Repusiic of the Philippines. Court of Tax Appbals — Quebon City Victorias Milling Co., Inc. vs. ~- Commissioner of Internal Revenue

DECISION

CTA CASE NO . 2037 - 3 - .,

I

purchased or r e c e ived by persons residing or doing bus ine ss in the Philippines , the r e s hall be pai d a comoensating tax on the t o- tal value t hereof, including fre igh t , pos t - age, insurance, commiss i on and s imilar cha rg- es , equiva l ent to t he percentage t axes i m- posed under this Title on original transac- tions effected by merchants , importers , or manuf acturers , s uc h tax t o be pa i d b e fore the withdrawal or remova l o f said commodi - ti es , goods , wares or merchandise from the c us t omhouse or the post office, except as follm-Js :

X

X

X

X

(d) Articles t o be used b the im o r t - er himself as a passenger and or c argo v es- sel i.vhether coastwise or ocean ~ goin g , in- c ludi ng engines ~nd spare parts of said vesse l ;

(Underscorinq supplie d . )

In appl y ing the a bove prov i s i on o f law, in the case of Victorias Mil l ing r.o ., Inc .- vs . Commis- sioner of Internal Rev e nue , ~ . T . A . Cas e No . 1884, promulgated on December 28, 1971 , 1 wh ich involves the same parti e s and under s ubstantial l y the same issue s and facts as in the c ase a t bar, t his Court had the occas ion to hold agains t petitioner to the effect that i t s imported steel p l ates , angl e s and bars are not exempt thereunder . In t ha t c ase , it was rul ed t h a t onl y those articl e s used by the importer as a passenger and/or c argo vessel whethe r a oastwise or ocean- going, includi qg engines and • spare parts of sai d vessels a r e exempt under the law; that the exemption p rovided therein was 1cert . Deni e d - i n Victo r ias Milling Co ., Inc . v s . Comm . of Int . Rev ., G. R . No . L- 34984 , May 22 , 1972 o

DECISION

CTA ~ASE NO . 2037 4 - intended to give incentives and provide induce- ments to bolster the shipping indu s try ; that petitioner was not engaged in the shipp ing in- dustry as · a main and principal business ; and th~t the construction, operat'on and maintenance of its vessels (tugboats and barges) is only incidental t o its main and p rincipal business , whi ch is in fact the manufacture and sale of ·refined sugaF • Thi s Court, s peaking through then Associate Judge, now Presiding Judge £stanislao R. Alvarez, in a thoroughly di s cussed decision in the aforec ited case, said and we quote :

espondent contends that p etitioner is not exempt from compensating tax b ecause in enacting Repunlic Act No . 3176, which amended Section 190 of the evenue Code, ~ongress intende d to exempt only those persons and e ntitie s engaged in the ship- ping industry .

Inasmuch a.s petitioner is not engaged in coastwise or ocean- going shipping industry, respondent deni ed peti- tioner ' s claim for tax exemption • . Petitione r , howeve r , contends othe r - wise by claiming that the 11 importer 11 refer- red to in Section J90 (d) of the Revenue ~ode is not limited in scop e so as to cover only those persons e ngaged in t he ship9 ing industry, but the t e rm 11 importer'' includes all importers re~ardleis of the business in wnich they are engaged, p rovid ed that the imported articl e s are used in cargo vessel for coastwise shipp ing. It is a familiar rule of statutory construction that terms o r words of a sta- tute sbould b e inte r p r e ted in their ordina- ry acceptation; and the y should b e given • DEr.ISION CTA CASE NO o 2037 5 s ignificance and: meaning commonly attri- buted to t hem .

Like any other rule, hmv- ever, it i s not without exceptions or limitations o Courts may not always look to the-mere l ette r of the law for its understanding or application because, it ofte n happens, the true intention o f the lawmaking body ma y not be expressed by the l anguage employed -in a statute if given its literal meaning .

To carry out the cle ar l egis l a tive intention, which i s the very core or obj ect of the rules of interpre tation and cons truction, de- parture mus t be made from the r u le of literal ~nterp re t a tion of t he language u sed iri the l aw.

In short, we must con- s ider the l egislative intent in passing a law and disregar d the l iteral import of the word s u sed the rein .

(See ~0 Am

Jur 232 - 236 ~ )

gines and spare parts of said vessel'' are exempt from t he compensating tax . A li- teral inte r p retation t hereof means th2t the imported articl e s used by a cargo vesse l engaged in coastwise or oceari- going shipp i ng., vJhether for h i re or not, are exempt from the compens ating t ax . The i ntention of Congress , however, in enact- i ng Republic Ac t No . 3176 , supra, is ex- plained in the sponsorship speech of Senator Gil Puyat, 1 as foll ows : Mr . Presi dent an d gentlemen of the Senate .

