CTA Case No. 621 (Decision)

~UBLIC OF THI! PHlLl.t'i"'tr..~ COURT OF TAX AP.P~ JUNll...4 PACIFIC OXYGEN. & ACETYLENE CO .. , C. T.A. Petitioner , CASE i\JO . 6 21 - versus ~ COMMISSIONER OF INTERNAL REVENUE , Respondent . X- � - - - - - - - - - - - - - - X DECISION This is an appeal from the de c ision of the Com- missioner of Internal Revenue assessing against and demanding from petitioner the sum of ~5 , 855 . 97 , repre - senting fixed and percentage taxes and surcharge allegedly due on the sale of acetylene during the years 1954, 1955 and 1956 , and the sum of ~100 . 00 as c ompromise penalty. Petitioner Pacific Oxygen and Acetylene Co . is a domestic corporation engaged in the manufac ture and sale of acetylene and oxygen . In a letter dated April 13 , 1957, the Regional Director for Quezon City (Bureau of Internal Revenue) assessed against petitioner defi- c iency fixed and percentage taxes for the years 1954, 1955 and 1956 and 25~ surcharge thereon in the total amount of ~5 , 855 . 97 , plus a compromise penalty of ~100 . 00 (Blll reco pp . 12- 13) , computed as follows' Total gross receipts ... " . o., i -150 , 426 . 04 7/b tax on ~150 , 426 . 04 oo . 10,529 . 82 Less amount paid ��� o.. o.. 10 , 218 .. 12 ~ 311 . 70 1955 Total gross receipts ���o�� ~333 , 725 . 44 7/6 tax on if-3~3 , 725o44 o<l. 23 , 3EO . 78 Less amount � paid ���o ��o � 22 , 118 . 61 ~1 , 242. 17

D 'CISIOI~ - C.T.A. CASE NO . 621 - 2- Total gross receipts ������ ~268 2 52) .. 56 7;~ tax on .-268 , 52)o56 .... 18 ,796o44 Less amount paid ......... 15 2 398 .. 32�3 , 398.1 2 Deficiency sales tax ������o��ooo�o ,4 , 95lo99 25% surcharge o � o............. o. <> �� o� ., 1, 238 .. 00 Fixed tax - 1954, 1955 and 1956 o. o 3::) . 00 Amount due o�o���oo�o���ooo����o�o� �6,219o99 Less overpaid percentage ( 3~o} taxes in 1955 and 1956 oooooo�o�o 364.02 TO TAL ANDUNT DUE Al~'D (J)LLECTIBLE 5 , 855 o97 ( BIR rec . pp. 12-l3o) The foll9wing facts have been stipulated by the parties: X X X ~lo That the petitioner is a domestic corporation engaged in the business of manu - facturing and selling acety~ene and oxygen; v2 . That the Calc ium Carbide used by the petitioner in the manufacture of acety- lene and oxygen was purchased from a tax- exempt industry, the lviaria Cristina Chemical Industries of the Philippines thru the Na- ~ tional Carbon Philippines , Inc.; u3 . That in the manufacture of acety- lene and oxygen , the calcium carbide used by the petitioner does not form part of the finished product or manufactured article; �14 . That tn the computation of the sales taxes , petitioner deducted the cost of cal- cium carbide from the gross selling price of acetylene and ox~gen ; fi5 . That on the basis of respondentts findings , an assessment was issue~ again�t petitioner for def~c iency fixed and percen - tage taxes and surcharges in the amount of ~5 , 855 . 97; "6 .. That in levying the assessment of ~5 , 855.97 1 respondent disallowed as deduc- tion the cost of c ~l c ium carbide from the gross selling price of manufactured acety- lene and oxygen o X X X (CTA re c., p. 21.)

