CTA Case No. 3873 (Decision)

1'1kJ."U~ll.!oC 0~ ;Hi� ~ HIL!PI"'!N~'"' ~.:OURT OF TAX I~PP.�AL..'~' qUli."'l:Orl CJ 'f'J' .� � HYDRO RESOURCES CONTRACTORS CORPORATION , Petitioner , - vcrnus - (' � l � A � l' !\ ~) l. N() � 5 H7 5 THE HDN. DEPUTY fv1INISHJ\ OF FIN ANCE , ALFREDO PlO DE RODA, ResponcJDn t. X- - - - - - - - - - - - - - X D[ C l S I 0 N Th is is a n app ea l from the deci s ion of res- pondont 1 Deputy Minister of finnnce Alfredo Pin de Roda, dated July 17 , J 9G4 setting nside the decision of the Collector nf Cus toms of the Port of Hnnila, a nd th <~t of the Cornmi ss inner of Cu ~>t. om s who s hared a s imil ar view , which held petitioner not liable for additi onal 3% ud valorem duty imposed ond pnid, on various eq ui pm2nt nolrl to i t , in the amoun t of e28 1 , 591 &00 and (]J.'DntinrJ t-. h e refund thereof . It appears that the Nntiono] I mmigratio n Admin i s - tr a tion (refe rred to hereinafter as ~IA for brevity), a . government. owned and cont. rol] ed corporation , entered i n to an agreement v1lth petitioner, llydro 273 ) A:

DECISION - CTA CASE NO. 3873 - 2- Resources Contractors Corporation (HYDRO for short), for the latter to un derta ke its project and to finance the acquisition or importation from abroa d of various equipment for the exclusive use by HYDRO in said NIA project. Under their agreement, NIA shall supply the foreign exchange for the acquisitio n or importation of the equipment for use in said NIA Project, dena- minated as No . MPI-C-1, and that petitioner HYDRO shall later repay the costs of acquisition or import- ation in full from out of the proceeds of the con- tract, before the said ownership thereof shall be transferred to petitioner. The following equipment imported by NIA for HYDRO's use are as follows: DESCRI~TION OF EQUIPMENT NET 8001< V,AL.UE l Tamrock Hyd . Jumbo Drill Ser. #18153 81,566,116.55 3 units Cat Drill Toyo TYPR 120 278,264.25 1 unit Tamrock Hyd. Drill 1, 493 ,83l~. 29 16 Units Air Leg Drill s Toyo 12,000.92 l unit Toyo Reinforcing Bar 2,423.21 � 3 units Toyo TYCD 10 CY Cralwer 265,421.35 2 units Scheele K-60 Pump 624,772.80 2 units New Reed Gun Mdl . lAS 67,349.90 1 unit Prota Tunnel Profile l~3,340.26 2 units v4ild Theodoli te Surveying Equipment 28,545 .9 3 1 unit Toyo Mud Sub Pump 201,10 8.01 2 units Aichi Skymaster Truck mounted Boom 93,622.78 \ '

DECISION - - 3- CTA CASE NO. 3873 _,,. 2 units Grindex Sub Typ e Pump e 140,518 0 35 6 units K/Worth C500 Truck Mixer 1 Unit Putarnesitor 1,690,054.60 6 units Sullair Air Cornp. 201,863.77 2 units Well Air Driven Grout 588,940.53 ~ ' 10 units Sta ncorn VHF Radio Tran. 20,582.40 4 units Cummins 32,537.70 1,055,209.20 Petitioner HYDRO had during the period of lh e use of the equipment repaid the foreign exchange that was supplied by NIA in their acquisition in the amount of ei4,537,783.63 (US $1,991,477.21) and 83,972,510.80 (US $5 4 4,179.56) and had paid the customs duty and compensating tax due on the above importations, respectively, as follows: Customs Duty El,2 14,01 0.00 Compensating Ta x _..Lz..Q1~69.63 "fatal ~- -g-l-.-~-Q-2-1-~-z-~~-~-~- plus the 3% additional ad valorem duty in the sum of E2Bl,59l.OO (underlining su~ plied) paid under O~Ra No. 1091617, dated April 25, 1983, as allegedly prescribed under the provi si ons of Executive Order No. 860, which amount of .?...9. valorem duty was subject to a protest before the Collector of Customs for the Port of Manila aforesaid which is now the sub- ject of the appeal and claim f or judicial refund. The sole issue in this case is whether or not I I 275

