Marinduque Mining & Industrial Corporation vs. Commissioner of Internal Revenue

DECISION

Marinduque Mining & Industrial Corporation, petitioner in these three cases, poses the question of whether its importations of machineries, equipment, spare parts and supplies used in the construction, 63 1 •

DECISION -

CTA CASES ~OS . 1932 , 20 61 and 2358-

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! I - 2 - i nstallation , operation and maintenance of i ts cement plant i n Barrio Tagbac, Antipolo , Rizal , are covered by i ts. t ax: exemption privilege as a Ne\>l Mine within t he purview of Secti on 79-~ of Commonwealth Ac t No . 137, otherwise known as "The Mini~g Act" , the i nsertion of which there i n has been authorized by Republic Act No .

3823 ..

In puisuance of Section 306 (now Secti on 29 2) of t he National I nternal Revenue Code , peti tioner filed wi t h respondent Commi ss i oner of I nternal Revenue wr itten claims f or refund or tax: credit in t he follow- ing amounts:

(1) . iil71, 706e00 and Pl03 , 460 . 00 in C.T .A. Case No . 1932 - .as alleged erroneous payments f or compen- sating t ax and advance . sales t ax, respectively, on i mportations of mach ine rie~ s , equipment and spare parts for t he period fr om June 3, 1965 to J anuary 16, 1968;

(2) . P235,691.00 in C.T.A. Case No. 2061 - as alleged erroneous payments for compensating tax on importations of machineries , equipment, spare parts and other supplies f or the period from February, 1968 to July , 1968; and

(3) . P261,7 ·15. 00 i n C.T.A . Case No . 2358 - .as alleged erroneous payments f or sales tax: and dampen- .

Sating tax on i mported equipment and/ or spare parts 64

DECI SI ON -

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CTA CASES NOS . 1932 , 2061 and 2358.

- 3 - and kraft sacking paper for its cement plant during the period from February, 1968 to July , 19 68 . After no action was seasonably taken by respondent on i ts claims f or refund or tax credit , petitioner appealed to this Courto The three appeals are con- solidated inasmuch as they r aise the same i ssue . The oppos ing part i es are not in dispute on the provisions of l aw involved, t he administr ati ve r~le s and regulations promulgated thereunder , as well as t he computation of the taxes paid by , or amount refund- able to , petitioner as the case may be . And while petitioner was given ample time , a~d was granted all extensions requested by it, within which t o file i ts memorandum in support of i ts claims for r efund or tax credit, no memorandum was submitted by petitioner . The undisputed facts are stated in t he memorandum of respondent ~ated J uly 21 , 1983: As alleged in t he three (3) ~etitions filed wi th t his Honorable Cour t, t he f acts common to all cases are as narrated herein . Pe tit i one~ is a domestic corporation . engaged in mining and industrial enterprises. In line wi th i ts diversificati on pro- gram, petitioner put up and constr ucted a cement plant i n Barrio Tagbac, Antipolo , Rizal .

It i mported mach i ner ies, equipment , spare parts and ·supplies for the construction , installation, operatioi and maintenance of its cement plant .

Then ; to avai l itself of t he provisions of Republic Act No . 3823 , 65 DECISION . - . ·

2061 and 2.356

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it applied ' f.or tax e~~iu.pfion on all its aforesaid importation9• i. 1 Subsequently, it was gra~ted a Certi f~cate of Qualifi- cation for Tax Exemption [ (CQTE-6) ~hich states among other things, that peti- . tioner was granted "exemption for five

(5) years from November ! 2, 1965 to November 1, 1970 from p~yroent of all t axes excepb income tax~ payable by him in the conduct of his business and in the importation of machinery , spare parts and/ or equipment listed in the stamped "ANNEX 1" which were considered to be indispensable in the operations and will be used by said oper- .. atorjl essee ~xclusively , in the mineral land(s) mentioned above."

(p~ 2, additional BIR rec. , CTA Case No .

1 93~ , Folder I )

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• Notwithstanding .the above privilege , ho\'Jever , there were levied, assessed and collected f r om petiti oner the sums earlier enumerated.

Consequently, in its l etters dated March 20, 1968 (pp.

