La Suerte Cigar and Cigarette Factory vs. Commissioner of Internal Revenue

DECISION

This is an appeal from the decision <A · respondent Cotnmissioner of Inwrhai Revenue denying the pt"otest fiied by petitioner La Suerw Cigar and Cigarette Factory regarding the deficiency specific tax assessment issued by respondent covering the purchase of ihlporwd and loca11y produced stemmed-leaf tobacco from June 21; 1989 to ~ovember 20,· 1990 and the sale of stemmed-1eaf tobacco to Associated Anglo-Atn€·rican To~acco · Corporation, in the sum of P 11; 75 7,2 75.2 5. The facts are as follows:

;• • f

I

l ! t I i • ., •' l ..

;

'·

DECISI•

C.T.A. CASH NO. 4617

-Page 2 -

Petitioner is a domestic corporation engaged it1 the production and manufacture of cigar and cigatettes. tt imports and purchases locally produced stemmed-leaf tobacco to be. used in its manufacture of cigars and cigarettes: . On January 10, 19911 tl1e Buteau of Internal Revenue sent a Pre-Assessment Notice to petitioner, received oh Jatmat"y 14, 1 gg 1,. infonning the latter that it has a11eged1y incurred · deficiency specific taxes on its local purchases and imp~r~tions · and on the sale of partially manufactured tobacco pursuant to the provisi?ns _of Sections 141 (b )1 12 7(a) -and 12 8 of the Tax Code, computed as follows:

SPECIFIC TAX DUE -

a) Partially Manufactured

Tobacco from Local Suppliers:

TOTAL KILOS RECEIVED:

14,703,644@ P0.75 = .P 11,02 7, 7 33.00 b) Partially Manufactured Tobacco from Foreign Suppliers:

TOTAL KILOS RECEIVED:

3;794,910@ P0.75 = P2,846,182.5.0 Less: Specific Tax paid from Sept. 14, 1989 · t.o Nov. 20, 1990 = 2.264.015.25 Net Specific Tax Due ............................. , .. c) Partially Manufactured

Tobacco Sold to Associated

Anglo-American Tobacco Corp.:

TOTAL KILOS SOLD:

157,200@ P0.75 = P 117,900.00 29.475.00 TOTAL SPECIFIC TAX DUE: . · 582; 167.25 147.375.00 ============== \ 'i

I

t . I

I

.

OECISION-

C.T .A. CASE NO. 4617

- PawJ -

On January 25, 1991, petitionet filed a protest letter, dated January 2 2, 1991, requesting for the reconsideration and withdra-v-.,-al of the pre-assessment 11otice. Subsequently; on February 8, 1991, petitioner received · from respondent a demat1d 1ett.er1 dated January 30, 19911 1 reiterating the findings of the examit1ers as indicated in the pre- assessment notice sent. to petitiot1er. A fottnal protest.; da~d .

.

~ March 6, 1991, vv-as filed by petitioner with respondent's office 6ri March 8, 199 1. Then on May 14, 199 C petitioner receivep ·~'· rr respondent's decision; dated Apri1 29, 1991; denying the protest with finality and upholding the ruling of fotmet Commissionet of Internal Revenu~, Efren I. Plana, whete he ru1ed1 in a sitniiar case \ involving the same party~ that stemtned-1eaf tobacco whether 1oca11y purchased or imported is subject to the specific tax of P0.75 per kilo pursuant to Section 141(b) of the Tax Code. Within t11e thirty -day period to appeal, petitioner filed . ~Nith this Coutt its petition for . review on June 13, 1991~ Petitioner contends that. Section 13 7 of the Tax Cod~ exetnp~· · manufacturer of stemmed-leaf tobacco ftom the excise tax whenJ .

( it sells and purchase the same in bUlk as taw materials to anothe¥1 manufacturer. While tespot1dent invokes the provision of Sectio~~ ; ~ · 141(b) as basis for the deficiency specific tax assessment sti11 tl1J" same provision of law a11o-vvs· the ttailsfet1 disposal and sellingt .

: I

I

·I ' ' !

I

I

. I i .: .I thereof without the pi'epayment of the specific tax if the same is' ~ exported or used in the manufacture of other toba_cco products on which the excise tax will eventua11y be paid on the finished product.

