CTA Case No. 3637 (Decision)

.~. REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PLANTERS PRODUCTS, INC., Petitioner, - v er-�s us - C.T.A. CASE NO. 3637 COMMISSIONER OF INTERNAL REVENUE, 0 Respondent. - ~�~ - - - - - - - - - >: DEC I I DN This case involves originally a tlaim for refund in the amount of P37,992,879.00 representing ~he~/. manufacturer� s ta>: imposed under Section 199 in relation to Section 193 of the National Internal Revenue Code for the years 1981, 1982 and the first quarter of 1983. The petitioner, however, recovered portion of said refund through a subsidy s cheme of the government, thus its petition for review, reducing its original c la i m for refund to P6,898,3BO.OO. Petitioner is a corporation duly organized and e >: i sting under the 1aws of the Phi 1 i ppines with principal office at PPI Building, Esteban St., Legaspi Village, 1"1akati, Metro Man ila ; while respondent Commissioner of Internal Revenue is authot- i z ed as suc h to rept-esent the government of

DECISION CTA CASE NO. 3637 - 2- the Republic of the Philippines, who hold office at the B.I.R. Building, Diliman, Quezon City, where he may be s er�ved 1-'li th summons and other court pro c e sse s (Paragraph I Amended Answer .~ pp, 61 and S.3 .~ CTA rec.). Petitioner is engaged in the business of manu fac turing and se 11 ing ferti 1 i zer and used to pay, among others, the 10% manufacturing purs u a nt to Section 199, in relation to Section 193 of the Ta >: Code. (Paragraph II .~ Amended Petition admitted in paragraph .Amended An s wer~ pp. 61 and 63, CTA re c .) For the first, second, third and fourth quarters of the year 1981, as well as for the year 1982, and the �first quarter of 198:3, petitioner filed i ts percentage tax returns and reflected its quar�ter 1y t.a >:es thereto which petitioner paid to the r�esponden t in the tot a 1 sum of P37, 992,879. 0(1 covering the aforesaid years. (Exhs. 8~ B-1, B-2, B-3, c.~ C - 1 .~ C - 2.~ C-3 .~ D .~ D-1.~ D-2 .~ D-3, E, E-1, . � -2 .� E-3 F .� F-t .~ F-�..". ~ F-3 ., G, G-1 .~ G-2 , G-3, H, H-1 .� H-2 .� H-.3 .~ I .~ I-1, I-2, I-3, ._7, ._7-1 , ._7-2 and J - .3, pp. 11.3-114, CTA rec.) Sometime in February 1983, petitioner through its president, 1'1r. Alfredo Montelibano, requested for a. ruling from Acting Minister of Finance,

DECISION CTA CASE NO. 3637 - 3- A1 f redo F'io de Rod a~ Jr. ~ as to li'lhether or not petitioner is subject to manufacturer's tax of 10% imposed by the Tax Code. (See paragraph 3 of the latter '::: E.>:: h.ibit I< dated Nay 4 .~ 198.3 .~ p � .145 .~ CTA rec.) On Apr� .i.l 12 ~ 1983 ~ the sai d Acting Finance Minister issued a ruling to the ef �fe et that pet..it.i.oner� , being a local �fer� t ..il .i. zer manufacturer~ is e >:empt: fr o m the payment of the 10% manufacturer's tax under the National Internal RevenLH?. Code pur�suant to Section 6(II-5 ) of F're s .i.dent..ial Decr-ee No � .1144 (E .'>\�hibit .A, pp. 111 - 112, CTA rec.) and for ready reference said ruling is hereby quoted below: Republic of the Philippines MINISTRY OF FINANCE Office of the Minister Manila April 12, 1983 Mr . Alfredo Montelibano Pr� e s .i.de:~n t. Pl a nters Products~ Inc. Planters Products Building Es teban St., Legaspi Village Makati, Metro Man i la S .i r : This has reference to your request for� a ruling on the ta>: e>:emption tlJ t -� �.