1-~, BIR rec., CTA Case No. 1932, Folder I) i J anuary 12, 1970, (pp. 1-5, BIR r ec., CTA Case No . 2061); February 24 , i971, (Annex "B" of Petition · f or Review , CTA Case No . 2358 ) and October 21, 1971 , (Exh . 1, p. 1, BIR r ec. , ~TA Case No 2358) , petitioner. r equested from respondent the refund of the aforestated sums , on t he ground that it is exempt from such taxes for which payments were effected .

No action having been taken on said request , petitioner fi led with this Honorable Court the t hree

(3) .i nstant Peti tions for Review. Respon- . • dent r esisted the claims on the ground that pe.t itioner is not entitled to the exemption . and , if at all, the exemption does not cover consumable articles as asserted by taxpayer. Petitioner bases its claims for exemption from the compensating ' and advance sales t axes on its i mport- ations 6f machineries , equ ~pment , spare parts , supplies and materials for its ceme~ t plant in Barrio Tagbac , Antipolo, Rizal, on a Certificate p l

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of Qualification For

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DECISION ~

CTA CASES NOS. 1 932 , 2061 and 2358.

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- 5 - · b I t Tax Exempti on (C T'E-6.) !.dated November 23 , 1965 , issued

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by the then Secr~tar y of Agriculture and Natural Resources J ose Yl Feli~iano upon recommendation of the then Director ~f Mines Fernando s. Busuego, Jr ., which we re·produce:

CERTIFICATE OF QUALIFICATION

FOR TAX EXEMPTION

CQTE No. 6

TO WHOM I T MAY CONCERN:

Be it known that upon application filed by MARINDUQUE MINING & INDUSTRIAL CORP. operator/lessee of the mineral l and i n Antipolo ,

(Municipality)

Rizal, listed in stamped "ANNEX 1" of this Certi-

(Province )

ficate , t he said mineral l and has been a3certained to be a New Mine within the purview of Section 79-~ of the Mining Act (C.A . 137 , as amended) ~ the inser tion of which therein has been author- ' i zed by virtue of Repu~lic Act No ~ 3823 , and Mines Administrati ve O~der V-2.5 , in view of which this Certif i cate of Qualification for Tax Exemption has been issued ent itling the above-~amed operator/ le:ssee t .o exemption for f ive year s from Nov a 2, 1:965 to Nov. 1, 1970 from payment of all taxes , except income tax , payable by him i n the conduct of his business and in the i mportation of machi- nery, spare parts and/or equipment listed . in the 67

DECISION -

CTA CASES NOS . 1932, 2061 and 2358 6 ' stamped "ANNEX 1" which were considered t o be i ndispensable in the operations and will be used by said operator/lessee exclu- sively in the mineral l and(s) mentioned above.

The enjoyment of the exemption granted to the above -~amed operator/lessee i s sub- j ect to the faithful compliance of all the requisites , terms and conditions prescribed in Mines Administrative Order V-~5 dated December 3, 1963.

Given at Diliman, Q.c. , Philippines, this 23rd day of November ~ ·

RECOMMENDED BY :

(SGD. ) FERNANDO S. BUSUEGO , JR.

(SGD .)

Director of Mines

JOSE ·Y. FELICIANO- ~ecretary of Agri- culture and

Natura+ Resources

Are the i mportations of machineries , equipment , spare parts and supplies of petitioner Marinduque Mining & Industrial Corporation used in the construction , install- . ation , operation and maintenance of its cement plant in Barrio Tagbac, Antipolo , Rizal, exempt from compens~t i ng and advance sales taxes under its tax exemption pri- vilege provided for under Republip Act No. 3823? It is to be admitted, as cont ended by r espondent, 68 - DECISION -- .

CTA CASES NOS. 19 32 6 2061 and 235S..

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.7 - that an exemption from taxation must be j ustified by words too clear t o be misread (Acting Commissioner of Customs vs. f-.1anila Electric Company and Court of Tax Appeals , L-2,3 632, J une 30 , 1977, 77 SCRA 469 ) '· because the law does not look with favor on tax exemptions and that he who would seek to be thus privileged mus t justify it by words !££ plain to be mistaken and too categorical to be misinterpreted (Reagan vs . Commis- sioner of I nternal Revenue , L- 26379 ~ December 29 , 1969, 30 SCRA 968 ; Commissioner of I nternal Revenue vs. PsJ. Kien~r Company, Ltd . et al . , L-~4754, J uly 18, 1975 , 65 SCRA 142 ) •.

