CTA Case No. 4360

DECISION -

Ny

packaging materials far its edible oil from ite suppliers and paid the sales tax due thereon.

After an investigation canducted by respondent’ s Revenue Examiner, Assesament Notice No. FAS~-R-84~8B-001661-001664 dated April 22, 19899 was issued against petitioner for deficiency miller’s tax in the total Amount af Fi,579,914.70, details of which are as follows:

19.8.6 First Quarter,

Deficiency 3% Miller's Tax

Net taxable sales P11 ,414,679.57 RY” Mililer’s tax due thereon 325,425.90 Lese: Sales tax paid Bg FOP 9 ZI.

Deficiency miller’s tax 246,665.19 Add: 25% Surcharge 61,665.80 20% Int. fr. 4-21-86 to 123,331.60

A~BA-88

TOTAL ANODUNT DUE AND COLLECTIBLE

19 B86

Second Quarter

Deficiency 43% Miller's Tax

Met tamxahle sales FPF 8,563,672.67 3A Miller’s tax due thereon 249,427.37 l.eas: Sales tax paid womens t 2 e447 o 3S. Deficiency miller’s tax F 206,990.04 Add: 25% Surcharqe 51,737.51 POL Int. fr. 7F7-P1-86 to 90,540,464 4-21-88

TOTAL ANOUMNT DUE AND COLLECTIBLE

1986

Third

Deficiency. 3% Miller's Tax Net taxable sales P10,732 5,930.54 3A Miller’s tax due therean 312,699.63 Less: Sales tax paid 83,494.82 Deficiency miller’s tax 259,114.81 Add: 25% Surcharge 64,778.79 20% Int. fr. 19-21-86 to 97,168.08

A-21-B8

TOTAL AMOUNT DUE AND COLLECTIBLE

421,061.56 3dbe

19.8.4

Fourth Quarter

Deficiency 3% Miller’ s Tax Net taxable sales P.8,672,915.99 3% Miller's tax due thereon 292,582.98 less: Gales tax paid cee ce hg SOL 72 Deficiency miller’s tax P 239,081.19 Add: 25% Surcharqe 59,779.30 POA Int. fr. 1-21-97 to 74,712.97 4-21-98

TOTAL AMOUNT DUE AMD COLLECTIBLE F_ 37

Qn June 297, 1988, petitioner filed with respondent a letter dated June 27, ISR requesting for reconsideration of the APave deficiency miller's tax assprameanta, contending that the final provision of Spetion 165 of the Tax Code does mot apply to sales tax paid on containers and packaging materials, hence, the amount paid therefor should have heen credited against the miller’s tax assessed against it. Again, thru letter dated September 28, 1988, petitioner reiterated its request for reconsideration.

On November 17, ices, respondent finally came up with his decision denying petitioner’ s request for reconsideration, fudlo text af which reads as followss November 17, 1986

Central Veqetable Qil

Manufacturing Co., Inc.

FL. Ros SRLS

Manila

Attention: Mr. James Chua

President

Gentlemens:

We have received your letter of September 2A, 1986, relative ta our assessment 3dbu

- 4 ....

~g~inst your company in the amount o ·f F'1~575~514.75, as deficiency miller's tax for the ye<"r 1986.

Section

168 of the

Tax

Code

prov ides that sa l es ~ mi 1 l er' s or e>:c:ise ta>H2S paid on r.::w-1 mater·ia ls or supplies u~erl in the milling p~oc:es3 shall not be allowed against the miller 's tax due.

You

contend that since packaging material s an? nat used in the millinq process then~ the sales t~xe s paid thereon should be i'lllm'led as

S\

.

c::r::. ?.~~,t:t; against the miller· · s ta:·:

due bee ause they do not fall within the scope of the pro hi bi t.ion.

Tt

i s our position~ ho1-1ever ~ that s:i.nc:e the law s per: i ·f .i.e:: a 11 y noes not a 11 ow ta xes raid on the raw materials or Sllf'J1 J ies u sed in the mi ll .i.ng rroc::Pss as a credit against the miller 's tax due~ with more reason should the sa les taxes pa .i.d r~r1 rnater-·ial s nat used in the mi ll ing rw·oc::ess be allowed as a credit against the m:i ller· · s t.=~ > : due.

The re is no pr· ovi~; ion of l a1.-1 which allows suc h a credit- to-be made. In v .i.e~" of the ,,H- r~ r·p i. terat.ing t:he r·e f et- r-·ed to above. that you make immediately sa that may be considered terminated.

above~ 1"e assessment

We

r·eques t payment this case closed and Very truly yours, (SGD.) EUFRACIO D. SANTOS

Deputy Commissioner

On May

7 ~ 1 989 ~ petitioner filed the in s t a nt Petition for

Review

with this

·- 5 -· Ho not- a b 1 e Cour· t a ssai 1 inq the validity of the he r-ein ta >: a s ses sment. ( pp. 98- 1(>1, CTA r ec . )

The o nly i s sue pos ed for our deter-mination is whether- or not petitioner is liable for deficiency mill e r · s ta >:

for the yeat'· .1986 in the amount of F'.1~575~514. 7 0.

