CTA Case No. 3925 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY WARNER-LAMBERT PHILIPPINES, INC., Petitioner, - Vet'S US C. T. A. CASE NO. 392S COMMISSIONER OF INTERNAL REVENUE, Respondent . X- - - - ----- X D E C J: B J: 0 N This suit involves a claim fot~ refund or tax credit the amounts of P277,800.67 and P171,856.57 or a total of P449,657. 2 4 allegedly represer.t i r.g manufacturer's sales tax erroneously paid by petit ior.er for the year 1983 and for the three quarters of 1984, inclusive. Pet it i or.er is a domest i c corporati on er.gaged in the manufacture and sale o f c e rtain pharmaceutical, health- care and confecti onery products kno wn and identified under different trademarks. Among the produc ts sold by petitioner is a pharmaceutical soap under the "Neko" brand, manufactured for it by Manufacturing Services and Trade Corporation <MSTC for short>, a domestic 256

DEC I SION CTA CASE NO. 392S - 2- corpot~at ion with office address at 417G Del Mor-rte Aver-rue, Quezon City, pursuar-rt to a processi Yrg and pac~.agir-rg cor-rtract <Exh. I, pp. 94-103, CTA rec. > it entered into with Park Davies and Company, Inc., whose operation was consolidated with petitioner. For the year 1983 or all the q~arters thereof and fot~ the of 1984, petitioner filed its quarterly returns and paid 5~ manufacturer's sales tax on Neko soap and included the same in the total percentage tax payments for ,I the period January 1, 1983 to August 30, 1984 <Exhs. A to G-2, pp. 77-92, CTA rec. ). � It appeat~s that or-r July 31, 1984, respc�Yrder-rt issued BIR Rulir-rg 135-84, addressed to MSTC, to wit: "Gentlemen: In reply to your letter dated June 28, 1984 requesting a ruling as to whether you should be classified as a manufacturer or contractor, pleas e be informed that for operating and/or maintaining a complete line of equipment, manpower ar-rd facilities for toilet soap production for the purpose of manufacturing your own house brand of soap e.g. NEKO soap for your client Warr-rer Lambert Philippines, Inc., whereir-r you provide the soap base comprising 97.G~ of the soap and your client the soap additives cc�mprisir-rg 2.4~ thet~eof, you come within the purview of manufacturer as defined under Section 187Cx> of the Tax Code. Accordingly, you are subject to the 10~ sales tax on the NEKO soap as prescribed in Sections

DECISION CTA CASE NO. 392S - 3- 192(1) and 199(a) respectively of the Tax Code. " <Exh. H, p. 93, CTA rec. >. In view of said ruling, petitioner in its letter dated Apri 1 18, 1985, requested respc�ndent for a refund or tax credit of percentage taxes in the total amount of P449,651.00 cot~responding to NEKO soap it allegedly paid et~t~oneously for the periods in question and avers that inasmuch as the BIR ruling is beneficial to it, the same should be giver� rett~ oactive effect to the end that it may enjoy a refund or tax credit of the manufacturer's sales taxes erroneously paid by it <Exh. K, pp. 106-108, CTA rec. ). No action having been taken o n the claim for refund and to obviate the tolling of the statute of limitation, petitior.er filed the ir.stant petition for t~eview. Respor.der.t in h is answer ar.d as s pecial and affirmative defenses alleges among others, that: 1. Petitionet~ i s admittedly a rnanufacturet~ and, therefore, subject to the manufacturer's sales tax provided under the Rev ~nue Code; 2. Revenue Rulings are not given retroactive effect unless expressly so provided; 3 . lr� an act ion fot"' refund of taxes, the burden of proof is upon th e taxpayer to show that 258

