“Oro Enterprises, Inc vs. Commissioner of Internal Revenue ¢

DECISION

CTA CASE NO. JQQ( - 2 - only o every original s ale , barter , exchange or similar t ransaction f or n om i n~l or valuable consideration i ntended to t-=ansfe ownership of, o~ title to , the a~ti c l es herei nbel ow enumerated a tax equivalent to f i f ty per centum of the gross value in money of the articl es so sol d, bar t ered , exc:hanged or transferred , such tax to be pa id by t he manufacturer or pro- .. duce •

XXX

XXX

~X

• (b) Perfumes , essences , extracts, t oilet wate~s , cosmetics , hair dressings , hair dyes, hair restoratives , aromatic cachous , t oilet powders , except tooth and mouth washes , dentrifies , tooth paste , t a l cum and medicated t oile t powders , hair ~~l s and pomades. x x x" Underscoring supplied) .

Also paid by petitioner is t he s um of P~l , OlO . OO as the 50~ advance s ales t ax on i ts i mported essen- tial oils to be used as r aw materials i n the manufacture of the said produc based on t he l anded cost plus 100~ mark- up pursuan t to Secti on 193(b) in relation t o Section 194(b)~ supra , both of ~he Tax Code.

Section 193{b} i nsof ar as pe rtinent provides : "Sec. 193 5 Payment of percentage t axes .,- x x :' (b) Sales tax on imported artic le s e- When t he ·art:Cle!~ are i mported , the percent- age taxes established in Sections 194, 195 , 196 , 197 , 198 , 199 ano 201 of this Code shall be paid in advance by the importer , ' n accordance w~th the regulat ions promul- gated by the Se~retary of Financu and pri or

DECI SI ON -

CTA CASE NO ~ 3004

- 3 - to t he r elease of s uch ar tic l es f rom customs' ~ ustody , based on the home consufuption val ue or pr ice {exclud i ng i nternal excise t a~es ) t her eof , plus (10% ) pe cent of such ·home consumption value ·or price , i nclud i ng postage , commiss i on , customs duty and all s imi lar c harges , except f reigh t and · nsurance , plus one hundred per centum of such total va l ue i n t he c ase of . articles e nume rated in Section 194 and 195 , f ifty per cent um i n t he case of articles unde r Sections 196 and 197 and twenty-f_i ve per cen t um in t he ca se of a r ticles nder Sec tions 198 , 199 a nd 201 .

The tax i mposed in t hi s Section shall not apply t o articles t o be used by t he i mporter himself i n t he manufacture or prepar a t i on of arti c l es subj ec t t o specif i c t ax: x x x ~ Taking excepti on , peti t ioner cla i ms , by and l arge , t hat i ts manufac tured "Ci t robelle Skin Lotion" by formulat i on and purpose is primari l ¥ an antisept ic f or pimple and acne medicat i on proper ly classi f ied a s medicinal preparation o And hav i ng distilled spirits as chief i ngr edient i t must be s ubjec t to t he s ame t ax as such c hi ef i ngred ient as prescr ibed i n Section 138 i n r e l ati on to Sec t ion 145 , both of the Tax Code .

The pert inent prov i sions r ead as -al l ows : "Sec 4 l 38o Tax on preparation s cont aining ~ i s tt lled s pir i t s a s chie f i ngredient. - . H£!dicinal prepara t ions , f lavor i ng e xtra c t~ , and al l other pre- p ar ati ons ~ except t o i l e t pr epar ati ons , of which , exclud i ng wa t er , d i sti l l ed s pi rits f orm t hp chief i ngr ~ d i e nt , s hal l be s ubjec t-. t o t he sa11112 ta};

<AS

s-uch i ngr.edien t , x x ."

DECISION -

CTA CASE N0 8 300 4

- 4 - Sec. 145.

Specif j~ t ax on dis tilled spi rits.

