CTA Case No. 2299

DECISION -

- 2 - centrifugal and refined sugar, anc for this purpose, o~ns and operates a sugar mill or central in the Municipality of Victorias , Occiden tal Ne gros, and a sugar refining fact- ory in the same Municipa lity.

" (Pa r. 2, Petition ,

p. 1, CTA rec. ; Admitted in par. 1, Answer, p . 25, CTA rec .)

I n c onnection with its business , peti- tione r imports fr om t~e Unit -d State s ready-made s ugar bags and/ or appropriate mate rials for c losing sugar bags and used as container s of its raw or c e ntrifuga l as well as its refine d sugar. (Par. 3,

p. 1, Petition, CTA rec.; admitted in par . 1, Answer, p. 25, CTA r ec . )

On August 7, 1969 and De cember 25 , 1969, peti tioner's importation of the aforesaid articles or closing mater i als for t he containe rs of its refine d s ugar arr i ved in t he Philippines at t he Por t of Iloilo, a nd the cbrresponding 7% compen- sating taxes in t he amounts of ~2,1Bi . o o and ~582.00, or in t he total s um of ~2,763.00 which were collecte d and paid under Official Re'ceipt.s Nos. 524575 4 ~nd ~4 4 8069 d a ted August 8 , 1969 and February 11, 1970 , respectively. Petitioner , on May 12 , 1971, protested the • said payment o f c ompe n s a ting t ax before the 311

DECISION -

CTA CASE NO . 22 99 - 3 - Commissioner of I nte r nal Revenue, and at the same time sought the refund thereof claiming· that its importat ion of closing materials for the containers of its refined sugar is a lready s ubject to tax unde r Section 189 of the National -" Internal Revenue Code , and, accordingly, s hould be e xempt from payment o f Compensating tax under the provis ion of Sectio n 190( b ) .of the same Code. (p. 8, BIR rec.; see~ Examiner's working Papers, p. 71, BIR rec.)

Again, on May 20 , 1970, J a nuary 28, 1971 and > July 7, 1971, other petitioner ' s s hipment invol- ving the same a rticle ar r ived in the Philippines f r om the Un ited States , and 7% compensat ing taxes were again collected and paid by petitioner in the amounts of P855 . 00 , Pl,43l .O O and P6,262.00 under Official Receipts Nos. 4449406, 49263 9 , and 0800733 dated J uly 2, l97b , February 2 , 1971 a nd July 7, 1971 r espectively , and which payments amounted in the total sum of P8,548.00. Petitioner again protested the payment of 7% compensa t irig taxe s before the Commiss i oner of Internal Revenue in its letter dated July · 26, 1971, (pp . 10- 11, B±R rec .; Examiner's Working Papers,

p. 71 , BIR rec.) .and claiming' for the payment's refund i a letter dated May 12, 1971.

In sum ,

- 4 - the grand total claimed by petitioner as refund- able amounf, representing 7% compensating tak paid by it amounted to Pll,311.00. It is also worthwhile to note that the market price quotations of sugars are a lways presumed to include its '1.

customary containers, and as such, petitioner has paid 2% manufacturer'~ ' tax not only on the value of the sugar but also on the containers thereof imposed under Section 189 of the Tax Code. (Par. 4, Petitioner~ admitted in par. 1, Answer, pp. 1 and 25, CTA rec.)

It appearing , however , that respondent has not acted upon on petitioner's claim for refund or tax cr edit, and sensing that the two-year pe riod provided in Section 306 of the Tax Code within which to file a claim for refund is about to expire, petitioner was constrained to take its appeal to this Court on August 9, 1971. (Petition, p. 1, CTA rec. )' As special and affirmative de fen s es in his answer to the petition for review, respondent alleged, among o thers, thus - "5. ' That until and unless the Bureau o f Customs decides petitioner'·s alleged for mal protest and claim for · refund against the alleged collect i on of compe ~sating taxes on the importation of materials for sugar c9ntainer, the present action would be premature because the charges collected by the Bureau of Customs were the basis of the compen- . sating tax collected, hence, petitioner has no cause of action~ 313 - 5 - "6.

That this Honorable Court cannot exercise jurisdiction over the present action which i s premature for petitioner's failure to exhaust admi- nistr ative r emediesi "7.

That the amounts paid by petitioner as compen s ating tax on the importation involved her ein , were collecte tt in accordance with law; "8.

That the r espondent is not liable for i nterest in cases of refund. The real issues presented for resolution of this Court are:

1.

Whether or no t petitioner is entitled to the r efund of t he 7% compensating taxes paid by it on its importation s of clos ing materials of s ugar containers amoun ting to ~11 ,3 11 .00; and 2.

If in the affirmative , whethe r or not petitioner is entitled to an interest on the amount paid by it.

As regards the first issue , there seems t o be no controversy between ' the parties as to the computation of the 7% compe nsat ing tax paid a nd claimed by petit ioner as refundable in the total amount of ~11,311.00.

