CTA Case No. 4450 (Decision)

REPUBLIC or HIE PIt I LIPPI I\IES COURT OF TAX APPEALS QUEZON CITY APEX MINI NG CO., INC. 1 Petitioner' , C.T.A. CASE NO. 4450 COMMI SS IONER OF INTERNAL REV ENUE., Resp ondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION This is an appeal final deci s ion of res po ndent, dated 1'1at~ ch 12, 1990 <C. T.A. reco rds, p. 16), assessing petitioner the amount of P10,225,637.87 and P4,659, 3 68.13 or a total of P14,885,00G.OO, including increments, representing deficiency exc ise tax on its ~urchased minera ls and gold pro duction for the peritid January to June 1988. Petitioner is a domestic corporation organi2ed and exist ing under and by virtue o f the laws of the Philippines. The fo~ which the c o r por ati on is formed are: To carry on the bu ~ iness of mining , milling, concent t~ at i ng, convet~t i ng, sme lting, manufacturing, buying, selling and otherwi se prod ucing 86 4

DECISION C. T.A. CASE NO. 4450 - 2 �- and dealing in all kinds of oJ~ es, meta ls, and minerals, and the products and by- products th ereof. On Oct obel"' 26 , 1989, petiti oner rec eived a notice from respondent requesting petiti oner to appear in an informal confere nce regarding t he finding ~ su bm itted by the revenue enfor cement officers who inv e&tigst ed it& excise tax liabilitiE>s f01~ the first SE>mestel" of 1988 <!d., p. 8) . On November 13, 1989, a Pre- Assessm ent Notice si gned by the Assistant Commissione r for Excise Ta~ wa~ re ce ived by petitioner with the following defic iency as&e5sment <Id ., p. 9>. Own Purclla!'.Pd IWl l'linerals Production Gross S<tles PS1,583,810.71t p113, 252, 643. ':JO Pl&4 1 3JG,454.M Less: Refining lbfi1 5�H.IS 1!10.238. 64 5Z~1 ZB5.79 charge s I�.41259, 668. 85 Taxable Revenues 51,417,263.59 112,842,405.26 Ad Valorea TaK Rate ! s9S Ad Yalore� Tax Due K .05 l( .05 Surcharge ICS~l 8,212,963.50 Interest 116. 66~1 2, 570,863. 17 5, 61t2, 120. 33 2,053, 2.5.9() TOTAL 642,715.79 1,410,530.11 Is 710t 353t 80 535. 362. cs P 31 na. ':161.21 1,114.'171.55 � P ll 1'J7G1SSJ.20 p &.227.621. 9'l On November 17, 1989, a pr otest letter t o the P r e - Assessment Notice was fil ed by petitioner <Id. , p age s 10 - 11>. On Decem ber 11, 1989, petitioner rece ived a letter reply from t he Chief, Field O~erations Div isi on cf the Bureau of Internal Revenue (B1R> ad v i s i n g pet i t i one l~ t o pay the sum of P3,748,961.21 re pr es~nting th e unc onte$ted 86 5

DECISION -- C.T.A. CASE NO. 4 4 50 ... 3 --� po r ion of the as ses sment pt.w s uant a llegedly to the of Revenue Regulations No. 12-:- 85 (ld., p. 12 ) � In a letter, dated January 25 , 1990, pet :it ;i, onE>t~ informed the Ch ief , Fie ld Ope r ations Division of the BIR that it is not c ontesting the a d corr e s ponding to its own pr oduct ion of P2 ,5i0,863. 17 before s urc harge a nd interest. due to it s f inancia l condition, it is requ esti n g that its creditable input tax f rom Januar y 1989 to October 1989 in the amount of P5,647,354.08 be a ppli ed aga in 5t its 1988 ad valorem tax liability of P2 ,570,863.17. Further, it i s r eque s t i ng that the surcharge of 25~ or P64 2 , 7 15.79 be wai ved (ld . , p. 1 3> . On 9, 1990, petitioner rec t>i vf" d respondent's letter denying its protest and the eqa..test s contained in its lette r, dated J anuat~ y 25, 19 9 0 (ld., p . 14). In a letter, dated February 23, 1990, peti tione r reiterated its protest on the assessment of ad val tH., ern t ax on its pu rchase d min era } s �and offered to pay in twelve<1 2 > equal i nstallments starting June 1990 the ad valorem tax on its own production amo unting to P2 , 5 70,863. 17 (Jd., p. 15>. ....

