CTA Case No. 2842 (Decision)

IUPU.UC OF THE. PHILJflliltNSa .. COURT OF TAX APPF.ALS OOitZON CITY j ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION, Petitioner, - versus - C.T.A. CASE NO. 2842 COMMISSIONER OF I NTERNAL REVENU:C.: , Respondent. X- - - - - - - - - - - - - X DE C I S I 0 N Suit brought by petitioner Atlas Consolidated Mining & Development Corporation for recovery of the amount of P2,2 88 , 865 . 23 as alleged erroneously over- pa i d ad valorem tax on the market value of copper minerals extracted from its mine site in Toledo City, Cebu, during the period November 1, 1974 to December 31, 1975, after no seasonable action was take n by res- pondent Comm issioner of Internal Revenu e on its cla im for tax credit before the expiration of th~ two-year period of limitation. There is no dispute as t o the fac t s of the case . After pe t itioner has presen t ed its evidence, both oral and documentary, including the depositions, together with the exhibits off ered in connection ther ewith , taken by the Consuls of the Philippines in To kyo, Japan~ New York , United States of Amer i ca: London, United Kingdom; and Bern e , Switzerland , upon

DECISION - CTA CASE NO. 2842 - 2- the basis of letters commission issued by this Court, and rested its case, counsel for respondent, without controverting or disputing the evidence of petitioner and without offering proof as to the truth of his own allegations in his answer, submitted this case for decision on the basis of the pleadings and the records of the case. Under the well-s.ettled rule that one who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, must be under- stood to have admitted the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on these allegations ta ken t oge ther with such as his own as are admitted (Bau e rman vs . Casas, 10 Phil. 386;Evangelista vs. De la Rosa, et al., 76 Phil. 115) ~the f a ctual bac kgr ound of the case a s stated in the petition for review may be considered beyond controversy, to wit: 1. Tha t petitioner is a coporation created under and existing by virtue of the laws of the Re publ i c o f the Philipp in es, with princi pal offices at t he 3rd floor , A. Sor iano Building. 2. That during the period November 1, 1974 to December 31, 1975, petitioner, engaged in the busi- ness of copper mining, extracted, mined and concent- rated copper ore in its mine site in Toledo City, Cebu; that it shipped and sold copper concentr a te

DECISION - CTA CASE NO. 2942 - 3- to Japan and other foreign coun tr ies for processing, that is, smelting and r~fining, into wire bars. 3. That during the said period, petitioner shipped and sold from Cebu an aggregate of 393,723,629 dry metric tons of copper concentrate containing 254,932,574.75 pounds of copper on which it paid a total amount of Pl7,912,314.04 as ad valorem tax computed as follows: IME (London Metal Exchange) Price of wire bars manufactured fran 393,723,629 DMT of copper concentrate P931,027,002.18 LESS: ~32,733,226.17 35,414,300.12 Freight Insurance . 2,681,073.95 Taxable base P8 95,622,7 02.06 Ad Valorem �Tax rate .02 Tax Actually paid 4. That the above computation of the ad valorem tax actually paid does not include the deduction of smelting charge s of Pl l4,440,261.99 pa i d by petitione r to Japanese and other fore i gn smel t er s on t he process of smelting the copper concentrates into wire bars. 5. That if the sme lting charges of Pll4,440,201.99 were deducted the computa tion of the ad valorem tax would be as fol lows: 11

DECISION - CTA CASE NO. 2842 - 4- I.ME pr.ice of wire bars manufactured P931,027,002.18 fran 393,723,629 DMI' of copper concentrate shipped abroad 149,854,561.21 P781,172,440.97 LESS: .02 Freight p 32,733,226.17 Insurance 2,681,073.95 Smelting charges 114 (440 , 261.09 Taxable base Tax rate Ad �Valorem Tax due� 6. That there would be an erroneously over- paid ad valor em tax by peti ti oner of P2,288,865.23 during the above-.~en t i o ned per iod. 7. That on November 18, 1976, petitioner filed wi th responden t Commissioner of Internal Revenue a claim for tax credit in the amount of P2,288,865.23. At this juncture , it maybe stated that in his 11 Memorandum f or the Res pondent .. dated August 1:9 , 1980 filed with the Court, respondent, having submitted his case based on the pleadings and records of the case , in effect adopted the above-narrated facts as basis of his statement of facts. (pp. 119-123, CTA records .) After carefully examining all the evidence of petitioner, wh ich were not disputed by respondent , as well as the records of this case, we are more than ever convinced that despite the seemingly