DECISION CTA CASE NO. 3637 - 4- pr� i vi 1eges gran ted to the Ferti 1 i zer and Pes ticide Authority (FPA) under Pr-esident..i.al Decree No. 1144 as it applies to the fertilizer- industry. The issues raised are as follows: "1.. Whether or not the sale of locally-produced fer�t.i. l:i.zer is e>:empt from the payment of manufacturer's tax of 10%; and 2. Whether or not the 1oca 1 pure hase of refinery gas from BRC is tax exempt from spec .i. f i.e tc-:n: and company duties, just like naptha. 3. Whether or not industrial diesel oil and industrial fuel oil are likewise e>:empt from specific taxes, duties and other government imposts - it being a basic input to local mamJ�factur-ing of �fertilizer." Thes e i s sues were raised in connection with the request. of your company and At 1as Fert..i 1 i zer Corporation ( AFC) �for t.a>: e>:empt.ion pursuant. t.o Section 6(II-5) of Presidential Decree No. 1.144, which reads as follows: "To import. ferti 1i zer and fertilizer inputs exempt from custom duties, compensation and sa 1es t.a >:es and a 11 other ta>:es, and to pure hase naptha locally, free from specific ta>:es and the corresponding duty on the imported crude, and to sell and convey such ferti 1i zer or ferti 1i zer input to any individual, association from the payment of custom c:lu ties and a 11 other ta>:es." From the above-quoted provision of law, it. is very evident that the purpose

DECISION CTA CASE NO. 3637 - 5- of the exemption is to provide the muc h - needed .i.ncenti ve to 1oca 1 ferti 1 i zer manufacturers. Fertilizer is a vital input to a ll the government's production pr�ogram. Cognizant \1-li. th the underlying purpose of Section 6(!1-5) as above- stated, this Ministry believes that local fer�ti l.i. zer� manufacturers are e>:empted from payment of 10/. manufacturer� s tax imposed by the National Internal Revenue Code. This cone 1us ion is supported by the language of the law granting the exemption which in referri ng to the exemption uses the broad and all encompassing phrase "� u ?_t qms_ _Q �~'� t i_�':..?_._.;.~.o...<i ?-:..U . . . . .9..:th.f1..c__t.?-:..>.!..�'.�_.~...~.~- 1.-Jith respect to the local purchase of refinery gas which is a substitute to naptha, the same is exempted from the payment of specific tax. Likewise, diesel oil and industrial fuel oil which ar�e basic inputs to the manufacture of fertilizer are exempt from customs duties and taxes pursuant to Section 6(11-5) from Presidential Decree No. 1144. Very truly yours, ALFREDO PIO DE RODA, JR. Acting Minister On the basis of the aforesaid ruling, pet.i tioner requested respondent for the refund of the amount of P37,992,879.00 representing the 10/. manufacturer's paid by it covering the aforesaid years 1981, 1982 and the first quarter of .1983. (E xhi bit K, pp. 145-147) The sai d claim for

DECISION CTA CASE NO. 3637 - 6- refund, not having been acted upon by respondent, petitioner, on May 24, 1983, interposed � its appeal to the Court. (Petition for Review, p, 1, CTA rec.) During the pendency of this case, petitioner had applied for the fertilizer cash subsidy scheme (Exhibit L, pp. 148-151, CTA rec.) thereby reducing its claim for refund from P37,992,879.00 to P6,858,380.00. The latter figure is not covered by the subsidy scheme of the government. (Respondent ��s memo, p. 192 1 CTA rec,_; Petitioner's memo .~ p. 181.~ CTA rec.) Hence, petitioner requested for a tax credit or refund in the aforesaid balance of P6,858,380.00 in its favor. ( E.)(�h i bit 1�1 ' p. 154.~ CT A r ec, ) In view of this reduced claim for ta>: credit, petitioner, on October 30, 1985, filed an Amended Petition for Review merely on the reduced amount of P6,858,380.00 (See pp. 61-65, CTA rec.) and on April 8, 1986, respondent Commissioner of Internal Revenue filed its Amended Answer and raised the following Special and Affirmative Defenses (pp.84- 85 .~ CTA rec.), to wit: "5. Petitioner's claim for refund/tax credit is pending investigation;

