CTA Case No. 2789 (Decision)

�~ �. PUBLI C 0 F THE PHILlt> t'tNES ~vURT OF TAX APPEAJ...S QU�ZON CITY MANILA EL ECTRI C COMPANY, C . T. A. CASE NO . 2 78 9 Petiti oner, - versus - ALFREDO PIO DE RODA, JR . , as Acting Commissioner of Customs , Respondent. X- - - - - - - - - - - X DECI S I 0 N This c ase of an assessmen t d e ma nd for u npaid com- pensating t axes a nd customs duties in the aggrega te amoun t of ~14,656 1 447.00 due on pe t i tioner 's v arious i mpo rta tion s of poles , wires, i nsulators and tr ans- formers, etc. f or the period 1967 to 197 2 comes on a two- fo ld c oncern : wh ether or not 1) the " in lieu of all t axes" in Paragraph 9 of the petitioner's franchise comprehends such i mport liabilities of compensating tax and c ustoms duty, and 2) the finality of liqu i dation in Sec t i on 1603 of the Ta ri ff and Customs Code , as amended , applies t o t he petitioner � s import ati ons . The p rovisions r ead as follows : " PARAGRAPH 9. The gran t e e sha ll be l iable t o pay t he s a me taxes upon its r ea l estate, buildings , plant (not i nc luding poles, wires , tra n sformers and in s u la tors), mach ine ry , and 126

DECISION CTA CASE NO. 2789 - 2- personal property as other persons are or may be hereafter required by law to pay. I n con- sideration of Part Two of the franchise herein granted , to wit: the right to build and ma in- tain in the City of Manila and its s uburbs a plant for the c onveying and furnishing of electric current for light, heat, and power and to charge f o r the same, the grantee shall pay to the Cit y of Manila a five per centum of t he gross earnings received from its business under t his franchise i n the City and suburbs: Provided, That two and one half per centum of the gross earnings received from the bu siness of the line to Malabon shall be paid to the Province of Rizal. Said perce ntage tax shall be due and payable at the times s tated in paragraph nineteen of Part One hereof, and after audit1 like that provided in paragraph twenty of Part One hereof, and shall be in lieu of all taxes and assessments of what- soever nature, and by whatsoever authority upon privileges , earnings, income , franchise, and poles, wires, trans formers, and insulators of the grantee, from which taxes and assessments t he grantee is hereby expressly exempted." (Or-� d inance 44 Municipal Board City of Manila ) "Sec. 1 603 . Finality of Liquidation . - When articles h a v e been en tered and passed free of duty or fi nal adjustment of duties made, with subsequent delivery, such entry and passage free of duty o r se ttlement of duties will, after the expiration of one year, from the date of the fi nal payment of duties, in the absence of fraud or protest, be final and conclusive upon all parties, unl e ss the liquidation o f the import en try was merely tenta tive ." (Customs And Tariff Code, as amended) As it appears 1) Petitioner is a holder of a franchi se to construct, ma intain and operate elec t ric light, heat and power system in the City of Manila and suburbs under Ordinance 44 of the Municipal Board of the City of Man il a implementing Act 484 of the Philippine Commi ss ion, as renewed and extended by R . A. Nos . 150 and 4159; 2) In the maintenance and operat i on o f the

DE CISION - CTA CASE NO . 2789 - 3- s ystem the petitioner imports, among other things, machinery, poles, wires, transformers and insulators ; 3 ) During the period o f 1967 to 1972 petitioner at i' variou s oc cas ions i mported poles , wires, insulators and t ransformers which were r e leas e d from cu sto ms cus- tody without t he payment of the c orrespond ing taxes and duties on the basis of the Collector of Customs � r ul ing in Manila Protest Case Nos. 289 and 290 dated February 4, 1959 exempting pet i t i oner from such import li abi lities unde r its franchise ; 4) The Collec to r's rul ing notwithstanding, the respondent Commissioner of Customs in a lette r dated December 5 1 1975 demanded payment of a n aggregate amount of ~14 ,65 6,44 7 . 00 re- presenting unpa id compensating tax and customs duty on the imported poles, wires , ins ulato rs, and transformers dur ing the aforesaid period ; 5) Petitioner disputed the assessment and r equested cancel l ation and withdrawal t her eof for the reasons of the stipulation in Paragraph 9 of i ts f ranchise, supra, alternatively of the fi nality of the liqui dation in Section 1603 of the Tariff and Cus toms Code, supra ; but, 6) Re spondent Commiss i one r of Customs reiterated the demand under l et ter to petit io ner dated March 8, 1 976 . Hence this petition for r eview. The fi rst question raised requires no tortured ratiocina tio n . The Supreme Co ur t con struing the applicable 128

