CTA Case No. 2037 (Decision)

REPU!h.IC OF THE PHILIPP!N�8 COURT OF TAX APPEALS QUUON CITY VICTORIAS IvliLLii.'J(; CO ., INC ., C . T . A. C. SE NO . 2037 Petitioner, - versus - COMI,'liSS I ONER OF INTERNAL REVENUE , Respondent . X- - - - - - - - - - - - - X DE C I S I 0 N There having been no decision render ed by res p ondent Commi ss i o n e r o f Internal Revenue on the claim for the refund of comp ensating tax pai d on the imp orted steel p lates in the a mount of P 2, 347 . 00, petitioner had b r ought to t hi s Court t his judicial claim for refund . Petitioner is a corp oration duly organ ized and existing under the laws o f the Philippine s . It mr.1ned and m9-intained tugboats and bar ges \>Jhich were actually used in i ts business o f operating a mill for t he manufacture and sale of refined sugar . On Octobe r 16, 1967 , pe titi oner i mported 90 p iec e s o f ship stee~ plat es from abroad on which i t pa i d on December 8, 1967 c ompensating tax in th e a mount o f '? 2, 34 7 .00 covered by Official Re ceip t No . 8239008 . These steel p lates were used in t he repa ir and ma inte nance o f its tugboats and � bar ge s � �

DECISTON CTA C. SE NO . 2037 - 2- On Janu ary 2, 1968, petit~oner filed a claim for refund of the compensating tax with the Collector of Customs of Iloilo . It was alleged therein th at it is exempt from p ayment of compensating tax under Section 190 (d ) of the National Inte rnal Revenue Code, as amended by Republ i~ Act No . 4103 on the ground that the said steel plates were actually used by it in . the repair and maintenance of i ts tugboats and barges . The d e cision of the Commissioner o~ Internal Revenue on its claim for refund not forthcoming , it brought t h i s cl aim for r efund to this Court for adjudication . The l egal is sues submitted to the Court for decision are as follows : ( 1) Whether or not the importation of 90 pieces of ship steel plates used in the repair and maintenance of its tugboats and barges are exempt from compensatina tax imn o sed under Section 190 (d) of the Revenue Code , ' as am ended by Re-�J u bl ic Act No . 4103 ; and in the affirmative (2) Whether or not petitioner i s en- titled to l egal rate of interest on t he r efundable amount . Anent the first iss ue , the lar,.;r involved is section 190 (d) o f the National I nternal Revenue Code, as amended by Republic Act Nog 4103 , per- tinent portions of wh ic h p rovide as f ollows : SEC . 190 . compensating Tax .- On the commodities , goods , wares or merchandi se

., I DECISION CTA CASE NO . 203 7 - 3- purchas ed or r e c e ived by persons residing or doing bus ine ss in the Phi lippines , the r e s h all be pa i d a como ensating tax on the t o - tal value t hereof, including fre igh t , pos t - age, insurance, commiss i o n and s imil ar cha rg- es , e qu iva l ent to t he percentage t a xes i m- posed under this Title on original transac- tions effected by merchants , importers , or manufactu rers , s uc h tax t o be pa i d b e fore the withdrawal or re mov a l o f sai d commodi - ti es , goods , wares or merchandise from the c us t omhouse or the post office, except as follm-Js : X X X X (d) Articl es t o be used b the im o r t - er himself as a passenger and or c argo v es- sel i.vhether coastwise or ocean ~ goin g, in- c lud i ng engines ~nd spare pa rt s of said vesse l ; (Underscorinq supplie d . ) In appl y ing the a bove prov i s i on o f law, in the cas e of Victorias Mil l ing r.o ., Inc .- vs . Commis - sioner of Internal Rev e nue , ~ . T . A . Cas e No . 188 4 , promulgated on December 28 , 1971 , 1 wh ich involve s the same parti e s and under s ubstantial l y the same issue s and facts as in the c ase a t bar, t h is Court had the occas ion to hold agains t petitioner to the effect that i t s imported steel p l ates , angle s and bars are not exempt thereunder . In t ha t c ase , it was rul ed t h a t onl y those articl e s used by the importer as a passenger and/o r c argo vessel wh e the r a oastwise or ocean- going, includi qg engines and � spare parts of sai d v esse ls a r e exempt und er the law; that the exemption p rovided therein was 1cert . Deni e d - i n Victo r ias Milli n g Co ., Inc . v s . Comm . of Int . Rev ., G. R . No . L - 34 9 84 , May 22 , 1972 o