DECISION CTA CASE NO. 3637 - 7- 6. Re�fund of manufacturer's tax paid prior to May 24, l. 981 has a 1 ready pr"esc r i bed; 7. the I'Hn.i ster of Finance, on 1y upon r. ecomm endation of the Commissioner of Internal Revenue, is authorized by law~ to issue anc:l promulgate rules and r. egul a t.io n s concerning National I nterna 1 Revenue Taxes (Section 326, NIRC). Here, there is no showing that the Commissioner of Internal Revenue recommended issuance o�f the r�uling dated April 12, 1983, tD the ef fect that local fertilizer manufacturers are exempt from the lOX manufacturer's tax; 8. Mor eove r, as a rule~ revenue rules~ rulings and regulations are prospective in operation unless the intent that the same are to operate retrospectively is distinctly expressed; 9. Taxes are presumed to have been collected in accordance with law; 10. It is incumbent upon petitioner to show that .it has complied with the provisions of Sections 292 and 296 of the Te:u: Coc:le ; 11. Claims for refund or tax credit are strict 1y construed against c 1ai man ts since a c laim for refund or ta x credit is in the nature of exemption from taxation. (CoMMissioner of Internal Revenue vs. Ledes�a , L-17509, January 30, 1970, 31 SCRA 95) A refund partakes the nature of exemption and the same cannot be al lowed unless granted in the e>:plici t and cat.egor� ic:al language (Resin, Inc. vs. Auditor General, L-17888, October 29, 1968 .� 25 SCRA 7.54). II Before Us for resolution is whether or not petitioner is entitled to tax credit and/or a

DECISION CTA CASE NO. 3637 - 8- refund in the amount of P6,858,380.00 paid as manufacturer's tax. Respondent does not question the mathematical computation petitioner's claim for r�efund. However, petitioner's basis on its claim for refund is being questioned by respondent. The ru 1 ing of the 1'1i.ni s tr-y of Finance, through Acting 1'1inister, Alfredo Pio de Roda, Jr., was allegedly issued ~<Ji thout the r-ecommendation by the Commissioner of Internal Revenue required under Section 326 of the Ta >: Code. For ready reference, the said Section 326 of the Ta l�: Code relied upon by respondent in support of his contention is hereby quoted as follows: "Sec. 326. ALithority of Sec- retary of Finance to promulgate rules and regulations. - The Secretary of Finance, upon recommendation of the Commissioner shall pr�omulgate all needful rules and regulations for effective enforcement of the provisions of this Code. The authority of the Secretary o �f Finance to determine articles similar or analogous to those subject to a rate of sales tal�: under a certain category enumerated in Sections 194, 196 and 197 of this Code sha 11 without prejudice to the power of the Commissioner of Internal Revenue to make implementation of the prov.isions of in tern a 1 revenue 1aws, in c luding ruling on the classification of article for sales tax and similar purposes." (As amended by P.D. 1457)

DECISION CTA CASE NO. 3637 - 9- We find respondent's contention without merit. The said provision is not applicable to the case at bar. ~ct.:ion 32.':) (noN Sect.ion 245) of the Ta}: Code refers to rules and regulations promulgated by the of Finance in the e}:ercise of admin i s tr-a t i. ve power necessary to the proper enforcement and execution of laws. These rules and regulations are intended to carry into effect the general pr-�ovisi.ons of the Ta}: Code through supplementation of the details of administration and pr-�ocedure and to r-�egu 1ate the proper working and harmonious and efficient administration of each and a 11 of the of �f ices and dependencies of the Department. Upon the other hand, ru 1 ings are the 1ess genera 1 interpretations of taN 1aws in the form o �f "opinions" on tax questions meant to clarify certain provisions therein. Rulings or opinions are in the nature of substantive rules. Hence, the eNercise of administrative power by the Secretary of Finance through the adoption of certain rules and regulations providing for the detail of the management and control of his depat- tmen t has been construed in relation to Section 79(8) of the Administrative Code.

