CTA Case No. 3148 (Decision)

/ REPUBLIC Of TRI PRILIPPIKIB COURT OF TAX APPEALS QUIZOK CITY PHILIPPINE REFINING COMPANY INC., Petitioner, - vers us - C.T.A. CASES NOS. 3148 � 3499 COMMISSIONER OF INTERNAL REVENUE, Respondent. >t - - - - - - ~ - - >t D E C: S X CJ N These are two (2) claims for tax credit instituted by , petitiorier for alleged e>:cess ~ payment of~ ance sales ta>: on raw materials u~ed in the manufacture of coconut � oil over the sales ta>: due on said finished product during the four (4) quarters of 1979, and during the first and second quarters of 1980. The fa c ts in Case No. 3148 are as follows� a) That the petitioner, in the year involved (1979), was engaged in the manufacture and sale of various goods, including refined or edible coconut oil which it produced from the copra that it purchased from copra suppliers, and sold Ltnder the "Camia" brand in 1979J b) That the petitioner paid, and/or assumed and shouldered the sale!! and percentage ta xe!! on imported a!! well as on locally purchased raw materials which were used in the manufacture , and formed part 6f the various finished ~9ods that it sold in 1979; 275

DECISION - CTA CASES NOS. 3148 & 3499 - 2- c) That the petitioner, with the approval of the respondent, pai~ the various sales and percentage taxes on the sales of the finished goods by applying the sales and percentage taxes paid on the raw materials used; d) That the total sales and percentage taxes on the raw materials used, e>:ceeded the sales and percentage ta>:es payable on the sales of the finished goods; hence the petitioner applied to the respondent for the tax credit of said excess; e) That the total sales and percentage taxes paid on the raw materials used in the manufacture and formed part of the finished goods during t.he four ( 4) quarters of 1979, a moun ted to P58,440,290; while the petitioner claimed on th~ other hand that the sale~ and percentage ta:�:es due and payable on the finished goods sold, in the said year / ( 1979) amounted to P44, 693,230; and the petitioner filed quarterly claims for tax credit o �f the e>tc:ess of the sa 1es and �~ percentage tax~s allegedly due end payable on the sales of the finished goods; and the excess so claimed amounted to P13,747,060; f) After processing the claims for tax credit, the respondent granted and approved in favor of the petitioner a tax credit for P9,837,982.00 and issued Tax Credit Certificate No. 00009, dated June 6, 1980 for the said amount of P9,837,982.71, leaving an uncredited amount of P3,909,077; g) The petitioner f i 1ed with the respondent a request for reconsideration and for the granting of ta>: credit for the said balance of P3,909,0071 and while the respondent was considering and studying the said request, . the petitioner- obviously to avoid prescr�iptio'l filed this Petition' � for � 2i6

DECISION - CTA CASES NOS. 3148 & 3499 - 3- Review with the Honorable Court of Tax Appeals, praying for the grant and approval of tax credit for the said balance of P3,909,077; While the case was pending in the Court of Tax Appeals, the respondent issued and granted in favor of the petitioner another tax credit in the sum of P2,669,687 and issued tax Credit Certificate No. 00102, dated March 15, 1983, for the amount of P2, 669,687; thus l~avinq an ~ltimate uncredited balance of ~~37,390 which becomes the remaining subject of the present Pet! tion fgr Rt?v_i~w (Underlining ours.) There is no dispute as to the correct amount of sales and percentage t.:n:es paid and/or assumed and shouldered by the petitioner, on the imported as well as on locally purchased raw materials which were used in the manufacture and formed part of thll finished goods sold by the petitioner in .... 1979. But there is a disagreement between the petitioner and the BIR Auditing Examiner on the amount of sales and per�cen tage ta>:es payab 1e on the finished goods sold. The disagreement relates only and particularly to the correct percentage ta>: payable on the sales of the finished "refined or edible coconLI t oi 1" so 1d by the petitioner in 1979. In CTA Case No. 3499, during the first and second quarters of 1980, petitioner paid sales and percentage ta>:es on imported and locally purchas�ed raw materials in the sum of P15,242,405.00, for the first quarter, and P13,503,562.00, for the second quarter, or a tota 1 of P28, 503,562.00 sa 1es .and percentage ta>:es payable by it for the said

