V Pan!·, et al. vs. THZ Acting COM.T1ISS Ioner of Customs

DECISION -

2TA CASE NO. 3063 ~ 2 - r esfondent is the duly des ignated Acting Commissioner of Customs who is charged with the duty of en f orcing cus toms laws, and may be served with s ummons a t his office at the Bureau of CuLtoms, Port of Manila. 2.

Under. Republic Act No. 5360, petiti oner v1as granted a franchise "to construct, ma ' ntain and opera t e an electric light, heat and power sys t em for the purpose of generating and/or distri but ing electric light, heat and power for sale within the City of Iloilo and the Municipalities of Sta . Barbara and Pav iw. , both in the Province of Iloilo". (Sec~ion 1, Republic Act No . 5360) ~ 3.

Section 5 of Republic Act No. 5360 provides that "in conside- ation of the franchise and ri ahts hereby granted , the gran ·..::e (peti t ioner) _shall pay a franchise tax equal to two .I?.~!_£_e.E.E:!:U:~ of the gross ear r. ings for elec tric current sold under this fran- ch i se:

Prov id ~ 1 , Tha~ the said franchis e tax of t wo Ee r c:~n tuill of the gr oss ear ning s shal l be in lieu cf t axes, dut ies and as sessments , licens es and fees of whatever nature and which may be l evi ed by any gove rnmental a utho r~ ty now and in the future upon p r iv i~ege s, e rnings, incc ~e, machiner y and equipment, wa t t-hour meters , poles , wi r es , t r ans- '"> n 'l

~ J '

- 3 - formers, and insulators used by the grantee (peti- tioner) ~ from which taxes, dut ies , licenses, fees and assessments the grantee (pe titioner) .is her~"' by expressly exempted~.

4.

Pe t itioner imported for its use in connection with its franch i s ed operations various machine r y, equipment and spare parts wh i ch arrived at the Port of Iloilo on several occasions and declared under differen t import entries , to wit: "Entr y No . 14 - One Case - 6 pes. Injector Body Entry No . 30 - One Case Sk id Distributor Ent~y No . 46 - One Case Vulcan Engine Spares Entry No. 47 -

One Case Vulcan Engine

Entry No. 48 - Two Cases Spares for Vulcan Engine Entry No. 68 - One Case - .238 pes. Filte r Element Entry No . 81 - One Box - 21 Uni ts Load Break Fuse Entry No. 100 -

Three Skids Panel and Distributor

Boa:d and pares Entry No . 135 -One Case - .3 pes . Big ~nd Bear ing Entry No. 136 - One Tri-wall Carton Spat es for

MIRRLESS KV16 Major Engine

Entry No . 159 - One Skid Power Distributor Cutout~ I.E . 2968278 - One Pa rcel Spares for MIRRLESS

KV16 Major Engine

Entry No . 169 -One Case Electrical Spare Parts

for Vulcan Engine "

5.

Notwi thstanding Section 5 of Republ ic Act No . 5360, the Collector of Customs of Iloilo assessed petitioner the amounts of ~63,2 45 and ~31,0 59 as customs dutie s and compenstt:.ing taxes, re spective!_ , for the importat ions .

Petitioner paid said cu s toms du t i es and camp ns a ting taxes and duly p r otested the

DECISION - |

- 4 - same, to wit:

Protest

Entry Duties BIR Tax O/R No. Date Paid Number 14 ep 501 #2 381 367352 Feb. 18, 1977 i: 30 6,409 1,284 367356 Feb. 28, 1977 2 46 403 343 367358 Apr. 22, 1977 3 47 5,868 4,001 367359 Apr. 22, 1977 4 48 8,690 6,232 367360 Apr. 22, 1977 5 68 1,719 1,653 367361 June 3, 1977 6 81 4,541 1,006 367363 June 24, 1977 7 100 48,645 6,480 367364 July 21, 1977 8 1359 2,394 1,716 367367 Oct. 6, 1977 9 136 3,682 2,675 367368 Oct. 6, 1977 10 159 4,728 1,018 #367373 Nov. 29, 1977 11 2368278 203 99 1869331 Dec. 14, 1977 12 169 15,462 4171 367376 Dec. 21, 1977 13 Total 263,245 231,059

6. In an order, the Collector of Customs of the Port of Iloilo denied said protests on the ground that the said provision of Section 5 of Republic Act No. 5360 had already been repealed by Section 105 of the Tariff and Customs Code, as amended by Presidential Decree No. 34 and by Section 190 of > the Tax Code, as amended by Presidential Decree No.