DECISION - CTA CASE NO . 2842 - 5- conflicting positions taken by the parties, there i s no real dispute between them on the fundamental principles by which the basis or measure of the ad valorem tax payable by petitioner on the actual market value of the copper minerals exported to Japan or other countries is to be computed. A lot of ground can at once be covered, and it will greatly simplify matters, if the uncontroverted evidence of petitioner, both oral and documentary, including the depositions taken in Tokyo , Japan; New York , United States; London , United Kingdom; and Berne, Switzerland, and all the exhibits presented in connection therewith, are reduced to basic factual propositions or situations that ar e beyond dispute, to wi t: 1. The mineral mined or extracted by petitioner from its mine site in Toledo City , Cebu , is copper . (p. 20, BIR records; see also petition for review, p. 1, CTA records & responderit'~ memorandum, p. 119, CTA records.) In i ts raw, unmarketable form, it is a rock called copper ore. (Exh. "D"~ p. 20, BIR records.) The mineral rocks or or es are crushed, ground and reduced t o powder f orm known as copper concentrate . While the or es contain about~% copper, the copper concentrate contains about 28-~1% copper. (t.s.n., p. 31, hearing on November 15, 1977; p. 8; 13

DECISION CTA CASE NO. 2842 - 6- deppsition, Japan7 p. 8, deposition, London7 Exhibit "A" -London.) It is the copper concentrate -the pow~ered rocks with copper contents - .that is exported to t, oreign buyers in Japan, like the Mitsubishi Metal Coq~oration. (p . 20, BIR records.) 2. Petitioner has been selling its copper conqentrate to Mitsubishi Metal Corporation (formerly Mit~:iub ishi Metal Mining Co., Ltd.) .in Japan pursuant to a Loan and Sales Contract dated April 17, 1970. (Exh. "A", pp . 1-21, Folder I of Exhibits.) This was supplemented from time to time, the ~test of which, for purposes of this case, is the Fourth Supplementary Agreement executed by petitioner and Mitsubishi Metal Corporation on January 25, 1974. (Exh. "B", pp. 22-27, Folder 1 of Exhibits.) 3. Petitioner and Mitsubishi Metal Corpor at ion determined the s ell ing price of copper concentrate by __ reference to the price quota~ion of electrolytic copper wi re bar in the London Metal Exchange. (Exh. "A-1.", p. 10, Folder 1 of Exhibits7 t.s.n., pp. 4 & 68, hearing on November 15, 1977.) It appears that th e parties had to refer t o the price quotation of wire bar because there is no price quotation for copper concentrate in the London Metal Exchange or in any of the other commodity exchanges in the world for i.J

DECIS ION - CTA CASE NO. 2842 - 7- fa ilure of copper concen t r ate to satisfy the standards requi r ed of a commod ity to be trad e d in commodity exchanges. (t.s.n., pp. 37-38, hearing on November 15, 1977; t.s.n., pp. 10-~1, hearing on April 3, 1978; pp. 6-~1, deposition, Japan; pp. 11 & 18, deposition, New York; pp. 2, 5 & 7, deposition, London.) There is no other market quotation locally obtainable in the Philippines. (p. 19, BIR records.) 4. As for the reason why copper concentrate is not traded in the commodity exchanges in the world, the records of the case show that the product fails to meet the criteria before a commodity could be traded in a commodity marke t; such as, (a) the com- modity must be homogeneous for easy standardization, classification and interchangeability (pp. 5 & 6, deposition, London) i. (b) .there must be a large number of buyer s and s e llers, without the existence of any buyer or seller, or the ir aggrupation, having a dominant influe nce on t he pric e (p. 6, deposition , London; p . 12, depos ition, New York) i. (c) .the market should be free from government control or control by big blocks of producers or consumers to insure that the price quotation is not inf luenced or dictated by non-marke t factors; (d ) .the commod ity must be durable and non-perishable to allow s tor~ gc a n d

