CTA Case No. 1563

“PUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

*% PHILIPPINE FIBFR PROCESSING al veraus CTA CASE NO, 1563

COMMISSIONPR OF INTYRRAL

REVENUE, Respondent.

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DeBcITseI_CR

This is an appeal of petitioner Philippine Fiber Processing Co. from a decision of respondent finding the former liable for deficiency seles tax in the amount of '64,726.20 from February to Dee- enber, 1958, and 1999 to 1961, inclusive, plus 258 surcherge and #5, 000,00 as compromise penalty.

Petitioner is a corporation duly organised and existing under ané by virtue of the laws of the Republic of the Philippines.

In a letter eddressed to the Collector (now Commissioner) of Internal Revenue, dated June 17, 1990, petitioner applied for tax exemption pur- suant to the provisions of Republic Act Mo, 35. The pertinent portion ef said application reads as follows:

The Philippine Fiber Processing

Company will primarily dedicate it- self to the manufacture of jute bags 213

DECISION "

CTA CASE NO. 1563 2 and jute cloth. For the said pur- pose, it will invest a respectable amount of capitalization, inport the necessary mechanical ins ments, thus implementing the errs re oo for industriali- sation, and most important of all, it will harness to productive use rew materials which are thrown te waste such as raw jute, saluyot, — peels, sugar cane bagasse, ete.

We need not inpress here the importance of jute ané textiles in the economic life of the country and its inhabitents. ®uffiee it ta say that our entire productian of rice and sugar is dependent on jute bage for warketing purposes. Sur import reeords and statisties show that jute bags used in the paeki ef rice and sugar sre being imported. Our textile 1 tation has reached such heights t it may be con- sidered as one of the sain causes for the weakening of our dollar re- serves.

It is respectfully subsitted that the main object of the Pnilip- pine Fiber Processing Company being the manufeeture of jute bags and Jute cloth end the seid items being necessary and essential te the economic life of the country, the said corporation is enttitied, as a matter ef richt, to claim the benefits of Republie AGt Now 39 it being » corporation enraged qn a new and necessary industry.

The Secretary of Finance, acting favorably on the aforesaid application for exemption, granted petitioner a tax exeaption "in respeet to the preeessing of raw saluyot, and jute fibers and their manufacture into jute bags and jute sacks."

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DECISION ~

CTA CASF NO. 1563 3 Petitioner's tax exemption was extended by the Secretary of Finance to December 31, 1958 pur- svuant te Republic Aet Ne. 901. | in @ letter dated February 8, 1963, respondent demanded the payment of 7% sales tax on the hes- sian or jute cloth ganufactured by petitioner during the years 1955 te 1958; and deficiency sales tax on the manufactured jute sacks and jute begs for all the years covering 1959 to 1961, plus 25% surcharge in the total amount of °121,359.75.

In answer to petitioner's protest against the assesement respondent, in a letter dated Nov- ember 9, 1964, reduced the deficiency tax assese- ment from #121,3599.75 to *64,728.20.

Petitioner, not satisfied with the aforesaid reduced assessment, interposed this apreal.

The only question posed before the Court in this ease refers to the interpretation of the tax exemption granted petitioner which is thet of “prosessing of raw saluyot and jute fibers and their manufacture into jute bags and jute sacks." Petitioner contends that the exeaption includes the manufecture ond sale of jute eloth, vhile re- spondent insists that only jute begs and jute sacks fall under the exemption, espondent invokes the Fule of strict construction cf tax exeuptions.

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DECISION ~

CTA CASE NO. 1563 » It would seem that jute cloth is not covered by the exemption. Petitioner's application sought a tax exemption for “jute bags and jute clcth" whieh {t proposed to manufacture from “rev jute, saluyot, banana peels, sugar cane bagasse, ete.,” but the grant mentions only “jute bags and jute sacks." ‘The omission of jute cloth in the grant is significant; the natural inference from this eulesten is that it was done to exelude jute eloth from the exeaption.

