A4et No. 632, as amended by Republic Act Mo. 30951, on its anmal suger production for the support and opera- tion of the Philippine Suger Institute, whose function

DOCISION «

CTA CASB MO, 1172 ly it is to promote, develop and stabilize the sugar industry; and P0.02 per pieul of marketable sugar amounting to ®29,112.72 under Section 2 of Commonvealth Aet No. 567, for the rehabilitation and stabilization of the sugar industry.

Secording to responient, the grose value in money of petitioner's sugar from the Sth quarter of 1951 to July 1957 amounted to 62,927,3%3.08 while petitioner claimed thet the amount should be #59,732,820.86 only because that is the gross value in money of the sugar at the mill warehouse of petitioner eat Canlubeng. In computing the 2% tax imposed upon proprietors or operators of suger centrals, petitioner deducted froa 762,921,3%3.08 the expenses mentioned above in the tetal sum of 03, 19%,522.22 including the amount intended te cover the 2% tax.

The assessment for the deficiency percentage tax of 996,959.18 was received by petitioner on May 8, 1958 (Dukes. C-1, C-i-a, 0-2, C218), On the follow ing dey, May 9, 1958, petitioner requested e recon- sideration of the assesament (fzh, ©), In reply there- to, respondent, on October 9, 1958 (fxhs, © and 7), requested the payment of the deficiency percentage tax and surcharge on the molesses. At the same time, peti- tioner was informed that its liability for deficiency percentage tax on the mamufactured or willed sugar in the amount of 981,183.57 had been referred to the Provincial Revere Officer of laguna for further in-

DECISION «

COTA CAGE WO. 1192 5 vestigation. Finally, om Januery 12, 1962, respondent denied petitioner's request for reconsideration (Exh. G). Henes, this appeal.

On the besis of the facts stated above, the issues submitted for cur resolution are the following:

(1) Whether or not he enpsieee ime curred by petitioner with its are deductisie in computing the 25 tax ander “fational 5 Seueak. aaklies peiee oF tne less te cueuts intenie® to cover the Sf taxy 1951 to May 7» 1953 hes already prescribed, pursuant to on 332(a) of same Codes.

On the first iseue, petitioner contends that, while respondent correctiy found the actual selling price or market value of sugar in New York and Manila, the 2% tex imposed by Section 189 of the National Internal Revenue Code should be based on the actual selling price or market value of sugar at the time it leaves the factory or mill warehouse at Canlubang, Calamba,

DBCISION «

CTA CASE NO, 1172 Laguma. In other words, petitioner adopted the view that the expenses incurred outside the factory or mill warehouse such as freight, handling expenses, ete.

‘ave deductible from the actual selling price or market value of sugar in "ew York and Manila. On the other hand, respondent contends that, if the sugar were al- ready sold, as in this case, before the same left the factory cr mil] warehouse, the expenses form part of the actual selling price or market value of the sogar sold.

/ Perhaps this Court would have agreed with the theory of respondent if Section 189 ef the lational Internal Revenme Code imposes « tax on the sales of suger, A careful amalysis and scrutiny of the said section of the Tax Code will show that it is not a tax on sales but « percentage tax on the manufacturing and milling of suger cane into sugar by imposing a tax of 28 of the gross value in money of all the sugar mam fectured or milled by the sugar centrala, The were fact thet the 2% tax is besed on the actual selling price or msrket value of the sugar, at the time the same leaves the factory or mill warehouse, does not convert the manufacturer's or miller's percentage tax inte a sales tax or tax on sales, If our lewnaking body intended Section 189 of the Mational Internal Revenue Code to be a sales tax, it would have said so in explicit language as in the cases of the sales

DECISION «

CTA CASE WO. 1172 7 tex provisions found in Seetions 143(a) and (b), , 18%, 185, 185-A and 186 of the National Internal Reverme Geode. | _\/ Tt de a cardinal rule in taxation that "deduetion" provisions im the tax statutes are sets of legislative grace. This rule ig found snd reflected in the deduct- ion provisions of the National Internal Revenue Code dealing on income, estate and inheritance, sales and mining taxes (Sections 30, 89, 184%, 185, 186 and 247 of the Tax Code), It is to be noted that under Sections 184, 185 and 186 of the Tax Code, dealing on sales taxes, a manufacturer is entitled te deduct from the aerosa selling orice or grossa value in money of the mamfoctured articles the totel cost of raw materials subject to tex under said sections of the Tax Code which are used in the sanufecture of the finished prod- vets, Be that as it may, the absence of any deduction provision in Seetion 189 of the National Internal Re- vemme Code does not preclude the petitioner from deducting the expenses for freight, handling charges, ete. from the actual gross selling price or market value of sugar sold either in New York or Manila be- eauge the percentage tex involved herein is not a sales tax but a manufacturer's or miller's taxe More- over, the manmufecturer’s or miller’s tax imposed by Section 189 of the Tax Code is based on the actual sell- ing price or market value of sugar at the place of 29