DECISION -� C.T.A. CA S~ NO. 4450 - 4- On Ma n :�h 29 , 1990 , t h~ f i n a l d ~ ci sion of rRsp on d e nt was r ec ei ved by pet itioner denying the protest a nd t he propos d paym e nt 5chem e . Petit i oner was reque sted t o psy t h e en+ire a ss ess men t of P14,SSS ,OOG. OO with in te nCl O) days fl."' om }-'"'ec e i pt of afcn~ e said h�tt et~ <I d., p ~ 1 GL On Apri 1 E., 1990, the p t itioner th rough counsel, filed a n oti c e of appe a l to r espondent infcwming the latter that i t will fil e an app ea l with th~ Court Pf Tax Appeals <Id., p. 17> . On Apri l 27 , 19 90, the in s tant petiti on fen" t"l?Vi'ew was filed by p e titionet~ with thi s Cour t <J c:l ., pag!?s 1 - 7>s The is sue i s whether the defici ency exci5' taM assessment again ~t petit io ner on its own mineral produc t i on and the mineral s purchased from sm al l miner s f or the period of Jan uar y to June 1988 is eor r eet. The liability of petitioner f ot~ tht> SISS!?Ssed . d~ficiency e x c i s e tax on its own production of mine ra l s has been s ettled with the pe titioner's deci s i on not to contest the said assessment <Annex "E" of the P et:i.t:i o n> and its offer to pay the sam e <Annex "G" of t h e Pe tition> . S ur ch arge and in er est should likewi~e be imoosed th ereon pur suant to Section 248(a ) and S ection o~ t e Tax Code, r espectiv el y sinc e "es pondent rejected petitioner's re u e st for waiver o f surcharge. ~6 7

DECISION -- C.T.A. CASE NO. 4450 - 5- As to the a s ses s ment fo r defi c iency exc ise tax on minerals purchased from small petitioner contends that it is not liable for it s payment. The relevant prov isions of the National Revenue Code <NIRC> ap plicable to the following: &~ 1~. Payment oF exc i s e taxes on domestic products. <a> Persons liable; tim e for pay ment . - Unless ot herwise espec ially allowed, e xci s e taxes on domest ic products shall be paid by the manufa ctur er or p r oduc er b e fore removal from the place of produc tion: xxx Should domesti c products be removed from the place of prodr..&ction wit hout the paymE>n t of thE' tax, the owner or person having possession there of sha ll be liable for the tax due t he r e on. <Underscori n g supplied .> XXX SEC. 151. Nineral Products. - <a > Rates of tax. - Thel~e shall be leviE'd, assE'SS E' d and collE'ctE'd on mineral, mi ne r al prod ucts and quarry res ources, exci se tax as follow s: (1) XXX (2) XXX <3> On all metall ic mineral s , a tax of five percent <5"> based on the actu al markE't value of the gross output thereof at t he time of removal, in the case of those locally extracted or produced; xxx )()()( )()()( (b) For purposes of this section, the term ( 2> " Mine rals" shall mean all nat urall y cc rr' n g inorganic substances (found in n a ture wh et e~ i n soli d , iq u � d , gasE'OU S, or a n y inte rm e d iate st a t e . 86u

