~ Ltepublic of the Phiuppines Court of Tax Appeals Quuon Clty Mega General ~1.ERCHANDIS Ing Corporation, et al. vs. 'L'He Coill'Liss Ioner of Internal Revenue

DECISION -

- 2 - etc . is not subject to specific tax but only to advance sales tax under Section 186 (Exhs. C, C-1_ , C-2_, pp. 73- 75 CTA rec.) ~ Petitioner , accordingly, paid advance sales tax in the sum of ~1 49,3 88 . However, the Commis- sioner of Internal Revenue has previously required the payment on this importation specific tax of P321,436.79 which petitioner actually paid and which petiti oner requested to be refunded or credited by respondent Com- missioner of Internal Revenue in i ts letter of November 27 , - 1975 .

(p. 138 , BIR rec.)

In a ruling of J anuary 28 , 1977, r espondent held petitioner liable f or specific tax of P321,436.79 and denied the latter ' ~ claim for t he r efund or tax credit of the alleged overpaid specific tax of P321 ,436.79. (p . l.tJ,G, BIR rec.) .

In a letter dated January 11, 1978, respondent ' Commissioner of Internal Revenue , acting on the request for reconsideration , approved the c laim for tax credit of petitioner • s_ overpaid specific tax, which, in effect, held t hat petit i oner is not liable for specific tax on its imported crude paraffin wax.

(p. 210 , BIR rec;

Exhs . E and E-1 , p. 77 CTA rec.) In view of the other conflicting ruling of January 28 , 1977 (Exh . D. p; 76, CTA rec.) .which ruled and held petitioner liable for specific tax on the imported crude 116

- 3 - paraffin wax, as against that ruling of January 28, 1977 aforesaid , having its position on the fact that under the ruling of the BIR of May 14, 1975, stated earlier, interpreting the provisions of Section 142( i) ~ as amended by PD 392,of the Tax Code, and which remained unchanged ever since, petitioner on May 4, 1978 requested for reconsiderati on praying that it shall be held not liable for specific tax on said importation. (p. 209- 214, BIR rec.)

We hereby quote at length BIR rul ing of May 14, 1975 for more in depth analysis of the same. This refe·rs to your letter dated April 22, 197 5 requesting clarification a.s to whether imported crude paraffin wax is sub- ject to specific t ax under Section 142(i ) of the Tax Code, as amended by Presidential Decree No . 392, or to the 7% sales tax under Section 186 of the same Code.

It is your opinion that crude paraffin wax, a raw material used in the manufacture of candles, wax paper , matches, crayons, etc. is not subje·ct to specific tax under Section 142(i) of the Tax Code, as amended , on the ground £hat what are s ubject to tax under said section are refined and manufac- tured mineral oils and motor fuels . In reply , I have the honor to inform you as follows:

Section 142(i) of the Tax Code, as amended by Presidential Decree No. 392, provides as follows :

"Sec. ·142.

Specific tax on manufactured oils and other fueis.- On refined and manufactured mineral 117

DECISION -

CTA CASE NO . 3078 - .4 - oils and motor fuels, there shall be collected the following:

"i) Greases, waxes and pet- .

rolatum, ·per kilogram, thirty-f~ ive centavos. "

The title of Presidential Decree No . 392 runs as follows:

INCREASING THE SPECIFIC TAX

ON KEROSENE, LUBRICATING OIL, GASOLINE , BUNKER FUEL OIL AND DIESEL FUEL OIL AND IMPOSI NG

SPECIFIC TAX ON OTHER REFINED AND MANUFACTURED

MINERAL OI LS BY AMENDING SECTIONS 142, 144 AND

145 OF THE NATIONAL INTERNAL REVENUE CODE AS

AMENDED.

Among the statements in the declaration of policy of Presidential Decree No . j92, are the following:

"WHEREAS , in order to improve and simplify tax administration , it is desirable to adopt a uniform tax treatment for all refined and manu- factured petroleum products;

WHEREAS, the increase in tax on motor fuels and oil is consistent with the present policy to conserve fuel. " In determining whether imported crude paraffin wax. i s subject to specific tax or to the sales tax, it is important to know the nature, charac- teristic and uses of paraffin wax. "Paraffin, a colorless or white, waxlike substance, a solid at ordinary temperatures, which is odorless and tasteless and slightly greasy to touch . It is obtained from certain types of paraffin-pase petroleum oils, such as Pennsylvania crudes (not from asphaltic oils, as produced in Mexico and Cali- fornia), and sometimes from shale oil .' Crude p~troleum oils is subject to a process of. fr actional distillation, by which gasoline, kerosine , gas oils, paraffin distillate, and lubricating 118

- .5 - oils are successively obtained.

