CTA Case No. 4292 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY WRIGLEY PHILIPPINES, INC., Petitioner, - versus - C. T. A. CASE NO. 4292 COMMISSIONER OF INTERNAL _1995_;11ij Pro�ulgated: REVENUE, _JA_N_1_0 Respondent. M- - - - - - --------------M DE C I S I 0 N This is a claim for the refund of alleged overpaid sales taMes for the period August 1, 1986 to Dece�ber 31, 1987 in the 'total amount of P12, 788,632. 66~ Petitioner is a food manufacturer duly authorized by the Bureau of Food and Drugs <BFAD> engaged in the manufacture and sale of chewing gum (tabs and sticks), bubble gum and menthol ~um carrying the brand names Juicy Fruit, Spearmint, Doublemint, Big Boy and Cool Crunch (collectively referred to as "Gum Products"). During the periods covered in this Petition, Petitioner paid the 20~ sales taM due on the sale of their gum products by applying its accumulated taM credit on purchases and paying the additional amount in eMcess of the taM c~edits. The taM credits on purchases were 7o

DECISION - C.T.A. CASE NO. 4292 - 2- computed on the basis of receipts and invoices on local purchases and Bureau of Customs receipts and other documents on impor~ations submitted before this Court. (EMhs. "A-la" to "RRa-3" and "SSl-a to SSl79-a> Petitioner, however, contended that there was an overpayment of sales taM since "processed food products for human consumption" are subject only to lO~ taM rate. Hence, on February 26, 1988, Petitioner filed a written claim for refund of the alleged overpayment of sales .taM, stating thus: For the period from August l, 1986 to December 31, 1987, our client paid 20~ sales taM on their sales of the aforementioned products, unaware that "processed food products for human consumption" are subject only to lO~ taM rate pursuant to Section. 163 <2> (a) of the National Internal Revenue Code, as amended by EMecutive Order No. 36. <EMh. "H"> The alleged overpayment of sales taM is in the total amount of Pl2,788,632.66 computed as follows: IIRIIil.EY PHJLIWIIES, 111:. CO!PUTAlJ(Itf !HET - C.AIM FOR SII.ES TAX AEflN) SII.ES TAX AT 1~ EFF. 8-1-86 Period Covered Tax Dut Taxable Sales Rate Altunt July 1986 ~Z26,687.52 ~ PI,CKSwJJ7.SO July invoices 977,~.30 20 195,572.86 boeked Aug. '86 August Ctxcluding 3,518,551. 73 10 351,855.17 July invoicts) ~154.~.02 10 31~~86.~0 Stpttlbtr 1~,877,967.57 July-stpt. '86 Qtr. 2, 108,251. CJJ ,(_;':)

DECISION - C.T.A. CASE NO. 4292 - 3- Orl.-Drc. 1986 15,905,863.82 10 I' 590, 586. J8 Jan.-ltir. 1987 24,214,379.09 10 2,421,437.91 Apr.-J�r 27,613,692.66 10 2,761,369.27 July-Srpt. 24,776,961.15 10 2,477,696.12 Orl.-Drc. ?6, 702,014.07 10 2,670.201.41 roTII. P134,090,878.36 14,029,5\3.02 Pat�ents Made Tax Crrdit Taa Credit glied Cert. Cash Paue�t Total Om1Ntlelt p 867,~1.57 July-5ept. '86 Qtr. P2, 113,870.66 p 861,7l2.84 P2, 915. S'JJ. so 1, 590,586. 37 Oct. -Dec. 1986 I, SJS, 198. 44 Jan. -Mar. 1987 I, 329,546. JS P562, 074.00 I, 083t 900.31 3, 181,172. 7S 2,~1,437.91 J. SIJ, 329. 47 4, 8~, 87S. 82 s, 522, 738oSJ 2, 7&1, 369. 26 Apr.-June S.JBJ. I~. 78 4~,595. 7S 4, CJSS,692.22 2,477,696.10 2.670.201! ~3 July-5ept. 4,454,970.67 soo,~1.ss s.3oW.o\02s86 12.71!.632.66 26,81!. 175.68 Oct. -Dec. 2.m.404.48 2. 949. 998. J8 16, 904.1JJ. J8 5621074.00 91JS1.968.l0 mlll. (EKh. H-2, CTA Records p. 119) On August 6, 1988, Petitioner filed this Petition for Review in order to toll the running of the prescriptive period since until said date, Respondent has not granted Petitioner's claiM for refund. The facts of the case are undisputed leaving only one issue for resolution, that is: Whether or not Petitioner's "Gum Products" are within the scope of "processed products f'or consu11ption" <Sec. 163(2) (a), 1977 NIRC, as a11ended) thereby entitled to a reduced taK rate Petitioner applied. We answer in the affir�~tive. Section 163 of the National Internal Revenue Code as a11ended by EKecutive Order No. 36 dated July 30, 1986 provides thus:

