THE CITY OF LAS PI?AS, represented by RIZAL Y. DEL ROSARIO, in his capacity as CITY TREASURER v. SEALED AIR (PHILIPPINES), INC.

REPUB~IC �oF THE PHILIPPINES COURT OF TAX ~\PPEALS QUEZON CITY FNBJ~NC THE CITY OF LAS PINAS, C.T.A. EB No. 280 represented by RIZAL Y. DEL ROSARIO, in his (C.T.A. AC No. 18) capacity as CITY TREASURER, Petitioner, -versus- Present: Acosta/ P.J., SEALED AIR (PHIL.IPPINES) INC., � Castaneda/ Jr.1 Bautista, Respondent. Uy/ Casanova/ Palanca-Enriquez1 JJ. Promulgated: MAR 1 2 2008 4YJf/c.,.4v~vt~Lr~, x------------�-----------------. -------��----�---- �------------------------------x /..'~I.J�:--/-.~ . DECISION CASTANEDA, JR., J.: �This is a Petition for RevieN filed Jef.xe the Court of Tax Appeals � En Bane assailing the Decision dater! Ncvember 13, 2006 and the Resolution dated Maret: 9, 2007 issued ~JY t:1e First Division of this Court in the case entitled/ ''Sealed Air (Philippines/~ Inc. vs. The City of Las Piffas and Mr. Rizal Y. Del Ro:;,ario, in his :-:apacity as Treasurer of the fk- City of Las Pifia:f1, docketec as Cfl\ A.C. No. 18. The assailed Decision .. .. �' �.~

. DECISION CT.A. EB. Nu. 280{CTAACNo.18) Page2of 13 . SET ASIDE the decision and order� is.ded _by the �Hon. Raul Bautista Villanueva of RTC Branch 255 of Las Pihas City dated June 28, 2005 and October 6, 2005, respectively. In the same assailed Decision, the First Division DECLARED WITHOUT FORCE AND EFFECT the assessments dated August 1,2003 and Sept'=mber 8, 2003 issued by the respondent City Treasurer of Las Pinas. The Resolution dated March 9, �2007 denied the respondent's (herein petitioner) Motion for Reconsideration for lack of merit. THE fACTS The facts, of the case z.s found by the Court in Division are as follows: Petitioner Sealed Air (Philippines) ~nc. (formerly Cryovac Philippines Inc.), is a domestic corporJtion with principal office at Don Mariano Lim Industrial Complex, Alabang-Zapote Road, Las Pinas City. I Respondent City c.f Las Pifias i.; tht: local government unit exercising local tax jurbdiction over the 1~etitioner. Respondent Rizal Y. Del Rosario is the Treasurer o;' Las Pinas City and is being implcaC.:ed in this Petition for Review as su�::h. On August 4, 2003, petitioner received a letter dated August 1, 2003 from the respondent City Treasurer requiring the former to settle the assessment r. 1ade on the alleged local business tax deficiencies . in the total amount of P5,499,323.25, inclusive of penalties, and interests, .nvering the taxable period 1999-2003. Petitioner received a follow-up assessment letter dated September 8, 2003 on September 9, 2003. Considering ~hat the first assessment letter sent by the respondent City Treasurer was received by the petitioner on August 4, 2003, the latter had until October 3, 2003 within whicli to fil~ its written protest to contest the said assessment pursuant to secti�in 195 of the LGC. It appears from the respondent City Treasurer's letters !Jt-- that the assessmP.nt made was based on !.he petitioner's alleged failure to pay the correct amount of business taxes during the

