\ te VICTORIAS MILLING CO., et al. vs. Victorias Milling Co., et al.

GOURT OF TAX APPEALS

MANILA

\ te

VICTORIAS MILLING CO., INC. | ‘\

Petitioner A») |

versus Via CTa CASE NU. 685

COMMISSIONER OF INTORNAL

RiVENUE 9

Nespondent,

This is an action filed by petitioner Victorias

Milling Co., Inc. for the refund of the total

amount of 266,949.79 which was paid as compen-

sating tax on imported ready-mede sugar bags or

appropriate materials for conversion into suger

bags. (Second Amended Petition for Review, pr.

193-209, CTA rec.) In his answer to the request

for refund, respondent Commissioner of Internal

Reverme maintains that said amount of #66,949.79 is

mot refundable and that on the contrary, the peti-

tioner is liable for and should be ordered to ‘pay

the additional sum of #20,206.13 as deficiency

advance sales tax on the importations in question.

(Second Amended Answer, ppe 214-218, CTA rec.)

The petitioner is engaged in the business of

manufacturing raw or ecentrifugel sugar and refined

sugar, and for this purpose, owns and operates a

suger mill or central and a sugar refining factory

icici

DeCI SIGN «

CTA Case Ko. 685

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in the Municipality of Victorias, Oecidental

Negros. in connection with the manufacture and

sale of the sugar, the petitioner in, and has been

importing ready-made sugar bags or appropriate

materials for conversion into sugar bage for con-

tainers of its raw or centrifugal sugar eas well as

its refined sug+r.

Frou April 29 te July 20, 1959, the petitioner

paid the sggreghte amount of °50,623.38 as com

pensating tax on various shipments of sugar bags

and closing materials for sugar containers imported

from abroad. The compensating tax on each ship-

ment was ped under protest and at the sane tine,

the petitioner requested the Colleeter of Customs

of lloilo, who collected the tax, to refund the

amounts paid. the petitioner also sought 4 ruling

from the respondent exempting said articles from

the compensating tax or advance sales tax, but the

latter ruled that said urticles are taxable. —

Accordingly, the petitioner filed the instant

petition for review of the ruiing of the respondent

and the refund ef the compensating tex elready paid

in the total sum of 980,523.38 which anount was

later reduced to #66,949.79 in petitioner's Second

Amended «tition for Review, alleging therein that

the Collector of Customs of Iloilo had, in effect,

refunded the sum of #13,573.59 by applying the same

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DECISION ~

CTA CASE NO. 685

so

in payment of the compensating tax on its import~

ations made during the years 1960 and 1961.

The issue to be resolved in this case is

whether or not the im orted suger bags and mater-

fals in question sre subject to the advance “sales

tex on imported articles".

We note that both the petitioner and the res-

pondent are in agreement that the former is not

subject to the compensating tax under Section 190

of the Nationel Internal Revenue Code. This is

due to the clear provisions of seid section which

state in part that "manufacturers, who are sub-

ject to tax under section(s) x x x one hundred

eighty-nine of this Title, shall not be required .

to pay the tax herein imposed where such coi

modities, goods, wares, or merchandise purchased

or received by them from without the Philippines

x x x are to be used in the manufacture or pre=

paration of articles for sale, barter, or exchange

and are to form part thereof". Hence, as stated

above, the question to be decided in the case at

bar, has narrowed down to whether or not the peti-~

tioner is subject to the advance sales tax under

Section 183(b) (Sales tax on imported articles)

in relation to Seetion 186 (Percentage tax on

sales) both of the ‘etional Internal Revenue Code.

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DECISION ~

CTA CASE NO, 685

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The petitioner contends that "the Collector

of Customs of Iloilo, on behalf of respondent,

had erroneously and illegally collected from peti-

tioner x x x on various shipments of containers

imported from abroad exclusively for the use of sugar

produced by petitioner for domestic consumption,

compensating taxes in the aggregate amount of

760,823.38 (later reduced te only 966,949.79)

on which protests and claims for refund were filed

with the said Collector of Customs of Iloilo".