DEC ISIO N �- C.T.A. CAS E NO . 44 50 -- 6 -- <3> "M i ne ral pt~ odu cts " shall mean things produced and prepared in a marketable state by simple treatment processes such as washing or d ryi ng, b1..1t without undet~going any chemical cha nge or process or manufacturing by the l e sse e, c oncessionaire or owner of mineral 1and s . >< XX XXX (c) Time, manner and place of payment of exci s e tax on mineral and mineral products. Unle ss otherwise provided, the excise tax on mineral s and mineral products shall be due and payable upon removal of the minerals or mineral pr oducts or quarry resourc es from the locality where mined or upon removal from c ustoms custody in the cas e of importations. <Unde rscoring supplied.) XXX XXX xxx It shall be the duty of every ' lessee, owner or ooerator to make true and complete return in duplicate setting forth the quantity and the actual market value of the minerals or mineral products or quarry resources removed during such calendar quarter, of the balance, if any, in cases where payments are made upon removal, and oav the excise taxes due thereon within 20 days after the end of such quarter to the Collection Agent, or the Treasurer of the city or municipality of the place where the mine is located. <Underscoring su~plied.) XXX XXX It is clear from the foregoing provisions that the person principally liable to excise tax on domestic products is the manufacturer or producer, or in case said products are removed from the place of. production without the payment of the tax, the owner or person having pos s ession ther-eof is liable for the tax due thereon (Se c tion 12 7<a>, NIRC >. The le ss ee, owner or operator of 969

DECISION - C.T.A. CASE NO. 4450 7- the mining cla im is duty bound to pay the ex ~ i se tax in the case of mineral products <Section 151(c) , 3, NI RC> . The eHci se tax on domestic products s h all be paid upon wi thdrawal from the place of production (Sect i em 127 <a>, NI RC >. products shall b~ due and payable upon re�ov al from the locality wherE> mined <Sect ion 151<c>, par. 1 , Nl RC>. The undisputed f acts of the ea se at hand i~ that the mine ra l s on wh ic h respondent is assessing a 5% e~cise ta x were �erely purchased b y petitioner from small seale miners. Petitioner, therefore, is not the manufacturer or producer of said minerals. Neither is petitioner a 1es see, owner or operator of the mining cla im in so far as the pu~chased mine ral s are conc erned. At the time th e BIR reven ue officers conducted the investigation of petit ioner's excise tax liabiliti es fo r the period Januar y to June 1988, pursuant to letter of author ity dated August 10, 1988, and at the t ime the Pre- Assessment Notice dated November 7, 1989 was petit ioner is no longer the owner nor has po ssessi on of the mine ra ls pur chased fro m smalJ scale mi ners since the s e were already sold to t he . Central Bank of the Philippi n es. 970

DECISION -- C.T.A. CASE NO. 4450 -- 8 - Quoted hereunder are the pertinent portions of the testimony of Revenue Enforcement Officer Wilma Gonzales in the h earin g of ~his case on July 1, 1993: Q. Okay. I would li ke to refer your attent ion to the asse s sment specifically on the portion on purchased minerals. In your investigat ion were you able t o dete r mine a lso wh ether these purchased mineral s made by pet i tioner from small scale mi n e t~ s , were t h e y a 1 ready s o 1d to Central Bank at th e time yo u conduct your examination? A. I think so. Q. Is it safe to conclude Mis s Witness, at the time you conduct your investigation and at the time the pre- assessment not ice was sent to the petitioner and this pre -a sse~sment notice was d ate d Novembet~ 7, 1989, that the products or mineral products were no longer in the possession of the petitioner? A. They are no longer in the possession of the petitioner. Q. Miss Witness, prior to {he pre - assessmerit notice, you alread y determined that the mineral product s especially those that were purchased from the sma ll scale miners were no longe r in the possession of the petitioner? A. Yes. <T. S. N., pages 8 - 10.) As proof that the purchased minerals f r om small scale miners for the period January to June 1988 were 97 ~-