DECISION - CTA CASE NO. 2842 - 8- stockpiling; (e) .there must be free entry to and free exit from the market (p. 6, deposition, London)~ (f ) .there must be full information on the production of the commodity traded, on the s tocks, price and distribution , and such information must be accessible and open to all (pp. 6-7, deposition, London)~ and (g) .decisions and operation in the market must be taken impersonally without regard for personal con- siderations , like friendsh ip, power, influence, etc . (p . 6, deposition , London )~ 5 . Wi th the London Metal Exchange price quo tation of electrolytic CO�per wire bar as starting point, which as discussed above is used by petitioner and Mi tsubishi Metal Corporation as reference point, the actual market va lue of copper mineral or concentrate is determined by the parties by allowing for the deduction from the London Metal Exchange price quotation of copper wire bar all co sts .of manufacturing or pro- cess ing into copper wire bar. In other words, the actual market value of copper concentrate is a scertained by deducting the freight , insurance, smelting, refining and fabrication charges from th e London Me t al Exchange price quotation of coppe r wire bar. (p. 20 , BIR records .) The remainder, after all these deductions, represents to a reasonable degree the actual market iG

DECISION CTA CASE NO. 2842 - 9- value in the mine site of the copper mineral extracted from the earth, which in its marketable form, is copper concentrate. (pp. 12-~3, deposition, New York~ pp. 4-~, deposition, London.). Petitioner and Mitsubishi Metal Corporation have provide d for in their Loan and Sales Contract (Exh. " A") .and Fourth Supplementary Ag reement (Exh. "B") the different charges payable from the time the copper concentrate is loaded in the Port of Toldeo City, Cebu, to the time it is unloaded in Japan of freight and insurance. Provisions are also made for the costs of smelting, refining and fabricating copper concent- rate into copper me tal in the form of wire bar. Of course, there are also certain provisions for allowances for unit deductions, moisture content, grade tolerances, mechanics for arbitration in case of disagreements, etc., which are considered to be reasonable in order to appro~imate as accurate l y as possible the coppe r content i n a par ticular shipment of copper concentrate. (t.s.n., pp . 4 , 6 & 7, hearing on November 15, 1977~ t.s.n., pp. 8 et seq,, hearing on Ap ril 3, 1978~ Exhs . "A-1", n A -2"~ p. 4, deposition, Japan~ pp. 4-5 , deposition , London~ pp. 12-13, depo- sition, New York .) 6. The phys ical proc e sses involved in the

DECISION - CTA CASE NO. 2842 - 10 - production of copper concentrate are the following: (p. 19, BIR records; Exh . "H", p. 43, Folder I of Exhib its.) A. Mining Process - (1) Blasting - The ore body is broken up by l:iasting. (2) Loading - .The ore averaging about ~ per cent copper is loaded into ore trucks by electric shovels. (3) Hauling - ~he trucks of ore are hauled to the mill. B. Milling Process - (1) Crushing - .The ore is crushed to pieces the size of peanuts. (2) Grinding - .The crushed ore is ground to powder form. (3) Concentrating - The mineral beering particles in the powdered ore are concentrated. The ores or rocks, � transported by conveyors, are crushed repeatedly by steel balls into size of peanuts, when they are gound and pulverized. The powder is led into concentrators where it is mixed with water and other reagents. This is known in the industry as the flotation phase. The copper-bearing materials

DECISION - CTA CASE NO. 2842 - 11 - float while the non-copper materials in the rock sink. The material that floats is scooped and dried and piled. This is known as copper concentrate. The material at the bottom is waste, and is known in the industry as tailings. In Toledo City, tailings are disposed of through metal pipes from the flotation mills to the open sea. Copper concentxate of petitioner contains 28-31% copper. The concentrate is loaded in ocean vessels and shipped to Mi tsubishi t1etal Corpo r ation mills in J apan, wh e re the smelting, refining and fabric a ti n g p r oces s are done. (Me morandum of peti- tioner, p. 71, CTA records . ) 8. The chemical or manufacturing process in the p rodudion o f wire bar is as follows: (Exh. "H", p. 43, Folde r I o f Exhibits.) A. Sme ltin g - (1 ) Dr y in g - .The cop per concentrates (averagins about 30 per cent copper) .are dried. (2) Flash Furnace - The dried concentrate i s s melted autogenously and a matte conta i n i ng 65 per cent is p roduced. (3 ) Conv e rter - T h e mat t e is conve rted into blister copper with a purity of about 99 per cent.