DECISION - CTA CASES NOS. 3148 & 3499 - 4- quarters on the sales of its finished manufactured products for which the said raw materials were used and formed part thereof; that during the same period, the sales and percentage taxes payable to respondent Commissioner of Internal Revenue by petitioner on the sales of finished manufactured pr�oducts for which it is used the aforementioned imported and locally purchased raw materials which �formed part of said finished products amounted to P11,336,006 for the first quarter and P9,951,352.00 for the second quarter, or a total of F'21,287,358.00; thus for the same period the advance sales and percentage taxes on the aforementioned raw materials paid by petitioner exceeded the sales and percentage taxes payable on the products it manufactured and sold during the same period, for which said raw materials were used and formed part hereof in the total excess sum of P7,2l.6,204.00; the petitioner filed written applications for the tax credit of the excess payment of F'3,906,399.00 on June 11, 1980, corresponding to the first quarter, and for the tax credit of the e>:cess payment of P3,309,805.00 on September 20, 1980, for which respondent Commissioner gave petitioner a tax ~redit of 27 8

DECISION - CTA CASES NOS. 3148 & 3499 - 5- F'6~90.1,699.00 as shown in TaH Credit Certificatl? No. 00014, dated October 16, 1980. copy of which is attached in the Petition for Review as Annex C, thus leaving an uncredited ba 1ance in the sum of P314,534.00; that on December 2, 1980, petitioner asked respondent for reconsideration of the disallowance of the balance of P314,534.00 in a letter dated December 2, 1980, marked as AnneH D of the Petition for Review. Without waiting for the decision of its claim for taH credit of the sum of P314,534.00 petitioner filed its Petition for Review (CTA Case No. 3499) on July 16,1982. The only issue presented to LIS for detf?rmina tion in these two ( 2) cases are as- follows: what is the correct rate of percentage tax imposable on petitioner's sales of refined or edible oil which it produced from copra purchased from the local suppliers in 1979 and 1980; stated otherwise, � i. f the 2'1. rate of percentage ta:{ were imposed on sales of coconut oi 1 by petitioner in 1979, the amount of P1,237,390.00 and P314,534.00 in 1980 would be fully creditable in favor of petitioner; but if 10'1. rate were to be app 1 ied on the sales of coconut oil, then there wo.uld be an 27 9

DECISION - CTA CASES NOS. 31 4 8 & 34~9 - 6- uncreditable amount of P1,237~390.00 and - F' 3 14~534;.00. It is contended by petitioner Philippine Refining Co. Inc., that the said refined or edible coconut oil produced from copra which were purchased from the copra suppliers or dealers is subject to 2% percentage tax imposed und~r the Section 203 of the 1977 Tax Code. Respondent Commissioner of Internal Rev~nue contends otherwise saying that the rate applicable is not 2% but 10% under Section 199 (a) of the said Code. Petitioner has stated that "From July 1, 1939, when the Tax Code took effect up to June 13, 1948, the rate of percentage tax on sales of coconut oil by the manu fac tur�er remained at 1-1/2%. From June 14 ~ 1948 the ta:{ rate remained at 2% un ti 1 December 31, 19S5. On January 1, 1986 the rate was raised to 3% when Presidential Decree No. 1994 took effect. But while there had been such changes in the rate of the ta:�:, there has been no change in the basic or substantive provision of the law imposing 280 .i

