CTA Case No. 2083 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY CEPOC INDUSTRIES, INC., <For�@rly Cebu Portland Ce�ent Co�pany>, Petition en', C.T.A. CASE NO. 2083 COMMISSIONER OF INTERNAL REVENUE, X- - - - -R e-s-p o�n-d e-n t .- x DE C X X0 N This is a companion case of C. T. A. Cases Nos. 2075 and 2103, involving the same parties and similar issues decided by this Court on October 7, 1987 and Octobet' 21, 1987, t~espectively, ot'det~ing petitioner CEPOC Industries, Inc. to pay the respondent Commissioner of Internal Revenue 7~ sales tax on cement, subject mattet' " thet'ein, the g;ame to be computed on the basis of the gt'oss se .lling less deductions corre 6ponding to the costs of raw mater ials used in the manufacture of cement, conformably with Section 186 of the applicable National Internal Revenue Code, and without the imposition of 25~ surcharge. The factual setting of this case is also similar to those in CTA Cases No~. 2075 and 2103. Petitioner is a government owned and controlled corporation, duly organized and existing under and by virtue of the laws of the Philippines, 45[)

DECISION CTA CASE NO. 2083 - 2- formerly engaged in the production of Apo Portland c ement and other products. 0 �.i r i n g t h e pet~ i o d f t~ om Jan u at~ y 1 , 1 9 57 t o J u n e 30, 1959, petitionet~ pt~ oduced Apo Pot~ tland cement, more than 80">' of which consisted of limestone and clay quat~ t" ied by petit i onet~ ft"om i t s own minet~ al l~nd lo c ated in the Philippines. For the put~ pose of ad valot~ em tax, petitionet~ filed with the B1.weau of Intet~ nal Revenue, d1.wing the pet" iod in question, quat~tet~ ly t" etm~ ns on the gross sales of cement it pt~ oduced, on the basis of which respondent assessed and collected only -~ ~-@1_9~..!V1!. tax as t~ espondent was then of the opinion that petitioner's cement was not liable to the p a yment of sales tax by virtue of the provisions of Rep. Act No. 12 99 whi c h took effect on June 17, 1955; that said ~p_ ~..9._t_Q..l:~.!LI'!!.. tax was the subject of an action fat" t"efund docketed as C.T.A. Case No. 706 on Oct abet" 23, 1959, whet~ e in the decision of this Com~t advet"se to petitionet~ was appealed to the Supreme Court, docketed as G.R. No. L-18649. Respondent, after the promulgation on February 27, 1965 of the decision of the Supt~eme Com"t in G. R. No. L- 18649 ent it 1 ed "Cebu Pot~ t land Cement Company vs. Commissionet" of Revenue" 456

DECISION CTA CASE NO. 2083 - 3- wherein the Supreme Court sustained the contention of petitioner that the basis for the computation of is the costs of the raw materials its mines, subjected petitione~�, as pt~oducet~ of cement, to the payment of 7')'. sales tax. On January 31, 1968, petitioner received a letter from respondent dated January 16, 1968, the petit i onet~ the amount of P2,480,001.70 as deficiency sales tax and surcharge on the cement pt~oduced by petit i onet~ ft�om Januat~y 1, 1957 to June 30, 1959. On Februa.~�y 1, 1968, petitionet~ filed with the respondent a. letter protesting the said assessment on the grounds that the assess ment had already prescribed and that cement is not subject to sales tax. On Ma.t�ch 9, 1970, petitionet~ t"eceived ft~om the respondent a lettet~ dated 19, 1970, denying the said pt~otest filed by the petitionet� against the assessment in question. 31' 1970, petitioner filed its petition for review with this Court and on May 15, 1970 respondent filed his answer. 4 5 ~/

DECISION CTA CASE NO. 2083 - 4- The issues t~aised at~e: (1) whethet~ p e t i - t i onet~' !ll cement is subject to sales tax, and (2) whethet~ the assessment issued by t~espondent has already prescribed. It should be stated that upon the request of the pat~t ies, action on this case was held in abeyance to await the decision of the Supreme Court in similar cases involving similar issues which were then pending thet~ein undet~ G. R. Nos. L-35668, 35670,' 35671 , 35672, 35683 and 35677 entitled "Rep�Jblic Cement Cot~pot~ation vs. Commissionet~ of Internal Revenue; Filipinas Cement Cot~pot~ation vs. Commi!lsioner of Revenue; Apo Cement Corporation vs. Commissionet~ of Intet~nal Revenue; Bacnotan Consolidated I n d u s t t~ i e s , Inc. vs. Commissionet~ of I nt et~ na 1 Revenue; Philippine Portland Cement Co., Inc. v s. Commissionet~ of Internal Revenue; and Cepoc Industt~ies, Inc. vs. Commissioner of Internal Revenue", respectively. On August 1 o, 1983, the Supt~e me Com~t prom�.tlgated its decision in Commissionet~ of Internal Revenue vs. Republic Cement Cot~pot~atio.n, F i :Lti p i n a s Cement Apo Cement Corpot~at ion, Bacnotan Consolidated I nd Ll s t t~ i e s, Inc. , R.izal Cement Company, Inc. , Philippine Portland Cement Inc. ca. , 45 0