69. Said order was duly appealed by petitioner to respondent.

7. On December 27, 1979, respondent rendered his final decision affirming the appealed order of the Collector of Customs of the Port of Iloilo, which decision was received by petitioner only on February 13, 1980.

Under paragraph 9 of its petition for review,

- 5 - petitioner states t~at the compe nsating tax involve d in this case has already been the subject matter of a claim for refund with the Commissioner of Internal Reve nue which was appealed by petitioner to this Court to suspend the two-year prescriJtive pe r iod to cl ~ irn a refund under the provisions of Section 292 of the National Internal Reve1 ue Co~e .

Since as

reiterated on page 4 of the Memornndum for Petitioner (p . 49, CTA records)~ the compensating tax mentioned in this appeal h . s, in the meantime, become the subject matter of a cla im fo r refund filed with the Commis s ioner of Internal Revenue, which claim is p : esently the sub ~ act of CTA Case No. 2922 (2992) ~ Luw pending before thi s Court, impleading the proper r espond e n t therein the Commissioner of Internal Reve nue , this dec i sion will deal and confine itself only to the customs duties a ssessed and collected on t he i mportations specifi~d in paragraph 4 of the petition for review.

The parties are not in controversy on the computation of the customs duties payable by, or the amount refundable to, petiti oner as the case may be.

Peti tioner ass ails the Gove rnment's right t o i mpose c us toms du t ies on its i m orta tion s o f various

- .6 - mac~inery ~ equipment and spare parts for use in con::1ecti on with its enfr:.:n chised business on the ground that under its charter, i ts payment of two E££_C~l~~~ tax based on its gross earn i ngs for electric current sold is, by express provision of Section 5 of Republic Act No . 5360 , i n lieu of all taxes, duties, of whatever natu r e and which may be levied by any gove r nment authority now a d in the future upon wachinery and equipment , watt-il.our meters , poles , wires , transformers and insu l ators used by petitioner , for which taxes , duties , peti- tioner is expressly exempted .

To quote Section 5 o ~ Republic Act No. 5360:

"Sec. 5.

In consider a tio.1 of the franch~ se and rights hereby granted, the grantee shall pay 2 franchise tax equal. to two per centum c.. .~· the gross earnings for electric curren L sold under this franchise :

Provided, That the said fran- chise tax of two per centum of the gross earnings shall be in lieu of t axes , duties and assessments, licenses and feffiof what- soever nature an~ which rna r be levied by any governmental authority now a nd in the future upon privileges , earnings, income, machinery and equipment , watt-hour meters , poles, wires, transformers, and insulators used by g r antee, from which taxes , dutie s, lie nses, fees and assessments the grantee is expressly exempted. "

Respondent in his a nswer avers as special an~ affirmative defense, however, that Presidential Decree No. 34 which took e~fect on Nov mbet 17, ~972

2 0S

DECISIO[-~ -

repeale d and/or amended t he cu s toms duty-exemption privil03e previously en joyed by petitioner on importations of machiner y and equ i pment, watt-hour meters , poles, wires, tr ansformers and insulators granted under its franchise (Republic Act No. 5360) • The last paragraph of Section 105 of said decree pr ovides:

"The provisions of general and special l aws , including thos e granting franchise s, Lo the contrary notwithstand ing , t her e shall be no exempt ions whatsoever from the payment of customs duti e s except those pro- vided for i n this Code; those granted to government agencies, instrumen alities or gov·er nmen t-owned or con trolled corporations with existing contrac s, commitments , agree- ments , or obligations (requir ing such exemption) with foreign countries; inter- nati o na l institctions, a ssociations or organizations enti tled to exemption pur s uant to agreements or sp~cial laws; and tho s~ that may be granted by the President upon prior recommendation o f t hP National Eco nomic Development Authori ty in the interest of national economic development."