DECISION - CTA CASES NOS. 3148 & 3499 - 7- tax on coconut oil. The basic or substantive provision of Section 189 had always been phrased as follows: 16 :f.M�c ~n..t.a~aJ.L...JdRQ...IJ__...Q ro PT i .e tors o .r r gge e~:..t..9J:.?_...__Q_f_......_LQ.P.JL_f...~~-t;gr ~ e?_,_.-....le..!J~..!: !; e.!}_t,_r ~J !?__,__ r_!_.!;..~-�-ffij,J...l_!i?....L... C_9C Qn U 1;__g..U_J!I_~_,_ !;..Q.LO.___.__m:t.. !J_a..,__,__~!J.f1___...Q.~s? i c ~ted c OJ;.Qn uj;_ .f.~_!;...t..9. .r...!..~.?- � Proprietor's or operators of rope factories, sugar centrals, rice mills, !;..9conut oil milt~, corn mills, and dessicated coconut factories shall pay a tax equivalent to x x x per centum of the gross value in money of all rbpe, sugar, rice, coc.on'=.\..t..._Q_!J,_, x x ~:" manufactured or milled by them, :�: x x such ta:< to be based on the actual selling price or market value of these articles at the time they leave the factory or mill war-ehoL\Se": Nx N 11 � j it is an elementar�y rule in sales taxation that, unless otherwise expressly provided, the law in force at the time .the taxable sale takes place, including what rate of ta:< t.o apply, is the law that governs the imposition of the sales tax. Particu 1ar 1. y, the 1aw in for�ce in .1979, when the sales of coc onut. oil involved in this case were made by the petitioner, was Section 203 (formerly Section 189) of the Tax Code, as amended by Presidential Decree No. 1358, which took effect on April 21,1978. ~a~~.ction, as amendep by PD .. ;, � 28 1 .l

DECISION - CTA CASES NOS. 3148 & 3499 - 8- r_~_f_.!D eq_ o r --~-qj,.jJ l_~_.....Q_j._J_J_ and the pert in en t portion reads as follows: Sec: � 203 � E.�.!:.!;.�D t.~_t!L__T..i!.l:L_._j.J_Jm!J.. P t:Q.Q r i e t;_g.r:_~---�--�Q.[__ __ Qp_e_r ~.tq_rs_ _g_f__ _ RoQe E.~.!;_t_o r !.~?-..s_ _$._1JQ_~_ _G._en ~ r ~ 1 an ~___t!J,..!_!_~_,_ gg_�.Q!11Lt.___ Qj.j___!'1_.:U_l ~_,_____.!;~-~~a v a . Mi 1 1 s , and P..!E..~-~.!_c;_Lt.�JLJ~Qf:_.9..!1!::!_L_f ac t_g.r:_i ~.l!!..!.. Proprietors or operators of rope factories, sugar c:en tra 1 s ~ co_c;Of!lit_ gj._l__m.!L!~_,_ cassava and dessicated coconut factories shall pay a tax equivalent to .t.w9_ (2/.) per c(!ntum of the value in money of all the rope, sugar~ CQCQ.!J..!L"t_ oiJ., cassava f 1our or starch~ dessicated coconut, manufactured~ processed or milled by them, x x x x such tax to be based on the actual selling price or market value of these articles at the time they leave the factor;y or mi 11 war-ehouse; x x >:. (As amended by PD 1358 effective April 21, 1978). / As a contemporaneous interpretation of the above-quoted provisions of the Code, the Commissioner of Internal Revenue ruled as followsa "gpc;_g.o..u t ___ o .i,__l _....J!lan u.f.~c t .LI re r:_._ A manufacturer of coconut oil is subject to the 2/. tax imposed under Section 189 of the Ta:�: Code, based and compLited on the ac: tua 1 se 11 ing price or market va 1ue of the manufactured oil, including the by- products thereof, at the time said artie 1 es 1 eave the �fac: tory or mi 11 warehouse. (Ruling _. BIR Hay 16, 1956 .1 cited on page 383, of Vol. 2, S~cond Edition, 1963, of Annotations and Jurisprudence on the National Internal Revenue Code, by AranasJ. And for the purpose of the 2/. tax on coconut oil, the Commissioner of Internal Revenue ruled 28 2