DECISION C T..4. �8. No. 280 (CTA AC No. 18) Pagel of13 covered period. Notwithstanding the fact that petitioner was � regularly paying the relevant local business taxes, a discrepancy arose due to the alleged erroneous classification of the petitioner. According to the City Tre3surer, ,the business tax classification of the petitioner should be thai: of "retailer" which is being taxed under Article Vlll, Sectic.n 31 (d) of the Revenue Code of Las Pif\as at the rate of One P~=rcent (1 %) on gross receipts exceediny P400,000.00. Petitioner was classified as a "wholesaler" prior to the issuance of the protested assessment and the tax reclassification had given rise to the alleged tax deficiencies of the petitioner. In view of petitione('s assessment for local business tax deficiency, Sealed Air disputed the sairl as~:essment as the same is without any legal or fadual ba::is- it !Jeing based on the wrongful assumption on the n~ture and kird of petitioner's business activlties. Thus, petitioner filed its letter-protest dated September . 24, 2003 with the respondent City Treasurer on September 30, 2003. Without admitting the validity of the subject assessment, petitioner showed that the deficL:ncy tax due shouid be P3,625,078.25 based on a patent summation error com!J]itted in computing the aileged t~x due. In support of. irs protest, �.pecttioner averred that it is a wholesaler and not a retailer, as in fact not allowed by law to � engage in retail trade bus�iness and it has never been involved in any transaction involving retail trade. Also, its sales activities were purely made on a wholesale basis. Thus, as far as the petitioner was concerned, the tax deficiency assessment for local business tax covering the period 2000- 2003 should be withdrawn. On the tax deficiency for 1999, the petitior:~e_r argued that the City of Las Pif\as has no jurisdiction to collect tdxe.;; on the gross income generated by Sealed Air in 1998 considering that it has started business operations in Las Pif\as only in January 1999. However, the respondent City Treasurer was not convinced with the petitioner's arguments and proceeded to deny the protest. Petitioner filed an Appeal with the- RTC of Las Pifias, entitled "Cryovac Philippines/ Inc. vs. 7HE CITY OF LAS PINAS AND MR. RIZAL Y. DEL ROSARJq in his capacity as Tre,asurer of the City of Las Pifias. N The c::aid case was raffled to branch 255 and docketed as Civil case No. 03-02~)9. After trial on the merits, a Decision dated June 28, 2005 was promulgated by Honorable Presid~�1g Judge Raul Bautista Villanueva, which is quoted hereund,2r for reference, to wit: "WHEREFORE, p�;mises considered, judgment is ;1..:--- hereby rendered as 1JIIows: ..

DECISION C T:A. EB. No. 280 {CTA ;.1C No. 18} Page 4of 13 1. DISMISSING ~he Appeal dated 18 November 2003 filed by the appe rmt Cryova.:.. Philippines, Inc., for utter lack of merit; � .. 2. DECLARING the appellant Cryovac as a retailer and subject to business taxes .under Sec. 31 (d) of the Revenue Code ofthe City of Las Pinas; 3. FINDING the said app,dlant liable for tax deficiencies due to the arpellees City of Las Pif\as and, City Treasurer Rizal del Rosario at1d t(' immediately pay the same in an amount to be re-computed covering the period 1999 up to 2003; and 4. REQUIRING the atove appellant to subsequently pay business taxes due from it as a "retailer", not as a "distributor". No pronouncement as to costs. SO ORDERED." "Petitioner filed a Motion for reconsideration dated July 29, 2005 seeking reconsideration of the �;;bove-quoted Deci~ion. On October 6, 2005, the court a quo denied the said motion for lack of merit. Hence, this PetitiJn for Review filed with the Court of Tax Appeals docketed as A.C. Case No. 18 entitled, "Cryovac Philippine~ Inc. vs. The City of Las Pifias and Mr. Rizal Y. Del Rosario/ in his c.'1pacity as Treasurer of .':he City of Las Piifas'; wherein petitioner raised the sole issue: WHETHER OR NOT PETITIONER SHOULD BE CLASSIFIED AS RETAILER SUICE THE PETIT~ONER IS IN TRUTH AND IN FACT A WHOLESALER. Acting on the Petition, the First D!vision of this Court issued a Decision on November 13, :::.006 which !s now the subject of appeal. The dispositive portion of the ~aid Detision reads, as follows: IN VIEW OF THE FOREGOING, lhe instant Petition for Review is hereby GRANTED., Accordingly, the 28 June 2005 Decision and 6 October 2005 Order both issued by the Hon. Raul Bautista Villanueva of RTC Br. 25~, Las Pifias City, are hereby SET ASIDE. In addition, the 01 Au!~:.Jst 2C03 and 08 September 2003 assessments issued by the respondent City Treasurer of Las Pinas are hereby DECLARED WITHOUT FORCE and EFFECT. ?--- SO ORDERED.

