Republic of Yhe Philippines Court of Tak Appeal? Quezon Cit¥ Cepoc Industries, Inc. vs. C.T.A. Case Nq. 2075 Commissioner of Internal Revenue

DEC IS ION

This case was submitted for decision upon an agreed stipulation of facts as follows:

COME NOW the parties in the above- entitled case, through their undersigned counsels, and to this Honorable Court respectfully submit the following stip-~ ulation of facts, to wit:

l. That petitioner is a government- owned and controlled corporation duly organized and existing under and by virtue of the laws of the Philippines, formerly engaged in the production of Apo Portland Cement and other products, with principal office at the Apo Cement Building, corner Dasmarinas and Barraca Sts., Manila;

2. That respondent is a public offi- cer entrusted with the proper collection of internal revenue taxes;

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DECISION -

CTA CASE NO. 2075

3. That during the period from January 1, 1961 to June 30, 1962, peti- tioner produced Apo Portland Cement, more than 80% of which consist of lime- stone and clay quarried by petitioner from its own mineral land located in the Philippines;

4. That petitioner, for the pur- pose of computing the ad valorem tax on cement, filed with the respondent imme- diately after the end of the quarters ending in March, 1961, June, 1961, September, 1961, December, 1961, March, 1962 and June, 1962, the quarterly returns of the gross sales of the cement it pro- duced, on the basis of which the respondent collected ad valorem tax thereon and that said ad valorem tax was the subject of an action for refund docketed as CTA Case No. 1336;

5. That during the period from January 1, 1961 to June 30, 1962, inclu- sive, the gross sales of the cement that petitioner produced and sold amounted to P13,655,583.04;

6. That after the promulgation on February 27, 1965 of the decision of the Supreme Court in G.R. No. L=18649, en- titled "Cebu Portland Cement Co. vs. Commissioner of Internal Revenue", res- pondent subjected petitioner, as producer of cement, to the payment of the 7% sales tax due thereon;

7. That on March 14, 1968, petitioner received a letter dated March 4, 1968 from respondent assessing the petitioner the amount of F1,194,863.51 as deficiency sales tax and surcharge on the gross sales of cement produced by petitioner from January 1, 1961 to June 30, 1962;

DECISION -

CTA CASE NO. 2075

8. That in a letter dated March 15, 1968 which was received by respondent on March 20, 1968, petitioner protested said assessment on the ground that cement is not subject to the sales tax and that the assessment had already prescribed;

9. That on February 10, 1970, peti- tioner was served by respondent a warrant of distraint and levy on the personal and real properties of the petitioner, No.

N-34~B-69, to enforce the collection of the foregoing assessment; thus, in effect, respondent had denied petitioner's protest against the said assessments;

10. That on March 6, 1970, petitioner filed the instant petition with this Honorable Court.

WHEREFORE, it is respectfully prayed of this Honorable Court that the foregoing stipulation of facts be approved, During the hearing of this case on March 14, 1978, for the submission and approval of the above stipulation of facts, both parties manifested that the whole of paragraph 5 and the words "due thereon" found in the last part of paragraph 6 thereof should be deleted, After the Court has noted the manifestation of the parties and approved their stipulation of facts, the parties submitted this case for decision. However, on July 6, 1978, respondent Ciled a manifestation and motion, to wit:

DECISION -

CTA CASE NO . 2075 - 4 - COMES NOW the respondent , thru counsel , and to this Honorab l e Court respectfully manifest s that : 1 .

The petition for review filed by the petitioner in the above-entitled case involves a prot est over the assess - ment in the amount of el , l94 , 863 . 51 issued by the respondent against pe ti - tioner subjecting the cement it produced and sold for the period from January 1 , 1961 to June 30, 1962 to the 7% sales tax as a manufact ur ed product; 2 .

That the ~rorestated legal issue was resolved by th.is llonorable Court against the re spo nd ent Commissioner of Intern a l Reven ue in a decision daterl June 28 , 1972 in th e following cases in- vo l ving simi l ar prot ests : (1) Republir CPme nt Corporation vs .