This is a bill that seeks to give rel i ef to the shipp ing industry, and seeks t0 exemp t them from the payment of excise tax, pur- chase of articles to be used by the importer himself as a passenger or cargo vessel , whethe r c oastwise o r oce an- going, including engines and 1s e e Michael Shipp ing, Inc . vs . Comm o of Int . Rev . , ·eTA Case Nos . 1391 & 1648, Dec o 19, 1966 ; Luzon Stevedoring Corp . vs . Comm. of Int. R·~v ., cr A Case No . 1484 1 Oct . 21 , 1968 .

DECISION

CTA CASE . NO . 2037

T

- 6 spare parts of said vessels o

Con-

sidering that our shipping industry is one of the most basic and one of t he i iridustries which, according t o our Committee on Transportation, is operating on the basis of floating coffins, there is need for giving incentives and inducements to the people in th e industry to invest in any vessel or new equipment.

(Legislative Journal )

(Emphasis supplied) The l egi s lative intent, as exp lained by Senator Puyat, is to give relief to the shipping industry .

In c onsonance with the purpos e and objective of the law, we he ld that "the legislati ve i ntent in amending Section 190 of the Tax Code by Republ i c Act No . 3176 is to orovide incentives and inducements to bolster the shioo ing indus- try x x x ."2 Consequently, th i s Court is dul y bound to apply and carry out the le- gisl ative purpose by holding that the word "importer" referred to in the disputed law me ans any person who is regularly or habit- ually engaged in the " shipping industry" as a distinct branch of trade .

It may be asked :

What is meant by 11 shi pping indu stry"?

Is petitioner engaged in the "shipping industry 11 7 Lexi cographers define "shipping" as an act or business of one who ship s goods (Webster ' s International Dictionary, Second Edition, Unabridged,. p . 2316), while "in- dustry" means any department or branch of art, occupation, or business ; esp., one which employs much labor and cao ital-afld . is a distinct branch o f trade ; as, the sugar indW3try .

(Ibid o, p . 1271 . )

The term "shipping business" i n its broadest sense means any and every kind of busine s s rel a ting to ships , and may includ e ship- building.

DeWolf vs . Grandal l , N. Y. 1 .

Sweeny, 556 , 566 .

(39 Words & Phrases 272 . )

From the foregoing definitions , it is clear that the term "shipping industry" appro- priately refers to the business or occup ation 2Luzon Stevedoring Corp . vs . Comm of Int. Rev., supra.

DECISI ON

CTA CASE NO. 2037 - 7 of shi ppi ng with the employment o f much labor and capital as a distinct branch of trade .

Peti tioner claims that it is partly engage d i n the shi pping indu s try becaus e i t s article s of incorporation p rovide, among othe rs , as follows :

( 3) To purchase, acquire, hold , sell , l e a s e , exchange, mortgage and other wise deal in and with real and personal property, and t o pu r chase, l e ase, cons truct or acquire intere sts in buildings , s torehouse s , roads , ~ocks , p i e r s , water work s , and irri- gati on systems , and works o f all k inds ; and1 as well in furtheratic e o f a nd c on- junction with t he general business of the Comp any, to acquire, l e a s e o r c o n s - truct, ope r a te and disp os e of r a ilroad s , steamship s and other vessel s , a nd othe r transportation facil~ti es , f o r t he mov- ing of it s property, s upolies and pro- duce, and incidental ther eto e nd in connection therewith , fo r t he car riage o f fre ight and passenge r s fo r hi re bet- ween any and all plac e s whats oever , with i n and wi t hout t he Philiop i ne Repub- lic , s ubj e c t to s uch limitatio n a s may be establi s hed by law;

X

X

X

X

(6) To carry on a ge neral a genc y , inves tment and b rokerage bus iness ; to act as fi nancial or comme rci a l a gent or f actor of, o r to undertake the gene- ral ma nagement for any per son , partner- ship , corporation o r a ssociati on in carrying on the busine s s o f any nature ; to act as a~ ent or broke r for ins u rance c omp anies in soliciting and r e c e ivi n g ~9p licat io n s for fire , c a s ualty, p late glasses , automobiles , trucks and o ther motor vehicl es , boile r , el ev a t o r , acci- dent, health, burgl a ry, marine , credit a nd life insur ance , and all other kinds of insurance and to c onduct a general busine ss ; to act as shin agents and s h i p b roke rs for vesse l s of Philipp ine or foreign r e gistryi whethe r e ngaged i n coa stwise or fore i gn trade , owned bv