(Par. 16, Second Amended Petition for Review, ppe

193-209, CTA rec.) On the other hand, the res-

pondent maintains that “the conteiners in question

are legally subject to tex, and x x x that the

Colleetor of Cust ms of Iloilo, on behalf of the

respondent, failed to collect the correct and

exact amount of taxes legally due from the peti-

tioner, the latter being liable to the advance

sales tax on its importations in question and

not to the compensating tax. In other words,

there is still due from the petitioner, deficiency

advance sales tax in the total amount* of P20,-

206.13. (Par. 5, Second Amended Answer, pp. 2t%-

218, CTA rec.)

We find the contention of the petitioner to

be meritorious and in accordance with law. The

”

DECISION «

CTA GASE NO, 685

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advance sales tax which the respondent clains

should have been collected by the Colleetor of

Customs of Lloilo under Section 183(b) in rela-

tion to Section 186 of the Tax Code, instead of

the compensating tax under Seetion 190 of the

same Code, is essentially and fundamentally a

“pereentage tax on sales". It is payable in

advanee by the importer ef erticles imported for

‘gale. The landed cost plus mark-up represent

theoretically the selling price of the imported

articles. (Mayon Motors, Ines V8. Commi ssioner

of Internal Revenue, G, R. No. 1x15000, Mareh 29,

1961.) And the payment by the importer of the

advance sales tax, prior to the release of the

goods from customs’ custody is no longer deemed

as @ mere "deposit", subject to adjustaent when

the uate ‘ene actwally sold. It is regarded as a

final payment, and not subject to adjustment, ire

" poupestive ef whether or not the goods are sold

for more or less than the value used in the com-

putation of the tax paid before release of the

goods from customs, (Genato Commercial Corp. va.

Court of Tax Appeals, G. 8. No. l~11727, Sept. 29,

1958; 55 0G 2092)

_ When the articles are imported for the use

of the importer, and not for sale te others, the

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DECISION «

CTA CASE NO. 685

«- 6 =

provisions of Eeection 190 of the Tax Code, not

Seetions 153(b) and 186 (or 18% and 1°95), shall

apply. Said Section provides in pert asc follows:

“See, 199. Compenseting taxee

All persons residing or doing business

in the Philippines, who purchase or

receive from without the /hilippines

any commodities, goods, wares, or cer

chandise, x x x shail pay x x xa

compensating tax equivalent to the

eszyentane taxes imposed under this

tle on ori¢inal transactions effect-

ed by serchants, importers, or manu-

facturers, such tax to be peid before

the withdrawal or removal of said com

modities, goods, wares, er merchandise

. from the eustomhouse or the post offices

xxx",

In short, the compensating tax should be

colleeted from an importer of coods imported for

the use by the importer himself, and not for the

purpose of selling the same te other personsé In

other words, the gales tex should he distinguished

and differentiated from the compensating tax.

They refer to, end affeet different texable trans-

actions. The first is a tax on the sale of articles,

whether imported or not, or the “tax on sales",

and the other is the tex on the use of articles

imported not for sale, or the “tax om use”.

In the cage at bar, the “various shipments

of containers (were) .imported (by the petitioner)

from abroad exelusively for the use of sugar pro-

duced by petitioner", These facts are clearly

stated by the petitioner in paragreph 16 of its

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DECISION ~

CTA CASE NO. 685

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Second Amended Petition for Review and expressly

admitted by the respondent in paragraph 5 of his

Second Amended Answer, and restated by the res-

pondent in paragraph 11 of his Second Amended

Answer in elleging his counterclaim. Therefore,

the petitioner, as the importer of the sugar begs

in question, is not liable for the payment of any

advance “sales tax on imported articles" inas-~

much as the said articles were imported not for sale

to other persons, but merely for the exclusive use

by the petitioner. .

Moreover, to hold otherwise and subject the

petitioner to the “percentage tax on sales .. ."

would render invalid and of no effect the provi-

sions of Section 190 of the Tax Code which ad-

nittedly exempt the petitioner herein from the

payment of the compensating tax. It should be

noted that the purpose of the compensating tax is

to place persons purchasing goods from dealers

doing business in the Philippines on an equal

feoting, for tax purposes, with those who pur-~-

ehase goods direetly from without the Philippines.

(Panay Electric Co. ws. Collector of Internal Re-

venue, G, R. No. L-6753, July 30, 1955) In

other words, the compensating tax is a sort of

an equaliser, te place casual importers, who are

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