On distilled ppirits there shall be coll ec:ted , s.ubject to t he provisions of Section one hundred t h irt y - ;~ine of this Code:, except as hexeinafter provided , specif ic taxes as fol l ows :

XXX

XXX

' Spirits or distilled spi r i t s • is t he substance known as ethyl alc9hol , ethanol or spir i ts or wine , i ncluding all dilutions and mixt ur es t he reof , from whatever source by whatever process. produced , and shall i nclude wh i s l<y , brandy , r um , gin and vodka, and other similar products or mi xtures excep compounded l iquors t axe·d unde r Secti on 14G of t hi s Code .

x x.• BIR Ge:ne:r al Circular No. 4&8 da te9 September 18 , 1940 provides t hat t he "ter m chief i ngredient is construed to mean more than 50% of t he preparation , excluding water/ is al cohol " and as cer tified by the Food and Drug Administrat i on (Exh . "A" ~ i nfra , Citrobelle Skin Lotion contains 90 % more or l ess of ethyl alcohol by volume, excludi ng water . On the foregoin g note, peti t i oner fi led with t he responden t Commi ssioner of I nter nal Revenue a wri tten claim f or re f und of t he aggregate amoun t of ~501,626 e 70 r epre sent i ng the percentage and advance sales t axe s raid, and ins t l t: ,JI: l~d t.i1 j s i nstant petition f or review on April 20, 1979. The record r e l e~antl y s ummar 1zed di sclos es tha t t he contr o<tJerte J "skin l ot ion " i s u r egistered i 96

DECISION -

CTA CASE NO. l004 .5 - or 9 with the Food and Drug Admi nistration (FDA) '· " which 0 f or: the· purpos.e of the i nstan t case i ssued the certification , quoted as f ollows: •s February 1979

C E R T

F I C A T I 0 N

TO WHOM

T 1-'lAY CONCERN :

This is to certify t hat on the basis of t hei r formulation , CITROBELLE SKIN LOTION and CITRO SKIN LOTION are MEDICINAL PRE- PARATIONS containing as active i ngredient s al i cylic acid , a keratolytic agent, and ethyl alcohol , as chief i ngredien t comprising 90% more or less of t he f inished product e~cluding wat er .

This is to certify also that on t he basis of their active ingredient and chief i ngredient, CITROBELLE SKIN LOTION ac t as an antibacterial and antiprur i t ic preparations and have a normalizing effect on dermal osmotic pressures.

This is to certify furthe r that LIME , LEHON and LAVENDER essential oils are vita l ing- r edien t s i n the f ormulation of the finished product ..

This is t o certify f inally t hat Boric Acid powde r USP grade and Borax powder/ gr anule USP grade are i n(.iispensable components cf

CITRQBELLE SKIN LOTION and CITRO SKIN

LOTION.

These chemical raw mater ials ac t as antibacterial agents .

Thi s certification · s being issued upon r equest of ORO LABORATORIES , a division of ORO ENTE RP R IS~ S , INC . for Bur eau o I nternal Revenue (BIR) _purposes only~ (Sgd. ) ARSENIO N, REGALA, Ph . D. ADMINIS.TRATOR '8 . .

DECISIO

CTA CASE NO. 3004 - .6 - The t estimonies of r ecord , i nter alia , show t hat Citro~elle Skin Lotion was registered a s a drug because i ts active components are f ound t9 cure , medicate and alleviate sk in disorders l ike acne and pimples etc., and that the chief i ngre dien t has ge rmicidal and antiseptic action (Ms. Eli~ a Caballero of the Drug and Registration Unit, F DA) ~ t hat the presence of ingredients wi th differ- ent medicinal purpo~es and t her apeutic values makes Citrobelle Sk i n Lotion a medicinal vis a vis cosmetic , preparation (Professor Nat i vidad De Castro , College of Pharmacy , U. P. ~ t hat i n the f ormulati on of the f ormula s f or Citrobelle Skin Lotion tne mentioned ingredi~nt s were specifically chosen because they are tradi tionally tried and tested drugs used i n t he treatment of common skin disorder s which includes pimples , acne , ringwonn or ' anan ', athlete~ _ f oo t, eczematoiditis, i tch i nes s from insect bites , etc . (Ms. Teresita Guanzon Velasco , Vice-Pres ident, Oro Laborator i es , Chemi s t and Pharmacist) •.