A close scrutiny of the records point out , the fact that petitioner ' s importation of the aforementioned closing ·mat·e r ials imported for ~ se in the manufacture of its centri- • fu gal and refined sugar were never disposed o f or 314

DECISION -

CTA CASE NO . 2299 - 6 - sold by the petitioner t o the public. On cont- rary, the ~vide nc e presented show that the said imported closing materials were exclusively and ac t ually used by petitioner in the ma n ~facture of sa id centrifugal and refined sugar. This finding '" is borne out by the r ecords of investigation con- ducted by respondent's S u p~rvising Reve nue Examiner Jacinto s . Cruz dated May 24 , 1976. (pp. 74-75' BIR rec .)

We a r e fully convinced o f the position of petitioner that it should not be he ld liable for compensating tax on its importation of aforesaid ar t icles .

Petitioner has a l ready paid the manuf - acturer's tax under Section 189 equ i valent to two percent (2% ) ~ such tax to be based on the actual selling price or market value of the article s manufactured at the time the same leave the fa c tory or mill warehouse.

Therefore, petitioner should be exempted fr om the payment of compensating tax under Section 190 (b) of the Tax Code, which pr o- vide s as follows:

Sec. · 19Q.

£2mE~sating tax.- On the commodities , goods, war es or merchandise purchased or received by · persons ~esiding or doing business in the Philippines t her e shall be paid a compensa ting tax on th~ total- value thereof including freight , postage, insurance , commission and simila r charges, e q uivalent to t he percentage 315

- .7 - taxes imposed under th ' s title on original t ransact ions effected by merchants,importers, o r manufactur ers , such t ax to be paid before t he remov a l of s a id commodities, goods, wares or merchandise from the customhouse or the post office , except as follows:

XXX

XXX

XXX

(b ) Commodities , goods, ware s o r merch~ nd ise purchased or received by merchants, importets and manuf ac t- u~ ers who a re s ubj E[..£!:. to tax unde r sec- Llons onehundred elghty-four , one hundred eighty-fi~e, a nd one hund r e d eighty-six or: one hundred eig h ty- n in~ of this · Title, where such i mportations are to be s old, resold, barter e d or exchange or are t o be used in t he manufact ure or preparat1on of articles for sale , barter, or exc hans e and ar~ to for m part ther eof ;

(Underlining

supplied. ) .

Furthermore, the records will show that res- pendent have been previou s ly granting petitione r ' s claim f or refund or tax credit whe r ein the same question of the compe nsating t a x a nd and legal issues as i n this case are involved. 79, DI R r ec .)

These very actuations of responden . surely ind i c ates that petitioner 's right t o c la im for refund or tax cr edit i s l egal and valid . Furthe r- more, even dur~ng the pendency of the instant case before thi s Court , or to be exact, on M~y · 24, 1976, Supervi s ing Examiner Jacinto S. Cruz have prepared a memorandum report and addrepsed to the Chief, Appellate Div ision of the Bureau, r ecommending that

31G

DECISION -

CTA CASE NO . 229 9 - 8 - the said amount of ~11 ,3 11.00 be refunded to, or a tax cr edit 'i ssued in favor of , the herein peti tione r. However , the sa id r e commendation was not acted upon by herein respondent.

Per tine nt portion of sa id memor a ndum ( p . 74 , BIR rec.) is her eby quo ted "' be l ow:

"Ba sed on the facts established above-mentioned Victorias Milling Co. , Inc., is entitled to a r e fund of the 7% compensating tax amounting to ~11,311.00 paid by the m t o the customs authority i n Iloilo City on the import- ation of the clos ing materials used in the manufac ture of refined sugar which is specif icall y exempted from payment thereof under Section 190 of the Tax Code, which states :

Prov ided , howe ve r, that merc hants , importers and manuf - actur e rs who are sub j ec t to tax under Section s 18 4 , 185 , 186 or 189 of this title, shall not be r equi red to pay the tax he rein imposed whe re s uc h commodities , goods , wares or merchandise purchased or r eceived by them from without the Philippines t o be sold, r esold; bartered or ex- changed or are to be used in the manufacture or preparation of a rticles ftr sale, barte r , or ex- c ha nged and are to form part ther eof. .

In view of the foregoing, it is respectfuily .rec ommended that the amount of ~11 , 311.0 0 r epr esenting the 7 % compensating tax paid by Victorias Mil l ing C_o., Inc . on thei r importation of closing mater ial th a t formed part of the fi n is hed pr oduct,,be refunde d to subject taxpayer ."

31'1

- 9 - Foremost to sustain petitioner's position that it 1s entitled to a refund of the compen- sating tax paid by it in the amount of ~11,311.00 is the principle laid down in a decision in the case of Commissioner of Internal Revenue vs. \.