DECISION CTA CASE NO. 3637 - 10 - (Interprovincial Autobus Co., vs. Collector of Internal Revenue~ �.~8 Phil. 2'.'~1 .� 2 ~~4 .� 1956 .� Citing other c a s e s ) 1'1or-eover-, it is notewor-thy that one of the r-equisites for- a valid r-egulation which is the r-equir-ement of publication in the Official Gazette (Lim Hoa Ting vs. Central Bank~ 104 PhiL 5/.'J .� Sec � .551 .� Revised Administrative Code) is not app l i c ab 1. e to an 11 opinion 11 or- r-uling. Just as v1ell ~ the impr-acticability and unsoundness of the c ontention of r-espondent becomes mor-e obvious in the light of the r-ule that r-ulings of the Comm issioner of Inter-nal Revenue may be r-evoked by the S e cretary of Finance if the latter- finds them not in accordance \.'lith lal-'1. (Section 327, no~ Section 246 of the Tax Code~ Hilado v. Collector of 1'.'~56) ~ gically In tern al Revenue~ 1 (10 Phi I. 288 .� then~ the Secr-etar-y of Finance need not await the r-ecommendation of the Commissioner- of Inter-nal Revenue wher-e he makes r-ulings, either- to r-ever-se the latter or- on his own as in this case. I t i s asser-ted by r-espondent that the I"'LI 1 ing of the Ministr-y of Finance is er-r-oneous. The tax e xemption pr-ivilege pr-ovided under- Section 6(!!-5) of P.O. 1144 allegedly r-efer- to tr-ansactions only of the FF'A on impor-tations of fer-tilizer- and '( ;

DECISION CTA CASE NO. 3637 - 11 - fer- t i l i z er .inputs, pur-�chase of naptha locally and s a 1e rrf conveyances of ferti 1 i zer or ferti 1 i zer inputs to individual, association or corporation. Nothing is said in the decree about e:{empting local ferti 1 izer manufacturers from the payment of 10% manufacturer's tax nor does the decree speak of granting incentives to local manufac turers. reading of the decree ( P. D. 1144) ~ care �ful and e:-:amination of the r-ecords of this case, ho~-.,~ever, prove otherwise. The Fertilizer and Pesticide Authority (FPA) was created to regulate, contra 1 and deve 1op both the ferti 1 i zer and the pesticide industries. Pursuant to this purpose, Section 6( I - 7) and Section B(a) of the decree provides for authority to the FPA "to delegate such a 11 ov~ed by ~.~r..r.:.y .:i,.Q.9.. _. . 9..~-:!t.._ . .:i.:..t..':?........f...!::I..IJ..!;..t . !.9...0..':?..1~. and 11 to .!..~E...!:tL.!J:.� e I]_Se!:!. f .. 9 L ._....~~-b..~n . 9J_f:"' . r:.?_ 1� 1 of pes tic ides, ferti 1 i zer and other �. agricultural chemicals or for any farmer, planter or end - user of the same as the case may be _t:q <;t.:i,_?...t..r:.! .I::J.I,~.t.:i,_g_r:L~......- ...?...t.9..!:.S'..9.E;'....._.._...~IJ.9___._...~~J ~ in commercial '(u

DECISION CTA CASE NO. 3637 - 12 - quantities", r-espectively. (Underscoring supplied) As r-esult, Section 6(!!-5) alludes to the e>:istence o'f individuals, associations, or- cor-por-ations gr-anted the pr-ivilege of tax exemption as the s aid s ection, in outlining the po"1er-s and fun c tion s of the FPA, speaks in this wise: ".!:o. !;.P?..t9rr.r.?.........9...L..tj:,J . ~.?...! ..__...!;..9m(:J.f:?El.?._?...t...;i,.o. 9.........?...0.9...._?.~.1 ~.?.-...-t..�J:Lg>5.L.__� n Q. :t.r.g.~...._.tr.::.9JIL.....?..P..f:?..!;..i..f..i..!;......t...9..?:L�',_~ and t he c or- r-espond i n g d u t y :f.~r.:::_t..:i,.J. t.::::: ~L.. ..P.r:........f..s>.r. t..Al..!..~.s>.r:.___i..O.R.\:.l.L . ...t.Q.._ 9.,.1J.Y.._ ..i 1J.d i v ;j,.fiJ:.J? ~-'- 9.?..2.9.!; .t~. t..t .9 .1J...! ......... c:>..r...........<:::..R.r:.P9.r...?...t . ;i... .9.o...........l .H5.g .\1J_?..g ..._...f'?.~~ e !!.U:l:L._...tr.::..gm (Underscoring supplied). One such "handler-" is the petitioner-. In its amended petition, petitioner- aver-s, and this was not contested by r-espondent, that it sold fer-tilizer- pr-oducts at pr-ices set by the FPA under- a no-gain no-loss basis or- "loss-r-eimbur-sement scheme" "1her-e the gover-nment r-eimbur-sed its losses, and later-, even modified this subsidy scheme by a 11 o"1ing for- a r-easonab 1e r-etur-n for- petitioner-'s fer-tili z er- oper-ation. The Fer-tilizer- Cash Subsidy Scheme, as embodied in E:x:hibit L, shows not only