DECISION CTA ~ASE NO . 2037 4- intended to give incentives and provide induce- ments to bolster the shipp ing indus try ; that petitioner was not engaged in the shipp ing in- dustry as � a main and principal business ; and th~t th e construction , operat'on a nd maintenance of its vessels (tugboats and barges) is only incidental t o its main and p rincipal busi ness , wh i ch is in fact the manufactu re and sal e of �refined sugaF � Thi s Court , s p eaking through then Associate Judge, now Presiding Judge �stanislao R. Alvarez, in a thoroughly di s cussed decision in the aforec ited case , sai d and we quote : espondent contends that p e titioner is not exempt from compensating tax because in enacting Repunlic Act No . 3176 , which amended Section 190 of the evenue Code, ~ongress intende d to exempt only those persons and e ntitie s engaged in the ship- ping industry . Inasmuch a.s petitioner is not engaged in coastwise or ocean- going shipping industry, respondent deni ed p eti- tioner ' s claim for tax exemption � . Petitione r , howeve r , contends othe r - wise by claiming that the 11 imp orter 11 refer- red to in Section J90 (d) of the Revenue ~ode is not limited in scop e so as to cover only those persons e ngaged in t he ship9 ing industry , b ut the t e rm 11 imp orter'' includ es all importers re~ardleis of the busine ss in wnich they are engaged, p rovid ed that the imp orted articl e s are used in cargo vessel for coastwise shipp ing . It is a familiar rule of statutory construction that terms o r words of a sta- tute sbould b e inte r p r e ted in their ordina- ry accep tation; and the y should b e given

DEr.ISION CTA CASE NO o 2037 5 s ignificance and: meaning commonly attri- buted to t hem . Like any other rule , hmv- ever, it i s not without exceptions or limitat ions o Courts may not al ways look to the-mere l e tte r of the law for its understand ing or application because, it ofte n happens , the true inte ntion o f the lawmaking body ma y not be expressed by the l anguage empl oye d -in a statute if given its literal meaning . To carry out the cle ar l egis l a tive intention, which i s the very core or obj e ct of the rules of interpre tation and cons truction, de- p arture mu s t be made from the r u le of literal ~nterp re t a tion of t he language u sed iri th e l a w. In short, we must con- s ider the l egis lative intent in passing a law and d isregar d the l iteral import of the word s u sed th e rein . (See ~0 Am Jur 232 - 236 ~ ) gines and spare parts of said vessel'' are exempt from t he compensating tax . A li- teral inte r p retation t hereof means th2t the imported articl e s used by a cargo ve sse l engaged in coastwise or oceari- going shipp i ng., vJhether for h i re or not , are exempt from the compens a ting t ax . The i ntention of Co ngress , however, in enact- i ng Republ ic Ac t No . 3176 , supra, is ex- plained in the sponsorship speech of Senator Gil Puyat , 1 as foll o ws : � Mr . Pres i de nt an d gentlemen of the Senate . This is a bill that seeks to give rel i ef to the shipp ing industry , and seeks t0 exemp t them from the payment of excise tax, pur- chase of articles to be used by the importer himself as a passenger or cargo ve sse l , wheth e r c oas twise o r oce an- going, including engines and 1 s e e Michael Shipp ing, Inc . vs . Comm o of Int . Rev . , �eTA Case Nos . 1391 & 1648, Dec o 19, 1966 ; Luzon Stevedoring Corp . vs . Co mm . of Int. R�~v ., cr A Case No . 1484 1 Oct . 21 , 1968 .