With respect to the importation of stemmed-teat

·I

, ~, n

DECISION -

C.T.A. CASE NO. 4617

- Page 4 -

tobacco, the same is exempt from excise taxes under Republic Act No. 698 [An Act To Limit The Importation Of Foreign Leaf Tobacco] and Republic Act No. 4155 [An Act To Promote And Strengthen The Virginia Tobacco Industry].

Respondent, on the cther hand, contends that Section 137 of the Tax Code covers the removal of certain articles tax-free and said provision does not fall squarely in this case. Instead Section 141{b) of the same Code should govern with respect to the imposition of the specific tax on tobacco prepared or partially prepared which includes stemmed-leaf tobacco under Revenue Regulations No. 17-67. Nowhere in Section 141 was stemmed - leaf tobacco mentioned in the enumeration of those not subject to specific tax.

The issue is whether or not petitioner is liable to pay the specific tax on locally purchased and imported stemmed-leaf tobacco used as raw materials in the production and manufacture of cigars and cigarettes and the sale of stemmed-leaf tobacco to another manufacturer, Associated Anglo-American Tobacco Corp. under Sections 141(b), 128 and 127(a) of the Tax Code. | We answer in the negative.

Respondent relies on the provisions of Section 141(b), 127(a), and 128 of the Tax Code as basis for the deficiency | specific tax assessment, which we quote hereunder:

“SEC. 141. Tobacco Products - There-shall be collected a tax of seventy-five centaves on each Kilogram of the following products of tobacco:

DECISION -

C.T_A. CASE NO. 4617

- Paped -

{b) Tobacco prepared or partially prepared with or without the use of any machine or instruments or without being pressed or sweetened;

and fc) wise Ss <auen-S2 tr sitar:

{lo} HERE KEKE KH OE.

= RF WF Ir woEry Ww ata “a fe ah ZEZ HZ.

“SEC. 127. feayment of excise faxes of dumestic products. - (a) Personas fiable: time for paymenhi - Unless otherwise especially allowed, excise taxes on domestic products shall be paid by the manufacturer or producer before removal from the place of production: Arorréeg That the excise tax on locally manufactured petroleum products and indigeneous petroleum levied under Sections 145 and 15lfai4), respectively, of this Title shall be paid within 15 days from the date of removal thereof from the place of preduction. Should domestic products be removed from the place of production without the payment of the tax, the owner or person having possession thereof shall be liable for the tax due thereon.

7 UF Ww Sr wr uy z eA a HSE ZX &.

“SEC. 128. farpment of excise faxes of imported artictes.- (a) Persons fable - Excise taxes on imported articles shall be paid by the owner or importer to the customs officers, conformably with the regulations of the Department of Finance and before the release of such articles from the customheuse, or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption.

In case of tax-free articles brought or imported into the Philippines by persons, entities, or agencies exempted from tax which are subsequently sold, transferred or exchanged in the Philippines to non-

DECISION -

C.1T.A. CASE NO. 4617

- Page 6 -

exempt persons or entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such importation. The tax due on such atticle shall constitute a lien on the article itself, superior to all other charges or liens, irrespective of the possessor thereof.

(b) ate aad basis of the excise lax on imported articles. - Uniess otherwise specified, imported articles shall be subject to the same rates and basis of excise taxes applicable to locally manufactured articles.”

and its implementing regulation Revenue Regulations No. 17-67, as amended, pertinent portion of which provides:

"REVENUE REGULATIONS NO. 17-67 {as amended by Rev. Regs. Nos. 9-72 (Sept. 27, 1972), 1-73 (Dec. 26, 1972), 5-75 (Nov. 11, 1975), and 1-76 (Nov. 16, 19763] SUBJECT: Tobacco Revenue Regulations on leaf, scrap, other partially manufactured tobacco and other tobacco products; grading, classification, inspection, Shipments, exportation, importation and the manufacturers thereof under the provisions of TO : Ali Internal Revenue Officers and Others Concerned:

Section 1. 2x XXX ' EXX.

section 2. Definitions of terms wow uw tr ow srw tw ao REE ae 2h ak.

