CTA Case No. 2299 (Decision)

�; ~ P tJOu�; OJ' TU! il'ttJL~ Jll'l'!'lr.~ -.0UV.T Ol7 TAX A...nPE.AU /1/IC'l'ORIAS HILLING CO., INC. 1 Petitioner, - yen~us - C.T.A . CASE NO. 2299 COHMISSIONER OF INTERNAL REVENUE, Respondent. X- - - --------X DEC I S ' I 0 N This refers to petitioner�~ claim f o r judicial refund in the total sum of ~11, 311.0 0, representing 7% compen sa ting taxes paid by it f o r the p e riod from August 7, 1969 to July 7, 1971 in connection with its importations from the Unite d Sta te s of closing materials used in its sugar containers. The instant case has been subm i tted for decision base d on fue pleadings and the records of the Bureau of Interna l Revenue, without the parties filing their respective memorandum. It appears that petitioner Victorias Milling Co., Inc. is a corporation organ i ze d and existing under the laws of the Philippines with offices at the Cities of �Manila and Iloilo and the Municipalities of Makati, Riz a l and Vittorias, Occidentai Negros (Petit~on, p. � l: Answer, p. 25, CTA r e c.): and that it is engaged 1n the business of manufacturing raw or 310

DECISION - CTA CASE NO. 2299 - 2- centrifugal and refined sugar, anc for this purpose, o~ns and operates a sugar mill or central in th e Municipality of Victoria s , Occiden tal Ne gros, and a sugar refining fact- ory in the same Municipa lity. (Pa r. 2, Petition , " p. 1, CTA rec. ; Admitted in par. 1, Answer, p . 25, CTA rec .) I n c on nection with its business , peti- tione r imports fr om t~e Unit - d St ate s ready-made s ugar bags and/ or appropriate mate rials for c losing sugar bags and used as container s of its raw or c e ntrifugal as well as its refine d sugar. (Par. 3, p. 1, Peti tion, CTA rec.; admitted in par . 1, Answer, p. 25, CTA r ec . ) On August 7, 1969 and De cember 25 , 1969, peti tione r's importation of the aforesaid articles or closing mater i als for t he containe rs of its refined s ugar arr i ved in t he Philippines at t he Por t of Iloilo, a n d the cb rrespo nding 7% compen- sating taxes in t h e amounts of ~2,1Bi . o o and ~582.00, or in t h e total s um of ~2,763.00 which were colle cte d and paid under Official Re'ceipt.s No s. 524575 4 ~nd ~4 4 8069 d a ted August 8 , 1969 and February 11, 19 70 , respecti vel y. Petiti o ner , on May 12 , 1971, protest e d the said payment o f c o mpe n s a ti ng �t ax before the 31 1

DECISION - CTA CASE NO . 22 9 9 - 3- Commissioner of I nte r nal Re ven ue, and at the same time sought the refund thereof claiming� that its importat ion of closing materials for the containers of its refined sugar is a lready s ubject to tax unde r Section 189 of the National -" Internal Re venu e Code , and, accordingly, s hould be e xempt from payment o f Compensating tax under the provis ion of Sectio n 190( b ) .of th e same Cod e. (p. 8, BIR rec.; see~ Examiner's working Papers, p. 71, BIR rec.) Agai n, on May 20 , 1970, J a nuary 28, 1971 and > July 7, 1971, other petitioner ' s s hipment invol- ving th e same a rticle ar r ive d in th e Philippines f r o m the Un ited Sta tes , and 7 % compens at ing taxes were again collected and paid by petitioner in the amounts of P855 . 00 , Pl,43l .O O and P6,262.00 under Official Receipts Nos. 4449406, 49263 9 , and 0800733 dated J uly 2, l97b , February 2 , 1971 a nd July 7, 1971 r espec tively , and which payments amounted in the total sum of P8,548.00. Petitioner again protested the payment of 7 % compensa t irig taxe s before the Commi ss i oner of Internal Revenue in its letter dated July � 26, 1971, (pp . 10 - 11, B�R rec .; Examiner's Working Papers, p. 71 , BIR rec.) .and claiming' for the payment's refund i a letter dated May 12, 1971. In sum ,