DECISION - CTA CASE NO. 3873 petitioner :i.s entitled to the refund of the 3 ~~ a d valore~ duty in the amount of 8281,591.00 paid by .' petitioner upon the sale to it by NIA of the imported equipment. We toke note that the law, Executive Order Noe 860, which was the basis for the imposition of the 3?~ _ad valoren~ duty upon the said importations, took effect on Decemb er 21 , 1982. The impor ta tions were effected in 1978 and 1979 by NIA, were used by HYDRO in the NIA project , and were transferred to petitioner " after its use for a n~:!_l11b.S':_E_.2_f__years" (Annex "A," Letter of Melania P . Temp ra , Asst . Vice-President Adm. Services , pp. 5-6, CTA rec.; underscoring ours.) And unde r Section 4 of PD 882 , effective on January 20, 1976, it is provided therein that the sale or trans f er made of a tax ex e mpt imported a r ticle � or e qui pment by a gove r nment owned or con- tro l led corpo r ation to a taxable corporation or privat.e person or 'entity, suc h tranBferee or tax- ab l e corporation, person or entity shall be considered the importer and shall bear all ta xes and duties that mav be due t hereon, and shall be paid to the Bureau of Custom s wi thin ten days after sale or disposition said irnp\ortations. 2~'G

DEC IS I 0 N �~ CTA CASE NO. 3873 - 5- When NIA t ransferred the equipment in question supposedly "afte r its (HYDI10 1 s) use for ~-_n~~::beE._.2..f. ~ . .Y.ears", it can no t be doubted that these equipment were so ld and transferred presumably "several years 11 after the equ ipments' importation in 1978 and 1979. It is obvious t herefore that the sale or transfer of the ownersh i p of the equipment to petitioner HYDRO were unquestionably made after the effectivity of PD 882 on January 20, 1976, undi s putobly said sale or trans fe r thereof are governed by Section 4 of PD 882 and was correctly applied by respondent. We take partic ul ar note of the fact that we cannot pinpoint with defin ite ness o r exactitude from the evidence, when or what yea rs after the years 1978 and 1979 impor t ations were the equipment sold o~ transferred by NIA to petitioner HYDRO so that we can determine o utright whether the sale or tran s fers are covered by the mandatory provision of Executive Order 860 effective on December 21, 1982 imposing 3% additional ad va lorem duty on suc h importations. Such that if t he sale or transfer of the ownership of the equipme n t were effected to petition er HYDRO \ 2 ~j '<>1 I(

_______ - ----- _._..... ~-- �-�-� DECISION - CTA CA SE NO. 3 873 - 6- after December 21, 1982, the effective date of Executive Orde r No. 860 , the 3% a d valorem duty is imposable a s said Executive Order 860 wa s applied prospectively and rightly . If th e sale or tra nsfer of t he own e rship of the equipment to HYDR O were .E2:_ior t.o the effectivity of Executive Order No. 860, t hen said Executive Order 860 is inapplicable, und petitioner is not liable to pay the 3% ad valorem duty of 8281,5 9 lo00 a nd is entitled to the ref und t hereof. As a rule and principle , it was incumbent upon petitioner-taxpayer HYDRO to hav e s hown that th e sale or tran s fe r of said eq uipment to it were made before Decemb e r 21 , 198 2 , when the Executive Order No. 860 was effe ctive i n order th a t it shall not be subject to the i mposition of 3% additional ~valorem duty. Failing t hus, it s claim for refund in the a mou nt of 2281 , 591.00 u nquestion a bly f ai ls . It must be bor~e in min d th at claim s for r e fund, be in g in th e nature of exemptio ns , are strictly constru ed against the taxpayer (Ma nila Ele c tric Coo vs. Comm., 67 SC RA 351) and said ta xpayer is burdened by th e respo ns - ibility to show by evidence , which must be ade qua te , \ 278