--- DECISION �� C. T. A. CASE NO . 4450 -9 already d~livered and sold to the Central Bank, eve n before petitioner's receipt of notice of deficiency assessment, petition el~ offe"t1 ed a s evi de>nce Exhibits "A" to Z 11 11 and "AA" t o XX II II' inclusi ve> of su b - ma r kings. These we r e admitted by the Cout.. t ("Re>solution", C. LA. re>cord s, pages 188-189>. In the Memorandum filed in Court, adm itted that petitioner is no longe>r the owner or possessor of the mineral purcha s ed fro m small scale miners during the first semester of 1988 since these were already s old to the Ce n tral Ban~. Reprod uced below is the pertinent portion o f re s pondent's memorand um~ "Ac c ordingly, since pe>titione>r becam e the owner of the mineral p roduc ts it purcha sed f rom small scale miners and had taken posses si ov th ereof witho ut the c orres ponding paymen t of the ad valor em tax due there on upon their removal from the min es by the small scale miners, petiti oner� is al s o lia ble for the 5 ~ ad va l orem tax as assessed due on the mineral product~ it purcha sed from the small scale miners . Moreover, petitioner wa~ the one who sold the gold and silve r it purchased fr om thg s mall scale mineJ~ s to the Centt~al Bank." <Und erscori ng supplied.) <C. T. A. records, pages 262-263 >. It is axiomatic in statutory construction that when the language of the law is clear and unequ ivocal, the law must be t a ken to .mean exactly what it says. Section 127 a n � 151 of t h e Tax Code speaks in clear and categorical l a n gua g e t hat t here s h oul d be no d oubt as to its a pp lica tion. 97r:..

DECISION - C.T.R. CRSE NO. 4450 - 1() - Having clearly established that petitioner is neither a producer or manufacturer nor lessor or operator of the subject minerals which it merely p1rcha sed fro m small scale miners, petitionet~ is not liabl e for the 5~ exci s e ta x <Phil~ Iron Mines, Inc~ vs. CIR, CTR Case No. 294, Marc h 1, 1962). It can not likewise be made to pay the excise tax as owner or po ssessor prec isely because it is no longer the owner or pe rs on having possession of the subject mineral s at the time of the assessment or even at time of inve sti gation thereof since they have already been sold before h and to th e Central Bank. To follow respondent's reasonin g that petitioner is liable for the purchased minerals because it be ca me the owner thereof and had taken possession thereof in the past would re sult in abst1rdi ty and precipitate havoc in the law. Accordingly, the 5~ excise tax under Sections 127 & 151 of the Tax Code cannot be imposed on the minerals . purchased by petitioner from small scale miners which it already delivered and sold to the Central Bank since it is beyond the ambit of its coverage. WHEREFORE, petitioner � is hereby ordered to immediately pay respondent Commi~sioner of Inte rna l ax o n it s own mt neral production for the period Janua r y t o Jun e 198 8 in the amount of P2.570, 8 63 17 o u s sur c h ar g e of 2 5~ p u r suan t to S ection

- .._.. ........ DECISION - C.T.A. CASE NO. 4450 - 11 - 248(a) of the Tax Code and interest of 20~ per annum computed from the date of removal of the minerals until paid as pro v id~d under Section 15l(c) and Secti on 249 (a) of the Tax Code. The assess ment for de ficiency exc ise tax on minerals purchased fro m small scal e miners and subseq uent ly sold to th e Central Bank . is hereb y cance lled for lack of l~gal basis. SO ORDERED. 7 ~ ~-Lw I R MON O. DE V Y � ;' Assoc iate Jud / WE CONCUR: /~ "~- fl. t.~ ERNESTO D. Presiding /~L~ K. GRUBA � A ssoci~ e Judge

-- DECISION - C.T.A. CASE NO. 4450 - 12 - CERTIFICATION I hereby certify that this decision was reached after due consultation among the members of the Gourt of Tax Appeals in accordance with Section 13 Article VII of the Constitution. ~(2.. ~~ ERNESTO D. ACOSTA Presiding Judge ' 875