The issue for determinat i on , therefore, as pos _d by petitioner , is:

Whethe r or no t Section 105 o f the Tariff and Customs Code, as amended by Pres- i dential Decree No. 34, has revoked the g r ant of exemption from customs duties to petition e~ under Section 5 of Republic Ac t No. 5360 . Petitioner 1 s submis s ion that Section 105 of the Tariff and Customs Code, as a~ended by Presidential Decree No . 34, could not have revoked the grant

DECiclON -

- 8 - of exe .tption from customs du t.ies to petitioner nder Section 5 of Uep1blic Act No. 5360 on th~ ground t hat its franchise pr '~eludes the irnposition of any t ax o t he r than the franchise t ax which the Gover n- rnent may impose "now and in the future" is positively wi thou!: me :: it..

PeLitioner's franchise t~ construct, main ta i n and operate an electric light, heat and power system f or the purpose of generating and/o r d i stributing electric light, heat and/or power for sale within t he City of Iloilo and the Municipal ities of Santa Barbara and Pavia , both in the Province of Ilo i lo , is by expr e ss provision of Section l of its charter (Republic Act No . 5360 , approved on June 15, 1968 ) ~ subject to the provisions of the Const i t ut ion and to the terms and conditions established in Act No . 3C36 , as am nded by Comrnonwe~lth Act No. 132. Section 8, Article XIV of the 1935 Constitution, .

under w ose author ity the franchise of petit i oner \vas granted, specificall y provides that: "No franchise or right shall be grante ~ to any i ndi- vidual , firm , or corporation , except under the c ondition that :t shall be subject to amendment , alter ation, or repeal by Congr e~ s when the public int ere~ t so r e qu i res ."

The po wer of t he State tp ., · ~ o· - 1 . .

DECIS·ION -

CTA CASE NC. 30 63 - 9 - amend the franchise of petitioner, as p~ov i ded in the Constitution, is therefore deemed to be a part of such franchise.

(Hoa Hin vs. David, 105 Phil.

783 ; Lealda Electric Co . Inc. vs . Commissioner of Internal Rev nue, L-16428, April 0 , 1963, 7 SCRA 728; Imus Electric Co. vs . Court of Ta

Appeals 1

L-2242i. , l.\1ar.c h 18, 1967 , 19 SCRA 612; Guagua Electric Light vs. Collector of Internal Revenue, L-23611 , April 24, 1967 , 19 SCRA 790. )

And in Section 12 of

Act No. 3636, which took effect on December 7, 1929, it is provid_d that:

"Sec . 12 o Thi s franchise is granted subject to the provisions of Act Numbered Three thousand one hundred and eight, as amended, and wi th_ll!.§L ... ~mder sta~ anq_ upon the condit ion that it sh~ll_~b­ ject to amendment, alteration, gr repe~1 Ei....lb_~ N a tion.3._l As se~£1Y_or _b_y_~~-_fOl}.;lE._f~ of the United States , and that it shall be subject in all respects to the limit- ' ations upon corporations and ~_2~ing_ of franchises contai e d in the Constitution of. the Phili_p~:h_~ , and also-- subject to the provi~ i ons of Act Numbered Fourteen hundred a nd fifty-nine of the Ph ilippine Legislature, as amended.

(Act No. 3636, Permanent and General Stat~tes, Vol . I, p. 682 , 1971 ed.; -mphasis supplied.)

Accordingly, when petitioner accepted its franchise , it di ~ so with the u1derstanding that the constitutional and statutory reservations of the right of the State to amend, alter, modify or repeal petitioner's f c anchise when public interest ..

DE Ci~ ION -

CTA CASE NO . 30 63 - 10 - so requires became an unwritten condition thereof. On the assumpt ion therefore that Section 5 of Republic Act No. 53 60 gran ted exemp t ion from customs duties to petitioner on its im or t at i ons o f machinery, equipment and spare parts for use in its franchised ope rations, s uch exemption may be revoked or repealed anytime by the State when the public i nterest so requires .