Commissioner of Internal Revenue -

C. T. A. Case No . 2020 (2) Filipin as Ceme nt Corporation vs . Commission er of Internal Revenue - C.T . A. Case No . 2021 (3) Apo Cement Corporation vs . Com - missioner of Internal Revenue - C. T.A. Case No . 2022 (4) Bacnotan Cement Industries , Inc . vs . Commis sio ner of Inter nal Revenue- C.T.A . Case No . 2023 (5) Philippine Portland Cement Co . , Inr . vs . Commissioner of Internal Revenue- C.T . A. Case No . 2027 and in a separate decision dated July 29 , 1972 in C. T. A. Case No . 2057 , entitled CEPOC Industries, In c . vs . Commissioner of Internal Revenue;

DECISION -

CTA CASE NO. 2075 - 5 - 3 .

That the aforesaid decisions of this Honorable Court were appealerl by the government to the Supreme Court in G.R . No . L-35668 , 35670 , 35671 , 35672 , 35683 and 35677, respectively , and where said appeal is now pe nding and deemed submitted for deci s ion .

IN VIEW OF THC

FO~EGOING

, respondent most respectfully mov es that further pro- ceedings in this case be held in abeyance to await the decision of the Supreme Court in the appealed te s t c~ses filed before the said court.

In an order dated June 7 , 1978 , the Court granted the above motion of respondent. As stated in paragraph R of the stipulation of facts, petitioner Cepoc Industries, Inc ., poses two issues :

(a) whether petitioner's cement is subject to sales tax and (b) whether respondent ' s assessment had already prescribed.

On August 10 , 1983 the Supreme Court promulgated its decision in Commissioner of Internal Revenue vs . Republic Cement Corporation, Filipinas Cement Corpo- ration, Apo Cement Corpor atio n , Bacnotan Consolidated Industries, Inc ., Rizal Cement Company , Inc ., Philip - pine Portland Cement Co. , Inc . , and the Court of Tax Appeals , G.R . Nos . L-3566H-72 & L- 35683; and Commis- sioner of Internal Revenu e vs. Cepoc Industries , Inc. 54'7

DLE LSION -

CTA CASE NO. 2075 and the Court of Tax Appeals, L-35677, 124 SCKA 46, wherein the High Tribunal unequivocally ruled that cement is a “manufactured product" and its sale is not exempt from the sales tax imposed by Sections 186 & 188(c) of the then in force National Internal Revenue Code. AS a consequence of this ruling, the Supreme Court ordered the private respondents therein to pay the sales tax. Buttressed by the law, precedent and reason, we find unnecessary to re-echo the rationale of the ruling of the Supreme Court that cement is sub- jeck -to the sales tax, For purposes of computing the correct tax liability of petitioner, however, some qualifications as pointed out in the decision are in order. To quote:

(1) The disputed assessments carry a 25% surcharge pursuant to Section 183 (a)_of the Tax Code /now Sec. 193 Ca) (3)7 which prescribes the said sur- charge for late tax payment, In Connell Bros. Co. (Phil.) vs.

Collector of Internal Revenue (10 SCRA

469 at 470-471), the then Justice Maka- Jintal, speaking for the Court, rejected therein the imposition of 25% surcharge for late payment:

xX XX xXx XXX

XX X xXx XXX

DECISION -

CTA CASE NO . 2075 - 7 - In the case at bar, the assessments are not undisputed or indi s putable . The di sp ut e as to the ta x liability of private re s pondents for sale s tax on the sale of ce ment arose not simply because of ordi - nary divergence of views in good faith vis-a-vis the int erpretatio n of the l aw ; th e po s itio n of priv ate respondents was founded upon the original sta nd of th e Burenu oF 1ntern a l ~ e venue il.se lf that cement is a minera l produ~t r8ther than a manufactured produ r t a nd is therefore subject to ad valor em tax , not sa les tax . As pointed out above, t hi s s tand was apparently given implied support in CEPOC vs . Collector , G. R. No . L-20563 (1968) , 25 SC RA 789 , penn ed by J us tice Ang e le s . Th at the posture of private respondent s is plausible - des pjt e the s ub se quent BIR posi tion that cement j s a manufactured produ ct s ubject to sa l es tax - i s s upport e d by the fact that the Co urt of Ta x App ea l s , the spec i a lized body han dling tax cases, s ustai ned the priv ate res pondent s in the decisions under revi ew .