DECISION - - 7- CTA CASE NO, 3873 ,. competent, clear and convincing, tha t it is entitled to such claim; otherwise, where a party failed to .. sustain the burden of proof of t he refund by the lack of adequate and competent evidence, the claim for refund shall be denied him because claims for refund, like exemptions , are disf avored in law and these are derogatory to the. taxing power of the State, (Caltex vs. Comm. , CTA 2871, January 29, 1986; Phil, Explosive Corp. vs . Comm., CTA 3185, Sep t . 26, 1986; Ma rubeni Corp. vs . Comm., CTA 3605 , Feb. 12, 1986) Moreover, when petitioner HYDRO paid the customs duty, compensating tax and t he 3% additional ad valo re m duty in the sum of 8281,591,00 i n qu es tion, all on the same day, or o n April 25 , 1983, we have goo~ reason therefore to valid l y presume thnt the law, Executive Order 860, was complied with in that the 3% additional ad valorem duty was paid not later than the lOth day after the equipment were sold by NIA to petitioner. Consequently, we can rightly presume and judge that the equipment in question were sold or transferred t o HYD RO on or about April 15, 1983 (which is wi t hin ten f (lO) days fro m payment of the \ 27 8

DECISION - CTA CASE NO. 3873 ;� 3% ad valorem duty)., The sale or transfer of the .. equipment is, therefore, placed at a date (April 15, 1983), which is after the effectivity on December 21, 1982 of Executive Order No. 860~ Consequently, peti- tioner HYDRO is legally subject to the additional 3% ad valorem duty and which was cor re ctly and rightly paid by it to the Collector of Customs, We are of the opinion and so hold that respondent Deputy Minister of Finance was correct in his finding, and in setting aside accordingly the decision of the Collector of Customs dated 19 84, in Manila Prote s t No. P-1328��83 (Annex "B" ~ Petition fo:r Review) , and deny i ng petitioner HYDRO's claim for refund which we hereby fully sustain. Only as a matter of observation, and without in anyway making a finding in this case, there is alleged and apparently a provision in the service contract entered into between the NIA and petitio n e r HYDRO wherein it ~as agreed between them that the form er (the NIA) shall be liabl e for all duties, taxes due on the Governm e nt re sp ectinq the import- a~ion of the equipment. that \<Jere used by the latter . (s ee Annex "A", SC--27(b) of Agr e ementy t�~emorandum \ 280

DECISION - CTA CASE NO. 3873 ... 9 - .� . of Petitioner, p. 68, CTA rec.). Since contracts are generally consider ed the law binding between the contracting parties, and petitioner having paid .' the additiona l 3~~ ad valorem duty in the surn of 8281,591.00 on the equipment sold to it by NIA, said contract should perhaps be brought for ventilation or enforcemen t in an action for reimbursement of the payment of the said additional 3% ad ~alore~ duty p a i d t o t h e Cu s t o ms a g a i n s t t h e ~J I A , a q o v e r n rn e n t corporation, which was in this case not impleaded, and where said NIA may be brought as principal party in a more proper forum. WHEREFORE, the decision of the Deputy Minister of Financ e dated July 17, 1984, denying the peti- tioner's claim for refund, is hereby affirmed. With costs against petitioner . SO OfWEHED. Quezon City, Metro ~anila, May 22 , i987. / / cn~jr-(l.,../L,A/F/.N3.fT'f}nE/?'V//V.{~)~J'"R',O..._AQUIN )'\ssociate .Judge I CONCUR: I /) Presidin (Dissenls in a sepArate opinion.) ALEX L REYE S 1\ssociate .Jud ge 281