DECISION - CTA CASE NO. 2299 - 4- the grand total claimed by petitioner as refund- able amounf, representing 7% compe ns ating tak paid by it amounted to Pll,311.00. It is also worthwhile to note that the market price quotations of sugars are a lways presumed to include its '1. customary containers, and as such, petitioner has paid 2% manufacturer'~ ' tax not only on the value of the sugar but also on the containers thereof imposed under Section 189 of the Tax Code. (Par. 4, Petitioner~ admitted in par. 1, Answer, pp. 1 and 25, CTA rec.) It appearing , how ever , that respondent has not acted upon on petitioner's claim for refund or tax cr edit, and sensing that the two-year pe riod provided in Section 306 of the Tax Code within which to file a claim for refund is about to expire, petitioner was constrained to take its appeal to this Court on August 9, 1971. (P etiti on, p. 1, CTA rec. )' As special and affirmative de fen s es in his answer to the petition for review, respondent alleged, among o thers, thus - "5. ' That until and unless the Bureau o f Customs decides petitioner'�s alleged for mal protest and claim for � refund against the alleged collect i on of compe ~sating taxes on the importation of materials for sugar c 9ntainer, the present action would be premature because the charges collected by the Bureau of Customs were the basis of the compen- . sating tax collected, hence, petitioner has no cause of action~ 313

DECISION - CTA CASE NO. 2299 - 5- "6. That this Honorable Court cannot exercise jurisdiction over the present action which i s premature for petitioner's failure to exhaust admi- nistr ative r emediesi "7. That the amounts paid by petitioner as compen s ating tax on the importation involved her ein , were collecte tt in accordance with law; "8. That the r espondent is not liable for i nterest in cases of refund. The real issues presented for resolution of this Court are: 1. Whether or no t petitioner is entitled to the r efund of t he 7% compensating taxes paid by it on its importation s of clos ing materials of s ugar contai ners amou n ting to ~11 ,3 11 .00; and 2. If in the affirmati v e , wh et he r or not petitioner is entitled to an interest on the amount paid by it. As regards the first issue , there seems t o be no controversy between ' the parties as to the computation of th e 7% compe n sat in g tax paid a nd claimed by petit ioner as refundable in the total amount of ~11,311.00. A close scrutiny of the records point out , the fact that petitioner ' s importation of th e aforementioned closi ng �mat�e r ials imported for ~ se in the manuf acture of its centri- fu g al and refined sugar were n� ever disposed o f or 314

DECISION - CTA CASE NO . 2299 - 6- sold by the petitioner t o the public. On cont- rary, the ~vide nc e presented show that the said imported closing materials we re exclusively and ac t ually used by petitioner in the ma n ~facture of sa id centrifugal and refined sugar. This finding '" is borne out by the r ecords of investigation con- ducted by respondent's S u p~rvising Reve nu e Examiner Jacinto s . Cruz dated May 24 , 1976. (pp. 74-75' BIR rec .) We a r e fully convinc ed o f the position of petitioner that it should not be he ld liable for compensating tax on its importation of afore said ar t icles . Petitioner has a l ready paid the manuf- acturer's tax under Section 189 equ i vale nt to two p ercent ( 2% ) ~ such tax to be based on th e actual selling price or market value of the article s manufactured at the time the same leave the fac tory or mill warehouse. Therefore, petitioner should be exempted fr om the payment of compensating tax under Section 190 (b) of the Tax Code, which pr o- vide s as follows: Sec. � 19Q. �2mE~sating tax.- On the commo dities , goods, war es or merchandise purchased or rec ei v ed by � pers ons ~esiding or doing b usiness in the Philippines t her e shall be paid a compens a ting tax on th~ total- value thereof including freight , postage, insurance , commission and simila r charges, e q u ivale nt to t he percen tage 31 5