DECI SION CTA CASE . NO . 2037 T -6 spare parts of said vessels o Con- sidering that our shipping industry is one of the most basic and one of t he i iridustrie s which, according t o our Committee on Transportation, is operating on the basis of floating coffins, there is need for giving incentives and inducements to the people in the industry to invest in any vessel or new equipment. (Legislative Journal ) (Emphasis supplied) The l egi s lative intent, as exp lained by Senator Puyat, is to give relief to the shipping industry . In c onsonance with the purpo s e and objective of the law, we h e ld that "the legislati ve i ntent in amending Section 190 of the Tax Code by Republ i c Act No . 3176 is to orovide incentives and inducements to bolster the shioo ing indus- try x x x ."2 Consequently, th i s Court is dul y bound to apply and carry out the le- gisl a tive purpose by holding that the word "importer" referred to in the disputed law me ans any person who is regularly or habit- ually engaged in the " shipping industry" as a distinct branch of trade . It may be asked : What is meant by 11 shi pping indu stry"? Is petitioner engaged in the "shipping industry 11 7 Lexi cographers define " shipping" as an act or business of one who ship s goods (Webster ' s International Dictionary, Second Edition, Un abridged ,. p . 2316 ), while "in- dustry" means any department or branch of art, occupation, or business ; esp ., one wh ic h employs much labor and cao ital-afld . is a distinct branch o f trade ; as, the sugar indW3try . (Ibid o, p . 1271 . ) The term "shipping business" i n its broadest sense means any and every kind of busine s s rel a ting to ships , and may includ e ship- building. DeWolf vs . Grandal l , N. Y. 1 . Sweeny, 556 , 566 . (39 Words & Phrases 272 . ) From the foregoing definitions , it is clear that the term "shipping industry" appro- priately refers to the business or occup ation 2Luzon S tevedoring Corp . vs . Comm of Int. Rev ., supra.

DECI SI ON CTA CASE NO. 2037 -7 of sh i pp i n g with the empl o y ment o f much lab or an d cap ita l as a distinct branch of trade . Pet i tioner claims that it is p artly engage d i n the shi pping indu s try becaus e i t s article s of incorp oration p rovid e, a mong othe rs , as follows : ( 3) To purchase, acqu ire, hold , sell , l e a s e , exchange, mortgage and other wise deal in and with real and p ersonal p roperty, and t o pu r chase, l e ase, cons truct or acquire intere sts in build ings , s torehouse s , roads , ~ocks , p i e r s , water work s , and irri - gat i on syste ms , and works o f all k inds ; and1 as well in furtheratic e o f a n d c o n - junction with t he general business of the Comp any , to acqu ire , l e a s e o r c o n s - truct, ope r a te and dispos e of r a ilroad s , steamship s and other vessel s , a nd othe r trans p ortati o n facil~ti es , f o r t h e mov- ing of its prope rty, s upo lies and pro- duce, and incidental ther eto e nd in conne ction therewith , fo r t he car riage o f fre ight and passenge r s fo r hi re bet- ween any and all pla c e s wh at s o eve r , with i n an d wi t h out t he Phili o p i ne Repub- lic , s ubj e c t to s u ch limita tio n a s may be es tab li s h ed by law; X X X X (6) To carry on a ge neral a genc y , inves tme nt and b rok e rage bus iness ; to act as fi nan cial o r comme rci a l a gent or f actor of, or to undertake the gene- ral ma nag e me nt for any pe r so n , p artn e r- ship , corpora tion o r a ssoci ati on in carrying on the busine s s o f any natu re ; to act as a~ ent or b rok e r for ins u rance c o mp ani es in soliciting an d r e c e iv i n g ~9p licat io n s for fir e , c a s u alty , p late glass es , auto mob il es , tru cks an d o the r motor vehicl es , boil e r , el e v a t o r , acci- dent, health, b urgl a ry, marine , credit a nd life insur ance , and all o ther k inds of insurance and to c onduct a general busine ss ; to act as shin age nts and s h i p b roke rs for vesse l s of Philipp ine or foreign r e gistryi whe th e r e n gag ed i n coa stwise or fore i gn trade , owned bv