What have been j ust stated and quoted could have the controvertecS pr·oduct fi t into an appropriate l ega cubbyhole f or Jt.edic inal preparations aptly charac t er i zed i n an analo~1ous c .J:..>e, " /\ '..:> u::>t.ed i n t he

I

98

DECISION -

CTA CASE NO. 3004 - 7 - 9 Tariff c t of March 3, 1~8 3 c. 121 , Schedul e 2, 22 Sta. 494 ) _these medicinal preparations mean . such articles , as are of use or believed by tne prescribe or use r f a i rl¥ and honestly to be of use , i n curing or allevi ating or palliating or preventi ng some disease or affection 9f the human body."

(La Tondefia, I nc . v . Collector of I nterna l Revenue and CTA ,

0 SCRA 713 •

Thi s well compor t s .

with t he class.if ica tion pe ti tione has given its O\'ln product.

In t he c·ase at bar we are not to confuse about a rare addendum t o pharmacopoe ia in which f act and fabr i cation become indistinguisable but abou t t he usual attributes animating the meaning of medicinal preparations as legal ly contemplated f or t ax purpose .

I t may not therefore be an over- simplication to state that the finding of the Food and Drug Admin i strat i on f ur nishes the best means of its own exposition in te rms of t ractable dat a openly l aid and f ully disclosed and as such deserves the credence that should normally be accorded .

Res-

pendent points to no i r r egul ar ity nor error of the r elevance and c oupe t ence r equi r ed t o bash that patina of le·gi timacy over the cer ti r lc ~t tlun. 'l'lte 99 DECIS lON • CTA CASE NO. 3004 - .B ...

apparen quibble on t he descriptive t erm, " ot i on• as c reating t he i mpression and evoki ng the connota- tion tha t the preparation i s cosmetic , does not change the basic fact that the controverted product by nature , formulation and purpose , as f ound and cer tified, i s medicinal e "What's i a nam~?, t hat whi ch we call a rose , by any other name would smel l as sweet1" We do not think the c er tification i s a mer e cosmetic effor t to disgu i s e the true nature ·· and c haracter of the questioned product;; . We t here- f ore feel compelled to affirm i t s import and force l est i t be suffered t o petrify i n f util i ty e On aspects similar in many or so with the case at bar , t he ruling in the La Tondena case , supra , appear s i n point , "specially denatured alcohol being deemed distilled spi r its and forming as it does the chief i ngredient of r ubbing alcohol , the l atter i s considered as med i c inal preparation subject to specific t ax under Sect ions 127 now Sec. ~ 138 ) .and 13 3 (now See . 145) '· both of the Tax Code . " Li kewise , on the s ame foc using question it was aga i n ruled that, "Astringosol" with distil l ed spirits as its c hi ef i ngredi en t , although denatured , has bee class ified as medicinal pr e p ~r a t ion by the I nstitute of Science and Technology. ! ccordingly, 100

DECISION

CT CASE NO . 3004 - .9 the e t hyl alcohol to be used i n i t s manufac t ur e

II

i s subject to the specific t ax presc r i ped in Secti on 133 (now Sec. 145 ) _i n r elat i on t o Section 127 (now See s 1 38) ~ both of t he Tax C o ~e, prior to i ts removal f rom the disti llery prem ises~

(BIR

Ruling of March 2, 1955.) I n indignation petitioner rightful l y poses, " if r ubbing alcohol which i s solel an antisepti c i s considered a medicinal preparat i on , what more of Ci t robelle Skin Lotion , which is a pimpl e and acne medicat i on , more t han just an antis.eptic, what also of 11Ast ringosol" a t ooth and mouth wash or antiseptic, used f o toi let purpose , which has been exc l ud~d from t he toile t i tems s ubj ect to 5·0% percentage t ax under

Sectio

194 of t he Tax Code as be i ng medicinal prepar ation by virtue of BIR Rul i ng of March 2, 1955."

