CTA Case No. 164 (Decision)

�-- REPUBLIC OF THE PHILIPPINES BOAF~ OF TAX t~~E ATS LlAf iLA RIZAL CEMENT COI.P AJf:i , INC . , B. 'l' .& . CASE ..;o . 164 Petitioner, - versus - COLlliCTOR OF Id"Tr.-: .N T ?.E-VENIJE , l~esp ondent . - x- - - - - - - - - - - - - - -x The petitioner , Eizal Cement Co., I nc ., is the registered ov1ner of mineral lands located in Binagonan, Rizal, from Vlhich limestone is quarried . The limestone rocks that are extracted from petitionf1r 1s mineral lands are transported to its factory six kilometers a'I'Jay frOi,1 the quarry by me ans of cable conveyors . In the factory, the limestone rocks are gTound and mixed vli th clay , bur ned to incipient fusion and the resulting clinker is pulverized to an inpalpable p owder , called portland cement . This finished product is put in bags and sold under the trade bra.nd 11fdzal Cement . tt On Augus t 25 , 1952, the r espondent , Collector of Inte rnal Revenue demanded the petitioner the payment of P80 , 937. 07 as ~ valorem tax and surcha rge on the market value of limestone and argillaceous materials r emoved f r om its mines and used by it in the manufacture of cement from 1949 to 1951, pursuant to Section 243 of the i~ational I nternal l.evenue Code . On September 27, 1952, the petitioner , in answe r to r espondent ' s demand , countered that , admitting its liability for the payment of ad va.lQ!:em tax of 1-1/2~;

DECISION - B��r �A. CASE� 1r0 � 164. - 2- of the valLts of the cement produced by it, the petitionsr is ex- empt from the payment of the sales tax under Section 188 (c) of the Ta:ir Code for the reason that cement is a mineral product . Petitioner , therefore, counterclaimed the refund of P585 , 894. 00, ,,'lhi ch it paid as sales tax, after deducting the sum of ?178, 191.90 as ~ valorem tax clue � On October 22, 1952, the r espondent denied the petitione r ' s request for refu.rd and insisted in the collection of �100 , 937 . 07 as ad valorem tax arrl surcharge on the limestone used as rav1 mate- rial in the manufacture of cement . From this decision, the peti- tioner appealed to this Board and its petition i'or r eview was docketed as B.'l' . l.. Case No . 110 . Upon ptition of the !)etitioner , the case wa,s dismissed vJithout prejudice in order to enable it to submit the: case before the Conference Staff of the respondent . After due he aring, the members of the Conference Staff had diver- gent opin:ions , i'lhich were referred to the respondent's Chief Counsel for study and recommendation. he respondent finally decided to reaffirm his decision dated October 22, 1952, and the corre-sponding demand for the payment -of the ad valorem tax on limestone and argil- laceous materials used by the petitioner in the manufacture of cement Tias reiterated . From the final decisi on of the respondent , the petitioner appealed to this Board . On the same queAtion of the . alleged illegality of the collection of the sales tax on Ilizal ce- ment and the claim for refund of the taxes paid , the petitioner filed ~ith the Court of First Instance of Lanila , against the Col- lector of Internal Revenue , a ci�il suit on January 17 , 1953, and dockated a~=: Civil Case Hn . ll)l)g3: Another comnlA:int YlRf.l filed on

DECISION - B.'l' . l:. .. C&SE NO. 164. - 3- July 20, 1953, and docketed as Civ:!..l Case Ho . 2014]. and another complaint filed on October 19 , 1953 and docketed as Civil Case No . 20944. All said cases are at pres ent pending trial in the Court of Fi rst I nstance . etitioner cont en:.~ s that Rizal ce ment is not liable for the payment of sal es tax of 7l; under Se ction 186 of the 1'ax Code but only for the ad valorem tax of 1-l/2% provided for in ceo- tion 243 in r elation with 246 of the Tax Code . Petitioner further contends that the sales tax collected by the respondent for the sale of Rizal cement is erroneous and illegal for the r eason that l~izal ceme nt i s a mineral or mineral product and under the provisions of Section 188 o/he 'I'ax Code the petitioner is not subject to percentage tax . The pertinent provi sions of the law is quoted . usee . 188 . Tl'anssactions and persons not sgb,ject to percentage tax: ~ In computing the tax imposed in sections one hundreo e i ghty- four , one hundr _d eighty- five and one hundred eighty- six, tr~nsactions in the following commcdities shall be excluded: X X X X X X X (c) ~inerals and mineral n.roduct� 'iVhen sold , bartere'1 or exchan �ed in this countr y by t he l e ssee , concessionaire , owner of the mine ral land from which removed" /The same question was raised in the civi l case s above-men- tioned filed i n the Court of First Instance of : ;anila, between the aame parties an:i for the name cause of action . 'fhere is no showing that said cases v:ere dismissed and the r efor e same are