Victorias Milling Co., Inc., and the Court of Tax Appeals, G.R . No . L-21171, January 31, 1967, 19 SCRA 247 , 252-254, wherein the Supreme Court held , thus - "Among other arguments, the Company resists the collectio n of the sales tax demanded by the Revenue Commissioner on the ground that Section 183(d) of the Internal Revenue Code exempts therefrom:

XXX

XXX

XXX

(d) Articles subject to tax under section one hundred eighty- nine of this code; "

and section 189 levie s upon operators of sugar centrals , like the Company , herein , a tax of 2% on the money value (selling price or 'market value) of all sugar manufactured by them.

SEC. 189.

Pe centage U~.!}.

proprietors or oE._erators of rope £actories, sugar centrals, coconut o11 mi lls, cassava mills and desic- cated coconut factor1es.

Pro-

prietors or operators of rope fac tories, sugar centra s , coconut oil mills , cassava and desiccated coconut factories shall pay a tax equivalent to two_E.~E-~tum of th va lue in money of all the r ope , s ugar, coconut oil , cassava flour or starch, and desiccated coconut 31d

- 10 - manufactured or milled by them , including the by-products of the r"aw materials from which sa id articles are produced or manu- factured , such t a x to be base d on the actual selling p~i ce or market value of t he se articles at the tirr~ they leave the factory o r mill warehouse :

x x x" titalic s _2~_E:lie,S!) .

To this argument, the Commissioner, in turn, retorts that th~ 2% t a x of Section 189 applies only to sugar , but does not me ntion the conta iners the reof , which should s epa- rate l y pay the percentage tax under sections 1 83(b) .and 186.

We find the stand of the Commis s ione r to be untenable, for it does not t a ke into account t wo unde niable facts:

(a) that there i s no evidence to the e ffect thai the containe rs or sacks are separately charged against the sug a r buyers and , as a consequence, the domestic buyers of the sugar pay only one pric e for both s ugar a nd container; a nd (b ) that the buyer takes away with him the sugai and its container. On this ba s is, the pr i ce paid by the customer eithe r includes both !he price of the sugar and that of the container , or else i t repr e sents the price o f the sugar alone.

If it be the first (the price p a id i s for both sugar and sack ) , the n the value of the sac ks is already subjecite d to the 2% tax imposed by section 189, and the sugar c6mpany ha s paid the same ; henc e, it may no longer be ~parately taxed (Section lBBLd/, Tax Code)~ If, on t he othe r hand, the price paid by the buyer is for the sugar alone , then obviou s ly the container is merely given away gratis, a0d not sold.

In whic h case, there is no sale of the container that can be sub- jected to the .>percentage sales tax .• " · _,.·--·-=----- 1The Court of Tax Appeals took judicial notice of this fact, as a practice of r e sponde nt s ugar company.

318

- 11 -· Respondent urg e d that petitioner's cause of action is premature, since its claim for r e fund against the Coll ec tor of Customs has not yet been decided, and therefore this Court has no juris- diction over the instan t case . We find thi s con- tention without me rit.

It ·is to be noted that subject matter involved in this case is the refund of the compe nsating tax paid, the claim for refund of which ha s been fil ed by petitioner with the Bureau of Internal Reve nue.

Even assuming tha t petitioner had filed its claim for refund with the Bureau of Customs and not before the Bu reau of Internal Revenue, the former being an agent of the latter, and the claim for refund ha ving beEn filed before two year period is about to expire, pursuant to Section 306 of the Tax Code , without - respondent having rende red a decision to its claim for refund, petitioner's appea l to this Court is in order; otherwise , the right to file the claim for refund shall have prescribed.

(Koppel (Philip-

pines)~ Inc., ~s. Collector of Internal Revenue , G.R. No. L-10550, Sept. 19, 1961, 3 SCRA 1·7. ) Coming now to the second issue , we ar e of the opinion and so hold that the awarding of an 32ll .;.

- 12 - interest on the refundable amount claimed by peti- tioner is without legal justification. It is well settled tha t in the absence of arbitrariness on its part in th~ assessment and collection of the tax the Government cannot be he ld liable for inte rest in the event it losses in a tax litigation.

(Michael Ship-

ping, Inc. vs . Commissione r of Internal Revenue, CTA Case No . 1909, December 14, 1970.) And in another case, ~ollector of Inte rnal Revenue vs. St . Paul's Hos pital of Iloilo, No. L-12127, Ma y 25 , 1959, 105 Phil. 1319, the Supreme Court al s o held:

"Howeve r , the Court a quo erred in ordering the payment of interest on the amount to be refunded.

In th absence of a statu tory provision clearlY or expr_essTy directing ~uthorizing such payment, and none has been cited , the National Govern- ment cannot be required to pay interests. " (Underlining supplied )

WHEREFORE, respondent Commi s sioner of Internal

I

Revenue

i ~ her eby ordered to refund to petitioner Victorias Milling Co., In~ ., the sum of ~11 , 311 .0 0 , representing 7% compensating taxes paid by it for the period from August 7, 1969 to July 7, 1971.

Without

pronouncement as to costs.

SO ORDEREQ .

Quezon City, 'Metro Manila , N ~be~ 18, 1983.

WE~ 1Q /

AMANTE ;.h7~ Presid"ng Judge 321