DECISION CTA CASE NO. 3637 - 13 - the mechanism of the cas h subsidy scheme but also proves the intent of gover�nment to give to au thor i zed ferti 1 i zer companies other inc en ti ves ~ aside from the tax exemption privilege at issue in this case. Section 6 ( I-7) of the decree contravenes the proposition of the respondent that the decree does not show any intent to provide incentives to local manufacturers of fertilizer. As had been stated~ said section provides for the power of the FF'A to delegate privileges to corporations that assist the ~s~ FPA in its functions. the fact that petitioner was licensed by the FPA to engage in the production and sale of fertilizer under Section B(a) of the decree mean s that the former could as well enjoy the privileges mentioned by Section 6 ( I - 7) ~ which would include e>:emption from customs duties and all ot her taxes. The FF'A r-egula ted the ferti 1 i zer industry by setting "ceiling prices" for fertilizer in a no- gain no - loss basis~ modified only after May 21, 1982 (E :x:hibit L-1) to allow for reasonable return in the operation of petitioner. It merely del ega ted the function of se 11 ing ~ producing and impor- ting fertili zer to authorized "handlers". 8li

DECISION CTA CASE NO. 3 637 - 14 - ~der these circumstances it is but pro per , therefore, that if the FPA issu ed the 1 icense t o sell and produce fertilizer to petitioner , it a l so delegated to the latter its privi l eges as incentive. Indeed, We have reason to favor t h e opi n ion o f the Minister o f Finance who construed the ta x e:-:ernption as part of t he inc en ti ve bee a u se he had in his hand the knowledge of the opera t ion s of the FPA, being a member of the Board o f Di r ec t ors therein (Sectio n 1.� P.D. 1 144) . I t was wit h i n h is competence to infer, albeit correct l y, t hat petitioner coul d enjoy t h e tax exemp tio n as p a r t o f the incentive to l ocal fertil i ze r man uf actu r ers / Here, his con te mporaneous con s tru cti on of the statute as the e>:ecu ti ve officer whose dut y is to enforce the law deserves great respect f r o m thi s Court. (Tan v. Hun. of Pagbilao, Qu ezo n , L-1 4 26 4, April 30, 1963, 7 SCRA 887 ) WHEREFORE, respondent Commissioner of Internal Revenue is hereby ordered to refund or issue a tax c redit in favor of Planters Products, Inc., in the amount of P6,858, 3 80.00 representing the 107. manufacturer ' s tax paid by petitioner under the Tax Code. 8..t

DECISION CTA CASE NO. 3637 - 15 - Without pronouncement as to costs. SO ORDERED. Que z on City~ May 10, 1990. ............_ � ROAQUIN Judge WE CONCUR: AMANTE ILLER F'r-esid i g ~Judge (on leave) ALEX Z. REYES Asc::,oc: ia te .Judge CERTIFICATION I her-eby cer-tify that this decision was r-eached after- due consultation among the member-s of the Cour-t of Tax Appeals in accor-dance with Section 13, Ar-ticle VIII of the Constitution. r. ~~A/ AMANTE ~~~;-v Pr-esiding Judge Cour-t of Tax Appeals