Under the circum s tances , the 25% s urch arge imposed in the disputed assess- ment must be de l e t ed .

(a) The assessments in que st ion seem to have computed the sales ta x liability of priv ate respondents on th e bas is of the total se lling pri ce of cement s old .

If thi s was s o , a r e - computation is in order s o as to deduct from the t ax base th e costs of raw mat - erials use d in th e production of cement , s uch as gyps um, conformably with the provisions of Section 186 /~ow Sec , 199(a )7 of th e Ta x Co de as it s tooJ during the - ta x period here involv ed :

XXX

XXX

XXX

DECISION -

CTA CASE NO . 2075 - 0 - Before closinq, it may be noted in passing that in order to obviate any further controv e r s y , cement ~ cement has been expr es sly made subject to sales tax at the reduced rate of 5% on the implicit nss umption that it is a manufactured product and there- fore outside the purviPw of "mineral product " under. Section 246 of the Tax Code .

(See Presidentinl Decree No. 1358 . )

And on the issue ol pr escription of the govern- ment ' s right to make the " ubject assessment , v.1hich wa s upheld by the Suprem e Court , we quot e the petinent portions of the resolution of the Supreme Court dated May 7 , 1987 denying the motion for reconsideration of the decision .

3 .

Final l y , thr Motion for Reconsideration fil e d by private res - pondent CEPOC raise s anew the issue of prescription of th e government ' s r i q h t to make the sub .i e c t assessment in the light of Se c . 331 of the Tax Code .

Unlike the non-retroactivity issue , prescription hns been venti - lated by the movant e ven during the pendency of the ca se in the Court of Tax Appeals , and in it s pleadings filed with this Court .

Both the Court of Tax

Appeals decision and the decision sought to be reconsidered nre, however , silent on that point .

We c lnrify.

Con s idering th n t the decision on the tax liability ol private respon- dents , as in fact, the di s positive 550

DECISION -

CTA CASE NO . 2075 - 9 - portion thereof ordered them to pay the 7% sales tax, the prescription issue with regard to the movant CEPOC merits clarification .

Left unresolved , it will only serve to nurture the lingering doubt whi c h CEPOC continues to harbor insofar a s its tax liability is concerned .

Besides, the issue was squa~ely raised Jt the proper time and in the proper forum , We elect to dis - cuss the issue , but ns already said , only as a clarificotjon of the decision which needs no reconsideration on its merits.

In order to avnil itself of the benefits of the five-year prescription period under Sec . 331 of the Tax Code , the taxpayer should hove filed the re - quired return for the tAx involved , that is, a sales tax return .

(Butuan

Sawmill Inc . v. CTA et al . , G. R. No . L-21516 , April 29, 1966, 16 SC~A 277) .

Thus CEPOC should have filed sales tax returns of its qross sales for the sub - ject periods .

Both parties admit that returns were made for the ad valorem mining tax .

CEPOC

ar~ue s that said returns contain the information neces- sary for the assessment of the sales tax .

The Commission e r does not consider such returns as compliance with the re - quirement for the filing of tax returns so as to start the running of the five- year prescriptive period , We agree with the Commissioner .