.l,. DI~CISION - B ..T � CASE NO . 164. - 4- v1ere filed in the Court o:C First Instance ahead of tins pr esent case . In order to avoid conflicting de d.sions, t his Board there- f ore abstains from considering the same issue raised in the three cases aforementioned . ~-- c... _ 1'hare are still tv'io issues not covered in the pe t i t i oner's pleadings fil ed in the Court of Fi rs t I nstance, vhich are raised in this present appeal before us , namely; (1) In case the peti- tioner is legally lia.ble to pay the sal e s tax, it should not be liable fo r the payment of the ad valorem tax because this will constitute double taxation; (2) In case the pe titioner is liable for the payment of both the sales ~ax and t he ad valorem tax, the lattE!r tax should be assessed on the raw limestone rock quarried from the mines and not dm the povJdered limestone burned , [;round, and milled in t he petitioner 's factory . The petitioner does not dispute the assessment of the ad valorem tax not only on the ravJ materials such as limestone rock quarried from the mines but it �went even as far as to admit the assessment on the finished product known as portland cement under the trade name 11Rizal Cementn provided the :=:ales tax is not imposed . To assess further the sales tax on the same finished product Vlill con- stitute double taxation , the petitioner argues . Hov1ever , the peti- tioner submits that , assuming that b:.izal cement is subject to both sales tax and ad valorem tax, the latter tax shouilid be assessed on the raw materials such as the limestone rock extracted f rom the mines and not on the pulvGrized limestone processed in its factory � .e do not a gree that the assessment of the ad valorem tax - ~-..:& ...1..'- - __ ., ...,_ _ .J.,. _ _ _ - - --- L~J.. ... .J..-. ~'1 :._ ~ .. ,_, ,.1..~-~-..t...:!' ...........

DBCIS:;:O) - B ..T . k. . CASB }jO. 164 . - 5- the petitioner 1s plea that ad valorem tax should bEl assessed on the ravJ materials extracted from the mines and not on �the pul- verized liml stone tenable . 'l'he pertinent pr ovisi ons of law are quoted hereunder: 11Sec . 243: .d valorem taxes on outpu:L,Qf' rrri neral la,nds not covered b;y leapffi! . There shall be assessed and collected on the actual market value of the a.nnual gross output of' the mine rals or mine r al products ex- tracted or produced from all mineral lands , not covered by lease , an ad valorem taY payable to the Collector of I nte rnal Revenue, as folloVJs: X X X X X X X 1'(2) On all other mine:~.� als , one and one-half pe r centum of the value of said output . 11Se c . 246: l:2f~ion of the 1Ji:rm 1gross ou~ 1 :- The t erm ' gross output' shall be interpreted as the actual market value of minerals or mi neral products , or of bullion from each mine or mineral lands operated as a separate entity lithout any deduction for mining, milling , refin:tng , transporting, handling, marketing , or any other }.'Penses: Provided , however, 'rhat if the mineral or mineral products are sol d or consigned abroad by the lessoe or ovmer of the mine under C. I.l!~ . terms , the actual cost of ocean fr e i ght and insurance shall oo deducted . The output of any group of conti- guous mining claims shall not be subdividad . ~Ul the royalties or ad valorem taxes heremn provided shall accrue to the ~~ ational Treasury . 11 I t will be noti ced from the last sentence of the above quoted law that the iNord royalty is mentioned . While the lavl defines the ad valorem tax as a tax for the privile ge of extracting and exploiting minerals from mineral lands, it fa:Ll ecl to go further as to explain the connotation of the ;'!lord ''royaltyn . ~ie venture to interpret what V'laS in the mind of Congress when it used the word royalty or