DECI SION CT CASE NO . 2037 r - 8- sengers, forwarding agents, warehouse- men and gene ral traders ; x x x (Exhs . A- 1 - a & A- 1 - b , p . 44 , CTA rec oi emphasis supp li e d . ) Par agraph (3 ), s upra, shows tha t peti- tioner ' s authority to construct and operate vesse l s are but incidental activi ties which it may undertake "in furtherance o f and ' in c onj unction '"'i th the ge neral business of- the Company . " 'I'he main and !?rincip al busi- ness of pe titioner is the manufacture and sal e of refined sugar . The ac quisiti on, operati on and maintenance of barges is, therefore, only incidental to its main busi- ness . The operation of petit ioner ' s barges i s limi ted to the transpor tation of its sugar within the country . It is clear, therefore , that petitioner ' s barges were not utilized as a " c ommon c arri er 11 of p a s - senger � or c argo for hire but they were employed by petitioner exclusively for its sugar business . Consequently( p etitione r is not a common carrie r by water and , there- fore , its activity is not a shipping busine ss and/ or i nd u st ry t a xabl e under Section 192 of the Tax Code . The exemp tion from the compens a ti n~ t. ax of imported articles as itJell as engine and spare parts use d in the shipping indus - try was intended to give relie f to the said industry as a t a xable business ; otherwis e , the tax exemp tion will go beyond the . intend- ment of the law. The trade name o f the petitioner is Victori a s Milling Co ., Inc . Its princip al business i s the milling o f sugar t axable under Section 189 of the National Internal Reve nue Co de . There i s nothing in� its ar- ticles of incorp oration which indicate that petitioner will en gage in the transportation of passenger and fre i ght as a disti nct branch of trade or business t 3xable under Section 192 o f the Revenue Code as .a common carrier by water . Petitioner, however, claims that, under i ts article s 6f incor oration afore- said, it can act as ship agent, b roker1 manager of shiyp ing propertie s , and cont ractor for freight and/or p as se n ger . ( Exh. A- 1- b , s upra . ) �'

DEC ISION CTA CASE NO . 2037 r -9 While petitioner is authorized to engage in certain activities connected with the shipping industry, there is no showing that petitioner is actually engaged in the said activi ties as a distinct taxable business because its barges were not use d in carry- ing pas senge rs and/or cargo as an industry separate from its main business . The law does not grant tax exemp tion to pe rsons or entities unless they are actually en- gaged in a taxabl e shipp ing business ; othe r - wise we woul d be unreasonably expanding the rule on statutory exemption in derogation of the taxing power of the State . More- over, it is a settled doctrine in this j urisdiction that tax exemption s hould be ~ onstrue d strictissimi juris against the taxpayer ~nd liberally in favor of th e taxing authority ; and that tax exempti on wi ll not be granted to a taxpaye r unl e ss the tax exemption law i s clear and unequi- vocal and i t was the intention of the l e gis- lative boa��' to') do u soo) (Comm . of Customs vs . Philippine Acetylene Co ., G. R . No . L- 22 4 43 , May 29 , 1971 ; Comm . of Int . Rev . vs . Visayan El ectric Co., 23 SC A 71 5 ; Philip- pine Ac etylene Co ., Inc . vs . Comm . of Int . Rev ., 20 SCRA 105 6 ; Esse Standard Eastern , Inc . vs . Comm . of Customs , 18 SCR 488 ; E . Rodriguez , Inc . vs . Collector , et . al . G. R . No. L- 23041 , July 31 , 19 69 . ) We obviously see no plausible ground to change our decision in the abovecit e d ca s e . We , there - fore, equally hold that petitioner in this case is not exempt from the payment of comp ensating tax under said Section 190 (d) of the National Internal Revenue Code , as amended, on its impor- tation of steel plates equally used in the repair and maintenance of its tugboats and barges . Having r eached the conclusion that petitioner is not exempt from compens~ting tax, the deter-

DECISION CTA CASE NO . 2037 T - 10 - mination of the second � issue i s unnecessary for being moot and academic . w~ER � FORE , finding petitioner ' s claim for refund of the amount of ' 2, 347 . 00 pai d as com- p ensating tax not being me ritoriou s , the same should be , as it is hereby, DENIED. With costs against petitioner . SO ORDK ED . Qu e zon City , Sep t e mbe r 22 , 1976 . OAQUIN Judge � Presiding Judge �