DECISION CTA CASE NO. 392S - 4- the taxes paid ot~ remitted were et~ roneo us 1 y collected. Failure to sustain this burden is fatal to the action for refund as taMes paid are presumed to have been collected in accordance with law; and 4. Claims for refund are constr�.ted strictly against the claima nt, the same being in the nature of an exemption. The main issue presented before this Co urt is whether or not petitioner is entitled to the refund of the amount of P449,657.24 for the year 1983 and the first three quarters of 1984. The applicable provisions of the National Internal Revenue Code, as amended by P.D. No. 1358, in part pertinent reads as follows: Sec. 199. Percentage Tax on Sales o::::..:..f_.....;O=t~h~e:.!_r _.!..A:.._:r t:::.,.!!.i.=c:.:l!:...:e:..:s::;. There shall be ) levied, assessed, and collected once only on every original sale, barter, exchange, and similar transaction either for nominal or valuable cor.siderat _ion, intended to transfer ownership of, or title to, the at~t icles not covered in Sect ions 194, 195, 196, 197, 198 and 201, a tax equivalent to ten (10~) . per centum of the gross value in money o f the articles so sold, bartered, exchanged, or transfert~ ed, such tax to be paid by the manufacturer or producer: xxx. <Underscoring supplied.> Petitioner contends that beca�.tse it has inadvertently paid percentage tax on Neko soap which is supposed to be paid by MSTC, it is entitled to the refund thereof. On the o ther hand,

DECISION CTA CASE NO. 392!5 - !5- respondent insists that petitioner being a manufacturer is subject thereto. We find petitioner's contention well - taken. into petitioner's percentage tax payments f�::.r the per�iods lmder review, the recc�rd shows: AIO.HT TOT~ ~S CORRESPIH) Itt; RTR fi.J, C. R. fi.J. DATE TAXES PAID (p) TO t�1<0 !P) �' UST QTR.) 1, 092,705.00 41,843.93 0874426 0886230 4/20/83 (2ND QTR.) 1,363,643.00 69,762.53 1187002 2259306 7/20/83 !3RD QTR.) 1,595,897.00 76,300.23 1796728 2156664 10/20/83 !4TH QTR.) 1,178,386.00 89,893.98 1889182 9511894 1/20/84 T 0 T A L 227,800.67 1984 UST QTR.) 3,475,610.00 52,893.90 2750783 3612561 3/21/84 81,737.29 37,225.38 !2ND QTR.) 171,856.57 275574 3613071 6/20/84 2,683,518.00 ---- !3RD QTR.) 2, 173, 418. 00 449,657.24 3802031 4602634 9/20/84 T0 T AL T 0 T AL <See Exh. K, supra.) 260

DECISION CTA CASE NO. 392~ - 6- And, analyzing the above schedule, it can readily be seen that during the periods in question, petitioner's manufacturer's sales taxes corresponding to Neko soap were irtcluded irt the total percentage tax payments for said periods. Of course the insistence of respondent that petitioner is liable for the percentage tax is understandable because petitioner is admittedly a manufacturer <Pls. see pat~. 3, Petition for Review, p. 1, CTA rec.>. However, with respect to the Neko soap, We can safely say that petitioner is more of a distributor rather than a manufacturer. This is substantiated by petitioner's witness, particularly Marina Curnagon, Accounting Supervisor of MSTC who testified to the effect that MSTC is engaged in mar.ufactm~ing toilet soap, amor.g which are Persona, Nova, Success and Neko soap; that as manufacturer of Neko soap, it provides 97" of raw materials, 100" of labor and 100" overhead; that it bills petitioner via sales invoice wherein the selling p~ice and manufacturer's sales tax are separately indicated, and remit the same to the BIR; that fot' the calendar year ending 1983, MSTC filed a retut~r. and paid the manufacturer's sales tax, as evidenced by the corresponding returns <Exh. L>, Confirmation Receipts and BIR Payment 251

