CTA Case No. 3384 (Decision)

..... ct�l'OBLIC OF 'n �tE ~HlUPf'INf.''l \:OURT OF TAX .A.. PPI::AJ-'1 QtJ.E.'ZON Cl ~j( ZAPATA MARINE SERVICE LTD., S.A., C.T.A. CASE NO. 3384 Petitioner, - versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. X~ ~ - � - - ~ - - ~ - - ~ ~ - X DECI S I 0 N This is an action for the recovery of an amount of ~308,956.76 representing alleged erroneously with- held 8% final ta~ imposed on sub-contractors under Presidential Decree No. 1354 taken in relation with the provisions of Presidential Decree No. 87~ The facts are found accordingly. Petitioner resident forejgn corporation duly authorized to engage in business or trade in the Philippine by way of "furnishing by charter or other- wise, specialized offshore service and supply vessels to offshore oil drilling rigs as an international carrier" sometime in 1979 entered into contracts with the Amoco Philippine Petroleum Company (AMOCO), Citco 103

DECISION - CTA CASE NO. 3384 - 2- Philippine Petroleum Corporation (CITCO) and Philippine Cities Services, Inc. (PCSI), duly quaH lifie d Service Contractors under P.D. No. 87, other- wise entitled, "The Oil Exploration & Development Act of 1972". For the services rendered such amounts were withheld from the petitioner's gross income and remitted to the respondent's office on October 25, 1979, as follows : AMOCO: on gross income of E2,593,180.54 E207,454 . 40 on gross income of 359,961.73 28,796.99 CITCO: � on gros'S income of E4,104,198.10 328,335.85 . 1,081,795.50 86,543 .64 PC SI: on gross income of E 688,200.00 55,056.00 TOTALS WITHHELD E706,186.88 Petitioner contends that as an international carrier the amounts to be withheld should have been 4 1"2 ,0o' ( 21"2 0,o1 1� n c o me tax and 2% carrier's tax), hen ce, an overpayment: Total tax withheld (8% on the gross) E706,186.88 'LESS: Correct tax due (4~~~ on gross) 397 , 230.12 OVERPAYtv1ENT E308,956.76 10 3

DECISION - CTA CASE NO. 3384 - 3- On September 4, 1981 petitioner filed .a claim for the refund of the overpaid amo~nt of 8308,956.76. Likewise, on October 22 , 198~ the instant petition f or review as of said date the respondent neither granted nor otherwise acted on the said claim . The case presents no dispute as to the relatively simple material facts but the parties seem to get the better of each other over by a quibble on the proper import of "sub-contractor" as used in Presi- dential Decree No . 1354, viz.: "Section l . Tax on sub�-contractors. Every sub-contractor, whether domestic or foreign , entering into a contract with service contractor engaged in petroleum operations in the Philippine shall be liable to a final tax equivalent to eight percent (8%) of its gross i ncome derived from such contract , such tax to be in lieu of any and all ta xes, whether national or local: E.F..Qv.ided! however , That any income received from all other sources within and without the Philippines in case of domestic sub - contractors and within the Philippines in case of foreign sub-contractors shall be subject to the regular income tax imposed under the National Internal Revenue Code . The term 'gross ircome 1 means all income earned or received as a result of the contract entered i nto by the sub-contractor with a service contractor engaged in petroleum opera- ti ons in the' Philippines under Presidential Decree No . 87." Petitio ner under its contracts with the various Service Contractors engaged in oil exploration in the l lu

DECISION CTA CASE NO. 3384 - 4- Philippines under P.D. No. 87 performs such special functions: 1. Carrying supplies to offshore platforms an d drillin g rigs. These s upplies only consist of those items which are neces- sary to sustain an offshore petroleum exploration or production operation. Supplies include, but are not limited to: food, water, fuel, bulk cement and drill- ing fluids, drilling and logging tools, tubulars and machinery. The above supplies are always pro vided by the char- terer of the supply ship. 2. Carrying personnel to and from offshore platforms and drilling rigs. These per- sonnel are operating personnel or other drilling co ntractor's personnel. 3. Possibly, positioning and assist ing the offshore self-prop~lled drillship in its movements. This includes handling the rigs' mooring system consisting of chains , anch ors, wires and buoys. By and large, petitioner holds on to the pro- ppsit ion that th e said activities are basically t hose of an international carrier service and not of a sub-contractor contemplated in PD No. 1354, for tax purposes, citing an Aug ust 30, 1979 letter of the respondent's predecessor that "Zapata Marine Services Ltd.,. S.A., is ex'empted from the 8?~ final withholding tax prescribed by Presidential Decree No. 1354 sinee it was established that its carriage of supplies and 11 1