DECISION - CTA CASE NO . 2842 - 12 - B. Refining - (1) Casting Wheel - Blister copper is treated in an anode furnace where copper requiring further treatme nt is sent to the casting wheel to produce anode copper . (2) Electrolytic Refining - .Anode copper is further refined by electrolytic refining to produce cathode copper. c. Fabricating - (1) Rolling - Fire refined or electrolytic copper and/or brass (a mixture of copper and zinc} _is made into tubes, sheets, rods and wire. (2) Extruding - Sheet, tubes, rods and wire are further fabricated into t he copper articles in everyday use. The records show that cathodes, with a purity of 99.985 %, are cast or fabricated into various shapes, depending on their indu~trial destination. Cathodes are metal sheets of copper 1 meter x 1 meter x 16-~8 millime ter thick and 160 kilcigra~ i n we i ght , although this thickness is not uniform for all the sheets . Cathodes sheets are not suitable for direct fabri- cation, hence, are further fabricated into the desired

DECISION - CTA CASE NO. 2842 - 13 - shape, like wire bars, billets and cakes. (p. 1, deposition, London.) Wire bars are rectangular pieces, 100 millimeter x 100 millimeter x 1.37 meters long and weigh some 125 kilos. They are suited for copper wires and copper rods. Billets are fabricated into tubes and heavy electric sections. Cakes are in the form of thick sheets and strips. (pp. 13, 18-21, deposition, Japan; Exhs. "C" & 'JG", Japan; pp. 1-2, deposition, London; See pp. 70-72, CTA records.) 9. In paying the ad valorem tax pursuant to Section 243 of the then in force National Internal Revenue Code, petitioner deducted from the London Metal Exchange price quotation of wire bar all the costs of fabrication, refining, treatment (smelting) process, freight and insurance. In other words, there being no market price quotation of copper con- centrate in the commodity exchanges or markets of the world, which petitioner claims is the mineral or mineral product extracted or produced from its mineral lands in Toledo City, Cebu, it started from a known quantity to determine the actual market value (in Toledo) ?f copper concentrate. That known quantity is the London Metal Exchange price quotation of wire bar. From this known quantity, petitioner worked �� backwards by deducting all charges and cost~ incurr' ed.,.. 21

DECISION CTA CASE NO. 2842 14 after the raw copper concentrate has been shipped from Toledo City to the time such copper concentrate has been converted into saleable copper metal called wire bar. These are the costs of fabrication, refining, smelting, freight and insurance. The remainder, after all these items have been deducted from the London Metal Exchange selling price of copper wire bar represents to a reasonable degree, according to petitioner, the actual market value in the mine site of the copper conce ntrate, the copper mineral extracted from the earth in its marketable form. Petiti oner having failed to deduct the cost of smelting, i t filed with respondent Commis~ioner of Internal R~venue a claim for tax credit of the amount of ~2,288,865.23 as alle g ed erroneousl y p aid 2 % ad valorem t a x on the copper concentrate shipped to Mitsubishi Metal Corporation in Japan for the period f rom November, 1974 to December, 1975. (pp. 72 & 76, CTA records.) Respondent having failed to seasonably act on its claim for tax credit, petitioner i nitiated this proceed i ng in this Co~r~ before the e xpiration o f the two- yea r pe riod of li mita tion und e r Section 306 of the then in force National Internal Revenue Code. 10. The parties are not in controversy on the .'