(m) “Partially manufactured tobacco” - includes:

DECISION -

C.T.A. CASE NO. 4617

- Pape 7 -

(1) “Stemmed leaf” - handstripped tobacco, clean, good, partially broken leaf only, fre from mold and dust.”

We shall discuss each of the ‘fame appearing in the pre- assessinent notice issued by respondent's office holding petitioner liable for deficiency specific tax.

The first and third items will be disc cussed jointly. In Item Ho. 1, respondent assessed the petitioner for specific tax on ocally purchased stemmed-leaf tobacco from local suppliers pursuant to Section {l41(b) of the Tax Code. Petitioner's purchase sof 14,703,644 kilos of local stemmed-leaf tobacco was assessed a specific tax at the rate of PO.75 per kilo or a total of P11,027,733.00. In Item No. 3, respondent assessed petitioner the PO.75 per kilogram specific tax on its sale of 157,200 kilos of .

stemmed-leaf tobacco from an L-7 account to Associated Anglo- Ameérican Tobacco eee equal to P117,900.00 plus 25% surcharge of P29,475.00 or a total of P 147,375. 00.

In refuting the arguments raised by respondent, petitioner insists that the applicable provision of law is Section 137 of the Tax Code, and not Section 141(b), which provides:

“ "SEC. 137. #emoval of tobacco products without prepayment of tax - Products of tobacco entirely unfit for chewing or smoking may be . removed free of tax for agricultural or industrial use, under such conditions as may be prescribed in the regulations of the Department of Finance. Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems or midribs, and sweepings of tobacco may_be cold in bulk as raw material by one manufacturer directly to.

DECISION -

C.T.A. CASE NO. 4617

~ Page 8 -

another, without payment of the taz under such conditions as may be prescribed in the regulations of the Department of Finance. .

“stemmed leaf tobacco”, as herein used means leaf tobacco which has had the stem or midrib removed The term does not include broken leaf tobacco.” (Emphasis Ours.)

There is nothing abstract in the language of the said provision. The aforequoted provision is clear and leaves no room for strained interpretation. The language is clear.and unequivocal and must be taken to mean exactly what it says. “It is the fundamental duty of the courts to apply the law. Construction and interpretation come only after it has been demonstrated that application is impossible or inadequate without them”. (People vy. Mapa, G.R. No. L-22301, August 30, 1967.)

The records will show that petitioner's local purchases of stemmed-leaf tobacco were acquired from various manufacturer and the same were used as raw materials for the manufacture of cigars and cigarettes. The working paper prepared by respondent's examiners will show that from June 20, 1989 to November 20, 1999, petitioner purchased stemmed-leaf tobacco from its local suppliers. The summary of said purchases are presented as follows: (Exh. CB-2, p. 90, BIR record)

SUPPLIERS OF — ASSESSMENT TOTAL

LocaAL TOBACCO GUIA HO. EILOS Telengtan Bros. & Son L3R - 6774 1,789,450 Orient Leaf L6 - 104 2,016,727 Trans Manila L3R - 6614 1,331,700 Phil. Tobacco Fiucurring LB - 42/

DECISION -

C.T.A. CASE NO. 4617 - Page? - (PTFE) L3R - 4536 2,031,550 La Union Tobacco Redrying - LO - 114 2,361,717 Fieldman Agricultural Tob.

(FATC) L6 - 195 1,458,800 Continental Leaf Tobacco LO - 142 2,891,700

TOTAL TOBACCO RECEIVED

14,703,044 “manufacturers” as mentioned in section 137 of the Tax Code can be interpreted to mean both “maniwlacturer of tobacco” and/or “manufacturer.of cigars and/or cigarette" amended, to wit:

“Section 2.

ty tr tr =r tyr x oc +4 aa eh Definition of terms defined in Revenue Regulations No.

Uw ur tr ey fh ch.

17-67, as i ti } - manufacture tubbing (grating) any raw (j) “Manufacturer of tobacco” - Includes every person whose business it is fe tobacco or snuff or who employs others to manufacture tobacco or snuff, whether such manufacture be by cutting, pressing (net baling), grinding, or or leaf tobacco, or otherwise preparing raw or leaf tobacco, or manufactured or partially manufactured tobacco and snuff, or putting up for consumption scraps, refuse, or stems or tobacco resulting from any process of handling tobacco stems, scraps, clippings, or waste or sifting, twisting, screening or by any other process.