DECISION - C. T. A. CASE NO., 621 - 3- Being dissatisfied with the assessment , petitioner ,' filed the present petition for review. In answer thereto , respondent interposed a counterclaim,praying for the payment of ~364.,02 , the amount corresponding to petitioner's tax credit for 1955 and 1956 and de - du cted from the deficiency fixed and percentage tax assessment herein involved., !he issue to be resolved in this case is whether or not the value of calcium carbide , which was pur- ' chased from the Maria Cristina Chemical Industries of the Philippines through the National Carbon Philippines Inco , and used in the manufacture of acetylene and oxygen , is deductible from petitioneris gross selling price of the acetylene and oxygen for - the purpose of comp~ting the percentage taxes thereono The law upon whic h the re s olution of the conflict- ing claims of the parties depends is found in Section 186 of the Tax Code and we quote: 11 SEC. 186., Percentage tax on sales of other articles o- x x x Provided , That where the artic les subject to tax under this sec- tion are manufactured out of materials like- wis e subj ect to tax under -this section and section one hundred and eighty- nine , the t otal c ost of such materials, as duly esta- blished � shall be deductible from the gross selling price or gross value in money of such manufactured articles. u It is contended on behalf of petitioner that the value of the c alc ium c arbide used in the manufacture of acetylene and oxygen should be deducted from the gross selling price of manufactur ed acetylene and oxygen , for

DECISION - C.T.A. CASE NO. 621 -4- the reason that the calcium carbide is subject to tax under the afore-quoted codal provisions, -although said tax has been specifically waived by the government in nepublic Act No . 901. On the other hand, respondent argues that since the calcium carbide was purchased from the Maria Crist�ina Chemical Industries, an admit- tedly tax-exempt industry, obviously no tax was paid : therefor. It is suggested that under the doctrine of Tan Chiu v. The Collector of Internal Revenue , C.T.A. Case No . 451, December 27, 1958, its value should not be so de~uctea in computing the percentage tax on the sale of acetylene and oxyg en . As stipulated by the parties , the calcium carbide used by petitioner in the manufacture of acetylene and oxygen was purchased from a tax-exempt industry, the l~aria Cristina Chemical Industries of the Philippines, thru the National Carbon Philippines, Inc. Unquestion- ably, the Maria Cristina Chemical Industries did not pay percentage tax in the sale by it of the calcium carbide because Republic Act No . 901 exempted it from the pay- ment thereofo The said calcium carbide was therefore not subjected to tax under Sections 186 and 189 of the Tax Code. And while it is true that the calcium carbide in question was bought thru the National Carbon Philip- Pines, Ince, the fact remains that the original vendor was Maria Cristina Chemical Industries. The purchase appears to have been effected only by the intermediacy of the National Carbon Philippines, Inc. Moreover� there . ' '-'-"-�~71.'7 ) J

DECISIOi - C. T.A. CASE NO . 621 - 5- is no showing that the former company paid percentage tax on the sale of the calcium carbide to petitioner. Consequently, we believe that the value of the calcium carbide purchased from the Maria Cristina Chemical In- dustries of the Philippines , Inc. should not be deducted from the selling price of petitioner's acetylene and oxygen (see Tan Chiu v. The Collecto~ of Internal Re - venue , supra). It is well settled that tax deductions are a matter of legislative grace and that a particular de - duction will be allowed only where there is clear pro- vision in the statute for the deduction claimed . (New Colonial Ice Co. v . Helvering , 292, U. S. 435, 440, 54 s. Ct . 788 , 78 Led 1348; Milton Bradley Co . v. U. S. 146 F 2d. 541 , 542. ) In the case at bar , we find no provision of law that clearly authorizes the tax de - duction claimed by petitioner. It is further suggested by petitioner that retro- active effect be given to the provisions of Section 186-A inasmuch as said section is by nature a curative legislation. In this connection, it is well to point out that Section 186- A, which was inserted by Republic Act No . 2025 and took effect on June 22t 1957, allows the value of tax- free products utilized in the manu - facture or production of ' an article to be deducted in l determining the value of such finished article. How- ever, a close perusal of said statute does not yield a congressional purpose and intention, expressly or J