DECISION - CTA CASE NO. 2842 - 15 - computation of the ad valorem tax payable by, or the amount refundable to, petitioner as the case may be. Petitioner in this case now poses a single issue before us: WHETHER OR NOT IN DETERJ.\1INING THE BASIS OR MEASURE OF THE AD VALOREM TAX ON COPPER MINERAL EXPORTED BY PETITIONER TO JAPAN IN THE FORM OF CONCENTRATE, THE COST OF SHELTING SHOULD ~E DEDUCTED FROM THE LONDON METAL EXCHANGE PRICE QUOTATION OF WIRE BAR. In asking for the dismissal of this case and denial of petitioner'~ claim for tax credit, respondent states that the issue to be resolved is: WHETHER OR NOrr THE COSTS OF (A) REFINING CHARGE.S AND (B) .SMEL'EING CHARGES IN THE AMOUNTS OF ~96,632,057.70 AND ~114,440,261.09, RESPECTIVELY, SHOULD BE DEDUCTED IN ARRIVING AT THE F I NAL GROSS VALUE OF THE COPPER CONCENTRATE . And in brushing aside the stand of petitioner, res- pendent argues that "the actual market value of the mineral products is that wh~t petitioner realized from the sale of the coppe r conc e ntra t~ ' wit hout an y deductions from mining, milling refining , tran sportin g , handling, marketing , or any other expen s es."' The

DECISION CTA CASE NO. 2842 - 16 - phrase "or any other expenses" includes smelting and refining charges now being claimed by petitioner. (p. 126, CTA records.) Obviously, respondent admits that the mineral or mineral product extracted or produced by petitioner from its mineral land or mine site in Toledo City, Cebu, which is subject to the ad valorem tax under Section 243 of the then in force National Internal Revenue Code, is copper concentrate. Respondent likewise expressed his agreement with petitioner that the ad valorem tax is based on the actual market value or price of the copper concentrate at the time of its extraction or severance from the mineral land in Toledo City without any deduction for expenses, except for actual cost of ocean freight and insurance. Oddly, however, respondent seemed to miss the point when he asserts that "smelting and refining charges now being claimed by petitioner" should be deducted from the actual market value of the mineral product, which is copper concentiate, but which he apparently refers to t he Lo ndon Metal Exchange price quotation of copper wir e ba r. And ave�r r ing .: hat "I n this particular case, the coppe r concentrates sotd and shipped by petitioner under C.I.F. terms, have a total market value of fl1,027,659,059.88"which is the ,,, 1 ~�

DECISION - CTA CASE NO. 2842 - 17 - London Metal Exchange price quotation of wire bars manufactured from 393,723,629 dry metric tons of copper concentrate, involved in this case, respondent deducted therefrom expenses for ocean freight and insurance in the amount of ~35,163,040.07 and obtained a balance o f ~992,495,019.81 su bject to the 2 % ad valorem tax, or ~19,849,920.39 as ad valorem tax. {p. 126, CTA records.) Undoubtedly, "the actual market value of the copper concentrate" which is the basis of the ad valorem tax computed by respondent is not the ac�tual market value of the copper concent- rate in its condition at the time of its severance or removal from the mine site a t Toledo City, but the London Hetal .Exchange price quot ation of copper wire bar. The controlling statute is found in Sections 243, 245 and 246 of the 1939 Na tional Internal Revenue Code, and under the provi si ~ns thereof: 1. The ad valor em tax of 2% is imposed on the actual mar ket value of the annual gross output of the minerals or mineral products extr acted or produced from all mine ral lands not covered by lease. (Sec o 243, now Sec. 255 , Nation a l Internal Revenue Code . ) 2. The ad valor em t~x is due and pa y a b le upon the removal of the mineral products from the locality

DECISION - CTA CASE NO. 2842 - 18 - where mined. However, �the output of the mine may be removed from such locality without prepayment of the ad valorem tax if the lessee, owner or operator of the mine shall fil~ a bond conditioned upon payment of such tax, in which case, the lessee, owner or operator is required to make a true and complete r eturn in duplicate under oath setting forth the quantity and the actual market value of the output of his mine removed during each calendar quarter and to pay the ad valorem tax due thereon within twenty (20) _days after the close of the said quarter. (Sec. 245, now Sec. 256, National Internal Revenue Code.) 3. The term "gross output" means the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity without any deduction fr mining, milling, refining, transporting, handling, marketing, or any other expenses . If the minerals or mineral products are sold or consigned a broaa by th e l e ssee or owner of the mine under C. I.F. terms, the actual cost of ocean freight and insurance shall be deducted. The output of any group of contiguous mining claims shall be subdivided. (Sec. 246, now Se c. 257, National Internal Re ve nue Code .) 4. The word 'r mi ne r a l s " means all inorganic substances found in nature whether in solid, liqui~,

