Re~ublic of the Philippines COURT OF TAX APPE:'.\LS ~·\cnila i\BJ, et al. vs. CAS?.. NO., et al.

Re~ublic of the Philippines

COURT OF TAX APPE:'.\LS

~·\cnila

i\BJ,lAJ\DO L. ABNJ , doing

business under the trade

name of Republic Alco -

hol Distillery ,

Petitioner ,

C. I . A.

- versus -

CAS?.. NO., 620

THE COMMISSIOh!ER OF

INTERl'!AL REV .::.NUE ,

Respondento

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D E C I S I 0 N

The respondent assessed against the petitioner

the sum of tl9,204.20 as specific tax on 42 , 676 proof

liters of distilled spirits which were allegedly ille-

gally removed from petitioner ' s bonded w9r ehouse with-

out payment of s ai d t ax.

I n addi tion , peti tioner was

al so asked to pay the sum of - ~10 , 000.00 as penalty

(compromise) for violation of Section 174 of the Na -

tional Internal Revenue Code.

l ~aving failed to secure

reconsideration of the assessment , petitioner has ap-

pea lad.

It appears that petitioner is the owner of the

Republic Alcohol Distillery located at 273 F. Roxas ,

Grace Park , Caloocan , Rizal , which is engaged in the

mc:nufacture of denaturedUalcohol for industrial uses .

Denatured alcohol for use in industry is exempt from the

specific tax prescribed in Section 133 of the Natibnol

Internal Revenue Code , pursuant to Section 128, but sales

of which by the manufacturer are subject to the sales

tax provided in Section 186.

The manufacture of dena-

DECISIOf\T -

C. I . A. CASE NO . 620

- 2 -

turod alcohol is subject to the supervision and con-

trol of the Bureau of Internal Revenue. (Sees. 149 ,

164 , Revenue Code; General Circular No. 420, June 23 ,

1939. )

On August 14 , 1958 , petitioner applied for the de-

naturation of 33,000 gauge liters of rectified alcohol.

The denaturation was effected on August 21 , 1958 by the

Denaturing Committee of the Bureau cf Internal Revenue

composed exclusively of three officers of said Bureau

without the intervention of petitioner or any of his

agents .

The circumstances surrounding the denatura -

tion are as follows:

"In his letter dated August 14 , 1958

(Exhi>it E) , petitioner applied for the

denaturation of 33 ,000 gauge liters of

rectified alcohol of not less than 180

degress proof under Formula No. 1

pres -

cribed in section 40 of Chapter V, Cir-

cular No . 16 , to wit : To every 100 parts

by volume of ethyl alcohol of not less

than 180 degrees proof , there shall be

added 2 parts by volume of approved me -

thyl alcohol (or methanol) and one -half

of 1 part by volume of approved pyridine.

~pon re ceipt of petitioner ' s appli cation ,

the Chief of respondent ' s Alcohol Tax Div-

ision prepared the corresponding author-

ity addressed to the Chief , Laboratory

Secti on to analyze the denaturants needed

for denaturation (pp.

15~6 , t.s . n.;

Exhibits E-1 and E-2 • ~amples of the de -

naturants were taken from oetitioner ' s

bonded denaturing wareh nus~ by a BIR em-

ployee , Hr. Manuel Carifigal , and brought

to the BIR Laboratory Section for analysis

{p. 79 , Ls.n. ), and the reports of

analysis were duly accomplished {Exhibits

E- 1 , E- 2 and E- 2) , showing that the dena -

turants passed the commercial grade and

could be used for denaturing (pp. 80- 82 ;

t . s . n. ).

Upon receipt of the laboratory

analysiS reports on the denaturants , the

Chief , Alcohol Tax Division , pursuant

to Memorandum Order _

1o. V- 799 cf the Bur-

eau of Internal Hevenue , dated January

D~CI~ION -

C. I . A. CSE

l'TO. 620

- 3 -

29 , 1958, directed the Denaturing Com-

mittee , composed of Mr. Marcelino de Leon ,

Chairman , and Drug Inspector Mercedes

Ylagan and Mr. Inocencio Gonzales , Jr.,

Chief, Labor2tory Section , Members , who

are all internal revenue officers , to

proceed , on ,ugust 21 , 1958, to the bond-

ed denaturing warehouse of the petition-

er at Grace Park , Caloocan, Rizal , and

to denature the 33 ,000 gauge liters of

rectified ethyl alcohol of petitioner.

/fhe Denaturing Committee denatured the

' rectified alcohol of the petitioner in

accordance with the standard procedures

pres cribed by the internal revenue law

and regulations {please see testimony of

Mr. Marcelino de Leon , pp.

27 ~77 , t . s . n. ,

and testimony of Mr. Inocencio Gonzales ,

Jr. , PP• 77-98 , t. s . n. ) 1 and after the

denaturation , the said Denaturing Commit -

tee took , through the manholes on top of

the three denaturing tanks used in the

denaturation , two samples from each of

the three tanks and sealed the said sam-

ples , on whi ch seals were affixed the

signature of the members of the Denatur-

ing Committee and that of the resident

manager of the bonded denaturing plant,

One set of the samples was left at the

denaturing plant and the other set was

taken by the Denaturing CQmmittee to

the Laboratory Section of the Bureau of

Internal Revenue for analysisv After the

denaturation and before leaving the prem-

ises, the Denaturing Committee duly seal-

ed all the openings of the denaturing

tanks .

The quantity of the rectified al-

cohol and the denaturants used in dena -

turation were duly entered in the Offi -

cial Register Book of the denaturing

plant (Exhibit I) by the BIR storekeeper-

gauger and the resident manager of the

plant , and the members of the Denituring

Committee accomplished the requis.1te cer-

tific2tes of denaturation (Exhibit~ G,

G- 1 and G- 2). / The samples of the dena -

tured alcohol taken by the Denaturing

Committee were brought to the BIR Labor-

atory Section and upon analysis , were

found to be duly denatured {p. 91 ,

t . s.n .~ "

(Pages 2-5, Memorandum for Petitioner,

Jan. 18, 1961 ~

)

The facts narrated above are not disp~ted by respond -

ent.