“Manufacturer of cigars and/or cigarettes” - Includes those persons whose business it is to make or manufacture cigars and/or cigarettes for sale, or who employ others to make or manufacture cigars and/or

DECISION -

C.T.A. CASE NO. 4617

~ Page 10 -

cigarettes for sale; but the term does not include artisans or apprentices employed to make cigars and/or cigarettes from material supplied by the employer, the latter being lawiully engaged in the manufacture of i aa 22 2h he eM Petitioner's witness, Mr. Antonio Yao, Vice-President for Operations, testified that petitioner's suppliers of stemmed-leaf tobacco are also "manufacturers of tobacco” as defined above. Excerps of Mr. Yao's testimonies are quoted hereunder: (pp. 19- 21, T.S.N,, Hearing of February 23, 1993) “ATTY. DEL CASTILLO Q. Mr. Witness, you stated that transfers of steam fsic) leaf tobacco from your suppliers to La Suerte are exempt from the payment of specific tax under Section 137 of the Tax Code. Is this correct?

Sa et et A. Yes, sir.

0. Who are your suppliers specially (sic) during the years 1986 to 1969? From whom did you obtain your steam (sic) leaf tobacco?

A. For local tobacco, we already have six or seven suppliers who are based in Manila and the rest in the province of La Union. We are the majority of the local tobacco industry (sic).

Q. Would (sic) you recall their names?

4. Among which are Continental Leaf Tobacce located at Bacnotan, La Union; Orient Leaf Tobacco located in Agoo; I think, Lancaster Philippines, Inc, in Agoo. Philippine Tobacco

DECISION -

C.T.A. CASE NO, 4617

- Page 11 -

Inc. of Baesa. Yotorko Tobacco Corporation based in Aringay; and there is another one, Trans Manila, Inc., based also in Agoo.

a. These supplier of yours, are they tobacco tanufacturers?

fi. They are because they have been issued the BIR license to process tobacco under, what do _ we call this the L60 (sic), LOR (sic), and some of them with L3 licenses also.

Q. What do they do with the tobacco? Why are they given this licensed to (sic).

A. The license they are issues (sic) is for them to handle the tobacco which is to partially process the tobacco or manufacture the tobacco by taking out the steam (sic) or the mid-reeve (sic) of the tobacco. And then happen under a propo-moisture (sic) content tobacco can be kept for sometime without, (sic)

f. What about your company, is it also a manufacturer of tobacco?

A. Yes, sir. We have a license for manufacturing ~ Another witness for the petitioner, Mr. Cesar Ong, the HWaterial Control Manager of petitioner, testified that beth petitioner and its local suppliers are tobacco manufacturers. Mr. Cesar Ong’s testimony states: (pp. 4-6, T.S. N, Hearing of January 29, 1991) "Q. Inthe years 1949 and 1990, what. line of business was La Suerte engaged in?

A. Cigarette manufacturer.

. . ' ;

/

DECJSJON

C.T.ACASENO. 4617

- PagetZ -

Q. As a manufacturer of cigarette, do you know what raw materials are used by the petitioner in the manufacture of cigarettes?

A. We use imported tobacco and local stemmed-leaf tobacco.

Q. You stated that among the raw materials that you used are local stemmed-leaf tobacco. Do you know from whom the petitioner purchased local stem med -Jeaf tobacco during the years 1989 and 1990 ?

A. From various tobacco buyers.

(). Do you knO\V their names?

A. Yes. I can mention some of them like Continental Leaf Tobacco Corporation, Philippine Tobacco Procure lsic) Corporation, Lancaster Philippines, Orient Leaf Tobacco Corporation, La Union Drying (sic l Plant. and others. These are some. Q.

What line of business are these suppliers of stemmed-leaf tobacco engaged in?

,••;

A. They are tobacco manuJacturers."

Since petitioner's purchases of JocaJ stem med-Jeaf tobacco came from tobacco manufacturers and· the same were used as raw materjals in the production of cigars and dgarettes it is thereiore clear that it is covered by Section 137 of the Tax Code. Thus, petitioner's purchases of JocaJ stemmed-leaf tobacco from various tobacco manufacturers are exempt from the payment of the ~pedfic tax.