DECISION - CTA CASE NO. 2842 19 gaseous, or any intermediate state. The term .. mineral products" means things produced by the lessee, conces- sionaire or owner of mineral lands, at least eighty per cent (80 %) .of which things must be minerals extracted by such lessee, concessionaire, or owner of mineral lands. (Sec. 246, now Sec. 257, National Internal Revenue Code.) And as ruled by the Supreme Court: 5. The ad valorem t ax on min ing is a tax not the minerals, but upon the privilege of severing or extracting the same from the earth, the Government's right to exact the said impost springing from the Regalian theory of State ownership of its natural resources. (Cebu Portland Cement Co. vs. Commissioner of Internal Reven ue, L-1864 9, Februa ry 27 , 1965 , 13 SCRA 333.) The inclusion of the term "mineral products 11 is intended to comprehend cases where the mined or quarried elements may not be usable in its original state without application of simple treatments, such as washing , or c utting them into sizes , which proce s s does not nece ssarily i nvo l ve the change or trans- formation of the raw materials into a composite distinct product. (Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, L-18649, February 27, 27

DECISION - CTA CASE HO. 2842 - 20 - 1965, 13 SCRA 333.) 6. Since the ad valorem tax is a severance tax, i.e., a charg~ upon the privilege of severing or extracting minerals from the earth, and is due and payable upon removal of the mineral product from i ts bed or mine, the tax is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before its being substantially changed by chemical or manufacturing {as distinguished from purely physical) processing. {Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, L -~8649, Resolution da t ed December 29, 1967 of the Motion f or Reconsideration, 21 SCRA 1425. ) . The ques t ion therefore is: What is the mineral or mineral product of petitioner the privilege of severing or extracting the same from the earth on which the Government ' s right to exact the ad valorem tax is founded? Petitioner and respondent do not dispute, as discussed above, that the mineral or mineral product extracted or produced from the mine site of petitioner in Toledo City, Cebu , the ac tual ma r ket value of which the a d valor em tax i s imposed , is copper ore which in marketabl e fo r m i s copper concentrate. Anci 28 /

DECISION - CTA CASE NO. 2842 - 21 - the law is clear and specific. I t says: "The word 'mineral s' fohall mean all inorganic substances f ound in nature whether in solid, liquid, gaseous, or any intermediate state." The accent is on the words - ."found in nature". Since copper ore is the " inorganic substance found in nat ure" which peti- tioner remove s and extracts from its mine site in Toledo City, Cebu, such copper ore, which in marketable form is copper concent rate, is the mineral or mi neral product of petitioner the pri- vilege of seve ring or extracting t he same from the earth of which t he right of t he Government to impose the ad valorem tax is planted. Copper wire bar is not found in nature and is not being severed or extracted by petitioner from the earth in Toledo City , Cebu. Neithe r is it produced by petitioner i n its mine site i n Toledo City by simp l e tr e atments of was hing or cutting into sizes, 80 % of which are minerals extr acted by petitioner. As e xplaine d in detail ~ove, copper wire bar is produced in Japan by manufacturing and chemical process after smelting, electrolytic r ef ining and fabricating the copper concentra t e. (Exh. "H") Only thereafter does copper wir e bar exis t , i n Japan, and not in the mi ne site o f peti tioner i n 'I'ol edo City.