DECISION

CT

CASE NO . 2037 r - 8 - sengers, forwarding agents, warehouse- men and gene ral traders ; x x x (Exhs . A- 1- a & A- 1- b , p . 44 , CTA rec oi emphasis supplie d . )

Par agraph (3 ), s upra, shows tha t peti- tioner ' s authority to construct and operate vesse l s are but incidental activi ties which it may undertake "in furtherance o f and ' in c onj unction '"'i th the general business of- the Company. "

'I'he main and !?rincipal busi- ness of petitioner is the manufacture and sal e of refined sugar .

The acquisiti on, operati on and maintenance of barges is , therefore, only incidental to its main busi- ness .

The operation of petit ioner ' s barges i s limi ted to the transpor tation of its sugar within the country .

It is clear, therefore , that petitioner ' s barges were not utilized as a "common c arrier 11 of p a s - senger ·or c argo for hire but they were employed by petitioner exclusively for its sugar business .

Consequently( petitione r is not a common carrie r by water and, there- fore , its activity is not a shipping busine ss and/ or i ndustry t axable under Section 192 of the Tax Code .

The exemp tion from the compens a ti n~ t.ax of imported articles as itJell as engine and spare parts use d in the shipping indus - try was intended to give relie f to the said industry as a t axable business ; otherwis e , the tax exemp tion will go beyond the . intend- ment of the law.

The trade name o f the petitioner is Victoria s Milling Co., Inc . Its principal business i s the milling o f sugar t axable under Section 18 9 of the National Internal Revenue Code .

There i s nothing in· its ar- ticles of incorporation which indicate that petitioner will e ngage in the transportation of passenger and fr e i ght as a disti nc t branch of trade or business t 3xable under Section 192 o f the Revenue Code as .a common carrier by water .

Petitioner, however, claims that, under i ts article s 6f incor oration afore- said, it can act as ship agent, broker 1 manager of shiyping propertie s , and cont ractor for freight and/or p as senger .

(Exh. A- 1- b , s upra . )

·'

DECISION

CTA CASE NO . 2037 r - 9 While petitioner is authorized to engage in certain activitie s connected with the shipping industry, there is no showing that petitioner is actually engaged in the said activi ties as a distinct taxable business because its barges were not use d in carry- ing pas senge rs and/or cargo as an industry separate from its main business . The law does not grant tax exemp tion to persons or entities unless they are actually en- gaged in a taxabl e shipp ing business ; othe r - wise we woul d be unreasonably expanding the rul e on statutory exemption in derogation of the taxing power of the State .

More-

over, it is a settled doctrine in this j urisdiction that tax exemption s hould be ~ onstrue d strictissimi juris against the taxpayer ~nd liberally in favor of the taxing authority ; and that tax exemption wi ll not be granted to a taxpayer unle ss the tax exemption law i s clear and unequi- vocal and i t was the intention of the l e gis- lative boa¥·'to')dousoo) (Comm . of Customs vs . Philippine Acetylene Co., G. R. No . L- 22 443 , May 29, 1971 ; Comm . of Int . Rev . vs . Visayan El ectric Co., 23 SC A 71 5; Philip- pine Ac etylene Co ., Inc . vs . Comm . of Int . Rev., 20 SCRA 1056 ; Esse Standard Eastern, Inc . vs . Comm . of Customs , 18 SCR 488 ;

E. Rodriguez, Inc . vs . Collector, et . al . G. R. No. L- 23041 , July 31 , 1969 . ) We obviously see no plausible ground to change our decision in the abovecite d cas e . We , there- fore, equally hold that petitioner in this case is not exempt from the payment of compensating tax under said Section 190 (d) of the National Internal Revenue Code , as amended, on its impor- tation of steel plates equally used in the repair and maintenance of its tugboats and barges . Having r eached the conclusion that petitioner is not exempt from compens~ting tax, the deter-

DECISION

CTA CASE NO . 2037

T

- 10 - mination of the second · issue i s unnecessary for being moot and academic .

w~ER · FORE , finding petitioner ' s claim for refund of the amount of ' 2, 34 7 . 00 pai d as com- p ensating tax not being me ritorious , the same should be, as it is hereby, DENIED. With costs against petitioner .

SO ORDK ED .

Que zon City, Sep t e mbe r 22 , 1976 .

Presiding Judge

OAQUIN

Judge

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