DBCISION - D.'r � � CASE NO. 164. - 6- the r;lining LaVI (Commonwealth Act i:io . 137) Congress had in mind the Le galian doctrine , that all minerals found in public as Viell as private land belong to the state . 'l'hat is �v1hy royalty is charged on the minerals extracte(1 and removed from the mines , based on the market value of the gross output of the minerals . The respondent has charged the petitioner the percentage sales tax on the sale of };{izal cement as a manufactured product and not as a mineral product . Altho VIle have refrained from ruling that Rizal cement is a manufactured product, if such is the contention of the rEfspondent , there can not be double taxation because the ad valorem tax is based on the raw minerals extracted from the mines '~hile the sales tax is based on Rizal Cement as a manufac- tured product of the petitioner. Having assumed that the petitioner is liable for both the sales tax of the Lizal cement and the ad valorem tax on the ra.~'l mine r als used in tho manufacture of portland cement, vJe are with the petitioner in its claim that the ad valorem tax should be assessed on the limestone rock and othel' silicious and argilla- ceous materials in their raw form as extracted and removed fr om the mines . It is an admitted fact that the limestone rocks quarried from the mines are removed and trans:;>orted to the factory six kilometers away by means of cable conveyors . Section 245 of the 'l' ax Code provides ; usee . 245 . Timo and manner of PaYment of roya 1 ti,e~ or ad valorem tax~ . - The royalties or ad valorem taxes , as the case may be , shall be due and ~le upon the r~ moval oJ the mineral nroducts f rom the localitz v1here mined . HovJever , tho output of the mine may be removed from such localitY �without th�- nrenavment of such roval-

p DECISION - B.'r . A. C~G.:: NO. 164. - 7- ties or ad valorem taxes if the lessee, ovmer, or operator shall file a bond in the form and amount and with such sureties as the Collector of Internal h evcmue may require, conditioned upon the payment of such royalties or ad valorem taxes, in v1hich case, it shall be the duty of every lessee , owner, or operator of a mine to make a t1�ue and complete r eturn in duplicate twder oath setting forth the quantity and the actual mt~rket value of the output of his mine removed &uring each calendar quarter and p ay the roy.~llties or ad valorem ta.xes due there- on VIithin tv1enty days after the close of' said quarter . nrn case the royaltie� or ad valorem taxes are not .paid i~ithin the period prescriber1 above , there sha.ll be added thereto a surcharge of twenty-five per centum . Where a false or fraudulent r eturn is made , there shall be added to the 'royalties or ad valorem taxes a suxcharge of fifty per centum of their amount . 'I'he surcharge so added shall be col- la cted in the s a.me rnanner and as part of the royal- ties or ad valorem taxes, as the case may be � 11 'l'he aforequoted la11v provides that the ad valorem tax should be paid before removal of such products from the locality where they ;! are stored after being mined . Therefore , the ad valorem tax should be assessed on the minerals in their ravJ form or the limestone rocks in this present cass , before they are removed- and transported to the factory . 'rhe r espondent contends that the tax should be assesser, on the pulverized limestone because Section 246 of' the Tax Code , in defining gross: output , provides that no deduction shall be allowed for mini ng , milling, refining , transporting , handling and marketing. To allow deducting the e:r.:penses for milling and marketing would be contrary to the . I!>'JYovis i ons of the law . 'le would a e;ree v.Jith the contention of respondent if the petitioner were se}ling the pulvex�ized lime- stone , because in selling limestone powder , the petitioner would

D3CISIOt.J - B. T. ~ . C ('E HO . 164. - 8- not be liable for th~ sales tax and therefore the ad valorem tax should be assessed on the pov1dered limestone as a mineral p ro1uct . But th petitioner does not sell the powdered lime- stone; it uses it in mi ine v1ith clay in nroper proportion in order to produce portland cehlf'nt . Consequently , the 00. valorem tax should be assessed on the mine.ralr in their ra1 form , before they are removed fro~ the local~ty � TH~ .J- Id VIh � Oi�' .-.J FO� .:GOT !G IO r , we abstain from handing down a ruling on rJhether or not the petitioner is liabl~ to pay sales tax on the Bizel ce ment it produces . e affirm the rest of the respondent's decision VJ::..th the sole modi- fication that the ad valorem tax should be assesser' on the lime- otone rook or otber areillaceous minerals eJ~racted from the mines before they are remove therefrom . 'tithout costs . SO OI.D~':.ED � Lanila , January 15, 1954. /{� UL~UBL~ .�ember e concur: ... ember