I! DECISION - CTA CASES NOS. 31 4 8 & 3 4 99 - 9- ruling reads as follows: "For the purposes of the 21. tax due on the gross selling price or market va 1ue of the coconut oi 1 ~ !;he____l aw-L ~_gc.!..!.Q.Q___!_89 ._Q..f_..__t__b.�'__,_l9 x -�~oq e_,___,_gQe~_og t 9.4-_a.t.J..o_g.hL:tP.Lo___tl_�;~_t.~e�;~D.....f:..!:..!::t9e or refined oi 1 � It is enough that what is produced or manufactured is coconut oi 1. ~f:.!;..Qrd ::. ;tn.g_:ty_s___a.e...l~_?__,_Qf__R rod u.~-~Q__q.r._J.Tlan_IJ..f a ~-tLtreQ. �'_d,i b l~(_p_lJE�_L__f:..Q.~.Qnt,.t!__Q!,..!__~r~_LI bj ec;;:_te_g .t.9. ..J:JJ..~. ...Z .%. _j;_~_Y!.. ,_.P_~-~.�>JLQD._t_t:t~'L9 r0..2,!l? se 11 ~ng Q.C .! _�;..~--.Q..!:.._IY)_C!r:..t.~.t._ _y,E-_1 u~_t h~J!O_f_,_ pu rs.!Ja_n t .t.p___';?..~_:i,..Q.___.$..�..!;: t ..,i._Q0_._!.!;!.9_!___I_b.~J~-~.m~ ru 1e h o 1d s o. t i ..!L .t... ~-�~-~-1?..�......9.:L.�;..Q..c:;.Qo u t._Qj,J_.~.be h.~...r...s..ruc;t�. : � t 9...r.::.._...r.:.~_f.!.D. ~s.LL. . .r:..~m.ovf?_c;!__froll)_ t t]_~_ _f_e..c o_r_y__g.J: m.i...U_. . . .-Y.:!.~r..~ h_9J.:t~-~�----.\:tb...!.~..h......._t. h~_.....m.an..!J.f a.�.t Lt.t:�..!:. t h_~.t:.f:i!.9_'f___l,~!!!�'Ji.__~..n..._:t h.~-.. m~n L!i~ .c t u re__~o C,Q.s.. Q.l,!..t._t.~r:..L___!..�-.Jt_ _.?.n d __.9 t r b.ru::___~. t ,i. c 1e !!!.� " (Ruling .� BIR .� 105.02 .� Oct. 12, 19 .56 .; Int. Rev. Bull. Vol. 1 .� No~ 10). Cited on page .38.3 o'f Vol 2 .� 2nd Edition .� 196.3 .� Annotations and Jurisprudence on the National Internal Revenue Code, by Aranas). There was a time when the BIR considered for a while - in the case of Lu Do & Lu Ym Corporation~ which is similarly engaged in the manufacture and sale of coconut oil - that coconut oil is subject to 101. sales tax. That was when Section 199 (a) of the Ta>t Code imposing sales on other manufactured goods was amended to increase from 71. to lOX the sales on other manufactured merchandise. But the Commissioner, \::!QQD_.__..f_.!::!l::J:h.~r ?... htd_~, cone 1Ltded and pr9mQt;_J..Y-.........r:.!:!l~.fl.. that crude as 283

DECISION - CTA CASES NOS. 3148 & 3499 - 10 - well as refined or manufactured edible oil are subject on 1 y to 2% percentage ta)�: ( 3% under F'D .1994~ effective January .1~ 1986) as e)�( press 1 y pr-cJv it1ed under� Sec ticm 189 ( 1 a t.er- Section 20~5 and ~;;till later- as Section 169) of theTa:�: Code; ~IJ_Q, !,..l.IJ..~. ~.r. ..._...$~!:.=J::Jgrl.............t..'!_9.J..9..L.......9.L ..........t..tl~ ..--...?..~.A.f!...........G.9.Q..~--~- The Commissioner� of In tet''Tla 1 Revenue p_cJ_ ;i,n..t..~.c:!. lY......._..~D...Q. tax. He ruled as follows: June 8~ 1983 203 000- 00 098-83 "1'1essr.. s. Sycip~ Gor-res 1!~ Velayo 1!~ Co. 6760 Ayala Avenue.~ Makati, Metro Manila "Gentlemen: "This r �e �fen; to the pending inter�nal revenue tax case of your client~ Lu Do & Lu Ym Corporation~ Tupaz Street~ Cebu City~ involving the amount of F'4~404,64.1.33 as deficiency manufacturer's sales tax for the year .1978~ which is now the subject matter of CTA CasE~ No. 3596 � o �f the Court of Ta>: Appea 1 s.;. "It. appears that the above assessment is based on the ruling of this office that edible cooking oil is a mam.l'fac t:.un:~d pr�oduc t subject tel the l.O% sales ta:�: .impt::lsec:l under� Section 199 (a) o�f the T a :�: Code. "In connection thF.~r-E-?w.i.t.h~ I hav~ the honor to iqfcrm you that this Office~ 284