DECISION - CTA CASE NO. 3384 ... 5 - personnel to offshore platforms and d ri lling ~igs operated by service contractors engaged in oil exploration in the Philippines is merely a n act of international carriage , hence, subject to 2\% income tax and 2 % comrnon carrier's tax. 11 In rejecting petition er rs claim to a refund of an alleged overpayment of 8% final tax on sub-contractors respondent Commissioner of Internal Revenue counters that, "Assuming that petitioner' s business consists of furnishing by way of charter or otherwise, specialized offshore services and the supply of vessels to off~ shore oil dri~ling rig s , the same is incidental to, or in the nature of, engaging in 'Pet roleum Operations' as defined under Section 3 par. (d) of P.D. No. 87; hence subject to the 8% final income tax pursuant to P.D. No. 1354." We agree with the respondent Commissioner of Internal Revenue. The sprout ing impression precipitately broache d by petitioner that the services confined to an inter- national carrier's activities should not be considered a sub-contractor for purposes of the 8% final tax levy, can hardly be a reassuring prospect that can 11 2

I �! DECISION ... CTA CASE NO. 3384 - 6- easily be reconciled with the statutory intendment. Determinative of the sense and scope of the term "sub-contractor" is the nature and purpose of the particular contracts entered into with the service contractors. Thus, Section 1 of P.O. No. 1354, sup1:3!, begins with the broad assertion that. "Every sub�~con ... tractor whether domestic or foreign entering i .nto a contract with a service contractor engaged in petroleum operations in the Philippines shall be liable to a final tax equivalent to eight percent (8%) of its gross income from such contract, such tax to be in lieu of any and all taxes, whether national or local." This seemed to be where petitioner stood with respect to its contracts with service contractors, viz.: AMOCO�, CITCO and PCSI . As stipulated, the '� undertaking required of the petitioner somehow pro- vide the means necessary in pursuing the subject petroleum operation of the service contractors. Obviously, insofar as the statute is brought to bear upon the circumstonces obtaining, petitioner can readily slip into that warm cubby-hole of a sub- contractor, so to ~peak. Ludicrous and expedient piffle indeed if the kind of arrangements cannot 11 3 .

- I I DECISION - CTA CASE NO . 3384 - 7- validly be infused cognizance as that of a sub- contractor within the legal contemplation unless petitioner is unwilling to t ake the responsibilities or simply unable to discern what they are. Moreover, from the contract itself and the nature of �the subject matte r it conta.Lns the "ser- vices rendered by petitioner for the service contractors are clearly conn ected with the 'petroleum ope r ations ' since such ser vic es were rendered for the purpose of assisting the service contractors in obtaining petroleum." And, as defined, "petroleum operations" means searching for and obtaining petroleum within the Philippines through drilling and pressure or suction or the like, and other operations i ncidental thereto. It includes the tra nsportation , storage, heridling and sa l e whether for export or for domestic consumption of petroleum so obtained but does not include any : (1) transportation of petroleum out- side the Philippines; (2) processing or refining at a refiner y; or (3 ) a ny transactions in the products so refined. (Sec . 3 (d), P.D. No. 87). As noted, the law does not qualify the kind, nature or extent J

DECISION - CTA CASE NO. 3384 - 8- of the services rendered or to be rend ered by the sub-contractor, whether of specialized or limited contingency , provided they are addr essed to th e Service Contractors' needs relative to their pet- roleum operations . "What's in a name? That which we call a rose in any oth e r name would smell as sweet ! " As such petitioner ca nnot pry itself loose from the 8% final tax on gross income. Although the reach of the issue on which We rest our decision renders the consideration of other subsidiary que s tions unnecess ary , suf fice it to stat~ that it was no comedy of errors for the res- pondent Commissioner of Internal Revenue "to r e voke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not bind- ing on their s uccessors if, thereafter, the latter become satisfied that a different construction should be ~iven (Hil a do v. Call . of Internal Revenue, 100 . Phil. 294 (1956) , citi~g Association of Clerical Employees v. Brotherhood of Railroad & Steamship Clerks, 85 F(2d) 152, 109, A.L. R. 34 5 )." By all the foregoing, we are led unmistakably to the conclus io n of the respondent that the 1 15

�l DECISION ... CTA CASE NO. 338 4 �~ 9 �~ petitioner is a sub-contractor within the contem~ . plation of P.O. No. 1354 to the ~xtent that the 8% final tax can validly be located. WHEREFORE, the petition is hereby dismissed with costs against petiti oner. SO ORDERED. Quezon City, Metro 1987. Jud ge ., 1 0" " ..J..