CTA Case No. 2967 (Decision)

llEPUBLTC OF TIJR PHJLTW.IM'It. COURT OF TAX APPEALS () \ ' l'70'\l C. lTV PLANTERS PRODUCTS , INC., Petitioner, - versus - C.T.A. CASE NO. 2967 COMMISSIONER OF INTERNAL RE VENUE, Respondent. X - - - - - - - - - - - .X DE C I S I 0 N This is a suit by petitioner Planters Products, Inc. to reach and apply to the refund or tax credit of the amount of ~63,365.60 representing alleged erroneous payment of documentary and science stamp taxes due from respondent Commissioner of Internal Revenue . In this case petitioner, a domestic corporation, duly engaged in the business of importing, manufacturing and selling ferti lizers and agriculturals chemicals, d uring th e per iod o f June 14, 1976 throu g h May 29 , 1978, made importations from�various foreign-based suppliers: Hu mm International; c. Itoh & Co., Ltd.; Canpotex Limi te d; Mitsubishi Corporation, Ltd.; Mitsui & Co., Limited, for which corresponding letters of cr ed it were opened through the domestic bank, The Chartered Ban k . Subsequently, bills of exchange or foreign drafts were drawn by said foreign suppliers to

DECISION - CTA CASE NO 2967 - 2- petitioner for amounts equal to the value of each of the importations and made payable to the said suppliers through the fore ign correspondent banks, to wit: (1) .Bank of the Orient, San Francisco, USA; (2) .Kyowa Bank, Tokyo , Japan; (3) Canadian Imperial Bank of Commerce, Canada; (4) ~aiyo Kobe Bank Ltd., Tokyo, Japan; (5) .sanwa Bank Ltd., Tokyo, Japan; (6) .Hokkaido Takushohh Bank Ltd . , Tokyo, Japan; ( 7) _Mi tsubishi Trust & Banking Corporation, Tokyo, Japan; and (8) Mitsubishi International Corporation, New York , USA; (9) Mitsui Trust & Banking Co., Ltd. Petitioner met the prescribed payments of documentary and science stamp taxes upon the (l)~pening of letter s of credit, (2) _acceptance, and (3) _payment on maturity of the bills of exchange. The stamp taxes on the latte L two transactions amounting to ~31,561.12 and ~31,804.48, respectively, or a total of ~63,365.60, are the subject of the present claim for refund or tax credit. There ar e no genuine i ssues t o an y ma terial fact in this suit , but the parties do, however, differ about the proper application of the pertinent pro- visions of Sectiom230 and 231 of the National Internal Re venue Code, as amended, which read as follows : "Sec. 230. Stamp tax acc eptance of bills of exchange and others . - Upon acceptance or payment of any bi ll of

DEC ISION - CTA CASE NO 2967 - .3 - exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the Ph ilippines, ther e shall be collected a documentary stamp of six centavos on each two hundred pesos, or factional part thereof, of the face value of any such of exchange, or order, or the Philippine equivalent of such value, if expressed in foreign currency." (Formerly Sec. 218) (Underscoring supplied) . "Sec. 231. Stamp tax on foreign bills of exchange and letters of credit. - On all foreign bills of exchange and letters of credit (including orders, by telegraph or otherwise , for the payment of money issued by expressed or steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three or more according to the customs of merchants and ban kers , there shall be collected a documentary stamp tax of eight centavos on each ~200.00 or frac- tional part thereof, of the face value of any such bill of exchange or letter of cr ed it, or the Philippine quivalent of such face value, if expressed in foreign currency." (Formerly Sec. 219 ) (Un derscoring supplied) NOTE: Re public Act No. 5448 prescribed an additional imposition of an equal amount of science stamp tax to be collected at the same time and $me manner as the documentary stamp tax. Petitioner holds itself out as entitl ed to an / exemption from the pa yme nt of documentary and science stamp taxes imposed on the bills of exchange upon their acceptance and/or payment at maturity, as it contends that Section 230, supra. applies to bills of exchange purporting to be drawn in a forei gn countr y but p a yab le in the Ph il ippines , wh il e Se c tion 231,