~~V!i>..tC OP Ui� _."II..I.!"I"IN~' �~ ~OU T OF TAX f\PP.i::AJ...q. QUftON C.J 'fV .. HYDRO RESOUR CES CONTRACTORS CORPORATION, Petitioner, - ver sus - C. T.A. CASE NO, 3B73 THE HONORABL E DEPUTY MINISTER OF FINANCE AL FREDO PIO DE RODA, Responden t. X- - - - - - - - - - - - - - - X DISSENTING OPINION I find t he majority's view a trifle confu sing by having failed to grip with the facts obtaining in relation t o the applicable laws. By desi gn and purpo se the import e d construction equipment an d spare part s for petitioner corpor ati on' s (Hydro for s ho rt) exclusive use in the cons tru ct ion of the gover nm ent's Magat River Multipurpose Project which were dul y entered an d withdrawn from Custom s in 1978 and 19 79 by the National Irrigation Admini s - tration (NIA f or short), a govern111 e ntal entity , were not necessari l y a t ax exempt undert aking. By the t e rm s of the Pr o je c t contract betw een the NIA and Hy dro, NIA undertakes paym e nt of all \ 282

DISSENTI NG OPI NION - - 2- CTA CASE NO. 3 873 I' th e import d ut ies and taxes incident to Lh e imp ort- .. ations deduc ti ble from the proceeds o f the contract pric e from t im e to time and dire ctly remitted to the Customs. Hy dr o shall repay NI A in full the v alue of the co nst ru ction equipment o ut of the sa me pro- c e eds bef or e e ventual transf e~ or takin~ ownership of subiect c on struction equipment upon tcrrni.not.ion of t he contra c t . NIA's assumed to x resronsibility could be but a n add e d cost of the contract.. As it ap pears NIA reneged and failed in the compliance of its tax obligations. In the meanti me Hydro had fu ll y r ep aid the va l ue of the const ru ctio n equipment, and , as a consequence of NIA's contractual brea ch, paid the compensating t ax as well as the customs dutie s due on the 197 0 and 1979 importations. But Hydro wa s assessed odditional duties of 3% od valo re m pres c ribed in Executive Order 86 0 subsequently issued on Dece mber 21, 19 82, which were paid under prot~st. Th e instant aclio n is for t h e refund of such p a yme nt . Th e Colle ct or of Customs, s u s t ained by the Commi s sioner of Customs, acted f a vor ab l y on t~e pe titioner's claim . \ 283

DISSENTING OPINION - CTA CASE NO . 3873 -� 3 -� Respondent Deputy Minister of Financ e set aside the decision and invoked P.O. 882 ( Regulnting the '� sale and disposition of tax fre e importntions of governmental agencies) as basis fo r the addition al 1 e v y o f 3 ~6 a d v r:Jl o r e m d u t y co n s i de r i n g t h 3 t. t h e payment of the import liabilities i nclud i ng the additional levy and the conveyance of the cons- truction equipment as well came subsequ e nt to th e effectivity of the Execut i ve Order. L e t i t s u f f i c e t h a t t h ._, p r o c u r e ~~~ e n t o f t h e equipment, as earlier stated, wos not on o tax exempt basis as Lhe import liabilities ther e on have been secure d to be paid under the t e rms of the fin anc i al scheme in the contr a ct. The formali!:y of vesti ng of title over th e equ i pment wa s not ~n unwarranted expectation but a matter of an implement- ation of a pre-existing agreement~ hen c e, the imported articles can only be s ubject to tho rate s of import duti�es/taxes prevailing at the time of entry or withdrawa l from customs' custody (Se c . 205, TCC) in 1978 and 1979, thus foreclosing a ny retroa c tive application of the 1982 Executive Order. \

.I DISSENTING OPINION - CTA CA SE NO. 3873 - 1-t - Taken in th e above light, it would be unfair and incongruous to hold petitioner to an additional levy~ a ny statutory basis. The majority could have fumbled into a precipitate action in taking an adverse position on petitioner's right lo a refund. \ 285