Th

acts of the Leg i slature granting franch ises should be construed so as not to contra- vene or violate t he Constitution, for otherwise said legisla t i ve acts wou l d be nLlll and void or uncons- titut ional.

(The Philipp ine Long Distance Te lephone Co. vs . Collector of Inter nal Revenue, 90 Phil. 674 .) It is thus self~ev iden t tha t petitioner's franchi se does not preclude the imposition of any tax other than the franchise tax which the Government may i mpose when the public interest so requir e s , not- withstanding the "now-and-in- the-future" proviso '~. h ereof.

Public i nterest is the basic and pr imordial concern of the State .

It is in pursuance of the constitutional mandate, s orda i ned i n the preamble of the Constitution under whose authority petitioner's f r anchise was gr anted, to pro .. ota the general welfar e: It i s a matter of public necess ity or pol icy , for the public good and economic well-being of the 212 ..

- 11 ·~ country.

And this c oulc"! mean alte r at ion, amend- . ment or revocation of franchi ses or rights granted, within constitutional limits, in the i nte rest of national economi c development or adjustment to suit the needs of the changing e c onomic cond i t ions of the country.

It has been declared that the e c onomic interests o f t he State may just i fy the e xer cise of i ts c ontinuing ard dominant protective power notwithstanding i n terference even with con- trac-s and property rights.

(Rutter vs . Esteban , 93 Phil . 68 , 73, citing Home Building & Loan Association vs . Blaisdel, 78 L. ed. 413, 428. ) Thus, a s en~ncia ted in the Explanatory Note (whereases ) _to ?residen t ial Decree No. 34 , amending the Tarif f and Customs Code, in o:::de.r to: (1) Simplify the present complicated tariff structure and mprove thereby the administration of cus-l:-,oms ;

(2) Raise additional re venues;

(3) Provide tariff protection to economically des irabl e a nd deserving local industries; (4 ) Serve as an i nstrument for barga:ning vis- a-vis other countries;

(5) .. Allocate properly available resources from investments in non-~ssentials to investments in ..

DECISION ·-

CTA CASE NO . 30 63 - 12 - essential and expor table go ods~ (6) Prevent technical smuggl ing;

public pol icy would seem to require t hat only those articles enumerated in Sect i on 10 5 of the Tariff and Custoills Code, as asended by Presidential D ec ~ ee No. 34 , should be exempt from the payment of impor t dutie s upon compliance with t he formalities pres- cribed in, or with the regulations promulgated by the Commissione r of Customs wi t h the approval of Secret a~ y (now Minister ) of Finance. Consequently , under the last paragraph of s aid Section 1 05, su..E!:...~' there shall be no exemptions whatsoever from the payment of customs duties , t he prov is i ons of general to the contrary notwithstanding, except: (l ) These provided for in the Tariff and Customs Code ;

(2) Those granted to gove rnment ag e nc ~es , instrumentalities or ~overnme n t-owned or controlled corpor ations with exis&ing contracts, commitments, agr eement s , or obl igations (requiring such exemptions) with foreign countr i es;

(3 ) Those granted to international i nstitu~ions , a s~oc i a t i on s or organ izations enti t led t o exemftion pursuant to agr eements or special laws; and 21 :} ..

- 13 -

(4) . Those t:;1at may 'e granted by t..:.he Pres ident upon pr i or recoMmendation of the National Economic Development Authority in the interest of national economic development.

In the interest of national economic development and t he needs of the changing economic condit ions of the country, nat iona l welfare and publ ic interest appear t o requir , therefore, as declared in the In ~ roductory Note to Presidential Decree No. 34 1 amending the Ta~i-f and Customs Code, that there should be no exemptions whatsoever f rom the payment of customs duties exc~pt those mentioned in t he last parag r aph of Section 105 of the Tar i ff and Customs Code as a ,ended b~ Pre3idential Decree No. 34. And since petiti on e ~ ~c cep te d its franchise with · the under s tanding of th · constitut io~al and statutory rese·vations of the right of the State t o amend, alter or repeal the same whcin the public interest so requires, petitioner can not claim that the "now-and·-in-the-future" proviso of its char ter has the effect of precluding the imposition of customs duties on its importations of machinery , equipment and spare p~rts l ' r . its use in connection with its enfr ar..chised b·1s iness.