Furthermore Section 201 a) of Revenue Regulations No. V- 39 IThe Tobacco Products Regulations], as amemled. even bolsters the provision of Section 137 of the Tax Code considering that

NN

DECISION -

C.T.A. CASE NO. 4617

- Pape 13 -

stemmed-leaf tobacco was specifically mentioned as an exemption from the payment of the specific tax. Section 20(a) of “Section 20. Exemption from tax of tobacco products intended for agricultural or industrial purposes. - fa) Sale of stemmed leaf tobacco, et, by ate factory fo another. - ‘Subject to the limitations herein established, products of tobacco entirely unfit for chewing or smoking may be removed free of tax for agricultural or industrial use; and stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, refuse, ser aps, cuttings, clippings, and sweeping of tobacco may be sold in bulk as raw materials by one manufacturer directly to another without the prepavinent of the specific tax.

Stouined nmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, scraps, cutting, clippings, and sweeping of leaf tobacco or partially manufactured tobacco or other refuse of tobacco may be transferred from one factory to another under an official L-7 invoice on which shall be entered the exact weight of the tobacco at the time of its removal, and entry shall be made in the L-7 register in the place provided on the page for removals. Corresponding debit entry will be made in the L-7 register book of the ‘factory receiving the tobacco under heading “Refuse, etc, received from other factory”, showing date of receipt, assessment and invoice numbers, hame and address of the consignor, form in which received, and the tet weight of the tebacco. This paragraph should net, however, be construed to ‘permit the transfer of materials unsuitable for the manufacture of tobacco products from one factory to another.” (Emphasis aE | defined to include all persons eng aged t in the manufacture of any ef the forms of tobacco such as cigars and cigarettes [See 2(bJ,

DECISION -

C.T.A. CASE NO. 4617

- Pape 14 -

Revenue Regulations No. ¥-39]. When the law and regulations enumerate and define various categories of manufacturers subject to the excise tax and thereafter exempt ther if the sale of stemmed-leal tobacco was made by one manufacturer directly to another then the term “manufacturer” as broadly used should be interpreted to mean “manufacturers of tobacco” and “manitacturers of tobacco products” or “manufacturers of cigars > The whole concept being that the stemmed-leaf tobacco will not be sold or transferred as is but is sold in bulk to be used as raw materials in the manufacture of tobacco products such as igarettes wherein the corresponding excise tax will oy re 4 pan) oe fen] ts pe 7 total ey at 3 mt * eventually be paid on these finished products. The rationale, is that the tax incidence is merely postponed for it will later be collected as part of the excise tax on the finished product (cigar and cigarettes). Thus, the purchase of stemmed-leaf tobacco to be used as raw materials by petitioner in its taanufacture of cigars and cigarettes is therefore ¢xempt from the payment of the specific tax.

With respect to its sale of stemmed- leat tobacke with Associated Anglo-American Tobacco Corporation (Item No. 3), petitioner also maintains that it need not pay the specific tax thereon pursuant to Section 137 of the Tax Code. Petitioner has proven that it is a manufacturer of cigars and cigarettes as evidenced by its Mayor's Permit issued by the Mayor of CTA record) and 1990 (Exh. CW-1, p. 232, CTA record), stating cr ret OF a ne

DECISION -

C.T.A. CASE INO, 4617 -

~ Page 15 -

that it is engaged in business as a Cigarette Manufacturer.

manufacturer of cigars and cigarettes, to another manufacturer, Associated Anglo-American Tobacco Corporation, is exempt from the payment of the specific tax. The stemmed-leaf tobacco sold can thus be removed without the prepayment of the specific tax This court has observed that while Section 127 of the Tax Code requires that excise taxes on domestic products shall be paid by the manwiachurer or Producer before removal from the place . of produc tien, the bulk of the assessment herein a ee against the petitioner is on the basis that it is a possessor, ‘having bought the stemmed-leaf tobacco from other tobacco manufacturers or local suppliers. In other words, the law identifies the person or taxpayer primarily liable and yet respondent failed to enforce its collection against them although they are known to the respondent. To show her inconsistency in enforcing the procedure to collect, petitioner is likewise being assessed not as buyer-possessor but this time as manufacturer-seller of stemmed leaf tobacco to Associated Anglo-American Tobacco Corporation. We do not wish to question the way respondent enforces the law, but for the guidance of tagspayers a a a uniform enforcement ot f ta:

laws may be suggested. While itis true that the — may in or collect excise tases even against a mere possessor, she i required to collect the same from the manufacturer or producer, as the entity primarily liable to the said tax. To interpret otherwise would render the first portion of Section 127 a mere surplusage which could not have been the intention of the