DECISION - CTA CASE NO. 2842 - 22 - If copper concentrate is the mineral or mineral product of pe titioner the severance from the soil of which the a d valor.em tax is directed, the next problem thrust upon us is: What is the market value of the copper concentrate in its condition at the time of removal or ext raction from its bed or mine at Toledo City on the basis of which the ad valorem tax is to be compute.d? Petitioner explained, as show.n earlier, that in order to arrive at the market valE of t he copper concentrate, there being no market price quotation of copper concentrate in the commodity exchanges or markets of t he world, or even obtainable locally , one should start from a know.n quantity. In the instant case, that known quantity is the London. Metal Exchange price quotation of wire bar. From~is known q uantity, one works bac kward by deducting all charges and costs incurred after the raw copper concentrate has been shipped from Tol e do City to the time the same has been coverted into mar ketable copper wire bar. These are the costs and charges of smelting, refining and fabricating of the copper wi"re bar, as well as the cost of frei gh t a nd insu ra nc e . All the se items should be deducted from the London Metal Excha nge price quotat ion o f the copper wire bar. The r~maind er 30

DECISION - CTA CASE NO. 284 2 - 23 - represents to a reasonable degree the actual market value of the copper mineral extracted or severed f rom the earth in t he mine site at Toledo City, wh ich, in its marketable f orm is copper concentrate. (pp . 75- 76, CTA records.) While respondent does not question the propriety , suitability and reasonability of the procedure adopted by petitioner in arriving at the actual market value of the copper concentrate at t he mine site in Toledo City, he argue s that the actual mar ket value of the mineral produc t is that what petitioner realized from the sales of the copper concentrate "without any deduction from mining, milling, refining, transporting, handling, mar keting, or any other expenses." And the phrase "or an y other expens e s includes sme l ti ng a nd refining charges now being claimed by pe tit i one r. (pp. 125-1,26, CTA records . ) . Undoubtedl y , as has already been explained above, respondent does not quarrel with petitioner that the actual mar ke t ~ a l u e of the copper conce ntrate in its condition at the time of removal from the earth at the mi ne site in Toledo City i s th e basis of the ad va l orem tax of 2%. This is self-~vident from respon de nt's. argument that the actual market value of the mineral product is t hat what petiti oner r ea l ized fr om t he s a les of the 92.E.E.~2on.cen tr.~E without a ny deducti on fro m mi n ing , milli ng , r efining, 31

DECISION CTA CASE NO. 2842 - 24 - transporting, handling, marketing, or any other expenses. The collision, or confusion, occurs at the propo~ion of respondent that the refining and smelting charges of copper wire bars in the amounts of ~96,632,057.70 and ~114,440,261.09, respectively, are not deductible in arriving at the final gross value of the copper concentrate. Strangely enough, r espondent seems to enter ta in the view, as can be gleaned from his assertion that the copper concentrates sold and shipped by petitioner under C.I.F. terms have a total market value of ~1,027,659,059.88, which however is the London Metal Exchange price quotation of wire bars manufactured from 393,723,629 dry metric tons of copper concentrate, subject matter of this proceeding, t hat the actual market value of the mineral or mineral product o f petitioner from which the expenses of refining and smelting should not be deducted is the London Metal Exchange price quotation of the copper wire bars manufactured by Japanese buyers in Japan . Obviously, i n us i ng the London Meta l Exchan ge price quotation of wir e bar as basis of the ad valorem tax payable by petitioner , it seems t hat responden t is of the impression that the mineral or mineral product of petitioner the actual market value of which is the measure of the tax is copper

DECISION CTA CASE NO. 2842 - 25 - wire bar, not copper concentrate as already conceded by him. Under the terms of the applicable law, it is quite apparent that the words "actual market value of minerals or mineral products, x x x x without any deduction from mining, milling, refining, trans- porting, handling, marketing, or any other expenses" provided for under Section 246, supra, refers to "the actual market value of the annual gross output of the minerals or mineral products extracted or produced from all mineral lands x x x x" on which the 2% ad valorem tax is computed under Section 243 of the Revenue Code. Section 246 defines the words "gross outputn as used in Section 243. Construed together, therefore, these provisions yield no other conclusion but that the "gross output" which is the actual market value of minerals or mineral products without any deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses means t he gross output o f the minerals or mine r a l pro- ducts extracted or produced f rom the earth by petitioner in its mine site at Tole do Ci t y. The contiolling law is clear and specific; it should therefore be applied as worded. Since the mineral or mineral product removed from its bed or mine at Toledo City by peti- tioner is copper concentrate , as admit ted by r espo nde n~