DECI SION - CTA CASE NO. 2789 - 4- scope of the t ax exemption privilege in Paragraph 9 of the pet itione r's franchise , supra , in Meralco v . Com- missioner of Interna l Revenue (GeR . Nos . L-2 9 98 7 and L-23847, October 22, 19 7 5, 67 SCRA 353 ), a case similar in many or so in tenor and identical in terms invo lving as i t does t h e herein pet i ti oner ruled , " wha t the above provision exempts petitioner from, i s the payment of property tax on its poles, wi res , transformers and insulators ; it does not exempt it from the payment of taxes like the one i n question which, by mere necessity or consequence alone, fall upon property . The first sentence of paragraph 9 of petitioner ' s franchise expressly s tates that the grantee like any other tax - payer shall pay taxes upon its real estate, buildings, plant (not including poles, wires, transformer s, and insulator s) , machinery, and persona l property . These are direct taxes i mposed upon t he thing or property itself. Thus, wh ile the grantee is to pay tax on its plant, i ts po les, wi res , tra ns formers , and ins ulators as for ming part of t he p la nt or installation (s igni - fican tl y the enumeration is in parenthesis and f o llows t he word 1plant 1 ) are exempt and as such are not to be included in the assessment of property tax to be paid . The ending clause of pa ragraph 9 providing i n eff ec t that the percentage tax imposed upon 129

DECISION - CTA CASE NO . 2789 - 5- petitioner shall be in lieu of 0 a ll t axes and assessments of whatsoever nature and by whatsoever authori ty� cannot be said to h ave grant ed it exemption from the payment of compensating tax. The phrase ' a ll taxes and assess- ments o f whatsoever nature and by whatsoever authority! is not so broad and sweeping, as petitioner would have us think� as to include the tax in question because there is an immediately succeeding phrase which limits the scope of the exemption to taxes and assessments ' upon the privileges, earnings, income, f ranchise , and poles, wires, transformers, and insulators of the grantee�. The last c lause of paragraph 9 merel y re- affirms# with regards to poles, wires, transformers. and insulators. what has been expressed in t he first sentence of t he same paragraph namely, exemption of petit ioner from payment of property tax. It is a prin- ciple of statutory construction that general terms may be restr icted by spec i fic wo rds , with the result that the gene ral language will be limited by the specific language which indicates t he statute's ooject and pur pose . " (Statutory Construction by Crawford, 1950 ed . p. 324-325) . (Underscoring supplied) We do not think that any different conclusion ought to follow . In rejecting MERALC0 1 s claim of exemption from the payment of compensat ing t ax on its shipments 130 /

DECISION - CTA CASE NO . 2789 - 6- the Co ur t stresses that, 11 lt i s a wel l settled rule or principle in taxation that a compensating tax is not a property tax but an excise t ax (129 A.L.R . p . 223 , 230; 103 A.LeR. 93; Henneford v . Silas Mason Co. 81 L . Ed. 814 ; Connecticut Light & Power Co. v . Walsh 1 A.L . R. 2d, 453; Watson Industries v . Shaw, 69 SE 2d 505 ; Northern P.R. co . v . Henneford (126 ; DC) 15 F. Supp. 302). Generally stated, an excise tax is one that is imposed on t he performance of an act, the en- gaging in a n occupation, or the enjoyment of a privilege (State v . Brown 1 48 NE 95, 11 2 Ohio St . 590 ; Buckstuff Bath House Co., v. McKinley, 127 s.w . 2d. 802 1 806 1 198 Ark . 91 ; State v . Fields, Ohio Appe NE 2d 744, 747) . A tax levied upon property because of its ownership i s a direct t ax, whereas one levied upon property because of its use is an excise duty . (Manufacturer ' s Trust Co . v. Un ited States, Ct, CI, 32 F . Supp. 289 1 296 ) � 11 So is the nature of customs duty 11 an indirect tax imposed on the importation or consumption of goods. 11 (Pe llock v. Trust Co ., 158 u. s. 601 , 15 Sup . Ct. 912, 39 Ed . 1108 ) levied in a similar manner as c ompen- sating tax. Both impositions partake the attribute of excises brought to bear upon the importations. Upon t he record there is nothing to t ake t he present case out of the context of the operative effects of the said rule. We hesitate to further fa:sh io n an iss ue into a satisfactorily settled legal situation .