DECISION -

C.T.A.CASE NO. 4617

- Page 16 -

lawitnaker. It is only after there is a clear showing that. the manutacturer or producer could not pay or failed to pay the respondent run after the possessor. The way respondent enforces the law may net have been the intention of the lawmaker.

While it is true that stemmed-leaf tobacco are classified as "partially manufactured tobacco” under Section 2(m) of Revenue Regulations No. 17-67, as amended, still it will be observed that in section 43 of the same Revenue Regulation, falling under Chapter KI entitled "Partially manufac tured tobacco and tobacco products for export’, it provides:

“Section 43. © ay exempted from Specific fax. - No specific tax shall be collected oft the following:

fait Leaf tobacco and partially manufactured tobacco, except imported leaf tobacce, unless entered in the L-? official register book.

(b) Manufactured products of tobacco for export and/or use by the Armed Forces of the. Philippines or the United stale ‘Armed Forces, and other entities specifically exempted by law.” (Emphasis Ours.) :

It is clear from the above-quoted provision that no specific tax shall be collected on partially manufactured tobacco including Thus, even assuming arguendo that stemmed-leaf tobacco falls under the category of partially manufactured tobacce still

DECISION -

C.T.A.CASE NO. 4617 ; - Page 17 - the same is exempted from the payment of the specific tax under Sec. 43fa) of Revenue Reon ulations No. 17-67, as amended. There is no showing that the provision of Section 43a) has been repealed or superseded by another regulation. The respondent has no right to rule otherwise because a revenue regulation issued pursuant to law has the force and effect of law unless found to be contrary to law.

The Secretary of Finance has the authority to promulgate fules and regulations pursuant to Section 245 of the Tax Code.

Pertinent portion of Section 245, reads:

“SEC. 245. dAvifersiy of Secratarr of Fleance to promufeste rites aad regulations - The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and | regulations for the effective enforcement of the provisions of this Code.

ty tr our “your our +, ae Sk Pass a 42 a5 bd a Revenue Regulations No. 17-67, implementing the provision of Section 141 of the Tax Code was issued by the Secretary of Finance with the recommendation of the Commissioner of Internal Revenue. It is well settled that Revenue Regulations issued by the Secretary of Finance to implement the provisions of the Tax Cede, if net contrary to law and in accordance with specified legislative standards, has the force and effect of law. Revenue regulations issued by the Secretary of Finance. cannot be changed or interpreted otherwise by the Commissioner of ‘Internal Reyenus.

DECISION -

C.T.A. CASE NO. 4617

- Page 18 -

Furthermore, it is an elementary rule in statutory construction that a statute must be read or construed as a whole or inits entirety. All parts, provisions, or sections, must be read, with respect to all the others, and in harmony with the whole. (St. Martin, et. al. vy. Iberville Parish, et. al., 212 La. 886, cited in MARTIN's Statutory Construction, p. 132.) Under this rule, that construction is favored which will render every word operative rather than one which makes seme words idle and nugatery. (Shimonek vy. Tillanan, 1 P. 2¢, 154; ibid.) Thus, courts are duty bound te adopt a construction that will give effect to every part of a statute, if at all possible, following the maxim wi magis vafeat guam pereat” (that construction is to be sought which gives effect to the whole statute). (Almeda ¥. Florentino, GB. No. L-23800, December 21, 1965.)

In the case at bar, there being no conflict with the provisions of Sections 24m) and 43fa) of Revenue Regulations No. 17-67, as amended, the local purchases of stemmed-leaf tobacco classified as partially manufactured tobacco are therefore exernpt Anent the second item, regarding the alleged deficiency specific tax on imported stemmed-leal tobacco in the amount of P52, 167.25, respendent applied the provisions of Sections 128 and 141(b) of the Tax Cede.