As set f orth in Manila Electric Company vs . Vera , L-2.9987 & L-2,3847 1 October 22 , 1975, 67 SCRA 351) :.

"One who claims to be exempt from the payment of a . particular tax must do so under clear and un- mistakable terms f ound in the statute . Tax exemptions are strictly construed against t he t axpayer, they. being .

highly disfavored and may almost be said · ~o be odious to t he l aw. ' He who cla ims an e.xe.rnption mu s t be able to point to s ome positive. provision of law creating the right; it cannot be allowed to exist upon a mere vague i mplication or inference .

The right of t axation will not be held t o have been surrendered unless the · intention to surrender is manifested by words too plam .

to be mistaken (Ohio Life Insurance & Trust Co . vs . 69 DECI SION ... .

CTA CASES NOS e 19 32 , 2061 and 2358.

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Debolt, 60 Howard , 416) ~ for t he state c annot str i p itself of t he most essential power of t axation by doubtful wor ds ; it cannot, by ambi guous language , be deprived of t hi s highest attribute of sovereignty (Erie Ra i lway Co . vs . Commonwealth of Pennsylvania , 21 Wal lace , 492 , 499 ) ~ So , when exemption i s c l a i med , i t must be shown indubitably to exist , f or ever y pre- sumption is against i t , and a we l l-~ounded doubi i s f a t al t o the c l aim (Farrington vs s Tennessee & County Shel by , 95 u.s. 679 , 686 ) ~ " Affi rmatively put , the law frowns on exempti on fr om t axation , hence , an exempt i ng prov i sion should be construed str i Gtiss i mi j uris.

(Jai-Alai Corporation vs. Collector , 106 Phi l . 345 ; Esso Standard Eastern vs. Cornrn ~ss i one r of Cust oms , /~ :, L- 21641 , Oc t . 28 , 1966 ,. 25 SCRA 488 ; )Phil. Acetylene vs . Commissioner of I nternal Revenue ; L - ~ 970 7 , Aug . 17 ,

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1 967 , 20 SCRA 1056; Commi ssi oner of I nt er nal Revenue vs . Guer rer o , L-2.0942, Sept. 22 , 19 67 , 21 SCRA 180. ) . • In these cases, we do not see i n pe t itioner • s. Certi - ficate of Qual i f i cation For Tax Exempti on (CQTE No . 6) . what may be considered as "words tQo plain t o be mi s- t aken and 122 categor ical t o be misi nt er pr e t ed" , or "clear and unmistakable terms", declaring Marinduque Mining & I ndustr i a l Corporat ion exempt f rom pa~ i ng • compensating and advance sal es t axes on i ts impor ts of machineries , equipment , spare parts and suppl i es used 70 ·.

DECISION -- .

CTA CASES NOS ., 1932, 2061 and 2358- - .9 - in the construction , installation , operation and maintenance of its cement plant in Barrio Tagbac, Antipolo, Rizale Note t hat what the above Certifi- cate of Qualification f or Tax Exemption exempts ·, petitioner from, for five years from November 2, 1965. to November 1 , 1970, is the payment of all t axes , . except income tax, payable by petitioner on the con- duct of its business and "in the importation of machinery , spare parts ana/or equipment x x x x which were considered to be indispensable in the ope r ations and will be used by" petitioner "exclusively in th~ mineral land(s) men t ioned above ; i . e . , mineral land i n Anti pol o , Rizal , ascertained to be a New Hine within the purview of Section 79-~ of the Mining Act . Reduced to simple terms , the privilege of tax free importation granted to petitioner under its certificate of qualification authorized by virtue of Republic Act No . 3823 is restricf'.ed and l imited to imports whicn are directly related to and necessarily connected with the exploration, development and extraction of natural resources from its mineral land in Barrio Tagbac , Antipolo , Rizal , because the said mineral land has been ascertained to be a New Mine within the purview of Section 79-A of the Mining A~ t., The phrase "considered to be i ndispensable i n t he operations and will be used by said operator/ lessee exclusively in the mineral -· 71 • DECISION _- .

2061 and 2~58.

- 10 - land s ) ~enti oned above" is not so broad and sweeping as to include cement-~anufacturing because i t is con- ditioned upon the prerequisite that the mineral land should be a New Min e~ Cement manufacturing cannot , by any stretch of the i magination , be considered a ~ mine , much l ess indispensable in the operation of a ~ mine.