DECISION - CTA CASES NOS. 3148 & 3499 - 11 - S\f~_er a r~-.?t\,.tc:!_~_._g_f__its. position on the m_~_t;_t;.!:? r _.s__l)a !=!___f in a l_.!_y_J;;: on c 1u ded t h a t ed i b 1 e cqoki..D..Q. oil is not subject to the 10'Y. !!~ ~.!\?_iS_._t;..E\.l.<_.!:,tnder S~c tion 1 ~9 (a) of the . L~ .?L_..Q..od~_. biJ.Lj_g the 2'Y. miller' � tax !. ffi.QQ~~g____JJnder:__l;l~c 't:iQ!L_203. of the same ~P~~or the following reasons1 "l.) Edible cool<ing oi 1 is a product derived through the process of refining by removing from the crude coconut oil certain impurities and is ac tua 1 pure oi 1 with copra as basic raw materials. " 2 ) That previous rulings issued by this Office has held that refined coconut oil or edible oil is subject to the 2'Y. miller� s T.:n: under Section 203 of the Tax Code because said provision clearly impose said tax on a 11 coconut oi 1 manufactured, processed or milled by proprietors or operators of coconut oil mills; ~nd that the law does not d~si;loquis_Q__bet~een crude or ref .;ine�1_ o_J.,_l__ an_g_ i t--!.liL~.JJ.PUgh lb.~..t.--~ h.;, t_.~__p roc;!.!::U;_ed _ ,t s �.9.con_t,.U;.__g...i..J. � "3) TIJ.~t the above ruling~ !!.bOt,LLc:1__b._e res...Qec ted as ~ !;;_pn_t._~l!lQ.Q.!:~.D.�OU.!lL_~rul..._..J;! r ac t i c a 1 1D ~-~..!:.Q..re_t at ion_ of __t_ha L..Q.a r t;_ o f ~e<;;j;_.t..Q0._~9.:.~-- of the Tax Cope r.:.�'_l.~_t;j._y_~_ __tg__s_QJ: on uj;___o !1. J they are not to be disturbed except for cogent reasons unless contrary to the statute or exceeding departmental author- ity and they ar~ binding upon the Commi_l:ssioner and the !:_~xQay~_like. (Sutherland, Statutory Construction, Vol. l.1 , page 522) � 285

DECISION - CTA CASES NOS. 3148 & 3499 - 12 - "4) That although it is true that Section 2 0 3 includes manufacturers as defined under Section 187 (x) of the Tax Code~ since refined coconut o .i 1 ~ �'!Jj;:._boug b_ J ___m_~n u f -~c t!-1 red t!['OQJd.�:..t..1__f.~J 1 s_~<ll-' are 1 y under g_g_<;_t_i on --~2.~~-~nnot b~ t~ed __ \d..mt~r... se~ t _i oo 19't. "In the light of the foregoing, your client is not liable for the payment of the above tax liability. "In view thereof, the above assessment is hereby withdrawn and cancelled. This revokes our previous rLilings/decisions holding that edible cooking oil is subject to 10'Y. (formerly 7'Y.) manufacturer's sales tax � Very truly yours, (Sgd) RUBEN A. ANCHETA ....... � Acting Commissioner The abov~-quoted ruling is published as Ruling No. 098 on pp. 98- 100, of "Complete 1983 Numbered B. I .R. Ruling" published by the Career Development Center, Inc., and a copy thereof forms part of the records of CTA Case No. 3596 as Annex "A" of the Motion to Withdraw the Petition for Review filed in said case by Lu Do & LLI Ym, which was granted by this Honorable Court. (A 11 underscoring supplied for emphasi.s) � Respondent's examiner asserted that petitioner is still liable for P1,237,390.00 after subjecting the sales from 1979 at lO'Y. sales tax c,omputed as follows: 286

