PHILIPPINE CORN Inc. vs. a | Gicpenanssesea Jp

DECISION

This is an appeal from the decision of respondent Collector of Internal Aevenue dated November 26, 1956, denying petitioner's claim for the refund of the sum of #13,654.92 representing compensating tax on empty cotton bags imported by petitioner.

The following facts have been established: Peti- tioner is a domestic corporation engaged in the saanu- facture, distribution and sale of corn starch, gluten feed and corn oil. Upon prior application, its business of manufacturing corn starch was recognized as a new and necessary industry under the provisions of Aepublic Act No. 35, as amended by Republic Act No. 901, and accord- ingly petitioner was granted, by the Secretary of Fi- nance, exemption, among others, from the following in- ternal revenue taxes:

x m _ & x x ot manniertntt pavtatte ts seapet te” materials and supplies to be used exclue ae ae ee e of such pro- ducts;

(als

= ST

ronex Ky retiiton tex Ravin see" also it "“F", petitioner, p. 33 CIA rec.) However, the approval of petitioner's application for tax exemption was made subject to the condition “that the only raw materiel to be imported is sulphur (60 kilos of sulphur for every 3 metric ton of processed corn) and thet this raw material will be procured locally as soon as similar article of domestic origin or manufacture shall become available." (Exh, 2, resp.

p. 24 BIK rec.; p. 33, CTA rec.). The period of said exemption shall retroact to October 1, 1952, the date of the filing of the application.

Between January 1954 and April 1955, petitioner imported from the United States a total of 212 bales or 211,187 pieces of empty corn starch bags which were subsequently used tn packing corn starch manufactured by petitioner. Upon clearance of said tmportation thru the customhouse, petitioner paid to the Sureau of Cus- toms by way of deposit, in conformity with customs laws, the corresponding Ta sales or compensating tex in the total amount of 13,654.92, Subsequently, on September 5, 1955, petitioner requested respondent to refund the amount collected and paid as sales or compensating tax on the empty corn starch bags. This request was denied by respondent in @ letter, dated November 26, 1956, on the ground “that cotton starch bags, which are available lecally, are bt _ ie

DECISION -

GeTeA. CASE AU, HO = 3 not specifically covered in the letter of the Honor- able, the Secretary of Finance, dated July 9, 1953, granting exexption from the payment of internal re- venue taxes x x x” (Exhs, H and 4, p. 35, CTA rec.). Upon receipt of this letter of dental on December 6, 1956, petitioner filed his "Appeal & Petftion for Re- view" with this Court on January 5, 1957 which was amended cn April 13, 1957.

The issues refsed by the parties in thefr plead- ings boil down to the following:

1. Whether or not thfs Court has juris- diction over the instant appeal,

2. Whether or not petitioner is from the payment of compensating tex on t @apty cotton vzys in question:

nespondeat's proposition that this Court has no the following pretensions, to wits ,ij the decision of the Secretary of finance limiting the scopes of the tax exemption grentea to petitioner (ls tae decision under review, respondent's decision denying refund of the tax in question being aerely anctilary tnereto; (2) in the final analysis, it is the secretary of Finance who decides whether or not a tax collected irom 4 grantee of exemption under sepublic Acts Nos, JS anc FOL is refundable; and (3) Republic Act No, 1125 does net cone fer upen the Court of Tax Appeals jurisdiction to review _ the ruling or decision of the Secretery of Finance on matters pertaining to the administration and enferce- ment of Aepublic Acts Nos. 35 and 901, 672 6¥2

DECISION «

C.T.A. CASE NO, 346 ~~ The arguments that what is herein appealed is the decision of the Secretary of Finance cannot be Sustained, What is appealed to us is the decision of respondent Collector of Internal Revenue (Exhs. H and 4), denying petitioner’s claim for refund of the Sum Of $15,654.92 paid as compensating tax on the eupty cotten starch bags in question. The appeal and amended petition forzeview clearly and concretely points to this conclusion, It Tesites, aaong others, the facts relating to the payment of the Ceapensating tax, the filing with respondent of the claim for the refund of the amount paid as compensating tex, and the denial by cespondent of said claim, finally, it con- tains 4 prayer“ that the decision rendered by the res- pondent in this case be reviewed and that @ judgment be xendered ordering the respondent io pay and celiver to the petitioner the amount of 715,654.92 representing the total amount of “compensating tax x x x".