A "new mine" as amplified in Mines Administ:rati've Order Noo v-~5, Series of 1963, and Mines Administrative Order No . V- ~ 1 , Series of 1970, pr omulgated by the Secretary of Agriculture and Natural Resources upon r ecommendation of t he Director of Mines, is a mineral l and that has never been in actual commercial pro- . duction on the date of f iling of the application f or tax exemption, and not .considered .to be a continuation and/or expansion of the operati on of an existing mine . Indeed, the ordinary and even j urisprudential meaning of t he word "mine" is simply an excavation or pit 1.n the earth from which ores , coal, precious stones , or other mineral substances are removed by digging • or other mining methods .

( Webs te r '~ New Interna t i onal Dictionary of t he Engl ish Language ; 27 Words and Phrass , 195l Cumulati ve Annual Pocket Part; Acoje Mining Co . , Ince vs e Commissioner of Internal Revenue , CTA·Case No . 1835, March 30, 1970. )

From t his, we cannot but 72

DECISION -

CTA CASES NOS e 1932 , 2061 and 2358- - ll - extract the view that the tax exemption granted to petitioner "from paymen t of all taxes, except income tax , payable by him in the conduct of his business and in the i mportation of machinery , spare parts and/ ·, or equipment l isted in the stamped uA.nnex l 8 .which were considered to be indispensable i n the operations and will be used by said operator/lessee exclusively in the mineral land (s) .mentioned above" r efers to taxes related to, or connected with, petition er i ~ privilege of exploring , developing , mining and disposing of t he minerals from its mineral land in Antipolo , Rizal , which has qualified as a "New Mine." under Section 79-A. of the Mining Act.

In other words , taxes directed against the production or severance from the mineral l and of such natural resources as oil , natural gas , ores , or the like , and the i mportation of machinery , spare par t s and/or equipment considered to be indis- pensable in such operations or activities and to b·e used by petitioner exclusively in said mineral land . On this point , respondent correctly argues that what was ascertained and certified to be a "New Mine" wi thin the purview of Section 79-A of the Mining Act

by the Secretary of Agriculture and Natural Resources

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entitling petitioner certain, tax exemption privileges a~ operator/lessee thereof was only the mineral land, - DECISION .- .· CTA CASES NOS. 1932 , 2061 and 2358.

.12 - no more no less , in Barrio Tagbac , Antipolo , Rizal. Hence , in order that petitioner may avail itself of its tax exemption privilege, its imported machinery , ~ · .. ....

equip~ent and spare parts must be used solely for mining purposes.

I n other words , they must be utilized for the process of extracting ores and other minerals f rom the soil of its mineral land.

Considering that petitioner admitted in all its petitions that its i mported machineries, equipment, spare parts and supplies were used for the construction , i nstall ati on and oper- ati on of its cement plant , it is pat~ntly not exempt from the payment of compensating and advance sales taxes due on said i mportations.

Since a cement plant i s a manufacturing establishment, it can never be con- sidered a "new mine" or "old mine" within the contemp- . la ~i on of Republic Act No . 3823.

(PP e 239-~41 , CTA records, CTA No. 1932. ) .

That cement is a manufactured product, and the process involved in the production thereof is const-- dered manufacturing and not mining, first found support i n Cebu Portland Cement Co . vs. Commissioner of Internal Revenue , L- ~8649 , Feb . 27 , 1965 , 13 SCRA 333 . The Supreme Court , in its resolution dated December 29 , 1967 , stated that "while cement is composed of· 80% minerals , i t is not merely an admixture or blending of 74 DECISION ~ .

CTA CASES NOS . 1932, 2061 and 2358.

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- .13 - raw materials , as lime, silica , shale and others. It is t he result of a definite process - .the crushing of miner als , grinding , mixing, calcining, cooling, adding of retarder or raw gypsum.

In short , before cement reaches i ts saleable form, the minerals had already undergone a chemical change through manufact- ur ing process."