DECISION - CTA CASE NO. 2299 - .7 - taxes imposed under th ' s title on original t ransact ions effected by merchants,importers, o r manufactur ers , such t ax to be paid before t he remov a l of s a id commo dities, goods, wares or merchandise from the customhouse or the post office , except as follow s: XXX XXX XXX (b ) Commodities , goods, ware s o r merch~ nd ise purchased or received by merchants, importets and manuf ac t- u~ ers wh o a re s ubj E[..�!:. to tax und e r sec- Llons onehundred elghty-four , one hundred eighty-fi~e, a nd one hun d r e d eighty-six or: one hu ndred eig h ty- n in~ of this � Title, where su ch i mp ortations are to be s old, resold, barter e d or exchange or are t o be used in t he manu fact ure or preparat1on of articles for sale , barter, or exc h ans e and ar~ to for m part ther eof ; (Underlining supplied. ) . Furthermore, the rec ords will show that res- pendent have been previou s ly granting petitione r ' s claim f or refund or tax credit whe r ein the same que stion of the compe nsating t a x a nd and legal issues as i n this case are involved. 79, DI R r ec .) These very actuations of responden . surely ind i c ates that petitioner 's rig ht t o c la im for refund or tax cr e dit i s l egal and v alid . Furthe r- more, even dur~ng the p en dency of th e instant case before thi s Court , or to be exact, on M~y � 24, 1976, Supervi s ing Exam iner Jacinto S. Cruz have pr epared a memorandum report and addrepsed to the Chief, Appellate Div ision of the Bureau, r ecommending that 31 G

DECISION - CTA CASE NO . 229 9 - 8- the sai d amount of ~11 ,3 11.00 be refunded to, or a tax cr e dit 'i ssued in favor of , the herein peti tione r. However , the sa id r e commendation was n ot acted upon by herein respondent. Per tine nt portion of sa id memor a ndum ( p . 74 , BIR rec.) is her eby quo ted "' be l ow: "B a sed o n the facts establis h ed above-mentioned Victorias Milling Co. , Inc., is entitled to a r e fund of the 7% compensating tax amounting to ~11,311.00 paid by th e m t o the customs authority i n Iloilo City on the import- ation of the clo s ing materials used in th e manufac ture of refined sugar whic h is specif ical l y exempted from pa yme nt thereof under Section 190 of the Tax Code, which states : Prov ided , howe v e r, that merc h a nts , importers and manuf - actur e rs who are sub j ec t to tax under Section s 18 4 , 185 , 186 or 189 of this title, shall not be r equi red to pay the tax he rein imposed wh e re s u c h commodities , goods , wares or merchandi se purchased or r e ceived by them from without the Philippines t o be sold, r esold; bartered or ex- of changed or are to b e u se d in the manufacture or preparation a rticles ftr sale, barte r , or ex- c hanged and are to form part ther eof. . In view of the foregoing, it is respectfuily .rec ommende d that th e amount of ~11 , 311.0 0 r ep r ese nting the 7% compensating tax paid by Victorias Mil l ing C_o ., Inc . on thei r importation of closing mater ial th a t formed part of the fi n ished pr oduct,,be refunde d to subject taxpayer ." 31 '1

DECISION - CTA CASE NO. 2 299 - 9- Foremost to sustain petitioner's position that it 1s entitled to a refund of the compen- sating tax paid by it in the amount of ~11,311.00 is the principle laid down in a decision in the case of Commissioner of Internal Revenue vs. \. Victorias Milling Co., Inc., and the Court of Tax Appeals, G.R . No . L-21171, January 31, 1967, 19 SCRA 247 , 252-254, wherein the Supreme Court held , thus - "Among other arguments, the Company resists the collectio n of the sales tax demanded by the Revenue Comm issioner on the ground that Section 183(d) of the Internal Revenue Code exempts therefrom: XXX XXX XXX (d) Articles subject to tax under section one hundred eighty- nine of this code; " and section 189 levie s upon opera tors of sugar centrals , like the Company , herein , a tax of 2% on th e money value (selli ng pric e or 'market value) of all sugar manufactured by them. SEC. 189. Pe centage U~.!}. proprietors or oE._erators of rope �actories, sugar centrals, coconut o11 mi ll s, cassava mills and desic- cated coconut factor1es. Pro- prietors or operators of rope fac tories, sugar centra s , coconut oil mills , cassava and desiccated coconut factories shall pay a tax equivalent to two_E.~E-~tum of th va lue in money of all the r ope , s ugar, coconut oil , cassava flour or starch, and desiccated coconut 31d