Petitioner however urges that the grant exempts jute ecleth as a resultant product of *orocessing of raw saluyot and raw jute fibers" and not only jute bags and jute sacks which ere exempted by specific mention. in other words, it contends that the exemption apnifes as well to the intermediate produet of jute eloth since this is the finished product turned out by processing raw saluyot and raw jute fibers. We are not of this persuasion.

in the first place, it would seem that the grant does not exempt intermediate products. The exemption is ao phresed that it seeus to require the integrated operations of processing raw saluyot end raw jute fibers and the menufacture of the processed products into jute bags and jute sacks eovering only the end products which are jute bags 216

PRCISION ~

CTA CAST NO, 1563 5 ané jute sacks. In the second place jute cloth is not a resultent produet of processing of raw salu- yot and jute fibers. To put it in another way, the processing of rew saluyot snd jute fibers is an operation that does net include the making of jute cloth. Webster's Yew International Dictionary givea the following seaning of the word “preeess* when used in relation te raw materiais.

"2. To subject to some special ss or treatment. Gpecif.: a.

o heat, as fruit, with steam under ssure, 80 es toe cook or sterilize.

b. To subject (esp. raw material) © @ process of manufacture, develop- went, preparation for the market, eta.y to convert into marketable form, as livestock slaughtering, grain by ~illing, eotten by spin- ning, milk by pasteurising, fruits and vegetables by sorting and re- recy -~in past pert. often dis- Aingvi from « @- To wake usable, marketable, or the like waste matter or an inferior, defec- tive, decomposed, substance or product, by & preeess, often a chemical proc- -@8R; a8, to (raneid) butter, rayon waste, coal (dust), (beet) sugar. »« .* (Second naition, 195%, Hereunder are judicial interpretations of the words “process" and “proeessing"s The word “process” means to ‘subject, especially raw saterial, to # process cf manufacturing development, preparation fer the warket, ete., end te convert into marketable form, as livestoek by slaughtering, grain by willing, cot- ten spinning, milk by pasteur- izing, fruits and vegetables by 217

DECISION «

CTA CAR WO. 1563 6 sorting and repacking. Moore v. Farmers Mut. Manufacturing & Gin-e (Words and Phrases, Permanen Rdition 34, pr. 140.)

« « « “Processing” means to subject to sone —— proeess or treatment. Te subject, especially raw material, to a progess of mam- facture, devalopnent, preparatian for the oarket, ete.; to convert into marketable form, as live stoek for Slaughtering, grein for milling, eotton for spinning, milk by pesteur- ising, fruits and ae sort~- ing and repacking. "processor" is one who or that which 85085 specifically, one who is in the business of converting any agricul- tural commodity into a marketable form. Kennedy v. Stete Beard of Assessment and lew, lowa, 276 WoW. 205, 208, (P. 166, gupra.)

The processing of raw saluyot and raw jute fiber is, it would seem, limited te operations that prepare these materials for use or for marketing as finished fibers end do not inelude weaving these finished fibers into cloth. s is specially true in the light of the omission of jute cloth in the tax exemption grant.

‘Petitioner mekes such of the fact that the marmfacture of jute cloth is also s new and neces- sary industry end the material is also in demand here. Speculations on this point however cannot expand the scope of the exeaption in disregard of the logieal interpretation thereof.

Petitioner refers our attention to an inter- 218

DECISION «

CTA CASE MO. 1563 7 pretation of the Coumissioner of Internal HKevenue ef a tax exeuption also granted under Republic Aet 901 enjoyed by ldtton “ills Ine. We refrain frose commenting on the said interpretation beeause the eesesament involved therein is the subject of CTA Case fo. 1761 pending in this Court and we think any comment in connection therewith would be s pre- judgment in the said case. | , WHPREFPORE, the decision appealed from is hersby sffirmed, vith costs against the petitioner. 80 GUDER=D.

Q@eson City, July 29, 1969. .

Kn Lbucmten”

RAMON L. AVANCTIA -

Associate Judge

I CONCTR, ~Ce he Bourn” ROMA’ M. UMALI

Presitiing Judge

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