The ~r a f f in w~ is separated from the paraffin distillate and f rom the gas oil and lubricating oils, which also contain paraffin, by a process of chilling, followed by filtration.

When the par affin- .

cont ain i ng oil is refr i ge rated , the wax crystallizes out.

If a solvent such as methyl ethyl ketone, which is a good solvent for oil and a poor one for wax, is added to the paraffin-~earing oil, the separation is facilitated.

The paraffin i~ f ur the r refined by recr ystalli zation fr om solvent.

"One of the outstanding physical characteristics of paraffin is its resistance to water and water vapor. More than half the paraffin produced is used as a coating for paper (milk cartons, frozen food containers). Paraffin has important uses in the manufacture of drugs and cosmetics (lipstick, o i ntments) and candles.

It

is also used for elecirical insulation . "x x x .

The chlorina t ion of par affin is used to produce methyl chlor ide, a refrigerant and solvent, ethyl chlor i de for tetr aethyl lead manuf acture, and chlor inated paraffin waxes for use· as hig.l}-pressur e l ubr i - cants .

x x x."

(Vol . 21 , pages 274d - .274e, Encyclopedia Americana) On the other hand, wax is defined, viz: "Wax - .any of a number of natural or synthetic substances that are oil y, greasy, insoluble i n water, and very sensitive to changes in temperatur e . Waxes differ widely in chemical compo- sition.

Some waxes are esters of high~ mo lec ular-~ei g ht fatty acids. An ester is one of the products of a reaction between an ac id and alcohol.

These waxes may be animal, vegetable, or mineral 119

DECISION -

CTA CASE NO . 3078 - 6 - in or1g1n.

Some waxes obtained from petroleum and therefore are hydrocarbon.

"The petroleum waxes are produced mainly from petroleum lubricat ing oils in a process called dewaxing.

Petroleum waxes, microcrystallin waxes, and petro- latum."

(Vol . 19, pages 351- 3.52, Merit Student s Encyclopedia, 1974

Edition)

"Microcrystallin waxes, which are closely r elated chemically to paraffin but have higher melting po i nts, are obtained from residual oils from the distilla t ion of crude petroleum oil."

(Vol. 21, p . 274e,

Encyclopedia Americana}

Fr om the title of the law and the declarat i on of policy as hereinabove quoted, and considering the nature, char act eristic and uses of paraff in waxes as stated above, it i s the opinion of this Office as it hereby holds that only waxes which are used as high-pressure lubricants and micro- . crystallin waxes are subject to the specific tax prescribed in Section 142(i} of the Tax Code, as amended by PD 392.

Accordingly, imported crude paraffin waxes which are used as raw materials in the manufacture of candles, wax paper, matches , crayons, drugs, .ointments, e t c. are subj ect to the 7% advance sales t ax, the tax to be based on the landed cost thereof plus 24% mark - ~p pursuant to Section 183(b} in relation to Section 186, both of the Tax Code.

On May 8, 1978, respondent Commissioner of Internal Revenue found, after investigation , that based on the impor tation of crude paraffin wax on June 21 and August 17, 1977, petitioner was held liable for deficiency specific tax of P275,.652.oo. (p . l76, BIR rec . } The above letter was subsequently followed by

- 7 - another l etter of respondent Commissioner of Internal Revenue dated February 15, 1980, replying to the peti- tioner's request for reconsideration, which maintained the liability of petitioner for specific t ax on the im- ported crude paraffin wax (pp. 217 - 218, BIR rec . ) '· which is quoted below:

Wi th reference t o your request for r econsideration of our decision demanding payment f rom your client, MEGA GENERAL MERCHANDI SING CORP O~.TION the sum of ~275 , 652 . 00 a s deficiency s pecific tax on impor ted crude paraffin wax which arrived in Manila on June 21 and August 17, 1977, I have the honor to inform you that x x x this Office finds no justifiable reason to modify or alter its previous ruling on the matter .

Section 142(i) of the Tax Code , as amended by Presideniial Decree No. 392, which is the l aw perti nent to the case provides as follows:

Sec. 142.- Specific tax on manu- . factured o ils and other fuels.- On ref ined and manufactured minerai oils and motor fuel, there shall be coll ec t ed the following:

X X X

X

X

X

X

X

X

(i ) Greases, waxes and petrolatum, per kilogram, thirty-f,ive centavos. The sa id provi sion of the law does not distinguish the kind of wax that is subject to the specific tax.

Our earlier ruling dated May 14, 1975 , holding that crude paraffin wax is subject t o the advance sales tax is, therefore, supe~seded by the recent ruling dated January 28, 1977.

121

DECISION -

CTA CASE NO . 3078 - .8 - As it appears that the i mportati ons i n question arrived in Manila and the t ax paid thereon after the effectivity of our ruling of January 28, 1977, the assessment of P275 , 652 . 00 was, therefore , correctly issued against your client.