DECISION - CTA CASES NOS. 3148 & 3 4 99 - 13 - �.9_j_es by_ge~i t;ioner of r~f ined or gure edible !;_9_<;_Qf'l qj;:_ Qj,j,__{ C~JJ1!~_13 r a11.Q ) in 1979 � 1st P3,349,375.00 (Annex "A-3")� 2nd (Annex "B-3"); 3rd P4,975~533.00 (Annex "C-3")J 4th (Annex "D-3")� p 987,946.00 Total sales P2,547,063.00 (rate applied by the Examiner) P10,959,917.00 __.r_. - - - - - -� _1 0 em Less the 2% 219 , _19! perc tage tax declared and paid by peti- tioner on the coconut oi 1 Alleged defi- _ _87~ 79~ ciency taN at 10% rate Less 2% tax paid on acid oil dis- allowed ______7-L006 Alleged defi- ciency sales tax P869,787 Plus 25% surcharge and _._367 .L276 � 29 14% interest for alleged P1,237,063 late payment Total alleged defi- ciency sales tax plus surcharge and interest on the sales of refined oil (alleged uncreditable) 28 7

DECISION - CTA CASES NOS. 3148 & 3499 - 14 - Respondent contends in its memorandum that "The finished products in question, x >: Y.", refined or edible coconut oil which petitioner produced from copra purchased is definitely a manufactured product within the ambit of the definition of "manufacturer" as set forth in Section 187 (x) of the National Internal Revenue Code. The goods not covered by Sections 194, 195, 196, 197, 198 and 201, are subject to a 10/. sales tax. Respondent concluded that since "refined or edible coconut oil" subject matter of the petitions for review is not included among the articles or goods enumerated Linder Sec tions 194, 195, 196, 197, 198 and 201, perforce, such product is subject to the 10/. sales tax imposed on "other articles" by virtue of Section 199 (a) which provides as follows: "SEC. 199. Percel'}tage tax on sales of qther ~tic]._es. There shall be !!> levied, assessed and collected once only on every original sale, barter, exchange, and similar transaction either for nominal or valuable consideration intended to transfer ownership, or title to, the arti~~-~s nqt covered by Sections 194_,__195.J..._._,_ 96_, 197, 198 and 201, a taY. equivalent to t~n _l,_O/.) per cl!ntwrt of the gr_Q.�.l\i!_.�_~~ 1 ing_---~rric~- or qro!;?S value in !!IOn.�.Y. of the articles sold, bartered, exchanged or transferred, such taY. to be paid by th~ manufacturers or producer. X X X 11 � Indeed, respondent's assertion . will be 28 3