DECISION - CTA CAS E NO 2 967 - 4- supra , refers to those drawn in but payable out of the Philippine s . The subject bills of exc hange or drafts were both drawn abr oad and made payabl e a broad . Respondent maintains , however , that the bills of exchange are deemed payable in the Philippine s as their acceptance and final liquidation by peti- tioner took place in the Philippines . The law only requires that the f o reign drafts drawn abroad be deeme d payabl e in the Philippines in order to be subject to t he stamp taxe s . Th e si ng l e i s sue a s to wh ether th e subject b ills or dr afts ar e payable in the Philipp ine is at its cor e a question of situs of the obligation , its performance and governing law thereof . The circumstances of this case disc lose that the bills of exchange were drawn by the foreign su pp li e rs (Drawe r) _to t he petition er (Dr a wee ) fo r such amount s corr e spondi ng to the value of e a ch o f the importations committe d under the letters of credit and made p ayable to the foreign corr e spondent banks (Pa ye e) _or o rde r . The b il ls we r e dul y p r ese n ted to an d a cco rdingl y acc ep t e d by petitione r a t i ts plac e o l bus iness 1n the Ph ilipp i nes . As a l eg al con sequ enc e , under ( Sec . 62 of the Negotiable Instruments Law , petitioner , bi assume d the primary liabiii~y of the obligation the

DECISION - CTA CASE NO 2967 - 5- terms of the instruments. Thus, "its acceptance of t he drafts ipso facto placed a legal liability on the acceptor for its paymen~' (Union Guarantee Co . v . Jing Kee & Co., 44 Phil . 533.) The general doctrine seems to be that "The contract of the acceptor , by his acceptance, is that he will pay the bill , upon pr e sent- ation thereof, at its maturity or its becoming due ." (Deen et al. v. De Soto National Bank of Arcadia , 122 So . 105, 9 Fla. 862) .. Any breach in the performance of the obligation imposed , assumed and to be undertaken can be legally enforced against petitioner at its place of business . We have learn e d from Mr. Judge Hand in the Louis - Dreyfus v . Pe terson Steamships, Ltd . case that, "When the time comes fo r him t o perform, if he fails , the law requires him to give the equivalent of the neglected perform- ance; that compulsion is the sanction imposed by the state and the measure of the obligation and default must indeed be at the place of performance. " (U . S . Circuit Court of Appeals, 43 F 2d 824 , cite d i n Conflict of Laws by Cheetam, Gr e swald, Ree se and R osenberg)~ The same view prevails in Jacobs, Marcus & Co . v. The Credit Lyonnais o "The law of the place of f ulfilment not merely governs the mode of perform- ance of the part._icular contrapi , bu t governs also the obli g ations in respect of the perfor ma nce a nd the

DECISION - C'I'A CASE NO 2967 - 6- liabilities in respect of non-performance of it . " (Court of Appeals, Q. B. 589, discu$sed in 29 Mi c higan L. Rev � 7 7 3 ; 26 I I I . L � Rev � 4 41 ; 7 2 A� L� R� 25 0 ) .. It will suffice to point out that the object to be accomplished and the means it could be carried into execution , without posing any limitation upon or impairing the terms of the instruments , reside with and become enforceable against petitioner in the Philippines. Plainly and without loss of analytical rigor , we find no threat of ambiguity arising from the tenor of the bills of exchange not to have the same considered payable in the Philippines . It is perhaps hardly necessary to stress that matters involving foreign exchange are subject to restraints and require validating acts which apply with equal force on petitioner's undertaking under the subject bills of exchange. Petitioner's liquid- ation or full payment of its obligation can only be effective to the extent permitted under existing foreign exchange regulations and/or restrictions . "The law of the place of performance generally governs the contract and its discharge." (Restatement, Conflict of Laws, Sec. 385; Zimmerman v. Sutherland, 274 u. s . 253; 2 Wharton On Conflict of Laws, 467b ; 1 Joyce on Insurance Sec. 225) ~ The point is that , however , the obligation is put , finality can , in the nature of the