DECISION - C. T.A. CASE NO . 621 - 6- impliedly, to give retrospective effect to it . Neither is there a showing that Republic Act No . 2:)25 is decla - ratory of the intent of Congress when it approved Sec - tion 186- of the Tax Code as well as Republic Act No . 901 (Tan Chiu Shirt Factory Vo Collector of Internal Revenue , supra). With respect to the counterclaim for the amount of ~364~ 02 it appears that petitioner was credite~ the amount of ~364 .02 as excess payment of the percentage taxes for the years 1955 and 1956. Said amount of ~364 . 02 was deducted from the total deficienc y fixed and percentage tax assessment herein involved. Res - pondent now contends that said amount was erroneously credited against the tax liability of petitioner be- cause petitioner has never filed a claim for refund or tax credit of said amount of ~364 . 02 . In opposition , petitioner claims to have filed a claim for tax credit of the amount of ~:364 .02 and invokes the doctrine of estoppel , in that respondent is now estopped from col- lecting the same amount after having credited � it - i n f avor of the petitioner. The pertinent provision is Section 309 of the Tax Code whic h states: 11SEC . 309 . Authority of Coll ec tor to make compromises and to refund taxes .- The Collector of ~nternal Revenue may compro - mise any civil or other case arising under this Code or other law or part of law ad- minister~d by the Bureau of Internal Revenue , may credit or refund taxes erroneously or illegally received, or penalties imposed without authority, and may remit before pay- ment any tax that appears to be unjustly assessed or excessiveo

DECISION - C.T. A. CASE NO . 621 - 7 ... nHe shall refund the value of in- ternal revenue stamps when the same are returned in good condition by the pur- chaser , and may , in his discretion, re - deem or exchange unused stamps that have been rendered unfit for use, and may re - fund their value upon proof of destruc - tion. f'The authority of the Collector of Internal Revenue to credit or refund taxes or penalties under this section can only be exercised if the claim for credit or refund is made in writing and filed With him within two ears after the a ment of 1he tax or pena1ty. 6 Underscoring sup- pliedo) No e vi dence has been adduced to prove that pe- titioner filed a claim for tax credit of the sum of ~364 .02 . Consequently, respondent Commissioner of Internal Revenue , much more the BIR B.egional Director " of Quezon City , could not have validly exercised the authority to credit or refund taxes or penalties under Section 309 of the Tax Code when the amount of ~364 . 02 was credited against the tax liability of petitioner . As regards petitioner's plea of estoppel on the part of respondent , suffice it to say that the govern- ment is not estopped by error or mistake on the part of its agents in the collection of taxes (Pineda vs. Court of First Instance of Tayabas, 52 Phil. 803), neither can the government be precluded from collect- ing the proper tax if it is discovered later that an error was committed (Genato Commercial Corporation vso Court of Tax Appeals, et al., G.R. No . L- 11727, Sept . 29, 1958) .

DEviSION - C. T. A. CASE 1�0 . 621 -8- The counterclaim in the sum of ~364 . 02 is , there - fore , granted . Said sum having been erroneously de - du cted from the tax liability of petitioner should be added to the amount of 5, 855 . 97 representing fixed and percentage taxes and surchrge demanded of the petitioner in the letter of BIR egional Director Ora dated Decem- ber 8 , 1958. Nith respect to the compromise J')enalty of i 100.00, this Court has ruled that the taxpayer cannot be com- pelled to pay a compromise penalty. A compromise im- plies mutual agreement between the parties involved in the compromise. One party cannot exact from or impose upon another a compro~ise (University of Santo Tomas v. Collector, G. � � I o. L- 11280, November 28, 1958) . �T IE\1 OF THE ~Or wi1-JG COI~SIDEI TIOi"S, the deci- I .l\1 sian of respondent Commissioner of Internal evenue is modified. Petitioner Pacific Ox gen and Acetylene Co . is hereby ordered to pay to the Commissioner of Internal � evenue the amount of- 6,219 . 99 . Manila , July 16, l9EO. I CONQJrl: Associate Judge Roman H. umal.i abstained .