The fact that respondent’s decision denied the claim for reiund on the ground that cetton starch bags are not specifically covered in the letter ef tie secre- tary of Finance, granting tax exemption to petitioner did net destroy the identity of seid decision, It did not thereby convert respondent's decision inte a ceci- sion of the Secretary of Finance. In a case, similarly situated and invelving the same issue as the one at bar, we held:

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DECTS IGN -

C.T.Ae CASE NO, WO -6« before us In this appeal which is the validity of by Aes assessment against the itioner in the amount of F5,008, 33," we eodloctas of Tnvecnel Revenan RetaA.

Case No. 126, Vecember 17, 1954.)

Respondent's second argument that in the final analysis, it is the Secretary of Finance who decides whether or net a tax coilected under Aepublic Acts Nos. 35 and 90] is reiundable is, we believe, without merit. Aepublic Acts Nos. 35 and 901, upon which pe- titfoner claims exemption from the payment of compene gating tax, do not ledge, expressly or impliedly, in the Secretary of Finance the power or authority to determine whether or not a tax collected uncer saia acts is refundadle. Consequently, such power or authoe rity still remains with the Collector oi Internal He- venue in accordance with the provisions of the general law which reads as follows and we quotes ———e—em eee 2=2=ae_CCOC°°.

DECISION «

GelsAs CASE NO, 340 “Te assessed or excessive, “ie shall refund the value of on refund is made in writing « filed with a ae Sey $ after the payment of or ° decision of respondent, we do not find it necessary to deliberate on respondent's third pretension, At this juncture, we meke mention of an argu- ment raised by respondent at the eleventh hour and for the first time in his “Supplemental semorenduw and rejoinder to petitioner's reply memorandun" to the ef- fect that petitioner's action was not instituted within two years from the payment thereof. In connection with this argument, we are asked to consider the certifi- cate and the official receipts included and appearing in the records of the sureay of Internal Kevenue (pp. 25-31) transmitted to this Gourt which however had aot been presented as part of respondent's evidence during the trial. He argues thet the payments covered by the receipts and certificate were mare deposits and could not be refunded unless first converted as payment of £7 676

i. ds pe eee —

DECISICN «

CeT.A. CASE NO, 346 -8< taxes and {f treated as paynents on the dates as in- dicated therein, except for the amount of ?1,738.39 covered by Official Recefpt No. O-551110-1, deted April 15, 1955, the rest of the amount sought to be refunded is barred by the two-year period prescribed by the aforecited section 306, It is indeed quite unfortunate that this ques- tion was raised by respondent's counsel rather be- latedly, after he had rested his case without presen- tation of the receipts and certificate as part of his evidence. However, granting arguende that all these may be admitted in evidence, we find respondents argu- ment not well-founded, It should be noted thet the receipts and certi- ficates themselves state that the amounts involved were recefved in depesit for sales and/or compensating taxes on the shipments involved. This is so, because the peculfarities of customs law and procedure. Thus the amounts so received by customs officials in , connection with importations do not become paynents until after the posting or publication of the final liquidatton of the import entries in relation thereto. (See Customs Administrative Order No. 362; Caltex (Philippines) Inc. vs. Commissioner, C.T.A. No. 190, September 30, 1957.) ) Such dates of final postings of import entries could easily have occurred very auch later than April 15, 1955, Inasmuch as it is within the power of respondent or the government to show, by 677 677

DECISION «-

fA. CASE NO, 340 a the records of the Commissfoner of Customs and the latter*s subordinate (as Deputtes of respondent under Section 6 of the Revenue Code), when such postings or publications of the final liquidations were effected, the former's failure to present such aaterial evidence constrains us to find that petittoner’s action was instituted within the two-year period referred to in sections 306 of the Tax Code. Considering further that the tastant appeal was filed within the thirty- day pertod prescribed ay section 11, Aepublic Act No, 1125, we censequentiy find and so hold that this Court has jurisd{ction to decide the aboveeentitled case on its merits.