Hence , this appeal.

Fr om the facts of this case, the issues boil down to the following 1.

May specific tax be imposed on t he importation of crude paraffin wax? and 2.

~a y the rul~ng of theCommi ssi oner of Inte rnal Revenue of J anuary 28, 1977 be made to apply on t he importation of crude paraffin wax or shall it be t he ruling of May 14, 1975 which previ ously held petiti one r not l iable for specific ~ax on such importation? 'l'i1e foregoing issues raised being very closely inter r elated, we shall discuss these jointly and at l ength .

It will be starkly noted that in a ruling of r espondent Commissioner of Internal Revenue dated January 11, 1978 (p . 204 , BIR r ec.) ~ the request for reconsideration of petitioner of the ruling holding it liabl e for specific tax and for the tax credit of the sum of P321 , 436. 79 paid as specific tax was granted by the Commissioner of I nternal Revenue . In effect, this ruling overrules that of January 28, 1977 holding petitioner l iable for specific tax on its importations of crude paraffin wax.

The r uling of January 11, 1978, having overruled that of January 28, 1977, the import- . ations of crude paraffin wax made on June 21 and August 122

DECISION -

CTA CASE NO . 3078 - 9 - 17, 1977, ostensibly became once more subject to the ruling of May 14, 19 75 which held such importation of crude paraffin wax as not liable to specific tax under the provisions of Section 142(i) ?f the National Internal Revenue Code, as amended by PD 392. In other words, there was no other ruling which is prior to or was made to apply to the importations of petitioner of crude paraffin wax on June 21 and August 17, 1977 , ex- cept only that ruling of the Commissioner of Internal Revenue of May 14, 1975 which applied Section 142(i) ~ as amended by PD 392, of the National Irternal Revenue Code, which took effect on February 18, 1974 , and that this provision of Section 142(i ) ~as amended, has remained unchanged since then.

It is clearly and legally justified to conclude that this ruling of the Commissioner of Internal Revenue of May 14, 1975 shall prospectively apply in favor of the importations of crude paraffin wax on June 21 and August 17, 1977 in question .

This

is the ruling whi ~h assured the taxpayer, Mega

General

Merchandising Corporation, that for its importations of crude paraffin wax, it shall only be liable to 7% advance sales tax and no more. To make petitioner liable for specific tax after it had made the importations would surely prejudice pet.i timer as it would be subject to a tax liability of which the Bureau of Internal 123

DECISION -

CTA CASE NO . 3078 - ,10 - Revenue has not made it fully aware . As a result , the ru l ings of May 8, 1978 and February 15, 1980 having been issued long after the importations on June 21 and A~~ust 17 , 1977 in question cannot be applied with le9al effect in t his case because to do so will v i olate the prohibition against retroactive applicat i on of the rulings of executive bodies .

Rulings or circulars pro- mulgated by the Commissioner of Internal Revenue, such as the rulings of January 28, 1977 and those of May 8, 1978 and February 15, 1980, can not have any retroactive application, where to do so, as it did i n the case at bar, would prejudice the taxpayer.

(ABS-~BN Broadcasting

Corp. vs. Court of Tax Appeals & Com. of Internal Revenue, G.R. L-~2306, October 23, 1981 . ) Also, the re- ~nactment of Section 142(i) ~f the National Internal Revenue Code, as amended by PD 392 , which provision of law has subs- tantially remained unchanged , is a clear indication that Congress had adopted its prior executive construction and which means that imported crude paraffin wax is not subject to specific tax thereunder pursuant to the BIR ruling dated May 14, 1975.

(Alexander Howden &

Co, Ltd, vs. Coll . of Int. Rev., 13 SCRA 601.) Consequently, we are of the opinion and so hold tha t the rulings of the Commissioner of Internal Revenue of May 8, 1978 and February 15, 1980 cannot be made to

l. '!) ,,.. -· r ... "Jl - ,11 - apply r etroactively so as to subject the impor ted crude paraffin wax of petitione r to specific tax in the sum of 1:1275,652.00, plus increments thereto.

WHEREFORE, the decis ion of the Commissioner of Internal Revenue appealed from is hereby reversed .

Pe-

titioner is not liable for specific tax on its import- ations of crude paraffin wax in t he sum of 1:1275,652 . 00 i mposed against petitioner, but only subject to the 7% advance sale s tax wh i c h petitioner had already paid. Accordingly, r e spondent is hereby or dered to refund or credit petitioner specific tax it paid in the sum of 1:1275,652.00.

Without pronouncement as to costs.

May

WE CONCUR:

a,..~~-

AMANTE FI

Presiding

125 /

• ROAQUIN

/ As sociate Judge