DECISION C. T.A. �8. No. 280 (CTA AC No. 18) The respondent (herein , petitioner). filed a Motion for Reconsideration of the Decision dated November 13, 2006 against the petitioner (herein respondent). In a Resoluti?n dated March 9, 2007, the First Division. denied the Motion for lack of merit. Hence, this Petition for Revi.-~w �r, Pa.'1c. In a Resolution dated May 7, 200/-' the Court En Bane ordered the respondent to file its comment on the petition to which the latter complied on June 18, 2007. THE ISSUES I. Whether or not the Respondent should be classified ~s a wholesaler- or retailer in accordance with the provision of the Local Government Code of 1991 and the Revenue Code of the City of Las Piiias. II.. Whether or not the acts of Respondent put it within the purview of the definition of a retailer; and as such, is liable to pay Petitioner for tax deficiencies in the amount of Three Million Six Hundred Twenty-five thousand Seventy-Eight pesos and Twenty-five centavos (Php 3,6215,078.25). � PETITIONER�~~ ARGUMENTS Petitioner avers that the provisions of the Local Government Code (LGC) of 1991 (Republic Act No. 7160) i.1nd the Rev~nue Code of the City of Las Pifias (City Ordinance No. 104-92), particularly Section ' 131(w) and Section 3(w), respectively, classify Sealed Air as a retailer. What "retail" merely entails is that �~ commodity is bought for the consumption of the purchaser. By themselves, said terms are pc........-

DECISION C T..4. E.B. No. 280 (CTA .4C No. 18} understood in their common meCinlng, t;hus, there is no reason to resort to a peculiar definition of the term "Ret3il." ' RESPONDENT'S COMMENT Respondent reiterates that lt is a wholesaler in accordance with I the applicable laws (LGC of 1991, Reverue Code of the City of Las Pinas) and prevailing jurisprudence citing t1e cases of Marsman & Co., Inc. vs. First Coconut Central Co., Inc. GR. No.L-3984{ June 20, 1988 162 SCRA 20~ Cornelio Balmaceda v.;. Linion Carbide Phils. Inc. G.R. No. L-30442, September 30, 1983 124 SCRA 893, B.F. Goodrich Philippines, Inc. vs. Teo(ilo Reyes Sr. G.R. No. L-30067 April 19, 1983 121 SCRA 36~. and Mobil Oil Phils., Inc. vs. Teofilo Reyes Sr. G.R. No. L-29013 August 31, 1983 124 SCRA 371, and therefore, respondent must be taxed as a wholesaler. COURT'S RULING We find the petition without merit. To sum up the arguments raised by the petitioner, its ultimate tenor is for the Court to decide merely on the definitions provided by LGC of 1991 and the Revenue Code of the City of Las Pinas without resorting to other laws and jurisprudence. We quote hereunder the relevant provisions of LGC of 1991 defining the terms "retail" and "wholesaler'', to wit:� "SECTION 131. - Definition of Terms. --When used in this Title, the term: XXX XXX "Retail" means a sale where the ~'Jurchaser buys the commodity (w) for his own consumption, irrespective of the quantity of the commodity sold; XXX~

DECISION C T.A. EB. No. 280 (CTA AC No. 18) Page7of 13 (z) "Wholesale" means a sale where the purchaser buys or imports the commodities for'resale to persor.s other than the end user regardless of the quantity of the tran!:action. x:xx" Meanwhile,. Section 3 Chapter I of City Ordinance No. 104-92, An Ordinance Approving the Revenue Code of the City of Las Pifias provides: � "SECTION 3. Definition of terms. x:xx w) nRetail"- means a sale wher.:: the purchaser buys the commodity for his own consumption, irrespectiw:: of the quantity of the commodity sold; x:xx z) "Wholesale"- mear1s a sale where the purchaser buys or imports the commodities for resale to persons oth<:!r than the end user regardless of the quantity of the transaction. xxx" If We� are to determine �the �correct classification of the < respondent on the basis alone of the above-quoted. definitions, the petitioner's contention is still without l�g to stand on. We agree with the petitioner that if the sale is made to a consumer or end-user for his own personal consumption and not for the purpose of resale, the sale should be classified as retail, but if the sale is made for the purpose ol" reselling, the same must be considered to have been made at wholesale A closer analysis of these definitions will clearly place the respondent in the category� of whalesaler. The products of the respondent, i.e. packaging materials, 'are sold to its clients (Jollibee .. Food~ Corporation, Jaka Foods, Swift Foods, Monterey Farms,� The Purefoods-Hormel Co. Inc. to name a few) to serve as container for the latters' own finished food products. It is only when these finished food products are sold to the. ultimate "end-user" that the production and ?c- �, distribution chain can be said to have been completed. The chain starts