DECISION - CTA CASES NOS. 3148 & 3499 - 15 - correct, as adverted to by the petitioner, if there is no Section 202 and Section 203, which also form part of Title V of the Tax Code when the provisions of said Title were amended by Presidential Decree 1358, effective April 21, 1978. Section 202 contains a bl,.anket~...x~l!l.P.tion of certain enumerated goods from the percentage taxes imposed under Sections 194, 195, 196, 197, 198, 199 and 201. Section 202 provides that - "SEC. 202. Artie les not su~_.iJ~ct tq_ Q_f'?._rt:;.ei'J..t.~g�'_.i9_x QJJ_~-~J.-~s. - The following �.b.9_lJ.....__Q!iL....~ x e_l!)_pj;_f_r_pm_tb.!L..Qe rc en tag e t a _xell! .i...m.P..9..E..�..Q.__;!,_n.___$..?.!= t ,j,..Q!J..~--___!3.~....s..__!_9 5 ~-6 ' 197 � ! .!!. ~.s-!.99..s.....~n.Q__~Ql; (a) XXX (b) XHX XXX XXXJ (c) Artie 1es subject to tax under Section 203 of this Code; (d) XXX XXH >:xx; (e) XXX xxx; Under the foregoing provision of Section 202, the articles or goods subject to tax under Section 203 are e~~re~s~~ exempted from the percenta~ !_<r.~_s._.....!.~L�'ng 20j......!!.. Refined or edible coconut oi 1 is taxed unde~ Sectidn 203, which provides as followsr "SEC. 203. E~ en t~gg tax ~-h.\.P_Of1 ,, pro t g.r:_j._~. qr s .._._9 r___,___Q.P!?..La t_g_r:.~--- of . ro PIL.. 28 9

- DECISION - CTA CASES NOS. 3148 & 3499 - 16 - i.~!;..t..9.C.i.!?_~----~k!.Q.S.r _ !;en t.r:!U__~...ru!.__mU..l s �� �;.Q_c;g_o_u t....__g_i.!...__f"Q_.t.J...!.�_,____J;;:_.�._' ~-~ a yg__ mi-. 1 1e , _c~..IJ d Q.gE..~J_�;.s. t.g_Q.____._______!; O.�..Q.n u t _.....fi!f: tori fit~ � Proprietors or operators of rope factories~ sugar centrals and mills coconut oil mills~ cassava mills and dessicated coconut factories shall pay a tax equivalent to two (2%) per centum of the gross value in money of all the rope, sugar~ coconut oil~ cassava flour or starch, dessicated coconut, manufactured, processed or milled by them, including the by-product of the raw materials from which said articles are produced, processed, or manufactured, such tax to be based on the actual selling pric� or market value of these articles at the time they leave the factory or mill warehouse". So, being taxable Linder Section 203, coconut oil is not subJec~ to any of the sales taxes imposed under Sections 194~ 195, 196, 197, 198, 199 and 201. And it should again be mentioned at this juncture that under the contemporaneous rulings of the Commissioner of Internal Revenue, coconut oil, whether crLtde or refined, is subject only to the percentage tax (1-1/2% and later raised to 2%) imposed under Section 189 (which later became Section 203) of the Tax Code. (See BIR Ruling 105.02, Oct. 12, 1956, Int. Re~'� Rul. Vol. 1, Ho. to .� cited o.p. 383 of Vol. 2, 2nd Edition .� 1963, Annotations and Jurisprudence on the HIRC by Aranas; and BIR Ruling dated June 8, 1983~ to Lu Db 290

DECISION - CTA CASES NOS. 3148 & 3499 - 17 - �~ Lu Ym Corporation , published on pp. 98-100, o'f "Complete 1983 Numbered BIR Rulings"). And in the ruling laid down by the respondent Commissioner in the case of Lu Do & Lu Ym, coconut oil was expressly and very emphatically declared not subject to the 10/. sales tax imposed under Section 199 of the Tax Code, but subject only to the percentage tax imposed under Section 203, which was 2/. in 1979. Again, and by way of refresher, we would like to quote the ruling in the case of Lu Do & Lu Ym which reads as follows: June 8, 1983 203 000-00 098-83 "Messrs. Sycip, Gorres & Velayo l!t. Co. 6760 Ayala Avenue., Makati, Metro Manila "Gentlemen: "This refers to the pending internal revenue tax case of your client, Lu Do & Lu Ym Corporation, Tupaz Street, Cebu City, involving the amount of P4,404,641.33 as deficiency manufacturer ' s sales tax for the yeMr 1978, which is now the subject matter of CTA Case No. 3596 of the Court of Tax Appeals. "It appears that the above assessment is based on the ruling of this office that edible cooking oil is a manufactured product subject to the 10/. sales ta:�: imposed under Section 199 ' (a) of the Tax Code. 29 1