DECISION CTA CASE NO. 2083 -~- and the Court of Tax Appeals, G.R. Nos. L- 35668-72 & L- 35683; and Commissioner of Internal Revenue vs. Cepoc Ind�.tstt~ies, Inc. and the Com~ t of Tax Appeal~, L- 35677 <124 SCRR 46>, holding explicitly that cement is a "manufactw~ ed pt~oduct" and i t s sales is not exempt ft~ om sales tax imposed undet" Sec tions 186 and 188 (c) of the then in fot"ce National Revenue Code. � And as a consequence of said t"ul ing, the cement companies <private t~espondents thet~ ein) wet~e ot"det~ed by the Supreme Court to pay the sales tax. Buttre$sed by the law, pt~ecedent and t~eason, we find unnecessary to re - echo the rationale of the ruling of the Supreme Court that cement is subject to the sales tax. For purposes of computing the correct tax liability of petitionet~ , howe vet~, some q�Jalifications as pointed out in the decision at~ e in order. To q�Jot e 1 (1) The disputed assessment carry a 25~ surcharge pur~uant to Section 183 <a> of the Tax Code [now Sec. 193 <a> <3> J which pt"escribes the said Sltrchat"ge fot~ late tax payment. In Connell Bt"OS. Co. (Phil.) vs. Collector of Intet~nal Revenue <10 SCRA 469 at 470- 471>, the then Justice Makalintal, speaking fot" the Cout"t, rejected thet"ein the imposition of 25~ surcharge for late payment: 45J

DECISION CTA CASE NO. 2083 - 6- XXX XXX XXX ><X>< ><><X X><X In the case at bat�� , the assessments Are not undisputed or indisputable. ~ he ~ dispute as to the tax liability of private respondents for sales tax on the g a 1 e o f c e men t at' o s e n o t s i mp 1 y be c au s e of ot�dinat�y divet�gence of views in good fil\ith vis��� a - vis the intet�pt�etation of the 1a w; t h e p o s i t i on o f p t' i vat e t' e s pond en t Wil\S founded upon the ot�iginal stand of the Bureau of Internal Revenue itself th<:\t cement is a minet�al pt�oduct t�athet� than a manu fact �Jt�ed pt�oduct and is thet�efot�e subject to ad valot�em tax, not !llaler-~ tax. Y As pointed out above, this stand was apparently given implied s uppot�t in CEPOC v s. Co 11 ect ot�, G. R. No. L �~20563 <1968 >, 25 SCRA 789, penned by ..Tu!Stice Angeles. That the postm�e of private respondents is plausible despite the subsequent BIR position that cement is a manu fact �Jt� ed pt� od uct subject t o sa 1 e s t ax - i s s up pot' t e d by t h e fact that the Cotwt of Tax Appeals, the specialized body handling tax cases, su5tained the private respondents in the decisions under review. Undet' the c i t�cumst ance s, the 25?( / s �Jt��chat��q e imposed in the disputed assessment m�.1 s t b e c.1 e 1 e t e d � ( a ) Th e as s e s s men t s i n q 1.1 e s t i on sedm to have computed the sales tax liability of pt�ivate t�espondents on the b,'!\r.i~ of the t_q_t_~t selling pt�ice of cement sold. If this was so, a recomputation is in order so as to deduct from the tax base the costs of raw materiAls used in the production of cement, such as gypsum, confot�mab ly with th~ pt�ovisions of Section 198 [now Sec. 199 (a) J of the Tax Code as it stood durlnq the tax period here involved: 4C O