DECISION - C.T.A. CASE NO. 4292 - 4- ��sect ion 163. Pe�rcentaoe tax on o't~i qi nal sales oF articles. There shall be levied, assessed and collected, once only on every original sale, barter, e>echange, or similar transaction for nominal or valuable consideration intended to transfer ownership of, or title to, the articles herein below enu111erated a ta>e based on the gros~ selling price or gross value in money of the articles so sold, bartered, e>echanged or transferred, such ta>e to be paid by the manufacturer, producer or importer: (1) Thirty per cent (30"), on the following non-essential articles: ~ >C>C>C >C>C>C >C>C>C <2> Ten per cent (10"), on the following essential articles: <a> Processed meat, fruits, vegetables, fish and other sea foods and other processed food products for human consumption. >C>C>C >C>C>C >C>C>C <4> Twenty per cent <20"), on other articles not covered by subsections (1), (2) and <3> of this section." Respondent advaneed the theory that "the 'Gum Products' of the Petitioner is not covered by subsections ( 1>, (2) and (3) of Sec'tion 163 of the 1977 Ta>e Code as amended but the 20" imposition of sales tax to the subsection (4) thereof" <Respondent's Memorandum, P� 3) � This is so, since according'to her, "'Gum Products' are not 'Essential Foods' which is required by the Tax Code as amended" <ibid.) she elaborated her stand, thus: - It is not disputed that under the Food and Drug Act "gum products" are within the general 81

DECISION - C.T.R. CASE NO. 4292 -5 classification "food". Legislative enactment of other countries like United States for pln~poses of regulations classified "gum products" as food. The National Internal Revenue Code as a�ended in referring not only to general term. "food" but to "essential food, or ar't icles." Noted is the preceding section 163 <2> of the Tax Code which states that: "<2> Ten percent ( 10"> on the following essential articles: )()()( )()()( )()()( The TaK Code by inserting the word "essential" it has li�ited the general sense of the ter� food, eaten or drunk for nourishment. The term essential has been defined as "indispensably necessary" i�portant in the highest degree; requisite" (p. 245 Words and Phrases, Pet~manent Edition, Volltme 15>. The ter� food in the Code. therefor has been construed as: "Food" is the chief substance of regularly taken �eals as distinguished from candy, appetizer, or condiments." <Webster's Third New lntern!l'tional Dictionary, Volume 1; 1976 ~ & G ~erria� Co.> Gum products though �ay be considered food in the general sense of the term are not necessary, important in the highest degree for nourishment. 'There is a wide difference when one refers to "food" only and "essential food". In order one could av~il of the 10" taK rate under the subject provision of the TaK Code, the.articles and/or foods must be "essential". While "gu� products" are classified as food precisely, they are not essential food as required by the said Code. <ibid., pp. 3-5) We disagree. 82

DECISION - C.T.A. CASE NO. 4292 - 6- Respondent, in trying to prove her case, put hel~ own words into the law. She misinterpreted it, to suit her We have read Section 163 of the Tax Code, as amended. And We have read it very carefully. Yet, nothing in the said law speaks of "essential food" in order that one can avail of the 10" tax rate. The subject law speaks of "essential articles" and food is cited only as one example of an essential article which is covered by the 10" tax rate. This enumeration of what are "essential articles likewise includes "clothes and textiles", "medicines", "soaps, detergents, toothbrush and t oo t h past e " , "writing pads, notebooks, etc.", '' fert i 1 i zet's, pesticides��� "' "spat'e parts and accessories of motor vehicles" and many others which are not and can not be classified as food. The term "essential" which is in the heading of Section 163 <2) of the Tax Code is only descriptive of the term "articles". Hence, it qualifies the term "articles" being enumerated thereunder as essential, and certainly, does not only refer to the term "food" or to the other ite11s enumerated therein. To insist on following the argument of the Respondent would strike an absurd if not a hilarious interpretation referring the 10" tax rate not only to 83

DECISION C.T.A. CASE NO. 4292 - 7- "essential food" but also to "essential soaps��, "essential toothbrush" and probably "essential toothpaste", which w~ cannot i�agine being the intention of the legislators. We, therefol~e, cannot accept such interpretation, made by the respondent's counsel. It was not contested during the hearing of this case that Petitioner is engaged in the business of manufacturing and processing food products as evidenced by its license and authority to engage in the �anufacture and processing of food products issued by the Bureau of Food and Drugs. It was also not disputed, in fact, admitted by Respondent that "chewing gum" is classified as food not only in this jurisdiction <Sec. lO<e> of Republic Act No. 3720, otherwise known as the Food, Drug and Cos�etic Act) but also by the Federal Food, Drug and Cosmetic Act of the United States. Moreover, Petitioner's "gum products" are co�posed of various ingredients whi~h are com�only known food substances, to wit: sugar, glucose, glycerine, flavors, cornstarch and modified starches "Y"' T.S.N. March 2, 1993, pp. 29-~3>. Hence, gum products are indeed classified under "processed food products for human consumption" which has