DECISION - CTA CASE NO. 2299 - 10 - manufactured or milled by them , including the by-products of the r"aw materials from which sa id articles are produced or manu- factured , such t a x to be base d on the actual selling p~i ce or market value of t he se articles at the tirr~ they leave the factory o r mill warehouse : x x x" titalic s _2~_E:lie,S!) . To this argument, the Commissioner, in turn, retorts that th~ 2% t a x of Section 189 applies only to sugar , but does not me ntion the conta iners the reof , which should s epa- rate l y pay the percentage tax under sections 1 83(b) .and 186. We find the stand of the Commis s ion e r to be untenable, for it does not t a ke into account t wo und e niable facts: (a) that there i s no evidence to the e ffect thai the containe rs or sacks are separately charged against the sug a r buyers and , as a consequence, the domestic buyers of the sugar pay only one pric e for both s ugar a nd container; a nd (b ) that the buyer takes away with him the sugai and its container. On this ba s is, th e pr i ce paid by the customer eithe r includes both !he price of the sugar and that of the container , or else i t repr e sents the price o f the sugar alone. If it be the first (the price pa id i s for both sugar and sack ) , the n the value of the sac ks is already sub jecit e d to the 2% tax imposed by section 189, and the sugar c6mpany ha s paid the same ; hen c e, it may no longer be ~parately taxed (Section lBBLd/, Tax Code)~ If, on t he othe r hand, the price paid by the buyer is for the sugar alone , then obviou s ly the container is merely given away gratis, a0d not sold. In whic h case, there is no sale of the container that can be sub- jected to the .>percentage sales tax .� " � _,.-� -�-=----- 1The Court of Tax Appeals took judicial notice of this fact, as a practice of r e sponde nt s ugar company. 31 8

DECISION - CTA CASE NO. 2299 - 11 -� Respondent urge d that petitioner's cause of action is premature, since its claim for r e fund against the Coll ec tor of Customs has not yet been decided, a nd therefore this Court has no juris- diction over the inst an t cas e . We find thi s con- tention without me rit. It �is to be noted that subject matter involved in this case is the refund of the compe nsating tax paid, the claim for refund of which ha s been fil ed by petitioner with the Bureau of Internal Reve nue. Even assuming tha t petitioner had filed its claim for refund with the Bureau of Custom s and not before the Bu reau of Internal Revenue, the former being an agent of the latter, and the claim for refund ha ving be En filed before two year period is about to expire, - pursuant to Section 306 of the Tax Cod e , without respondent having rende red a decision to its claim for refund, petitioner's appea l to this Court is in order; otherwise , the right to file the claim for refund sha ll have prescribed. (Koppel (Phi lip- pines)~ Inc., ~s. Colle ctor of Internal Reve nu e , G.R. No. L-10550, Sept. 19, 1961, 3 SC RA 1�7. ) Coming now to th e second issue , we ar e of the opinion and so hold that the awarding of an 3 2 ll

.;. DECISION - CTA CASE NO. 2299 - 12 - interest on the refundable amount claimed by peti- tioner is without legal justification. It is well settled tha t in the absence of arbitrariness on its part in th~ assessment and collection of the tax the Government cannot be he ld liable for inte rest in the event it losses in a tax litigation. (Michael Ship- ping, Inc. vs . Commission e r of Internal Revenue, CTA Case No . 1909, December 14, 1970.) And in another case, ~ollector of Int e rnal Revenue vs. St . Paul's Ho s pital of Iloilo, No. L-12127, Ma y 25 , 1959, 105 Phil. 1319, the Supreme Court al s o held: "Howeve r , th e Court a quo erred in ordering the payment of interest on the amount to be refunded. In th absence of a statu tory provision cl ea rlY or expr_essTy directing ~uthorizing such payment, and none has been cit ed , the National Govern- ment cannot be required to pay interests. " (Underlining supplied ) WHEREFORE, respondent Commi s sioner of Internal I Revenue i ~ her eby ordered to refund to petitioner Victorias Milling Co., In~ ., the sum of ~11 , 311 .0 0 , representing 7% compensating taxes paid by it for the period from August 7, 1969 to July 7, 1971. Without pronouncement as to costs. ~be~ SO ORDEREQ . 18, 1983. Quezon City, 'Metro Manila , N WE~1Q / AMANTE ;.h7~ Presid"ng Judge 321