DECISION CTA CASE NO. 2083 - 7- X X)( XXX Befot~e closing, it may be noted in pas s i n g that i n o t~ cJ e t' t o o b v i at e _an y / f u t' t h e t'' con t t' o v e t' s y , c e men t Q..!"!~ c e men t has been expressly made subject to sales t<'l\x at the t�educed t�ate of 5~ on the implicit assumption that it is a manu f ,:~.ct l.lt'ed pt�od uct and t h et�e f ot~e outside the �pm� view of "minet�al pt�oduct" under Section 246 of the Tax Code. <See Pt�es ident ial Dect�ee No. 1358. >? On the issue of prescription, the Supt�eme Com�t, in its t�esolution dated May 7, 1987 denying CEPOC' s motion for reconsideration, one of the pt'iVC\te t'espondents in said appealed ce ment cases, ruled= 3. . Finally, the Motion for ReconsiderC\tion filed by privC\te respondent CEPOC raises anew the issue of prescription of the government's right to ma~n?. the subject C\Ssessment in the 1 ight of Sec. 331 of the TC\x Code. Unlike the n o n - t' e tt' o ""c t i v i t y i s s u e , pt' e s c t' i p t i on h a s been ventilated by the movC\nt even during the pendency of the case in the Court of Ta>< Appeals, and i.n its pleadings filed with this Com� t. Both the Co�.wt of Tax Appeals decision and the decision so�Jght t o b e t' e c o n s i d e t' e d at~ e , h o we v e t' , si lent on that point. We clat~ ify. Considering that the decision on the t Ax 1 i a b i 1 i t y o f p t' i vat e t' e s pond en t s , as ;.n fact, the dispositive pot�tion thereof ordered them to pay the 7~ sales tax, the prescription issue with regard to the movant CEPOC merits clarification . Left, unresolved, it will only serve to nurture the lingering doubt which CEPOC continues to harbor insofar as its tax liability is concet�ned. Besides, the issue was squarely raised at the proper time and in the pt�opet~ fot�um. We elect to discuss 46 1

DECISION CTA CASE NO. 2083 - a- the issue, but as alt~ eady said, only as a clarificBtion of the decision which needs no reconsideration on its merits. In order to avail itself of the b ~ nefita of the five - year prescription pe~� i od undet~ Sec. 331 of the Tax Code, t; he taxpayet~ should have filed the required return for the tax involved, t hat i s , a sa 1 e s t ax t' e t m~ n � <But u an SAwmill Inc. v. CTA et al., G.R. No. L- 2 1516, Apt~i 1 29, 1966, 16 SCRA 277>. Thus CEPOC should have filed sales tax returns of its gross sales for the ~ ubj ec t pet~iods. Both pat~ties admit that returns were made for the ad valorem mi ning tax. CEPOC argues that said returns contain the information necessary for the assessment of the sales tax. The Commi s sioner does not consider such returns as compliance with the requirement for the filing of tax returns ro o as to stat�t the t�unning of the five - year prescriptive period. We agree with the Commis s ioner. It has be en he 1 d in 1:3�,tt__q'\D .. _S_C\wm i....lJ ...I !lf:�. ...Y'!. . cro, supra. that the fi J. ing of an income t;?\>< t� et twn cannot be cons idet~ ed as ~ub R tantial complianc e with the r e q 1.1 i t' e me n t o f f i 1 i n g s a 1 e s t a x t' e t '-' t' n s , in the same way that an income tax return ~ annat be c on s idered as a return for compensating tax for the purpose of c omputinq the pet�iod of pt� esct~iption �Jndet� Sec. 3 3 1.. <Citing Bisaya Land T r �1i\ n s p o t' t at i o n C o � , I n c � v � C o 1 1 e c t o t' , G. F~. Nos. L -- 12100 and L -- 11812, May 29, 1~59). Thet~ e being no sales tax t~etut�ns filed by CEPOC , the statute of 1 i mi t at ;, on s i n Sec. 3 31 d i d n o t be g i n t o run against the government. The f..'.l.ssessment made by the Commissionet' in 1.968 on CEPOC' s cement sales dm~ing the per�iod ft�om July 1, 1959 to Decembet~ 31, 1960 is not barred by the five-year pt� e s ct� i pt i v e peri o c:l. Absent a t� e t w�n, o t' when the t�ettwn is false ot~ ft~ audulent, 46 2