DECISION - C.T.A. CASE NO. 4292 - 8- a tax rate of only 10~ and not 20~ as erroneously paid by the Petitioner. The argument of the Respondent that the rule of ejusde� generis excludes chewing gum is also bereft of merit since the enumerated items, to wit: Processed meat, fruits, vegetable, fish and other seafoods and other processed food products for human consumption. are all general words. Each item is a class by itself. Therefore, where the enumeration includes classes and general terms as well, or where the specific thing~ in the enumeration have no distinguishable common characteristics, the rule of ejusdem generis does not apply. <Agpalo, Statutory Construction, 1986 ed., p. 187) Hence, the rule of ejusde� generis cannot be applied in the interpretation of the meaning of Section 163 <2> (a) as amended by E.O. No. 36. Otherwise, it would run c~unter to the basic rule in interpreting tax laws that doubts are construed strictly against the government and liberally in favor of th' e taxpayer because burdens ar� not to be imposed beyond what statutes expressly and clearly import. <see Collector vs. La Tondena, 115 Phils. 841, 846> ln view of the above discussions, We are now prepared to grant Petitioner's claim for refund BUT NOT THE WHOLE AMOUNT AS PRAYED BY THE PETITIONER. This is so

DECISION - C.T.A. CASE NO. 4292 - 9- since We can only grant the amount which are fully substantiated by evidences. Petitioner submitted to this Court voluminous do.cuments (receipts and invoices> contained in six <G> big boxes which We meticulously and painstakingly assessed and determined. After a long and "laborious ordeal" We found that We can only grant the su� of Pl0,20G,1G5.93 <instead of the P12,788,G32.GG prayed by the Petitioner> co�puted as follows: 1986 Fourth utr. Third utr. � Sales: p 6,204,551.~ Itt. p 5,478, 778.71 July 3,518,551. 73 Aug. 5.154.864.02 NDY. 6, fill' 295. 53 ��� 871.~7.57. Stpt. Dtc. � 41 4191 789. 58 l, 108,251.93 Total �~90S. 86J. 82 Tax Due l,l7l,OI0.80 pl'r EDI36 861. 7ll.84 l. 133.733.64 1' 590, 586. 38 C 2S,.Sl.7U L�n: lu trtdit 6l3,34l.87 1.697.l4~ll Paya�nt I1083. 9()0, 31 Crtdit l 1 2591 3J7.J8 PaylfJJt TC Me10 668. 7JO. 80) hftmdable No. 3330 56l,074 Refundable First Qtr. Second Utr. Sales: p 6,641,177.91 April p 8,~1,870.65 Jan. 7,87l,430.47 May 9.700.770.71 June 9,1~,440.84 hb. 2.121.1J7'MY:f 91 4771 38J.~I MardJ l,4l1,437.91 27161;!.692.70 Total 990,625.26 Ta11 Due ~51~3l9.47 4. 503.954. 73 l,76J,369.l7 pl'r EDI36 (21 0821 516.82) Crtdit 4,7ll,350.ll Lfu: lu Payaent w.595.75 5.1741 ~5.97 CrPdit Refundable Paya�nt C21UJ1S76.70J Refundable 86

' DECISION C.T.R. CASE NO. 4292 - to - Third Qtr. Fourth Utr. Sales: p 8,633,087.91 Uti. p 9, 580,599. 6Z July a:7,810,511.63 Nov. IO,nl,990.99 Aug. m 361. ss Sept. 2., 776,961.09 Dec. 6.349.4Z3. 66 Total Tax Due ~,4n,696.u 26,702,014.27 per EOI36 lrss: Tax 4, 350, 835. 93 ~,670,201.42 Credit S001 4ZJ.ss 418511 257.48 Pay1ent (2, 373,561. 37t Credit � ~,362,501.57 Refundable Pay1ent ~.949.998.38 51 3121 499.95 Refundable (21642,298. SJt Total Refundable: 25,4tU. 71 Third Qtr. '86 Fourth Qtr. '86 668. 730. 80 First Qtr. '87 Second Qtr. '87 2,082,516.82 Third Qtr. '87 2, 413, 576. 70 Fourth Qtr. '87 2, 373,561.37 Total Refundable 2.642.298.53 1012061165.93 <Please see working papers attached in the docket of this case.> The amount claimed by Petitioner in e>ecess of P10,20G,1G5.93 is DENIED by this Court for being unsubstan~iated and/or the evidence to prove the same were not presented. ' WHEREFORE, in all the foregoing, the clai� for refund in the amo\.tnt of Pt0,20G,tG5.93 is hereby GRANTED and the Respondent is hereby ORDERED to PAY said amount \'\ to the Petitioner.

DECISION - - 11 - C.T.A. CASE NO. 4292 ~Q...~ SO ORDERED. ERIIESTO D. ACOSTA Presiding Judge GRUBA s:ia~ :z!f.e'd ~AMON 0. DE U RA Associate Jud e CERTIFICATION I hereby certify that this decision was reached after due consultation between the me�bers of the Court of TaM Appeals in accordance with Section !3, Article VIII of the Constitution. ~s,~ ERNESTO D. ACOSTA Presiding Judge ' Court of TaM Appeals