We shall now proceed to determine whether or not the ampty cotton bags {n question are exempt from the payment of compensating tax under Aepuelic Act No, 35, as revised by dAepublic Act No, 901. The statutory provisions under which petitioner was granted tax exe emption by the Secretary of Finence are quoted es follows:

“Section 1. person, partnersh company, or ¢ fen who or which ohet on fo a new and necessary tndustry shall, for # perfod of four years from the dates of the organization of such industry, be entitled to exemption from the pa t of all interns] revenue taxes dtrectly payable by such person, pertnersh ov 1 Road or “Eoxporat ion in reepect = laa fepublic A¢t No. 90) “Section 1. Any person, partnersh{p, company, or corporation who or ‘which, sub-

678 OR

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DECTS Tan «

C.T.Ae CASE NO, 340 - 19 « sequent to the approval of this 4et, shall be entitled to exemption unt{l December pre Onan nineteen hundred and fift pany or coxporet ion oy en to said industry.“ ‘Briefly, petitioner contends that the faperted empty cotton bags, which adaittedly are used In packe- fing tho aanufactured corn starch, constitute equipment or supplios essentially needed tn the new and necessary industry of manufacturing, packing, distributing and selling corn starch; that without them {t would de tme practical to distribute and sell {ts manufactured corn starch; and that they are fndispensable tn the operation and maintenance of {ts new and necessary industry. Con- sequently, it 1s urged that said bags should be exempt fron the payment of compensating tax under the tax ex~ emption grant (Exhfoit F). Upon the other hand, res- pondent maintains that the empty cotton bags are not so exempt because they are not raw seter{als within the pur- view of the tax exemption granted by the Secretary of Finance, Yt is further urged that neither are they ma- chinery nor equipment that go into the manufacture of the finished produce of corn starch, The exemption granted to petitfoner {fn pursuance of the provisions of Kepublic Acts ies, 35 and 90] réfers to taxes {nm respect to the nanufecture of corn starch, corn gluten feed, and cora of] (Exh, fF, p. 33 CTA rec.). The word “menufacture™ {ts not 4 technical words it should be understeod in {ts common or ordinary meaning (Eter- nit Corporation v. Collector of Internal iievenue, C.T.A.

679 CAS

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DEC Ts IUN -

C.T.A. CASE NO, 340 «ll - Case No. 201, December 15, 1956; see also Sharpe v. Hasey, 114 N.W, 1118, 1119, 134 Wis, 618). In the Eternit Corporation case, supra, we reproduced the various definitions of the ward “manufacture” as in- terpreted and understood in {ts common or ordinary signification. e quote them hereunder agains "To make or fabricate raw ma# erials by hand, art, or mac work into forms convenient for use; and when as a noun, gp Be a mater fals or ac Sos Lee Distionary, aed’Rev., Vela s Pe 2086, citing ve Wemple, 61 Hun N.Y. Supp. 711.)

“*tanufacture’ is process or operation pa oe wares or any aaterial Pon nae on pe An carr Be my BB with naivi oe ee aes, See Sere ae UE SY See (140 « Bureau of Revenue, 89 P, 2d 519, 0 48 Nate 25; cited in 26 Words 4 Phrases nn callie ea te 07 artifice or the proc ything art of pn eke Gee tice 2th tee aan, 3 Bey os by sichinney, eu tin puetes~ of articles for» use = gee- pared a by pe te wo auch at materials new whether Rank token’ ax br aoe i” (Cur- ve A Power Co, 8'S0. 2d ° " Ale. 53; cited in 26 Words “*tanufacture’ is the production — articles for use from raw -y $4, nery; made for use raw oop eae (26 Words & Phrases, pe 622, thing as & new construction out of existing matertals ... In other words, the process 680 67¢

DECISION «

C.T.As CASE NO, 340 - 12 2 of manufecture brings about the produce tion of some new arilcle by application ef skill and lebor to the original sub- stance ox wm@terial out of which such new aa cy coy fangs ib the i merely a alc ori- ginal ueaterials or subsetences, and no substantial and well-signealized trans- formation in form, quelities, and adapta- bility tn use, quite different from the originals, it cannot properly and with Jost hae enjuged => © gue pestapeion bean - 3 new on reated.” (Com, v. Weland Packing Co, (is2a) 292 Pa, 447, 141, A. 148.)

We shall limit ourselves to the manufacture by petitioner of corn starch. fhis manufacture involves @ process of turning out corn starch from whatever raw matertals is used by petitioner to produce the finished product of starch. Gut, 3s popularly understood, the manufacture of corn starch does net end with the pro- duction of the starch in its vare powdery forma, By populac understanding, lts manuiacture extends to and facludes the wrapping packages fer packing of the pow- — dered starch in such 4 mannex that the same way be readily sold and bought in wholesale or xeteil. It is not sold and bought in ite bare powdered form, but is so dealt with tn bags, packages or other containers. While by this observation, we do not mean to imply, much less intinate, that ordinarily the sanufacturing of tn article is not distinguisheble and separate from its sale, yet, it must be conceded thet sale is inct- dental to manufacture (see Etexnit Corporation v. Cole lector of Internal Aevenue, C.i.4. Case lio. 201, Dec- enber 15, 195¢). A manufacturer produces to sell.

