CTA Case No. 3440 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ORO ENTERPRISES, INC., C.T.A. Case No. 3440 Petitioner, - versus - COHniSSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - X D CISICJN Submitted once again for this Court's consideration relative to the instant ' claim for refund or issuance of tax credit certificate of alleged erroneously collected sales tax for the period January 1980 to December 1981 in the total amount of P939, 195.22, is the question of wheth er t.he product bearing the trade name "CITROBELLE. SKIN LOTION" medicinal preparation or a toilet preparat ' on/cosme ic product wi hin the purview of the Tax Code of .---1--9-77. Section 194 of the Tax Code imposes a percentage tax of fifty percent <50Y.> of the gross value on sales of non -essential articles. C trobelle products, according to respondent, are toilet articles or cosmetics and should be taxed under this provision.

DECISION - C.T.A. CASE No. 3440 - 2- On the ot he r hand, petitioner claims that said products are medicinal preparations taxable under Section 138 and 145 of the Tax Code qu oted hereunder: 138. Tax on preparations containing as chief ingr~die nt . Medicinal preparations, f avoring ext acts, and all other preparat i on, ~xcept toilet preparations . o f which, excl uding water, distilled spirits form the chief ingredient, sha 1 be subject to the same tax as such chief ingredient. " XXX XXX XXX "Sec. 145. Specific tax on distilled spirits. - On distilled spirits there shall be collected, subject to the provisions of Section 139 of this Code, exce pt as hereinafter provided, specific taxes as follows: <a> If produced domestically from locally produced raw materials, per proof liter, P2.40: Provided, that if produced in a pot still or other similar primary distilling apparatus, by a distiller producing not more than one hundred liters a day, containing not more than fifty per c entum of alcohol by volume, pe~ proof liter, Pl. 56; <b> If import e d or produced from imported raw materials, per proof liter, P35.00. XXX XXX XXX "Spirits or dis tilled spirits" is the substance known as ethyl alcohol, ethanol or spirits of wine, including all dilutions and mixt ures thereof, from whatever source by whatever process produced and shall inc lude whisky, brandy, rum gin and vodka, and other similar products or mixtures except compound d liquo rs t x d under Section 146 of this Code. XXX XXX XXX The c ontroversy has been soundly laid to rest in the decision of this Court on April 15, 1983 in C.T.A. Case

DECISION - C.T.A. CASE No. 3440 -3- No. 3004 entitled "Oro Enterprises, Inc~ vs. Co��issioner o� Interna1 Revenue". Said decision was a��irmed in toto by the Court of Appeals on December 15, 1987. The Supreme Court i n its resolution, dated October 26, 1988, denied the petition for the review on certiorari of the Court of Appe ls' decision upholding the Court of Tax Appeals <Exhibit "H">>. Quoted below is the affirmed C.T.A. decia �on penned by Judge Alex Z. Reyes for the Court: "We thus reach the co nclus ion that the controver e d Citro le Skin Lotion being a medicinal preparation nd containing distilled spirits as chie� ingredient is subject o the same tax as such chief ingredien prescr b d under Secti on 138 in relation to Section 145, both of he Tax Code, supra. Consequently, h impo t tion of essential oils to be used as raw mat e �ala in the manufacture of the medicinal preparation is exempt from the payment of percentage tax and compensating tax as expressly provided on Section 93 (b) and Section 204(a) both of the Tax Code of 1977. WHEREFORE, pe it oner is entitled to the refund of the a ggregate amoun of ? 501,626.70 representing erroneously paid percentage taxes and advance sales tax for the period involve d whic h respondent is directed to pay without pronouncement as to costs. SO ORDERED. " Suffice it to state that the exhaustive discussions of the issue in the aff . rmed decisions of the Court of Tax Appeal s and the Court of Appeals in C.T.A. Case No. 3004 and C.A. - G.R. SP No. 10833 respectively, have left no stone unturn d, o to p k , nd make superfluous any further delving into the ques ion posed as these were

DECISION - C.T.A. CASE No. 3440 - 4- similarly applicable to the case at bar. No quibbles s hould her einafter be entertained regarding this matter. The question that need to be addressed in this case is whether petitioner has proven entitlement to the refund or tax credit certificate claimed amounting to P939,195.22 representing the erroneously collected percentage tax on alleged sales of Citrobelle Skin Lotion from January 1980 to Dec e mb er 1981. Sought to be refunded or issued tax credit certificate are the alleged sales tax on Citrobelle Skin Lotion which were paid under protest during the pendency of C.T.A. Case No. 3004, to wit: Exhibit Period Covered Date Paid O.R. No. hount Paid Tax Credit Refund Clailled A, A-1 Jan.- nar. 1'380 04 -21 -80 A4668472 p 71,495.62 p 49.64 p 71,544.66 8, B-1 Apr. - Jun. 1'380 07 -21-80 27581726 140,583.69 2.44 140,586.13 C, C-1 Jul. - Sep. 1980 10 -20 -80 2905114G 101,806.36 99.12 101,905.38 0, D-1 Oct. - Dec. 1980 01 -20-81 29053800 60,911.94 1.61 60,913.55 E, E-1 Jan. - ftar. 1981 04-20-81 3762723G 62,136.84 62,136.84 AA, AA-1 Apr. - Jun. 1981 149,845.39 Cl2. 41) 149,832.98 f', f'-1 Jul. - Sep. 1981 10-20-81 3766279G 169,967.49 (26.19) 169,941.30 G, G-1 Oct. - Dec. 1901 01 -20 -82 3810288G 182,341.51 ( 7.13) 1821334. 38 1UTAL P9391 195. 22 Petitioner filed with the Bureau of Internal Revenue <BIR> its written claim for refund or tax credit of the above - mentioned amount on April 2, 1982 <Annex "8"). Until the filing of this petition for review on April 12, 1982 (pp. 1 - 4, C.T.A. Records), respondent has neither refunded nor issued tax credit certificate to petitioner for the amount of P939, 195.22.