The question in this case hinges on the a pplica t i on of the final proviso of Section 168 of the National Internal Revenue Code which r-eads& "Pr· ovided~ finally~ that credit for a ny s ~ l es , miller ' s or excise taxes paid on r a w materials or- supplies used in the mi lling pr-ocess shall not be allowed a q a i n s t. the miller-,. s ta N dLte !' >:>~>! •• Acc ord i n g to respondent, the aforesaid prevision c l early and s pecifically does not allow taxes paid nn rr a ~~ ma terials or supplies used in the milling p r ocess a s a cr-edit against the miller- ' s tax due.

And there being no specific provision allowing such t a}:

c n=.~dit, the sales ta>:

paid on materials not u s e d i n the milling process cannot be allowed as a c r-e dit i'\g e:d.n s t thf.? miller's tax due. Simply put, the i ssue is:

- 6 - Petitioner ' s contention is to the effect that respondent erred in not allowing petitioner to credit the sales tax it paid on the containers and packaging materials against the miller ' s ta>:

asses!5ed against it because the final proviso of Section 168 o ·f the National Internal Revenue Code does not app 1 y in the case at bar and that it is e ntitled to a tax credit pursuant to the ruling of the n Commissioner Ruben Ancheta. Pet.i tioner· is of the opinion that the a ppl ication of the final proviso of Section 168 is prepos terous and devoid of reason because .tt.LE?..

the following reason s :

First:

The raw materials used by petitioner in manufacturing edible oil <:1 r e copt- a <:1nd /or coconut oi 1. In other ltlo r· d s ~ the term "us ed" in the final provi s o of Section 168 of the NIRC refers or .i c.:.:, strictly confined to "raw ma t e r·ial 5 " or supplies fed~ supplied or put into the apparatus~ equipment~ m<:1c hin e r·y or its adjuncts that cause or e xecute the milling process.

On the other hand~ the containers, such as tin cans~ and/or packages are not used or fed into the milling machinery nor were ever intended for· conversion to form part of the finished product, i.e.~ refined coconut/edible oil.

Consequently~ it would be absurd to say that said containers and packages are mi. 11 inq process"~ for "used in the the process involves "grinding, crushing, stamping, cutting, shaping oar polishing" (See THE DICTIONARY, by TIME, COFYRIGHT 1974, op. VIA), Tt is one of the primary canons of construction that all statutes should receive ao reasonable interpretation, if the meaning of the statute is at all daubtfal, Tt has been a well-entrenched doctrine in our jurisdiction that "sxx in the interpretation of statutes levying tanes or duties, that in case of doubt, such statutes are to be construed mast strongly against the government and in favor of the subjects or citizens, because burdens are not ta be imposed, nar presumed ta he imposed beyond what statutes expressly and clearly import (Commissioner of Internal Revenue vse Fireman’ s.. Insurance €o., 168 SCRA 315s Manila Railroad Ca. vs... Collector of Customs, S2 Phil. 950; Collector vs La Tondena, Inec., S SCRA 665; Luzon Stev. Co. VS. Trinidad, 3 Phil. BOs). Furthermore , since the interpretation given by respondent would result to absurdity. such construction must be peremptorily avoided (Ledesma oo o.VS. Fictain, 79 Phil. 935 Diokne oS.

Rehabilitation. Finance Corp., 971 Phil. 198, People vs. Villanueva, 1 SCRA 1248; Lagdameo vs. Lao, i2 SCRA 626; Guevara ¥S.e Inocentes, 16 SCRA 370).

SECOND : Reanpandent’s interpretation of the term raw materials is contrary to law and jurisprudence. Thus, raw materials as used in the definitian of “manufacture”, denotes materials from which final product is made (Black's Law Dictionary, 4th ed., citing State vs. Hermessy Co., 7iL Mont. 3201, 230, p. 64, 4&9). And consistent with said definition, Revenue Requlatians Nos. 2-86 and 11-86 [Ceffective January 1, 1986 and Auquat 1. 19864, respectively] which gavern the filing af quarterly percentage tas return anc payment thereof under the pravisians, inter alia, af Section 168 of the NTRC, define raw materials or material, to wits 3/

Ce

"any article which when used in the MANUFACTURE of another article, becames a bamogenous part thereof, such that zt can na longer be identified in its original state rier may he removed therefram without destroying oar rendering useless the finished article to which ait has heen merged, mixed or dissolved.”