DECISION «

CTA CASE WO, 1172 milling or manufacturing and not in eny other place, In view thereof, it is purposeless to distinguish between s ganizact te sell ond « aontrast of sales as the parties have essayed to do. Consequently, re- | spendent cannot use as e tax base the actual selling price or market value of sugar selé either in New York or Manile because the valuation of sugar thereat and the imposition of the 2) tex preseribed by law would depend on the terms and technicalities of the sales agreement instead of giving life and meaning to the intents and purposes of Section 189 of the Tax Code. | The 2% tax imposed upon proprietors or operators of sugar centrals accrues upon the removal of the manufactured or processed sugar from the factory or mill warehouse (DIR Gen. Cir. No. 42% dated July 1, 19393 BIR Gens Cir. No. 470, October 7, 1940; Collector ve. Central Agucarera de Tarlac, &. f. Bo. i~11760, July 31, 1958; Asturias Sugar Central, Ine. vs. Com wiseioner of Internal » CTA Case Ne, 983, Yebruary 1%, 1963).V In the absenee, therefore, of satisfactory and convincing evidence on the market value of the sugar when it wes removed fram petitioner's factory or mill warehouse in Canlubang, Calambe, Laguna, the market walue thereof is correctly represented by the eetusl selling price of petitioner's sugar in Menilea minus the expenses, consisting of lighterage fees, freight and other handling charges, which were ineurred in transporting the suger from the plsce of o6

DECISION -

CTA CASE NO. 1172 9 manufacture to Mendlas To sustain respondent's view that the said expenses should form part of the taxable value of suger in computing the 2% tax imposed by Seetion 189 ef the Tax Code would run counter te the intents and purposes of the law beesuse the tex would be assessed on the market value of petitioner's sugar in Manila instead of in Canlubang, Calambe, Laguna (Asturias Sugar Centrel, Ine. va. Commissioner of Internal Reveme, gunra).

in the same manner, the taxable vaiue of peti- tioner's suger sold in New York fer purposes of the 2% tax imposed by Section 159 of the Tax Code wold be the market value thereof in Canlubang at the time the sugar left the factory or mill warehouses In deter- mining the merket value, the so-called New York ex- penses, which were incurred in exporting the sugar from Canlubang to New York, should be deducted from the actual selling price of petitioner's sugar in New York, This interpretation is sound, practical, and in consonance with the clear sandate of the controver- sial legal provisions at issue.

/ ti tin 'taeanih Snitaw thehies te Gv tint ab teak and ®0.02 per picul of sugar imposed under Nepublic Aet No, 632 and Commonwealth Act No. 567, amounting to 981,518.86 and $29,112.72, respectively, petitioner contends that they should be deducted from the gross selling price of suger as those imposts were paid

DECISION -

CTA CASE NO, 1172 qo after and net at the time the sugar left petitioner's mill warehouse and that their inclusion in the tax base is tantamount to levying a tax on a tax. We find mo merit in petitioner's contention that said special taxes should be deducted from the market value of suger at the time of its removal from the mill or mill ware- house because they are in the nature of expenses in- curred after such removal, Wooen special taxes entered into the produetion costs which scerued upon the "production" cr “manufacture” of the marketable sugar, or before the sugar was removed from petitioner's mill warehouse at Canlubang (See Section 15, Republic Aet Ho. 632; Section 2, Commonwealth Act "cs, 567). At any rate, there is nothing in the law which suthorizes such Aeduetion. | / Petitioner elains that the tax of 2% imposed by Section 189 of the Tax Code should ve based on the market value of sugar less the amount corresponding to the tax, as in the case of the sales tex imposed by Sections 184-186. While the sales tex is auther- ized to be computed on the basis of the gross selling priee less the amount intended to cover the tax (BIA Gen. Cireulars Nos. 431 and 440), no similar privilege 4s granted to sanufacturers taxable under Section 169 of the Tax Code. The amount of the tax cannot, there~ fore, be deducted from the sarket value of sugar even if the tax is billed to the customer, as a separate item in the invoice. The argument that not to allew