DECISION -

C.T.A. CASE NO. 340 = 13 - Consequently, he must prepare and produce his articles in the manner and form in which they are readily, com- monly and conveniently sold in the market. The packing of the corn starch in cotten bags or any other con- venient container is in respect to and related to the manufacture of corn starch. To rule otherwise would frustrate the beneficient purpose of Republic Acts Nos. 35 and 901 to exempt from all taxes 4 new and necessary industry. It must be rewemvered that Aepublic Acts Nos. 35 and 901 exempt any person, partnership, company, or corporation engaged in a new and necessary industry from the payment of all taxes directly payable by such person, partnership, company or corporation inrrespect to said industry.

With respect to respondent*s contention that the imported empty cotton bays are not exempt from compen- sating tax because they are not included in the grant of tax exemption (Exhibit F) suffice it to say that the Secretary of Finance cannot limit the operation of Ke- public Acts Nos, 35 and 901. The Secretary of Finance cannot validly limit the exemption only to compensating tax usually imposed on machinery and equipment exclu- sively used in the new and necessary industry. We ref- terate thet the authority conferred upon the Secretary of Finance under Section 11 of Republic Act No. 901 is limited to the classification as to which of the several industries or commercial ventures an applicant may have would be granted the privilege of tex exemption as a a oo w

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ISION -

VEC

CoT.A. CASE WO, 340 =" new and necessary industry (Marble Corporation of the Philippines v. Collector of Internal Revenue, supra).

Having ruled that the packing of corn starch is \ omega we eae On a tee | it follows thet the tepertetion;eupty cotten begs in question are exeapt from compensating and/or sales tax. Consequently, the compensating or sales tax paid thereon Should be refunded,

WHEREFORE, the respondent Collector of Internal devenue is hereby ordered to pay and deliver to peti- tioner Philippine Corn Products, Inc. (lu Do & lu Ym Corporation) the sum of #13,654.92 representing com- pensating tax collected on the 212 bales of empty cotton bags. Without pronouncement as to costs.

30 GADERED, Manila, Philippines, December 20, 1957.

Associate Judge AOMAN &, UNALI concurs and dissents in «4 Separate opinion, 683). Al ——— ee ree eee ee eee er Ole

EPURLIC OF THE PHILIPPINES

COURT OF TAK APPEALS

MANILA

PHILIPPINE CORN PRODUCTS, CO, (Lid Do & & Ly Ym Cozp- eration ) * Petitioner,

THE COLLECTOR OF INTERNAL

REVENUE, Respondent.

CONCURRING AND DISSENTING OPINION

I concur in the opinion of my colleagues that this Court has jurisdiction over this case. it in- velves a claim,for refund of an internal revenue tex which was denied by the Collector of Internal Revenue, pursuant to Sections 306 and 309 of the National In- ternal Revenue Code. This Court has been conferred exclusive appellate jurisdiction to review by appeal decisions of the Collector of Internal Aevenue in cases involving refunds of internal revenue taxes. — (Section 7, Rep. Act No. 1125.) The compensating tax sought to be refunded here is an internal revenue tax.

I alse concur in the opinion that the herein appeal wes filed within the statutory peried provided in Section 11 of Republic Act No. 1125. On this point, I wish to quote from the majority opinion with which I am in complete egreement:

*Consi further thet wg & instant appeal woz, fuga within the histy Sev posted gese- we consequently find and so hold that this — Court has jurisdiction to decide the above- entitled case on ite mari+e.

684 | 670

CONCURRING

SENTING OPINION

C.TeAe Case No. 340 = 2 I make particular mention of the above-quoted perticon of the majority epinion for I am happy to nete that my célleeques have apoarently relaxed the rule enun- cisted in their opinion in Paracale-Gumaus Conseoli- deted Mining Co. ve Blaquera, C.T.A. No. 211, August 22, 1956. I expressed the same view ‘now held by my esteemed colleagues in my dissenting opinion in said case. (See also my dissenting opinion in Manila Elec- tric Co. v. Collector of Internal Revenue, C.T.A. No. 365, July 31, 1957, citing the case of Johnston Lum- ber Ce. v. Court of Tax Appeals, GR. No. L<9292, April 23, 1957.)