This ruling was reiterated in the subsequent case of CEPOC vs. Commissioner of Int~rnal Revenue , L-2.26.05 , Jan . 17, 1968, 22 SCRA 56; and still later in Republic Cement Corp. vs . Commissioner of Interral Revenue, L-20660 , June 13, 1968, 23 SCRA 967. Consequent ly, in Commissioner of Internal Revenue vs. Republic Cement Corporation , et al ., L-~ 5668-~2, L-3.5683; Commissioner of Igternal Revenue vs. Cepoc I ndustries , Inc., et al. , L-~5677 , Aug . 10, 1983 , 124 SCRA 46 , the Supreme Court c learly and unequivocally ruled that cement ~ cement was never considered as a mineral product within the meaning of Section 246 of the Tax Code , notwithstanding that at least 80% of its components are minerals, for the simple reason that cement is a product of a manufacturing process and is no longer the "mineral product" contemplated in the Tax Code .

While it i s to be admit~ed that this ruling has reference to the law imposing the ad valorem t ax, t he DECISION- - . · CTA CASES NOS~ 1932, 2061 and 2358 - .14 - pronouncement that cement is a product of a manufact- uring process patently demonstrates in clear and unmistakable terms the absence of similarity or analogy of a mineral land which has been ascertained to be a new mine and a cement plant which is a manufacturing est?b- . lishment .

To say, therefore, that the imported machineries, equipment , spare parts and s upplies used in t he construction, i nstallation and operation of. petitioner ' ~ cement pl ant were indispensable in the mining operations and used exclusi vely in the mineral l and ascertained to be a New Mine in Antipolo , Rizal , is to read an exemption i nto peti~io~er ' ~ certificate of qualif ication for t ax exemption which i s not clearly intended to be so included .

We cannot ignore t he principle that express meption of one exempti on precludes readingdhers i nto i t .

(Manila Electric Company vs . Vera, L-29987 & L-2.3847, Oct. 22, 1975 , 67 SCRA 351 , citing Hoard 'vs. ·sears , Roebuck & Co. , 122 Conn . 185 , 193 , 188A. 269e ) The explanatory note of the house bill which later became Republic Act No . 3823 , authorizing the i nsertion of Section 7~-~ of the Mining Act , furni shed the motive for which the Mining Law was amended and bolsters the conclusion that a cement plant can never be considered • a "new mine" or "old mine" within the tax-~xemption provision of t he l aw.

The l aw was moti vated by the 76 . -

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DECISION

'!"' CTA CASES NOS . 1932 , 2061 and 2358 .

- 15 - desire t o stimulate mine prospecting and give impetus to the development of new mining deposits. To quote :

"This bill seeks to stimulate mi ne prospecting and develop new mining depo- sits .

It will invite , encourage , and induce the general public to invest in new companies that may be formed t o promote the expansion of the mining industr y. It is believed that t he five years ' .tax exemption proposed here will provide t he much - ~eeded incentive to the development of new mines which have tremendous potential • . The proposed bill , if enacted, will r elease hoarded l ocal capi tal for i nvestment in new mines . The concessions granted by the Govern- . ment will eventually produce greater returns in the f orm of increased nati onal i ncome .

It might even eliminate t he need for foreign capital t o develop our mining potential with t he exception of Surigao nickel - ~ron depos i ts.

· "I t is also our considered op1n1on that a f ive- year period of t ax exemption for the expansion or development of new mines will r esult in the collecti on of more taxes .

"For these reasons , approval of the attached bill is strongly r ecommended." (Sgd. )

LUIS HORA

Congressman , 3rd District Mountain

Province

(Explanatory Note , House Bill No .

5603) ~ Unquestionably, if the spirit of the l aw is to be f ol lowed and i ts objec tive f ulf illed , the term "mineral l and has been ascertained to be a New Mine within the purview of S~ction 7 9-~ of the Mining Act " , should not .

be given a meaning s o as to i nclude a cement plant , or cement manufacturing , for the l atter is distinct and DECISION -- .

CTA CASES NOS. 1932 , 2061 and 235& - ,16 - different frommine prospecting or development of new mining deposits e Premises considered , t he machiner ies, equipment , spare parts, supplies and materials i mport ed by peti- tioner Marinduque Mining & I ndustrial Corporation f or its cement plant are not ex~mpt fr om the cornpen- . sating and advance sales taxes under the provisions of Republic Act No. 3823 .

WHEREFORE, the petitions for review filed i n these cases are hereby dismissed, with costs aga i nst petitioner i n all i nstances .

WE CONCUR:

~4-r;::,)_ /

AMANTE ~

Presiding Judge

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