DECISION CTA CASE NO~ 2083 - 9- t h e a p p 1 i ca b 1 e pet' i o d i s t en ( 1 0 ) y eat' s from the dis c ovet'Y of the ft' aud, falsity at' omission. The question in this case i. ~;: When was the CEPOC' s omission to file the return deemed discovered by the govet�nment, so as to stat't the t'unning of s aid pet�iod? It may be reca lled that prior to the intet��pt� etation made by the Cotwt in the fit�st CEPDC case in 1965 on the nattwe and taxability of cement, th� C ommi ms i.onl'.!t' of Intet�nal Revenue was of the opinion that sales tax was not due on c ement. Consequently, said pt�ivate re$ pandent did not file the r equired 9 Ed . P. 1'1 t a x t' e t u t' n s o n i t s g t' o s s s a 1 e s o f c ement for the pet'iod ft� om July 1, 1959 to Decembet' 3 1, 1960. Howevet� , it was only in 1968, and by r eason of said interpt� etati. on, that the Commissionet' c h r:HH,l!Hi hi s opinion and assessed sales t a>< a g a i n s t t h e p t' i vat e t' e s pond en t s , in c luding the movant CEPOC. TtH! Co mmi s s i on e t' c on t end s t hat h i s duty to assess the sale s tax in question a r o ~ e only aftet' the Cor_wt t' Uled in the fi. rst CEPOC c ase <G. R. No. L �- l86'~9, F ebt� uat� y 2 7, 1.96 5 ) tt1at cement was s uhje r.:~ t to the ta><. Thus, accot' ding to h i m, the statute of limitations began to r �.m on 1 y i n 1 9 6 7, wh en t h e Mot i on t o Reconsider said decision was denied. The n f? t e f f e c t o f t h i s at' g u men t i s t hat t h e pre9c ription period for the a ss e s sment of the sales tax was suspended dtwing the ti.me that the Commi s sioner held the opinion that cement was not liable to t,flx. Fat' its pat� t, CEPOC maintains that thl'.! statute of limitations cannot be !H ls pended because of the Commissionet' ' s erroneous interpretation of the Tax Code which is not among the grounds for suspension tmdet' Section 333. Following this line of at"I:PJment, the omission of CEPOC would be deemed "discovet'ed" by the goven1ment as eat'lY as l~_(;'..!:'.?., aftet� the filing of CEPDC's ad valorem returns. 46 3

DECISION CTA CASE NO. 2083 - 10 - Whether We consider the discovery of CEPOC' s omission to file a sales tax ret �.n~ n t o h a v e t a k en p 1 ace .tn.__ _L~~-Q. , immediately after the filing of its ret�.n~ns for ad valot~em tax, ot' in 1967, when the Commissioner changed his e r t' o rHi! o 1.1s t' u 1 i n g , We w i. 1 1 at' t' i v e at t h e same t''P.SI.Ilt. Since the subject assessment was made in 1968, the same still falls within the ten-yeat' p t� e s c t~ i p t i v e p e t' i o d e i t h e t' f t' o m 1 9 6 0 o t' ft��om 1967. j In the case at bat�, if we considet' that the discovery of the omission to file a sales tax ret�.Arn was ft� om the time the 9!=1 . "J~l9.rE?..f11. tax t'et�.n~ns w~re filed starting from the year 1957 and not from 1967 when respondent Commissioner changed his err one o �.1s t� ul in g, which indeed undet' the cj. rcumr.tc'!\ncf.H'� of this case s hould be the cot't'ect i nt erpt�et at ion, the t' i ght of t� e 5 pendent to assess the sales tax for 1957 has already prescribed, bec~auc;~e the assessment was made in Januat�y 1968 ~Jhich was beyond the 10- yeat' pt�esct�iptive pet� iod. Ht1wevet�, the pet�iod covet�ed by the assessment ft�om 1_9, _~{3.___:\!Q.....J..'::!. D. .~t._.JQ_,._______t~. ~~- s t i 11 fa 11 s within the 1 0- year prescriptive period. We cannot accede to the view of t'e spondent that the 10- yeat� pet� iod co mmenced to t'Lin only in 196'1 when he changed his et' t' oneous t' �.ll ing as that 46 4

DECISION CTA CASE NO. 2083 - 11 - would be givin~;~ him undue advantaqe and benefit ft��om 11 i s own et't' on eo us i nt et' pr� et at ion of the 1 aw. 8ur�e J. y, t'esponclent could have alt'eady made the corr~ c t interpretation as early as 1957 that cement WA~ subject to sAles tax J WHEREFORE, the decision appealed is �odified, and it is hereby ordered that petitioner CEPOC Industries, Inc. pay respondent Con1111 iss i oner of Internal Revenue the 7~ sales tax on ceMent for the period fro111 January, 1958 to June 30, 1959, the sa111e to be co11put ed on the basis of the gross selling price, less appropriate deductions corresponding to the costs of raw 111aterials used in the Manufacture of ceMent, confor�ably with Section 186 of the then applicable National Internal Revenue Code, and without the 25~ surcharge. No costs. SO ORDERED. Qu~2on City , Metro Manila, October 20 , 1989. AMANTE Pt' e s i d i n q J �.u:l q e 46 -.i

DECISION CTA CASE NO. 2083 - 12 - WE COI\ICUI1= . REVES Associate .Judqe CE RT I ~ I CAT I DN I c e t' t i f y t hat this decision was ~'f.H:\ched af'tet' due consultation amonq the membet's of the Colwt of Tax Appe a ls in accordance with Section 13, ~kticle VIII of the Constit �.ttion. AMANT FILLER Presiding Judge Court of Tax Appeals 46 6