It

has been held in Butuon Sawmil l Inc . v . CTA , supra , that the filing of an income tax return cannot be ronsidered as sub- stantial compliance with the requirement of filing sales tax returns, in the same way that an income ta x return cannot be 55

DECISION -

CTA CAS[ NO . 2075 -

J ()

- considered as a return for compensating tax for the purpo se of computing the period of prescription under Sec . 331 . (Citinq Bisaya Lanu Tran s portat i on Co ., Inc . v . Collector , ~.~. Nos. L-12100 and L- 11812 , May 29 , l 9S9) . There being no sale s tax return s fil e d by CEPOC , the statute of 1 i mit at i o 11 s in Sec . 3 3 J did not b e qin to run oq :1 i 11 s t the qov e rnment . The assessment mad e b y th e Commi ss ioner i n 1 9 6 8 o n C E P 0 C ' s r· e 111 e n t s a 1 e s d u r i n g the pe riod from Jul y I , 1959 to De c ember 31 , 1960 is not barred by the five-year prescriptive period .

Absent a return , or when th e return i s f" ;ll nc or fraudulent , th e arplicab l e pe r:ior l i s ten (10) year s r r 0 m the disc 0 ve ry () r· L he f r 8 u d ' f u 1 G i r. y or omi ss ion .

The CTLrr· s Lion in thi s ca s e i s :

~lh e n wa s CCPUC' r; nmi ss ion to f"ile th e r c t u r n d c c m c rJ d i ~; c D v e r e d b y t h c government , so a s to s tart the running of s aid period?

It may be recall e u that prior to the interpretation ma de by the Court in the fir s t CEPOC ca se in 1965 on the nature and taxabilit y of cement , the Commissioner of Int e rnal ~evenue was of the opinion that s a le s tax was not due o n c ement .

Con se qu e ntly , said private re s pond e nt did not file the required s ale s ta x r e turn s on its gro ss sa le s of cement for t he period from July 1 , 1959 to De c emb e r 31 , 1960 .

How -

ever , it was only :in 1968 , and by reason of s aid interpretation , that the Commi s - sioner chanqed hi s opinion and as s e s sed s al es tax again s t th e rrivate re s pondent s , including the movant CEPOC . The Commis s ion e r c ontends that hi s duty to assess the s al es ta x in question arose only after th e Court ruled in the fir s t CEPOC case ( C.I(. No. L-18649 , 55 2

DECISION -

CTA CASE NO . 2075 - 11 - February 27 , 1965) that cement was sub- ject to the tax .

Thu s , according to him , the statute of limitations began to run only in 1967 , when the Motion to Reconsider said decision was denied .

The net effect of this argument is that the prescription period for the asse ss ment of the sales tax was suspended during the time that the Commissioner he ld the opinion that cement was not liable to tax . For its part , CEPOC maintain s that the s tatute of limitations cannot be suspended becau se of the Commissioner 's erroneous interpre- tation of the Tax Code which is not among the grounds for s uspe nsio n under Section 333 .

Following thi s line of argument , the omission of CEPOC would be deemed " discovered " by the government as early as 1960 , after the filing of CEPOC ' s ~ valorem ret urns .

Whether We con s ider the discovery of CEPOC ' s omission to file a sales tax return to have taken place in 1960 , immediately after the filing of its returns for ad valorem tax , or in 1967, when the Commis- sioner changed hi s erroneous ruling , We will arrive at the s ame result .

Since

the subject assessment was made in 1968 , the same still fall s within the ten-year prescriptive period either from 1960 or from 1967 .

WHEREFORE , the deci s ion appealed from is affirmed; and it is hereby ordered that petitioner Cepoc Indus- tries , Inc ., pay to respondent Commissioner of Internal Revenue the 7% sales tax on cement , subject of this case , the same to be computed on the basis of the gross selling price , less appropriate deductions corresponding 550

DECISION -

CTA CASE NO . 2075 - 12 - to the costs of raw materials used in the manufacture of cement , conformably with Section 186 of the appli- cable National Internal Revenue Code , and without the imposition of 25% surcharge . No costs .

WE CONCUR:

.·

• 'R-nAQU IN

.~ Associate J udge

Afv1ANTE F

Presidin