DECISION CTA CASE NO. 392S - 7- Orders <Exhs. L-1 to L-4> ; that fot~ the calendat~ year endiY�g December 31, 1984, MSTC also filed its manufacturer's sales tax returns and paid the tax, as evidenced by the annual sales tax returns <Exh. M> and the corresponding Confirmation Receipts and BI R Paymer-.t Oders <Exhs. L to M-8. ESee t. s. Y1., Hearing of March 12, . 1987J>. This testimony remained undisputed. Ur-,der BIR Ruling 135-84, MSTC is cor-.sidered the manufacturer of Neko soap ay,d as SJ..tch, i t is subject to the 10~ sales tax on its sales of the product. From the fot~egoing fir-.dir-.g of facts, i t is abundar-�t ly clear that two sales taxes were paid, one by MSTC and the other by petit ior-.er, on the same i tern. It must be noted that under the provisions of Section 199 of the Tax Code, aforecited, the tax is levied, assessed and collected only once on every original sale, barter or exchange. The terms have been interpreted to mean the first sale, barter or exchange of the articles by the mar-.ufact urer ot~ producer <Sec. 5, Cc�m. Act No. 503; Op. Sec. of Just ice, November 14, 1946; People v. Pastor, 77 Phi 1� 1000 >�

DECISION CTA CASE NO. 392S - 8- It will be stressed that after petitioner offered its evidence wh ich were all admitted by this Court, counsel for respondent submitted his case on the basis of the records and pleadings, without offering proof as to the truth of his own allegations in his answer <See minutes o f the session of the Court held on May 3, 1989, p. 151, CTA rec. >. In short, respondent failed to present his evidence, oral c�r otherwise, in Sltppc�rt of his case. Well-settled is the rule that orte who prays for judgment on the pleadings without oftering proof as to the truth of his allegations must be understood to have admitted the truth of all the material and relevant allegations of the opposing party and to t~est his motion for judgment OYt t h'e allegations taken together with such of his own are admitted <Bauerman v. Casa, 10 Phi 1. 386; Evangelista v. De la Rosa, et. al., 76 Phil. 115>. Respondent may as well be deemed as not questioning seriously petitioner's entitlement to its claim for refund <CoMmonwealth Management & Service Corp. v. Commissioner of Internal Revenue, CTA Case No. 3232, June 26, 1985; Ateneo de Manila University v. Commissioner of Internal Revenue, CTA Case No. 3213, July 28, 1989; Ateneo de Manila University v.

DECISION CTA CASE NO. 392S - 9- Commissioner of Internal Revenue, CTA Case No. 4231, June 5, 1991; and City Bank N.S. Phil. Banker v. The Acting ComMissioner of Internal Revenue, CTA Case No. 3378, August 30, 1991 >. The allegations of petitioner in its petition for review may therefore be considered beyond dispute. Viewed in this light, We are of the opiniort that petitioner is rtot the manufacturet~ of Nekc� soap. It necessarily follows that it has sustained the burden of pt~oving that the sales tax thereor� was paid and remitted to the BIR erroneously. As to the argument of respor.dent that BIR Ruling 135-84 should not be given retroactive effect pursuant to Sect ion 327 of the Tax Cc�de, suffice it to state that rulings or circulars promulgated by the BIR have rto retroactive application only in cases where the revocatior., modification or thereof will be prejudicial to the taxpayer <ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, L-52306, 108 SCRA 148 [1981]). Cor.sequent 1y, if the ruling or circular proves beneficial to the taxpayer, the same must be given retroactive effect. Hence, this Court is inclir.ed to grar.t petitioner's claim for refund or tax credit. ,. 2.., 6.. 'i

) DECISION CTA CASE NO. 392S - 10 - WHEREFORE, judgrner.t is rendered in favor c�f petit ioY.er. Respondent is hereby order ed to refund or credit to petitior.er the amount of P44'3,657.24 erroneously paid as manufacturer's sales tax for the year 1'383 and the first three quarters of 1'384. Without pronouncement as to costs. SO ORDERED. Quezon City, Metro Manila, 1 '3'32. lf!t /'--- Atnl C. ROAQUIN Judge WE CONCUR1 ct~ ~. Gl-Jh.- ERNEBTD D. ACOSTA Presiding Judge B~LA DADIVAB~~RRALEB Acting Associate Judge ,I 265

.. ' DECISION CTA CASE NO. 392~ - 11 - CE RT I F I CAT I 0 N I hereby certify that this decision was reached after due consultation between the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. <t~G.~ ERNESTO D. ACOSTA Presidir,g Judge Court of Tax Appeals 266