Tested in the light of the foregoing astatutoary definitian, it is evident that containers and packages used by petitioner are not within the purview of the final provisa of Section 168 of the NERC. Understandably,..cantainers and packages are. finished products while raw materials are as yet.to. be manufactured, processed or milled into finished. goods. As such, containers. and. packages. are separate and distinct from. the finished goods, in that the former are utilized as receptacles, not as. ingredients or components, of the latter. As a coup de grace, it is pertinent ta note the case of Caltex (Fhils.) Inc., ve. Manila Port Service (17 SCRA 1075) where the Supreme Court aptly defined containers and/or packages - "sew a package is a hundle made «wtp for transportation: a packet: a hale; ai parcel: or that in which anything ois. packed: a bon, case, barrel, crate, etc. in which goods are packed: a container"

(Underscoring Ours)

The definition is an emphatic rejection of respondent's. construction petitioners. £ raw. materials process. (pp.

Respandent hawever contends pursuant to

Revenue Regulations 2-846 and 11-84 and BIR Ruling

3 ar fla. 24-027 dated January 29, 19766, “that containers are raw materials of manufactured articles".

This contention is without merit. Suffice it to say that what was defined in the cited Revenue Requilations, is the term "raw materials". Said Mevenue Regulations did nat define "containers" or “packaging... materials". Clearly therefore respondent's contention that the containers = and pachages are raw materials is untenable.

Section 168 of the National Internal Revenue

Code expressly limits the articles subject toa percentage tax [Emiller’s tax} to the following, vine "rope, sugar coconut oi], palm oil, Cassava flour or starch, desiccated, coconut, manufactured, processed or milled by them, including the by- product of the raw materials, from which said articles are produced, processed, or manufactured," (p. 1146, CTA rec.) From the aforesaid enumeration, it te unquestionable that containers and packaging materials are not subject to miller’s tan. AS such, the alleged miller’s tax assessed against petitioner for its containers and packaging materials, in the firet place, has no basis, in fact and in law. (pm. 116-117, CTA rec.)

Furthermore, the cited BIR Ruling No. 66-027 has no legal effect whatsoever in this case, for it

Sifu

... 10 -- i s deP-med revoked , repea led or superseJded by the c ited

Revenue Regulations 2-86 and

11-86.

And be s ides~ the s ubject matter of t he said BIR Ruling No.

66- 027 is not Sec ti on

168 of the NIRC

but "Section 188(e) of the Ta:·: Code" in relation to "Republic Act No.

4086"

(AN

ACT

TO

PROMOTE

THE

TEXTILE INDUSTRY

IJF THE PHILIPPINES BY

EXEMPTING~

UNDER

CERTAIN

CONDI TIONS ,

IMPORTATIONS

OF

NEEDED

nAW MATERIALS ,

CHE MI CALS ~

DYESTUFFS AND SPARE PARTS

AND THE SUBSEQUENT MANUFACTURE AND SALE OF PRODUCTS

DERIVED

THFT~EFROI"1 ~

FROM

DUTIES

AND

TAXES~

BY

CREAliNG A SPECIAL FUND FOR VITAL

RESEARCH~ AND FOR

OfHFR PURPOSEB).

Therefore~ respondent cannot seek refuge in said BIR Ruling No . 66- 027. P~::>t.itioner contends that it is entitled to a tax credit pursuan t to

the Ruling

of the theJn Commi s~5 ioner~ Ruben Anc heta dated De tober 18 ~ 1984 }' v ,, N>!X This refers to your letter dated Septe mber 5, .1984 requesting tha t the 10% sales tax paid on container cans purchased by you, be credited against the 2% (n ow 3% ) miller's tax due on the refined coconut edi ble oil. It. is repr·e s e nted that yoLI process copra .:md/or coconut oi 1 and sell the r·efined edible oi l in cans;

that said cans are purchased from can manufacturers who in turn bill to you the price of the

- 1.1 ·- cans and the 101. tc:D: paid thereon which are separate ly s hown on the invoice; and that the cost of the cans, including the 25% miller's tax is computed. In reply~ I have the honor to inform you thAt your request is hereby granted. >! >: >~ ( P-~ -~ ~i· f .J .. ~ ....... -.Q-~.~-y __ g __ ~ r} --··. ~L ..... .l:\!;_~j;_y _ ~ '1 .~·-··--l;_q_!-. .. __ Y.~ --~- G.gtnn.t.i,s?iDOE.?.Y': ~ G.F<. No.

L-17'708~ April 30, 1965)."

(Emphasis s upplied.)

c: i ting the case of Pacific Oxygen 8( Acetylene Co.

vs .