DBCISIOi.\i - CTA CASE NO 2967 - 7- case, never be effectively attained unless the appropriate governing law essential to the validity of petitioner's obligation has been complied with. The circumstance that actual receipt of payment had t o take place abroad should not preclude the fact that the liquidation in full satisfaction of the obligation "have for some legal purpose a situs at the residence or place of business of the debtor (petitioner in this case) _though the creditor be far away ." (Sokoloff v. National City Bank of New York , 239 NY 158, 169, 145 NE 917, 920, 37 A . L.R. 712) ._ Thus, the validity of any enforcement of legal rights or redress of legal wrongs on the obligation under the instrument rests with the domic iliar y law of the petitioner . " It is gene rally r e cognized that the law of the place of performance regulates matters involving the mode of performance as for example thr proper medium of payment and in case of negotiable instruments the time and form ofpresentment , prot e st and notice ." (Good ric h , Conflict of Laws 344 (3 d ed . 1949) ;_ Nu ssba um, "Conflict Theo ries of Contracts ; Cases vs. Restatement ". 51 Yale L.J. 893 , 915-918 (1942). It is no mere ingenuous sophistry therefore that the bills of exchange which gave rise to peti- tioner's obligation were deemed payabl e in th e Philippines . G ..._)~ 01 ) '

DECISION - CTA CASE NO 2967 - 8- Again , we find illogic the impression precipi- ta t ely broached by petitioner that the bills both drawn and pay able abroad are beyond the pa l e of the applicable scope of the st.atute. If, as seems to be claimed, we take the bills to mean wh at it literally say , then , the same have to be treated as "inland bills" wi thin the same foreign State of both drawer and payee. Be it so , but then , such a case will run the risk of denegating the dir ect and affirmative par ticipation of the drawee-petitioner outside said State , whose wr itten ac c eptance on the bi ll s fixed the primary liability to the obligation i mposed by the terms of the instruments . "It should b e: noted, however, that a draft has no primary party until the drawee accepts the instrument, a nd, if the drawee does not accept, there is neve r a primary party . Once , the instrument is acce pte d , the drawe e becomes an acceptor and is obligated to pay the instrument according to the tenor at th e time of acceptance ." (Dow and Votaw on Legal Aspects of BUsiness Administration) . In Federal Reserve Bank v . Livestock and Agricu ltural Loan Co. , 31 Ariz . 116, the Court said that the bill is deemed payable and enforceable at the place of residence or busine ss of the acceptor; Or, as observed in Yarriguc v . Kellar , 164 Ind. 676 cas e , may be enfo r ced at the place where jurisdiction over the person or property may b e acquired . No less important than the emphasis on the law, are the ope rative acts of a cceptanc e and 337

DECISION - CTA CASE NO 296 7 - 9- payment, o f a nd by thems e lves, re sulte d i n the d i s - char ge of pet itione r ' s obligation , . had take n place i n the Phili p pin e s . This is si mpl y what Section 230, suera contemplates and requires for purposes of the imposition of the doc umentary and science stamp taxes . Likewise, we can not agree to the proposition that the documentar y and science stamp taxes shou l d be imposed only once , i.e ., eithe r on acceptance or pa yment. The inte ndment of Section 230 has f orec l osed that possibi li ty of a disjunctive application . As g enerall y r ec ognized , stamp taxes ~e in the nature o f a n excise upon the p rivilege , opportunity or f acility for t h e transac t ion, (40 Am. Jur . 207) such that t hey ar e su bsta ntially t a xes on the transaction rath e r than on th e doc ume nt . (S e cretar y of Justice Opinion No. 177 , s . 1939; Commissioner v . Heald Lumber Co. 10 SCRA 372) �. " Documentar y stamp taxes are levied , collecte d , a n d p aid for in r ~s pect o f the transaction so had or acc omp lish e d by th e per s on , mak i ng , si g nin g , i ssu ing , accepting or trans fering the same and at the time such a c t is done or the transaction had ." (BI R Rul i ng No. 63-080) ~ We conc l u d e that Section 230 , su p ra. in its entir e t y a pp l i ed to the b ills of excha nge or f or e ign drafts in this case . So it a ppe ars and we s o h o ld that t he r e is no

DECISION - CTA CASE NO 2967 - 10 - error in the impos ition and collection of the documentary and science stamp taxes claimed by petitioner. Accordingly , petitioner is not entitled to the refund or tax credit of documentary and science s~amp taxes in the amount of ~63,365.60 it paid upon acceptance and/or payment of the bills of exchange pursuant to Section 230 of the Tax Code . vJHEREFORE , the petition for review is hereby dismissed with costs against pe titioner . SO ORDE RE D. Quezon City , Metro Manila , October 15, 1980. ~ft Associate J u d V WE CONCUR: J