At this juncture, petitioner pointed that it imported foreign leaf tobacco from various mauufacturers of tabacco from the United ttates of America. These were properly recorded in its L-

DECISION -

C.T.A. CASE NO. 4617

- Pape 19 -

7 (see Exhs. DA up to DS-4, inclusive; and Exhs. DA-01 through oe section 137 of the Tax Code does not make any distinction whether the sale of stemmed-leaf tobacco by a manufacturer to another is imported or local. What is essential is that the sale of stemmed-leaf was made by a manufacturer directly to another to be used as raw material in its production in order that the same may be removed without the payment of the excise tax There ap pears to be no distinction as to the term “manufactur er“ as mentioned in Section 137 of the Taz Code. The manufacturer that supplies stemmed-leaf tobacco may either be foreign or local suppliers. Where the law does not distinguish we should not distinguish. There is nothing cryptic nor abstract in the language of the saic 1 provision as would pose an ambiguity in its application. We should ensure the continued application of said provision as itis in all fours with the case at bar. , so it appears, respondent for her part failed to controvert er rebut petitioner's submission that the subject purchase of stemmed-leaf tobacco were made ‘from various tobacco “manufacturers”. In fact, respondent failed lo present any evidence to support her case. Her counsel waived the right cross examine petitioners’ witnesses. Instead, she submitted this case for decision on the basis of the records and the pleadings. Heither did she submit any memorandum brief to gnide this Court. The Court is left without any recourse but to take

DECISION -

ACT.A. CASE NO, 4617

- Page 20 -

believe that the purchases of stemmed-leaf tobacco made by petitioner from local and foreign suppliers are transactions between “manufacturers” covered by the exemption from the payment of the specific tax pursuant to Section 137 of the Tax Code. | It was established by petitioner that its foreign suppliers of stemmed-leaf tobacco are also “manufacturers of tobacco’. Testimonial and documentary evidence were presented by petitioner to show that its foreign suppliers, namely: Universal Leaf Tobacco Co. (Exhs. I, D-2, D-4, D-7, D-10 arid D-12); Austin Company Incorporated (Exhs. D-1, D-3, D-11 and D-17); JAS. 1. Miller Tebacco Co., Inc. (Exhs. D-5, D-9, D-13, D-14 and D- 16); AL. Monk & Company, Ine. (Exhs. D-6 and D- 15) and Carolina Leaf Tobacco Co, Inc. (Exh. D-8) are listed in the World Tobacco Directory such as the Tobacco Reporter (see Exhs. GH, GH-1 and GH-2).

and partially manufactured tobacco (which includes stemmed- leaf tobacco), except imported leaf tobacco, unless entered in the amended]. Thus, while it is true that imported leaf tobacco is” in the L-7 official register book. For its part, petitioner has amply preven that the imported tobacco were properly recorded in its L-7 and L-71/72 official register book (see Ex s. DA to DS-4; DA- Q1 to DS-3j; FA to FP, all inclusive). Having complied with the requirement of Section 43la} of Revenue Regulations No. 17-97, / /

DECISION-

LT.A. CASE NO. 4617

-Page 21 -

as amended, We seee no reason vf.hy petitioner should not be exempted from the payment of the specific tax in question.

WHEREFORE, in view of the foregoing, We find the petition for review meritorious and the same is he{eby GRANTED.

Respondent's decision dated April 29, 1991 is hereby set aside and the formal assessment for deficiency specific tax in the sum of ~11,757,275.25 subject of respondent's letter, elated January 30, 1991, is deemed cancelled. No pronouncement as to costs of suit.

Associat€ Judge

WE CONCUR:

{See Separate Concurring Opinion)

ER ESTO D. ACOSTA

Presiding Judge ·

~ ~:_jw RAMON 0 . DE VEYR . . Associat€ Judge /

I

DECISlON-

C.T.A. CASE NO. 4617

-Page 22 -

CERTIFICATION

This is to certify that the above decision was reached after due consultation among the . members of the Court of Tax Appeals in accordance with Section 13, Article VI II of the Constitution.

c.~cQ .. ~­ 'fi'NifsTo D. ACOSTA

Presiding Judge

Court of Tax Appeals