However, I cannot eccept the proposition advanced by my collesgues thet internal revenue taxes collected by customs officers are governed, in regerd te the date of payment, by Customs Laws and regulations. I believe that the time of payment of national internal revenue taxes are governed exclusively by the National internal Revenue Code and the regulations promulgated in accordance therewith. There is nothing in the Ke- venue Code or in any revenue regulations providing that the time of payment of internal revenue texes col- lected by customs officers, as deputies of the Collector of Internal Revenue, shall be governed by Customs Laws and regulations.

Finally, I dissent from the majerity opinion holding that the compensating tex in question is re- fundable. Because of pressure cf time, I shall stete 685 a C.T.A. CASE NO, 340 ~— 2 my positicn very briefly.!

Petitioner has been gxanted the privilege of tax exemption under Republic Act Ne. 35, as amended and extended by Republic Act No. 9Ol, as a new and necessary industry. The grant of exemption is sub- ject, among others, to the following conditiens:

your application of Sept- ember a i952 Af ». cS anaebhan under the pro- weesens 0S Beewtane Ast =>. Ste 2 See = hener to advise that in view the feverable recommendations of the of Commerce eS ae of Econo- ca hat the manufacture cf oi.

om fetta and | oom oa}. x The exemption from taxation of petitioner was granted in view of the favorable xeconmendsetions of the Secretary of Comuerce and industry and tiie Admi- nistretor of Economic Cecrdinstion, presumabiy after 8 thorough investigsticn ef the needs anc requirements ef the business. “hen, thexefore, the Secretary cof Finence issued tie certificate of exemption on June 9, 1953, he must Rave ascertained and established the fact that all the rew materials, except sulphur, needed in the manufacture ef corn starch, corn gluten feed, and corn oil were all evailable lecally at 1 Sec. 13, Act No. 1125 requixes that cases be decided within after submission thereof for decision, whith a ae y is too short specially in hiahte rent ermaare fal aaane 686 ee Se 665

0 Ee ——_—=-

ee

CONCURAING AND DIS-

SENTING OPINION

CeTeie CASE NO. 340 -~4- reasonable prices. Petitioner mist have accepted the conditions imposed for its exemption with full knowledge of this fact, otherwisd it should have re-— quested reconsiderstion of said conditions.

Notwithstanding the limitation immosed with respect to the importetion of raw materials, except sulphur, and the acceptence thereof by petitioner, it imported, from January, 1954 to April, 1955, 212 bales or 211 187 pieces of empty corn starch bags which were used by it in the manufacture of corn starch. This is clearly a violation of its permit te operate aS @ new and necessary industry, and petitioner must pay the corresponding tax on such importation. ” If, as now alleged, corn starch bags are available lecal- ly only at prices 30% over the price of imported bags and for this zeasen petitioner cannot operate its busi- ness successfully, the remedy is not by importing in violation of the terme of the grant of exemption but by seeking a modification thereof.

It is contended that the Secretazy of Finance has no power to limit importation of raw materials needed by new and necessary industries. I believe | that Section 11 of Republic Act He. 901 gives the retary of Finance ample power to determine what equip- ment and raw materials may be imported free cf tax by new and necessary industries. Said section havinoestt for the proper enforeement and to carry out the intents and ong pe be “e A nd st [sie azsited hereund 3.” (underscoring supplied.)

= Cemneten soe Dise senting on CoTe Ae pees Ne. 340 oF 4% call It is the view of my colleaguas that the power of the Secretary of Finance under ‘Section 11 of ep- ublic Act Mo. 901 “is limited to the classification as to which of the severel industries ox comercial ventures an applicent may have would be granted ‘the erivilege cf tex exerption es a new and necessary in- dustry.” I do not think this conclusion is justified by the wording of said section. The power of the Secretary cf Finance to which my colleagues refexr may be found in the other sections ef the Act (see Secs. 1, 2, 3, 5 and 6) and not in Section 1). [he power to determine the scope apd extent of the ozivileges grant~ ed under said Act which © new and necessary industry may enjoy efter it has been granted tex exemption is tetally different from ihe powex to detexmine what kind ox ¢lass of industries are new and nesessaxy and are entitled to exemptions | I, therefore, vote to affirm the decision ap- peeled from

Associate Judge

Lb6

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