DECISION - C.T.A. CASE No. 3440 -5- Respondent contends that petitioner failed to show proof of alleged overpayment of percentage tax and/or advance sales tax on Citrobelle products. The alleged sales tax paid pertains to gross sales of the entire business of � petitioner and do not correspond to the payments of percentage tax and/or advance sales tax on the sale of Citrobelle Skin Lotion which are being sought to be refunded. The quarter ly percentage tax returns submitted as evidence by petitioner reflects the gross selling price of all non - essential articles under Section 194 and all essential articles under Section 203 of the Tax Code of 1977. Not a single proof was allegedly presented to show the percentage tax paid on the sale of Citrobelle products. Accordingly, respondent moves for the denial of the refund/tax credits sought for lack of merit. After the case was submitted for decision but before judgment was rendered, the Court, within its discretionary power and in the interest of justice, ordered the re-opening of the case, notwithstanding the opposition of respondent, for the purpose of determining petitioner's 1980 and 1981 quarterly sales of Citrobelle Skin Lotion and the corresponding sales tax paid thereon. <"Resolution", pp. 299-302, CTA Records>. The Court took note of respondent's Comment to petitioner's Formal Offer

DECISION - C.T.A. CASE No. 3440 -6- o� Evid ence Cpp. 222-223 , CTA Records> and Memo randu m ( pp. 230-239, CTA Records> that the gross sales and tax payments reflected in the Quarterly Percentage Tax Returns �iled do not correspond to the payments o� the percentage taxes and/or advance sales tax on the Citrobelle Skin Lotion which are being sought to be re�unded /issued tax credit certi�icate. This was belied by petitioner and, on the contrary, asserts that the amount being re�unded pertains to sales o� Citrobelle Skin Lotion and no other product. To �urther clari�y its claim, peti.tioner is a ble and willihg to present proo� t h e r �e o f . <Petitioner� s �opposit on and/or Co��ent," pp. 279-284, C.T.A. Records>. On the sc heduled hearing o� this case on September 22, 1993, the Court denied petitioner's written motion to cancel and re - set hearing upon the objection o� respondent's counsel who believes that petitioner's motion is �or the purpose "merely to delay proceedings" ( p. 307, CTA Records>. The case is deemed submitted �or decision as o� said date. Tax re�unds are in the nature o� tax exemptions. As such, they are regarded as in derogation o� sovereign authority and �to be construed strictissim juris against the person or entity claiming the exemption. The burden of proof is upon him who cla�ms the exemption in his

DECISION - C.T.A. CASE No. 3440 -7- ~a vor and he must be able to justify his claim by the c l earest grant of organic or statute law ... and cannqt be permitted to . exist upon vague i mplications. <Asiatic Petroleum Co. va. Llanes, 49 Phil. 466; Northern Phil . Tobacc o Corp. vs. Mun. o� Agoo, La Union, 31 SCRA 304; Rogan v s. Comm � as � oner, 30 SCRA 968 ; Asturias Sugar Central. Inc. vs .. Commi aa�oner o� Custo�s, 29 SCRA 617; Davao Light and Power Co., Inc. vs. Co��issioner o� Custom, 4 4 SCRA 122>. Thus, when t ax exemption is claimed, it must be shown indubitably to exist, for every presumpti on is against it, and a well founded doubt is :fatal to he claim. <Farrington vs .. Tennessee and Country Shelby, 95 U.S. 679, 686; Manila El ectric Co. vs. Vera, L-2'3987, Oct. 22, 1975; Mani la Electric Co. vs. Tabios, L-23847, Oct. 22 1975, 67 SCRA 451). Th e alleged overpayment of taxes , upon which the claim for ~ e:fund is predicated, must be duly established by convincing evidence. The taxpayer has the burden to substantiate its unmistakable right to the tax refund sought . Failure by taxpayer to discharge this burden is the deat h knell o:f its right thereto. In the case at bar, there are reasonable grounds to doubt petitioner's entitl e ment o the refund or tax cred it claimed . Respondent validly raised the fact t h at petitioner failed to establish clearly that the amount

DECISION - C.T.A. CASE No. 3440 -8- sought to be refunded or issued tax credit certificate pertains to sales tax paid on sales of Citrobelle Skin Lotion fo r the period January 1980 to December 1981. Taken in the light of petitioner's own statement that it is "engaged in the manufacture and sale of various pharmaceutical and other allied products" , there is a hollow ing to petitioter's claim that the amount being refunded pertains to sale of Citrobelle Skin Lotion and no other prod ct since there is absence of indubitable proof to support the same. WHEREFORE, the instant petition for review is hereby dismissed for lack of merit. SO ORDERED. Quezon City, Met o Manila, Dece er 24, 1993. ,.;. o.poK,~I ~ RAtiON Associate Jud WE CONCUR: ~a~~ ERNESTO A. ACOSTA ~~Presid~ AssociK~. GRURA Judge 1 ' I � .,

DECIS ION - C.T.A. CAS E No. 3440 - 9- CERT I F I CATION I h~reby certify t h at this decisi o n was r eached after du e consultation among the members of the Cou r t of Tax Appeals in accordance with Section 1 3 A rtie!~ VII of the Constitution. Q~ Q. Q~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals _, ') ) ~~