Borden International Phils., Inc. vs. The Honorable Commissioner of Internal Revenue

DECISION —

- 2- and not specific tax. For which reason, respondent issued two assessments assessing petitioner for the difference in the tax rate. Consequently, on September 26, 1985 respondent issued Demand Letter No. 002-85 received by the petitioner on January 15, 1986 demanding payment of deficiency specific tax in the amount of P629,311.37 inclusive of surcharge and P25,000.00 for importer's privilege tax, inclusive of surcharge or a total amount of P654,311.37.

Again on January 27, 1988, respondent issued another assessment bearing No. FAS-4-84-88-00488 in the amount of P3,028,509.08 inclusive of surcharge. Both assessments were protested by petitioner on January 20, 1986 and February 26, ABS 5 respectively. In a letter dated March 29, 1987 but received by petitioner on May 30, 1987, respondent denied petitioner's protest covering the P654,311.37 assessment. Likewise, in a letter dated December 26, 1988 but received by petitioner on December 29, 1989, through its external auditor, Joaquin Cunanan & Co., respondent denied the protest. Hence, the instant petition for review.

291 -

DECISION -

- 3 - The r"e is no disput e as to the aforementioned facts.

The issue raised before this court is whether"

Ol"

not "met h anol" falls under" the term " solvents " as mentioned under Section 1 53(f ) of the National Intel"nal Hevenue Code, therefore, s ubject to s pecifi c tax.

Petitioner alleged that the advance sales tax it paid pur s uant to Section 193(b) in !"e lation to

Section 199(a) of the Tax Code

i s the a ppropriate tax because "met h anol" is not a "solvent" as contemplated under Sec tion 153(f) of the sa me Code. Met hanol i s neither· "mineral" Ol" "oil" d eriva tive and following the rule in sta tutory co n struction on noscit:ur a s·ocii5' a nd/or ejusdem generi•3 the sai d product doe s not belong to the sa me class of product s en um erate d under Section 153. Hespondent, on the other hand, believed t ha t the article i s so lvent be ca use it is d er ived from min er"al oil lik e all othe r" products enurne r"ate d in t h e said Sect ion 153.

In the resolution o ·f the i ss ue of this case, we have · to consider fir st whether "methanol" being also a solve n t will fall under Section 153(f) of 292

DECISION —

A -

the National Internal Revenue Code. We agree with the petitioner that pursuant to the generally accepted principles of nosed tur &@ seelis and efusdem generis, the term "solvent" should be understood within the context of the class or enumeration that goes with it in the particular provision of law. Section 183 is very clear that it covers only “refined and manufactured mineral oils and motor fuels" and all other products enumerated like kd bina, lubricating oils, maptha, gasoline, denatured alcohol for motive pNVers processed ann thinner. Jiquified petroleum gas, diesel pasty asphalt,- grease, Waxes and aviation turbo jet fuel belong ta the same clase, Solvents mentioned in subletter a together with thinner should likewise be (iderstuad ‘to -be within the same class. Solvents as used th tne ee shauld not be nideretéod $4 thelr ordinary heantia but should be understoodwin ite bechnigal sense, otherwise, even water may fall indar’ ‘this gjategory whichi is clearly not the intention ‘pF the law. At this point, even the respondent agrees with thie interpretation but insisted that the methanol subject of this.case is ‘ \ we eae Be

DECISION —

= i 1 :

a solvent manufactured out of mineral oil or petroleum based. | The National Internal Revenue Code failed to provide us with sufficient guidelines how we will assify “methanol”. ; Considering: that the “methanol subject rr this case La,’ imported, the provision of the Tariff and Customs Code is the pest seurce of guidelines ae the proper classification of the product "methanoi", The Tariff law ie generally divided into schedules, the - Latter inte: chapters and further subdivided into taritt headings. Thus, Soheduds ni pertains to {Live Animale, ‘Schedule “II fa Vegetable Products died 60° forth. Mineral Products is under schedule Vv and Products of Chemical and Allied Industries under schedule VI, | Taney and “fisnufectured mineral oils and motor fuels are found: ‘on chapter 27 of Schedule V. Note that the said chapter, tipiudés all the 4 products mentioned in Section 163 of the National Internal Revenue ‘dode including Bome, known solvents like penzole, Toluole, xylole, Napthalene,: Phenols and Low dpoma ty é ¥ solvents. (Tarttt Heading Nos.

2707.10, 2707.20, “2707.30, 2707.40, .2707.60 and és ) ee os ’ Mg ‘

DECISION —

- 6 = 2710.0030.)1/ However, "methanol" or “methyl alcohol" is not one'of those enumerated in the said Chapter 27 but is found under chapter 29, Organic Chemicals, of Schedule VI. More specifically it is Tariff Heading No. ?9,048, as Acyelic Alcohols and their Halogenated, Sulphoneted, Nitrated or Nitresated Derivatives. This is now Tariff Heading No. 29.05 under the Tariff and Customs Code of 1991 with the same classification. | tn fact, one of the particular shipments involved (Exhibtt I-3) covered by C. Itoh Invoice No. ERO2Z08B dated September 12, 1984 was classified by the Bureau of Customs as organic chemical under Tariff Heading No. 29.04 at 30% tariff rate of duty (Exhibit I-4). Wad this been classified as mineral oil under Tariff Heading No. 27.07 where most of the selventsa derived from mineral ofls are classified, the tariff rate will only be 10% duty. We da tot belleve that the law intends to have a multiple classification of the same article or product and more so to classify the same as to fall under a different category depending upon which imposes the higher tate more favorable to the ‘viseenerervenarenentntnene a Classification, National Economic and Development Authority 1983, p. 176; Harmonized Commodity Description and Coding System, Tariff and Customs Code, 1991 p. 75. | . 295 DECISION. —. ee - CTA CASES NOS. 4169 & 4329 ‘ .

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jovernment. “To adopt the stand of the spondent that "methanol" should be classified as mineral oil lerivative for the purpose of imposing spect?tc tax Will have this effect.

Bearing in mind that laws imposing tax is construed strongly against the taxing authority and in favor of the gitdzen; because burdens are not to be imposed nor presumed to be imposed ‘beyons what the statutes expressly ond, clearly declare? /, there is no other alternative for the court but to cancel the asse ssments issued by eng respondent. “WHEREFORE, “in view of all the foregoing, the Court hereby orders the cancellation of pene two assessments in the amount of. P654, 314. 37 and P3,028,549.08 issued : by . Jecconenki: without pronouncement as to costs. — | :

Presiding Judge

=] Manila Railroad co. ve. Collector of Pieroni s 52 Phil- 950, vw Aan Sots 296" re - -

DECISION -

- 8 -

WE CONCUR:

L !J~~~ RAMON 0. DE VEY As soc iate Judg CERT:t:F

CA TION

I

h e r e by certify that this deci sio n was reached after due consultatio n among the members of the

Court

of

Tax

Appeals

in accordance with Section 13. Article VIII of the Constitution. 297 ~~ · a_~ ER NESTO D. ACOSTA

Presiding Judge

Court of Tax Appeals

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