DECISION - CTA CASES NOS. 3148 & 3499 ' - 18 - "In connection therewith, I have the honor to inform you that this Office, af_t~~ re-study of i1;s positio_n on the matte.Ls.._llas f.~nal_!y concluded that edible !;..Qoki_11g___ oil._!j5_ no~_!..lbject tQ the 10'7. s~..!.~J?_t.~_x under Section 1~~ of the !_ax ._!;;og~_ _gut__t.g.__th~_:?'Y. m~ l l e r ' � tax ;!._l!lQ.Q.~~.Q.__under:..__p~�;ti_gn 203 pf . the pam~ Q_Q_!;j.g__._to r.::___tne f q_l.Lq~_i r'l.Q... re_!li\sons_!. "1) Edible cooking oi 1 its a product derived through thet process of refining by removing from the crude coconut oil certain impurities and is ac tua 1 pure oi 1 with copra .a5 basic raw materials. "2) That previous rulings issued by this Office has held that refined coconut oil or edible oil is subject to the 2'7. miller's Tax under Section 203 of the Tax Code because said provision clearly impose said ta:-t on all coconut oil manufactured, processed or milled by proprietors or operators of coconut oil mills� and that the law does not QAE~iQguis~ between crude or ref..!.r.J~d oi J and i t is enough th~~ w~~t____i_s_ _P-roduced is !;.Q_(;..Pn L!..t__g_li � "3) That the above rulings ~-hould be r~spected as a contemporaneous and practical ;!...[lterpr~t~tion of that part of �.~cj:.io.n ;203 of the Tax Gode r:.~la .tive to coconut__oil g they are not to be disturbed except for cogent reasons unlets5 contrary to the statute or e:-tceeding departmental authority ~.ng_j: h~y_~_r:~__QJ,_[l_d i ng !:!.Q..[Qn__.! h~_.C.Qmm i �.~ion e r and~ !;_~__KRa_y~.r:__~_U. k!L.. (Suther 1and,- Statutory Construction, Vol. 11 , page 522) � 29 2

DECISION - CTA CASES NOS. 3148 & 3499 - 19 - "4) That although it is true that Section 203 includes manLI f ac turers as def !ned under Section 187 (x) of the Tax Code, since refined coconut oil, although a manufac't;!J..r.ed Q.LQf.tuc t, f _ 5!-lJ._~ _!;!_quare 1Y. under Segj,on :?O~s.._!_t_�?\r'ln o t be t.@...li@.d. ~~der Section 199. "In the light of the foregoing, your client is not liable for the payment of the above tax liability. "In view thereof, the above� assessment is hereby withdrawn and cancelled. This revokes our previous rulings/decisions holding that edible cooking oil is subject to 10/. (formerly 7/.) manufacturer's sales tax � Very truly yours, (Sgd) RUBEN A. ANCHETA Acting Commissioner WHEREFORE, the coconut oi 1, wh�ther crud� or refined, is subject only to 2X percentage ta~ imposed under Section 203 of the Tax Cod� in 1979, and that Section 202 expressly provides that commodities subject to tax under Section 203 are e)5_p_r-es_!;tly ex~!!!Ptec;t from the sales tax imposed under Sections 194, 195, 196, 197, 198, 199, and 201, the sum of P1,237.390.00 (CTA No. 3148) and P314,~34.00 (CTA No. 3499) is creditable in favor of petition�r Philippine Refining Co. Inc �� 29 3

DECISION - CTA CASES NOS. 3148 & 3499 - 20 - Petitioner is therefore, hereby granted a tax credit in the amount of P1,237,390.00 and P314,534.00 percentage tax it already paid. Without pronouncement as to costs. SO ORDERED. Quezon City, Metro Manila, Jun/3, 1989. / Cj ON~:'RtJAQUIN ._sociate Judge WE CONCURc AMANTE F Pr�esidin CERTIFICATION I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. AMANTE ILLER Presiding Judge Court of Tax A~peals 294