DECISION I C T.A. �8. No. 280 {CTA AC /1/o. 18) Page8of 13 from the respondent sellir1g the packaf~ing materials to its clients who in turn shall now use these packaging materials as containers for their ' products. The final link in the chain is whe~ the finish~d food products are transferred from the respondent's clients' hands (i.e. Jollibee Foods Corporation, etc.) to its ultimat2 cc;nsumer for the latter's personal consumption. The packaging materials become part of the finished food product being sold by the respondent's clients. The finished food product cannot be said to �have been completed its production stage without it being packed using the respondent's packaging materials. In effect, these packaging materials are being resold to the general public as part of the cost of the finished product of the respondent's clients. As clearly discussed in the ruling of the First Division in its Decision, to wit: . "In the sale of food products to the end-users/consumers, manufacturing and industrl::ll companies incorporate and/or add the cost of all raw materials and ~xpenses tncurred in order to produce the products. Necessarily, the petitioner'.\i clients included the cost of the packaging materials in their selling pnce sc.. as to compensate the cost or expense they incurred in the productic1n and manufacturing of their food products." Accordingly, the clients of the respondent are not the end-users of the packaging materials. Thus, respondent cannot be considered as retailer within the definition provided aQove. Petitioner avers that ~h.e definitkm in the above laws intended businesses covered by such definition to be classified and taxed as such. This allows a broader spectrum of business to be taxed within its definition, which are neither contrary or m conflict with the present retail laws. Looking at our retail laws, tile sales by the respondent to its .... �clients will still not fall within the definition of "Retail Trade". Under the ~

DECISION .. / C. T.A. �8. No. 280 {CIA AC No. 18) Page9of 13 Rules and Regulations Implementing R-.~public Act No. 8762, An Act Liberalizing The Retail Trade Business, Amending Republic Act No. 1180, "Retail Trade" has been defined as fvllows: ' "Section 1. For purposes of this Rules c..1d Regulations: (a) "Retail Trade" shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption. XXX The same implementing rule er;umerates the sales not considered as retail, to wit. Sec. 2. Sales Not Considered As Retail. �� � The following sales are not considered as retail: XXX XXX (e) Sales to industria' and commercial users or consumers who use the products bought by them to render ~��..!rvice to the general public and/or � produce or manufacture of go0ds whi.h are in turn sold by them; or xxx" � Based on the above implementing rule, the sal~s made by the respondent to its industrial and co.minercial users (i.e. Jollibee Foods ' Corporation, etc.) are not considered as retail. If We are to sustain � the petitioner's argument, then, the ru'e should have included the sales of the respondent to its clients as :etai! sales. Meanwhile, petitioner argues that the First Division erred in applying the case of Marsman & Co., Inc. vs. First Coconut Central Co., Inc. GR. No.39841, June 20, 1988, to che case at bar because the said jurisprudence (Marsman, 1988) is much older than the statute (LGC of 1991). There already being a law defining ~h~ term "retail", the Court did not have to resort to jurisprude' nce. The Court is not convinced v.dth the petitioner's argument. Judicial decisions applying or intt.rpreting the laws or the 1---- Constitution shall form a part of the legal system of the Philippines. 1 1 Article 8 of the Civil Code of the Philippmes.