DEC ISION - CTA CASE NO . 2 78 9 - 7- The fina l ity of liquidation precipitately broached in t he second t owards adding a jus tifica tion for t e cancellation of the assessment c a n hardly be a reassuring prospect that c a n easily be reconciled with t he sta t u- tory intendmen.t � Fo r , equally determinative of the sense and exten t of t he import of Section 1603 o f t he Tariff a nd Customs Code , supra, is t he pro scription of t he "absence o f fraud or protest " which in the in s tant situat ion poses t he rubG The 1 95 9 rul i ngs of the Co llector of Cu stoms (Man ila Protest Nos . 289 and 290 ) used to infuse validity in effecting t he tax- free re l eas es of petitioner's import a tions are largel y nostalgic illusions having been eviscerate d by sub- sequent decisions, but, " Petitioner, however, wa s not candid enough to disclose to the Collector that pur- suant t o the rulings of the Court of Ta x Appeals in CTA Cases 1 493 and 1 495 , appea l ed to the Supreme Court as G. R. Nos. L-29 98 7 and L-23847 1 supra, MERALCO ~s subject to compensating tax . The Customs officials were unawa re of the Tax Cour t decision . Petitioner herein, being t he petitioner in those cases, knew of the ruling, yet it suppressed the information, which suppression amounts t o misrepresentation and fr aud on the part of petitioner ." (Respondent ' s Brief, p. 7). The record makes it clear that insofar as the same is 13 ~

DECISION - CTA CASE NO . 2789 - 8- brought to bear upon the circumstances in the case a t bar petitioner's posture would have s t retched too far t he effective r a nge o f expediency as to gravely i mpair t he ends for which t he privilege was granted and un- j ustif i ably fett e rs per fectly legit imate methods o f enfo rce ment and col l ection of t he lawful dues. Peti- tione r should have c ome to grip with the facts obtaining, nothing more . It i s no t therefore difficult to under- s tand respondent1 s righteous indignation in disr egarding the claim t o any fin a lity of liqu i dation alternatively invoked by the petitioner on its i mportations during t he period in q uestion . Connected with the question j ust discussed and as interposed by petitioner is the attendant good faith and apparent clout of official panache i n authorizing the tax exemption on the v arious i mpo rtat io ns. It might be, and indeed� we th ink i t should be necessary to r epeat what so often may have been said and what so plainly apply to the c as e at bar the we ll-set tl ed rule as readily a ttested by a host of decisions t hat "errors committed by public offi cers c annot be set up as estop- pel against the Government or bar its future action in accordance with l a w." (Zamo ra v. CTA & Commiss ioner of Interna l Revenue~ 36 SCRA 85 : Government v . Mon te de Piedad, 35 Phil. 72 8 : Pineda v. CFI1 52 Phil. 803; Estate of Dela Vina v. Government , 65 Phi l . 262 ; Cu 133

DECISION - CTA CASE NO . 2789 -9 Unj ieng v. Boa~d o f Tax Appeals, 100 Phil . ; Hilado v . Collector of Internal Revenue, 100 Phil. 288; Canlubang v. Standard Alcohol Co., L-10887, April 1 6 , 1958 ~ Genato v . CTA, 1 04 Phil. 615; Phil . American Drug Co., v . Co llecto r of Internal Re venue, 1 06 Phil. 161; Lewin v. Galang, 60 O . G. 73 66 ; Visayan Cebu Terminal Co . v. Commissioner of Int e r nal Revenue, L-195 30 & L-19 444 . February 27 1 1 96 5). Mo reover, exemption "cannot be a llowed unl ess granted in the most e x pl i c it and c ategor ical language " (Resins , I n c . v. Auditor General, L-1 7388, October 29, 1968 ; Commis- sioner of Int erna l Revenu e v. Guerrer o , 21 SCRA 1 80 ; Union Garments Co . Inc . v . CTA, 4 5 SCRA 304 ; Rep. Flour Mill s , Inc . v . Commis sione r of Interna l Reve nue 31 SCRA 520), because the " law does not l ook wit h favor a tax exemption and that he who would seek to be thus privileged mu st justi fy it by words t oo pla in to be mistaken and too categorical to be misinter- preted. " (Reagan v. Commissioner of Inter nal Revenue , 30 SCRA 968; Ohio L ife Ins. & Trust Co. v. Debolt , 60 Howa rd 416 ; Commissioner of In ternal Revenue v . P . J . Kein er Co. Ltd . , 65 SCRA 15 3). All that need be stated is any such claim for entitlement to tax exemption must prove compl i ance with the terms and conditions p e re mptorily req uired by law l est the integ- r i ty of collection of lawful dues be placed in the 134

DECISION - CTA CASE NO. 2 789 - 10 - quicksand of sel f - i nte r es t, so to speak. The pr i v i- lege petitioner seeks t o en j oy comes �as a random quirk and f a lls sharp ly at odds with the t a x e xempt ion con- templated in its fran chise. ACCORDINGLY, the petition for review is hereb y dismi ssed at petitioner' s costs. SO ORDERED . Quezon City, Metro Man i la , July 16, 1 984 . Associate Judge WE CONCUR: �� ,...._ � ROAQUIN Judge 135