DECISION «

CTA CASE NO, 1172 1 the deduction would be to impose se tax on tax deserves little of no consideration for most taxes are of such nature. liven the income tax is imposed on the tetal net income which ineludes the amount intended to pay the tax. | The fourth issue refers to the 25)) surcharge imposed upon petitioner for late payment of the miller’s deficiency tax, pursuant to Seetéen 183(a) of the Tax Code. Petitioner contends that it is not liable te the 25% surcharge because the facts and circumstances of their case are substantially the same as those obtain- ing in the ease of “Connell Bros. Ce. (Phil.) va. Collector of Internal Revenue,” G. KR. No. Le15¥70, Dec. 26, 1963, where the Supreme Court eliminated the 258 surcharge. It is to be noted, however, thet in the case at ber, there is no evidenee whatsoever show- ing that petitioner's delayed payment of the percentage tax was brought about by respondent's ruling or opinion. / Me were fact that a controversy existed between petitioner and respondent as to the correct interpre- tation and application of the diapnted provisions of the Tax Code does not warrent the eliminstion of the 25% sureharge for late payment; otherwise, the pay- ment of the 25% surcharge for delinquency in the pay- ment of the percentage tax would be left at the mercy of texpayers by the simple expediency of contesting the interpretetion given by respondent on any provi- 39

DECISION «

CTA CASE MO. 4172 12 sions ef the Tax Code imposing a $axe We think that the doctrine laid down in lim Ce Chui v. Posadas, 4% QF Phil. 460, has not been overruled by the decision in the case of Connell Bros. “o., gunra. Accordingly, we find the petitioner subject to the 25% surcharge for late payment of the uiller's deficiency tax of 2%.

The last issue refers to the prescription of re- spondent's deficiency tax assessnent covering the period from the «th quarter of 1951 to May 5, 1953. Peti- tioner contends that, since respondent's defielency tax assessment was received by petitioner only on May 8, 1958, the right of respondent to assess the said Geficiency tax within a period of five years under Section 331 of the Tax Code has already prescribed, As already steted elsewhere in the opinion, the so- called New York and local expenses showld be excluded in the computation of the deficiency miller's tax due from petitioner, With respect to the tax of PO.10 and §6,02 per picul of sugar imposed by Republic Act Noe 632 and Commonwealth Act No, 567 in the amounts of P81,518.86 and 029,112.72, respectively, the said amounts failed to include the taxes corresponding to the period from the th quartered? 1991 to May 8, 1953 as shown by the records of the case (ixhibits 1-f and t-g of respondent, BIN rec. pp. 51 and 52). Consequent~ ly, the disposition of this issue has become moot and academic.

DECISION =

OTA CASE NO, 1172 13 Finally, respondent does not have any power to impose a compromise penalty without the consent of petitioner (Colleetor vs. UST et ale, G. f. Nos. I~ 11274 & 11280, Nov, 28, 19585 Collector vs. Bautista, et als, U. BR. Nos, 1-18850 & 1L-12258, May 27, 19595 Philippines International Feir, Ine. vs. Collector of Internal Revenue, G. R. Nos. L-12928 & l- 12932, March 31, 1962). The imposition of the compromise penalty in thie case is, therefore, illegal, After resolving the issues submitted for our consideration, we find that, as proprietor or cperator of a sugar central, petitioner 1s liable for defi- ciency percentage tax in the amount of P 14,455.29, sugar 059 ,732,820.86 AaGe Ua) POst0 per pioul of suger paid © 61,518.86 4 sugar psid 29,112.72 1oai and 1008 lath, 790438 Adjusted gross selling pPice...scscos HOE 28 miller's tax due thereon P 1_205,16%.2% Less tax already by petitioner .

Deficit TAK cnceverresce 11,5 Adds at eevcasen for late ° AMOUNT STILL DUE AND COLLECT. eoses IN VIEW OF THE PORBOOING CONSIDERATIONS, the decision appealed from is hereby modified. *etitioner is hereby ordered to pay the respondent the sum of P14,455.29 as deficiency miller’s percentage tax and

DECISION

CTA CASE HO. 1172 1% surcharge within 30 days from the date this decision becomes final, without proncuncement as to costs. SC ORDERED, ~uezon City, April 5, 1966, mf RISLAO R. ALVARES

Associate Judge |

U

I CONCUR:

ROMAN M. UMALI Acting ‘residing Judge