Commissioner~ G.R. L- 17708, April 30, 1965. The above ruling of

the Commissioner

Ruben

nncheta dated October 18, 1984 was effective and in 'force t.olhen pet.i tioner avai 1 ed i tse 1 f o ·f the t;:ou:

credit in .1986 of a specified number of containers a nd packaging materia l s. Such being the case, the s aid t~ u 1 inq can not be revoked by the November 17, 1988 opinion of the Deputy Commissioner Eufracio D.

Santos

(E x h.

F)

as in that way, to apply it retr-oactively, would clearly be prejudicial to pr?ti tioner- .

Sec tion 278 of the National Internal Revenue Corle states as follows: "f:'!orJ ::. r.:gtJ~PC\<;: _t.i.Y.:i.: .tY .... -.. . 9:L ____ r .1-! .. L!D.9.2.

Any

revocation, modification, or reversal of a ny of the rules and regulations promulgated in accordance with the preceding sec: tion or any of the ru 1 ings or circulars promulgated by the

Commissioner

shall not be given retroactive application lf... __ , ....... _ _!:_bg r_E.?.'<.'.9!= .. 9.t..t..9.D L . ,_ll}pg,t..fi.r: 2.\t.:!PO."'- ...... 9r __ ,_ ...... r..!"'YBL~.C\ . !.. ~.! :i.J) ........... I?? __ . _pr._f?juq;i.c! ~ L._._t..Q . ........ t..h~ .. - .... t.c.l~.P.!W.~_r. >:7:x."

(Underscoring ours)

DECISION

CTA CASE NO. 42360 The reason for incorporating the aforequoted provision in the National Internal Revenue Code was aptly declared by the Supreme Court in ABS-CRN Rroadcanting Corporation vs. CTA (No. G.R. L-S23506, Qet. 1B, PBs 1098 SCRA 143), thus "This Court is moat unaware af the wel l--entrenched principle that the Government is never estopped from collecting tamxes because of mistakes or errors on the part of its agents. In fart, utmast catttion should be taken in this regard. Furth, Jake ather principles of law, this alan admits of exceptions in the interest af justice and fair play. The inser tian of Section S387 (now Sectian S27) into the National Internal Roventie Cade, as held in the case Tuazon, Ud), we. Lingad (S58 SCRA, p. 170), is indicative af Jlegislative intention to suppart the principle af gqnad faith. In fact, in the (tinited States, from where Section S4(6) was patterned, it has been held that the Commissioner or Collector is..precluded from adopting...a...positian inconsistent with one. previously taken where injustice would result therefrom, or where there has been a misrenresentation ta the taxpayer.” (Emphasis supplied) The underlying principle of Section 338-A, now Saction 278 af the Tax Code, is ta provide for the nan-retroactivity of rulings of the Commissioner of Internal Revenue (Tan Chong vs. Sec. of Labor, 72 Phil, 307.) The principle of said provision is good faith in that “the Commissioner or Collector is precluded from adapting a position inconsistent 3 (ou - 1 ~) ·· - with one previous l y taken where injustice would n ?sul t.

therefrom ~ there has been mi s repres entation to the taxpayer."

(ABS-CBN

Broadcas ting

Corporation

vs.

CT A~

citing Tiagon~ Inc. vs.

Lingad~ 158 SCRA 1 30.) In the case at bar , the imposition of the d e ficien c y miller's tax for the year 1986 will m .ln? 1 y n "s U 1 t to the pt'"·ej udice and injustice to petitioner in that the s ales tax paid by petitioner on the containers will not be credited against the alleg Pd d e ficiency miller ' s tax;

petitioner will then be s ubject to tax twice considering that said miller 's tax i s based on the gross selling price of the r e f i n Pd coc onut Pdible oll on said containers. (pp.

11 5 - 116~ CTA rec.)

Conseque ntly, the .t5.'J?...4. r·uling of Commissioner nube n An c heta~ a ll ovling petitioner to credit the it paid on containers agains t the d e f .i.e ienc y mi 11 er' s t:ax on 1986 cannot be revoked o r r·epe aled by the ! .9.§.§ ruling/opinion (E>:h. F) of Deputy Commissioner Santos . (p. 116, CTA rec:.)

WHEREFORE, in view of the foregoing, petitioner Central Vegetable Oil Manufacturing Co., Inc., is not liable for deficiency miller·~ tax for the year 1986 in the amount of P1~515,514.70. 3 ~ ; ... J ' ,,.

No pronouncement as to costs.

I CONCUR:

CERTIFICATION

I

hereby c ert i f y that this decision \.'las reac he d a f ter due c on s ultation between the members o f th ~ Court o f

Tax

Appea l s in accordance with S~ctio n 1 3 ~ Artic l e VIII of the Cons titu

REYES

Presiding Judge

Co urt of Tax Appeals