. '

- 14 - Pet itioner contends, however, tha t i n ord0r that Sec t i on 105 of the Tariff a.d Customs Code may be deemed to have amended or altered i t s franchise , the intention t.o do so must clear l y and without doubt appear from the said Section 1 05. Petitioner ' s contention may not be inherently implau s ible, but t he law is s o clear, ~pecific and mandatory that it leaves no room for doubt or interpretation.

It

merely calls for application as thus worded . The controll ing legal provision, a c '"' already quote d above , reads :

"'rhe provisions of general and special l aws, i ·: cluding t hose granting franchises, · to the contrar y notwithstanding, there shall be no exemptions whatsoever from payment of customs duti es x x x . "

The applicable provision makes it· ex- . p l icitly and abundantly clear tha t exemptions from payment of customs dutiesr including those a r ante~ under franchises , are no lo~ger available except those e numerated in Section 10 5 , and petitioner is undoubtedly not one of t hem.

While it is t~ be admitte d, under settled rules of statutory constr uction , that a later statute, general i n its terms and no t expressly r epeal ing a p r ior special statute, will ordinarily not a f fec t the special provisions of such earl i er statute, the ' .

DECISION -

CTA CASE NO . 3063 - 15 - duties ," is so plain and explic it, free fJ:om ambiguity or doubt,definit~ and clear in meaning, tha t it unquestionably incl udes exemptions from customs duties granted under special laws or franchises, including the fran c hise of petitioner , on the fl. s u~!J2·· tion tha t such exemption from customs dut : es does exist.

In granting petiti one r a l egislative franc hise to construct , maintain a nd operate an elec t ric light, heat and power system for the purpose of generating and/cr distributing electric light, heat and power for sale ~ithin the City of Ilo ilo and adjacent municipalities , Congress might have conside red and made provision for all the cirCUffiJtances of the particular ca s e, but the power of the State to amend, alter or repeal when 'the public in~er est so .

requires, as provided in the Constitution and in the franchise of petitioner , is also a part of petitioner'~ charter.

The peremptory requir em-nts of public interest which could mean priority me sure s vital to the national economic development programs of the Governmen t an- the needs of the ch~nginq economic conditions of the c ountr y, as envisaged in 0 1 '7 ..;.., Ji.

. '

~

-· 16 --~ Presidential Decree No. 34 , amending the Tariff and Customs Code , appear to s : ~ess the necess ity of lim i ting exemptions from customs duties to those enumerated in the last paragraph of Section 105 of t he Code.

The ter~s of the statute provide the safest gr1ide as to the views of the State on national interest or necessity which should not be construed so as to limit or preclude the Government from attaining or applying those views by legis- lation.

In finding petitioner 1 S cause wi t hout merit, it bears emphasis that he who claims to be exempt from the payment of a particular tax must do so under clear and unmistakabl e terms found in the statute .

Tax exemptions are strictly construed aga i nst the taxpayer, they being highly disfavored and may almost be said 11 to be odious to the l aw.

11 He who claims an exemption ~u s t be able to po int to some positive provision of law creating the right; it cannot be allowed to exist upon a mere vague i mplic2tion or inference.

(Asiatic Petroleum

vs. Llanes, 49 Phil. 466 , 471; Union Garmen t Co., I nc . vs . Court of Tax Appeals, L- 16609, January 31 , 196 2 , 4 SCRA 304~ Philippine A cetyl e n~ Co., Inc . vs . Com .. ~i £:.:::, i one r of Interhal Revenue , L·~l970 7 r .t\ur_:~ u s t. 1.7, 2 18 ..