DECISION C T.A. E.B. No. 280 {CTA AC No. 18) Page 10 of13 Supreme Court decisions ass:i.11e the same authority as valid statutes.2 I Besides, Marsman Case has r'1ot been modified by the Supreme Court and remains a good case law. Further, in statutory construction, when particular words and phrases have acquired a settled me~ning thru judicial inttrpretation and are used in a subsequent statute upo:1 the same or analogous subject, they should be interpreted in the latter as in the former. 3 The First Division of this Court h1 applying the case of Marsman � stresses three (3) elements that should be present to be engaged in retail, to wit: (a) That the seller should be habitually engaged in selling; (b) The sale must be dir-;ct to U1e general public; and (c) The object of th~ ~sal:~ �ls. limited to merchandise, .. commodities or goods for consumption. As to the first element, it is undisputed that respondent habitually engaged in selling packaging materials. However, petitioner is not convinced on the findings of the First Division that the second element is lacking. It mentions the case of Balmaceda vs. Union Carbide Philippines Inc. {September 30, 1983) in explaining the term "General Public". It argues that having a limited clientele does not take it away from the ambit of general public as long as there is actually no prohibition to the general puulic in makif'lg similar purchases. Hence, the general public can avail of the services and products of respondent Sealed Air if the need arises. ?c-- The Court disagrees with the petitioner's contention. 2 Floresca vs. Philex _Mining CNppr:ttion, 136 SCRJ:�.141 [1985]. 3 Ruperto G. Martin, Statutory Construction, RevisE�d Edition (1972), p. 151. '-94

} I DECISION C T.A. E.B. No. 280 (CTA AC No. 18) Page 11 of13 There may have been no prohibition to t.he general public in . .availing the packaging products�from the respondent, however, it is the latter that is prohibited from engaging in retail trade. Pursuant to Republic Act No. 8762, Liberalizing th:~ Retail Trade Business, Repealing Republic Act 1180, unless the respondent complies with the minimum capitalization requirement, it cannot engage in retail trade business. Thus, respondent's products are not readily available to whoever desires to avail them for their own CO(JSUmption. Further, as pointed out by the respondent, the sales process between the respondent and its clientele involve the following, to wit: (1) sending of purchase orders by the customer to the respondent; (2) preparation of, sales :nvoices and delivery receipts by the respondent; and. (3) actual delivery of the packaging materials by the respondent to the customers. In contrast tr- the salt- to the general public, there is no necessity of action from the purchaser to initiate the sale; no purchase order is required. Retai1 . items sold are available in the shelves/racks of 1 retail stores. The only action required from the purchase is to choose the item he/she intends to buy from the display of items. Meanwhile, on the third element, petitioner contends that the First Division erred in classifying respondent's products as producer goods because the same packaging 1t1aterials are not raw materials or tools used to produce or' manufacture food products. � We do not agree. The packaging materials form an important part in the production of goods being sold to the general public. This issue has been correctly discussed by the First Division in its "Decisicn, to wit: "As earlier discussed, they are. elements utilized in the production and manufacturing process of the food pJ"oducts, and as such, they are jk- considered as intermediate or auxiliar1 goods. They do not pertain to final

DECISION �1 C 7:A. �8. No. 280 (CTA 4C No. 18) Page12of13 and end use which is the direct satisfaction of human personal wants and needs. Although not raw materials in the production food and non-food products, the packaging m~~terials arr; essential tools in the production and manufacturing of foC'd products being ~old to the general public." WHEREFORE, in light of the fore~oin' g laws and jurisprudence, the Petition for Review; En Bane is DI~MISSED for lack of merit. Accordingly, the Decision d&ed November 13, 2006 and Resolution dated March 9, 2007 are AFFlRMED. SO ORDERED. ~~ Q.Q_d-~~/ ~. 'itJAN-ITO C. CASTANEDA, jR. Associate Justice WE CONCUR: L---\.<. �, ~ ERNESTO D. ACOSTA Presiding Justice CAESAR A. CASANOVA ~ Associate Justice OLGA P.ALANCA-ENRIQUEZ Associate Justice �.

DECISION C T.A. EB. No. 280 (CTA AC No. 18} Page 13of13 CERTIFIC.&.TION Pursuant to Section 13, Article VIU of the Constitution, it is hereby certified that the above Decision has been reached in co'1sultation with the members of ,the Court En Bane before the case was assigned to the writer of the opinion of the Court. �. ~v.u~ ERNESTO D. ACOSTA Presiding Justice ., ��. ... . ' '� :, ;. ~