The reason i ng interposed by t he pe t itioner seems a little more t han a sta temen t of t he obvi ous. We uphold.

Of equal signif ipance is a r ece nt rul ing of the respondent Cornmissione t of I nt euu.L l{ev.cnue on the " Johnson ' ~ · B aby Cologne" preparation, which c ircumstances obtai ning are of no differen t mold with t he instan t c ase , i nsofar as pertinen t r e ads , "Accordingly , and as t he chief ing r cd1ent of t he 101

DECISIO

•

CTA C SE NOa 3004

.10 pr epar at i on i s alcohol, a d i s t il e spir it, the • a f oresaid pr oduct is subjec to specifi c tax as such distilled s pirits p rsuant to Secti on 138 of the Tax; Code .

However , since spe,cific t ax on the alcohol used as chief i ngredi ent in t he manufacture of J ohnson' s Baby Col ogne has already been paid , no fur t he r spec ific t ax i s due and payabl e on t e s a id pr oduct.

Furthermore , no f urther percentage tax is due and payable on t he same produc t ." (Respondent 8 s l e t t e t o Law Of fice of A.M. Si son , Jr. dated March 30, 1981, Annex "A".) Far be i t f rom a theoreti c al gobbledygook the ru ~ i n g l ends settling eloquence to the precise is ~u e r aised in the c a se a t bar.

Suffice it to state, the above-cited rul ings ar e pat en t exe mplars demonstr a t i ve of re spondent 's under stand i ng of t he c a se s similar ly concei ved and claimed as preparations which chie f ingredients ar e distilled spir i ts , t hereupon consistently t ac ked t he specific t~x i mposed on s uch chie f i ngredient prescr ibed in Section 138 in relation t o Section 14 5 of the Tax Code , supra . ~\l' e see no r eason and none i s ofier ed as to t he random 4uir · o a ariance i the ~ ax treatment ot Cit obel l e Skin Lot ion "wh i ch i s wore t han just a1: <-~n tis\..• p t tc:

10:2

DECISION -

CTA CASE NO . 3004 - 11 - being compounded f or purposes of medi o ~ting a d • preventing skin d i so ~ der s , such as pimples, acne, an other skin irrita t i ons."

(Exh. "D".)

Res-

pend e nt'~ classification of the Skin Lotion a s a c osme t ic subject to t he 50% sales tax under Section 194 (b) .of t he Tax Code, supra, (Exh. "C") '· would seem a convoluted rend 'tion of an expedie17t denouernen which is not entirely justifi ed .

Such

a quick sh t t le of a contradictory fi a t co~ld not be r esul t of policy but suffers from l ack of policy.

We t hus reach t he conclusion that the con- trover t ed Citrobelle Ski n Lotion bein CJ a medicinal prepar ation and conta ini ng distilled spirits as c hi e f ingredi ent i s s ubject to the same tax a s such chief ingredient prescribed under Section 138 in r el ation to Section 145, both of the Tax Code, s upra .

Consequently , the importati on of essential oils to be used as r aw materials in t he manufactur e of the medicina l preparation is exempt f r om the payment of pe rcentage t ax and compensating t ax as e>,;pressly provided in Section l 93(b) and Sec t ion 204(a) both of the Tax Code of ' .

97 7 ..

103 - DECISION - .

CTA CASE NO. 3004 - 12

WHEREFORE, petitione r is entitled to the • refund of t he a gregate amount of PS01,626.70 representing erroneously paid percentage taxes and advance sales tax for the period involved which respondent is irected to pay without pronouncement as to costs.

WE CONCUR:

• ROAQUIN

e Judg.e 104