DEt:ISION

~

.. 17 - 1967 , 20 SCRA 1056; Republic Flour Mills, Inc . vs. Commissioner of Internal Revenue, L-25602, February 18, 1970, 31 SCRA 520; Commissioner of Customs vs. Philippine Acetylene Co . & Co~rt of Tax Appeals, L-22443, May 29 , 1971, 39 SCRA 71; Davao Light and Power Co., Inc . vs. Commissioner of Customs, L-28902, March 29, 1972, 44 SCRA 122.). The right of taxation will not be he l d to have been surrendered unless the intention to surr Pnder is manifested by words too plain ~ o be mist· k~ n (Ohio Life Insurance & Trust Co. vs. Debolt, 60 Howard 1 416)~ for the state cannot strip i t self of t he most essent i al power of taxation by doubtf'.ll words, it cannot , by ambiguous language , be deprived of this highest attribute of sovereignty .

(Erie Railway Co. vs. Commonwealth of Pennsylvania, 21 Wallace, 492, 499) ~ So, when exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim (Farrington vs. Tennessee & County of Shelby, 95 U.S . 679, 686 ) ~ (As iati c Petroleum Co. vs. Llanes, 49 Phil. 466, 471; Manila Electric Company vs. Commissioner of Internal Revenue, L-~9987 & L-23844 , October 22, 1975, 67 SCRA - 51.)

21~

As stressed by the Su~~eme Court in Acting Commissioner of Customs vs . Manila Electric Company and Court of Tax Appeals, L-23632, June 30, 1977, 77 SCRA 469, an exemption from taxation must be justified by words too clear to be misrea • As set forth in Commissioner o f Internal Revenu · vs. Guerrero, L-20812, September 22, 1967 , 21 SCRA 180: "From 1906 , in Catholic Church v. Hastings to 1966, in Esso Standard Easter n , Inc. v. Acting Commissioner of Customs~ it has been the constant and uniform holding that exemption from taxation is not favored and is never presumed , so that if granted it must be strictly construed against the taxpayer.

Affirm-

atively put, the law frowns on exemption from taxation, hence, an exempting provision should be construed strictiss!mi juris ."

(Catholic Church vs. Hastings, 5 Phil. 701; Esse Standard Eastern~ Inc . vs. Acting Commissioner of Customs,· L-~1841, October 28, 1966 , 18 SCRA 488 .

The opinion also cited Government vs . Monte de Piedad , 35 Phil. 42; Asiatic Petroleum Co. vs . Llanes , 49 Phil. 466; House vs. Pos das, 53 Phil. 338; Phil . Tel and Tel. Co. vs. Collector, 58 Phil . 639 ; Greenfield vs. Meer , 77 Phil. 394; Collector of Intern-1 Revenue vs. Manila Joc key Club, 98 Phil . 670; Phil. Guaranty Co., Inc. vs.- 22 0 ..

DECIS·ION

CTA CASE NO . 3063 - 19 - Commissione r., L-22074, Septembe r 6, 1965, 15 SCRA 1; ~bad vs. Court of Tax Appeals, L-20834, October 19, "966, 18 SCRA 374.)

The ne·t result is that the decision o f r espon- dent denying the protests of petitioner against the assessment and collection of customs duties o n its importations of mach i nery , equipment and spare parts for use in connection vJith its franchised business and d.clared under Impor t Entries Nos. 1 4 , 30, 46, 47, 48, 68 , 81 , 100 , 1 35 , 136, 159, 169 and Informal Entry No. 2968273 , al l Seiies of 1 977 of the Port of Iloilo , for lack of legal bas i s must have to be sus- tained .

Petitioner Panay Electric Company, Inc. is not therefore entitled to the refund of the amount of ~63,245.0 0 as customs duties paid on its importations. IN VIEW OF THE FOREGOING, we f ind no merit in the petitio fo r r ev iew and we hereby affirm the decision of respondent Commissioner of Customs in- sofar as it refers to the assessment and collect i o n o f customs duties .

With coits against petitioner.

I CONCUR:

I

~"?fNTti- ~A4 ~

Associate JudgrN

~~ · Assoc iate Judge