DECISION CTA CASE NO . 2842 - 26 - himself, not copper wire bar, the actual market value of such copper concentrate in its condition at the time of such removal without any deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses should be the basis of the 2% ad valorem t ax . Any other interpretation would lead to confusion. The conclusion reached is rendered clearer when it is taken into consideration that the ad valorem tax is a severance tax, i.e., a charge upon the privilege of severing or extracting minerals from the earth, and is due and payable upon removal of the mineral product from its bed or mine , the ta~ being computed on t~ e basis of the market value of the mineral in its condi �tion at the time of such removal and before its being substantially changed by chemical or manufacturing (as distinguished from purely physical) processing. (Cebu Portl a n d Ce ment Co . vs . Commiffii.oner of Internal Re venue, supra.) . Copper wire bars, as discussed above, have already undergone chemical or manufacturing processing in Japan; they are not extracted or produced from the earth by petitioner in its mine site at Toledo City. Since the a d va lorem tax is compu ted on th e b asis of the actual mar ke t value of the mineral in its condition at the ti me

DECISION CTA CASE NO. 2842 - 27 - of its removal from the earth, which in this case is copper concentrate, there is no. basis therefore for an assertion that such tax should be measured on the basis of the London Metal Exchange price quo- tation of the manufact ured wire bars without any deduction of smelting and refining charges. In resume: 1. The mineral or mineral product of petitioner the extraction or severanc e from t he s oil of wh ich the ad valorem tax is directed is copper concentrate. 2. The ad valorem tax is compu t ed on the basis of the actual market value of the copper concentrate in its condition at the time of removal from the earth and before it is substantially changed by chemical or man ufac t uri ng p roce ss without a ny deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses. However, since the copper concentrate is sold abroad by petitioner under C.I.F. t erms, the actual cost of ocean freight and ins urance is deductible . 3. The r e bein g no mar ket price quot~tion of copper concentrate local l y or in t he commod i ty exchanges or marke t s of the world, the London Metal Exchange price quotation of copper wire bar, which is used by pe t itioner and Mitsubishi Metal Corporation as reference to dete r mine the s el ling price o f copper

DECI SION - CTA CASE NO. 2842 - 28 - concentrate, ma y likewise be employed in th is case as r eference point in ascertaining the actual market value of copper concentrate for ad valorem tax purposes. By deducting from the London Me ta l Exchange pr ice quotation of copper wi re bar all charges and costs incurred after the copper concentrate has been s hipped from Toledo City to the time the same has been manufactured into wire bar, namely, smelting, electro- lytic refining and fabricating , as well as cost of ocean freight and insurance , the remainder represents to a reasonable degree the actual market value of the copper concentrate in its condition at the t i me of extraction or removal from i ts bed i n Toledo City for purposes of the ad valorem tax. Premises cons idered, pe ti tioner i s entitled to a tax credit o f ~2,288,865.23 as erroneo usly paid ad valorem tax on copper concentrate sold abroad f or the period November 1, 1974 ~o December 31, 1975, computed as follows: Gross C.I. F. value of total shipments ~1,027,659 ,059.88 Less: ~114,440,261.09 246,486,618.91 SmelLing charges ~ 781,172,4 40.97 Refin ing charges 96, 632 ,057 . 70 32,733,226.17 .02 Freight ~ 15,623,448.81 Insurance 2,681,073.95 ___1]..1912J. 314 04 Amount subject to ad valorem tax Tax rate Ad Valorem Tax due Amount of tax paid Refundable ad valorem tax 3G

DECISION - CTA CASE NO. 2842 - 29 - WHEREFORE, respondent Commissioner of Internal Revenue is hereby ordered to grant a tax credit in favor of petitioner Atlas Consolidated Mining & Development Corporation the amount of P2,288,865.23. Without pronouncement as to costs. SO ORDERED. Quezon City, Metro Manila, J anuary 23, 1981. ~~~ � Pr e siding Judge VJE CONCUR: R ~y LEX Z . Associ ate Judge 37