CTA Case No. 731 (Decision)

� U LlC 01" THl:. .'HlLlP" IN I QOUR~ OF TAX APfB.A.Lb lii..&.N.u..A . lj� � JOSE Zk'10RA (Golden Taxicab), Petitioner, - versus - C.T.A. CASE NO. 731 ' C0~1ISSIONER OF INTERNAL REVENUE ' Respondent. X- - - - - - - - - - - - - - X DE CI S I 0 N This is an appeal from respondent's assessment against petitioner in the amount of r23,104.oo as defi- ciency compensating tax. The records show that petitioner Jose zamora, owner and operator of the Golden Taxicab, imported fifteen �� (15) units of Ford Consul Sedan in completely knocked down parts for his company's use. The importation was released from customs' cus- tody upon payment by petitioner of 7% compensating tax and the filing of Capitol Insurance and SUrety Co., Inc. Bond No. G-14676, dated May 12, 1958, to guarantee the payment of deficiency tax in case the shipment is subject to 50% compensating tax (See Exhibits "4" & "G", p. 12 BIR rec. ) � On July 1, 1958, the Acting Commissioner of Internal Revenue wrote a letter to petitioner, inform- ing the latter ~hat the rate which should be imposed upon his importation was 50% and requesting the settle- ment of deficiency tax on the shipment in question in /

DECISION - C. T. A. CASE NO . 731 - 2- the amount as may be computed by the Bureau of Customs (See ~xhibi t "1" , p . 6 BIR rec . ) . On August . 6 , 1958 ,. petitioner, through counsel, requested the reconsideration thereof, and prayed to be relieved from the payment of the deficiency compen- sating tax (See Exhibits 11 211 & "D", pp . 7-9 BIR rec . ), which request and prayer were denied by respondent in his letter dated April 27 , 1959 (See Exhibits "E" & "3", PP � 13-14 BIR rec . ) . On January 7, 1960, petitioner filed his appeal . Respondent, on February 2 , 1960 , moved to dismiss the appeal on the ground that this Court has no jurisdic- tion to take cognizance of the case. This motion to dismiss was , however, denied by this Court in a major- ity resolution dated July 16, 1960 and the appeal was given due course . On February 15, 1961, while it was pending before this Court, respondent sent a letter of demand to petitioner , assessing and demanding the pay- ment of P23,104.oo as deficiency compensating tax (See Exhibits F11 11 & 11F-1 11 pp . 4-7- 48 CTA rec . ) . The only issue to be resolved by this Court is the proper rate of compensating tax to be imposed on petitioner's i mportation. It is petitioner's contention that the proper rate of tax is 7% and not 50% of the selling price or gross value of the 15 units of Ford Consul Sedan (CKD), as claimed by respondent .

DECISION - C. T. A. CASE NO . 731 - 3- Sections 184 and 186 of the Revenue Code provide: "SEC . 184. Percentage tax on ~ales of Jewelry , automob1l~� 1 to1let preparatlqn~ , and others .--There shall be levied, assessed , and collected once only on every original sale , barter , exchange, or similar trans- action for nominal or valuable consider- ations intended to transfer ownership of, or title to , the articles her ein below enumera- ted a tax equivalent to fifty ~ cent um of t he gr oss value in money of the articles so sold, ba rtered ,idexbcyl1tahnegemd 7anourfatcr ansfe rred , such tax to be pa turer or producer: x x x. "(a) Automobile chassis and bodies, the selling price of which does not exceed seven thousand pesos: ~~ ' That where the sell- ing price of an automobile exceeds seven ~ thousand pesos but does not exceed ten thou- sand pesos the same shall be taxed at the rate of seventy-five ~ centum of such sell- ing price; jng ~rovig~, further,That where the selling price of an automobile exceeds ten thousand pesos the same shall be taxed at the rate of one hundred ~ ~tBm of such selling price. A sale of automobile shall, for the purpose of this section, be consi- dered to be a sale of the chassis and of the body together with parts and accessories with which the same are usually equipped: ~vi~, howeye~, That parts and accessor- ies of automobiles imported as replacements or as completely knocked do1m parts for the assembly of automobiles shall be subject to tax under section one hundred and eighty-six: ~ ~roy~ded, tgrtn~~ , That the total cost of such materials or parts on which tax has already been paid under section one hundred and eighty- six, as duly established, shall be deductible from the gross selling price or gross value in money of the assembled or manufactured articles x x x. 11 "SEC. 186 . Per~~ptage tax on sales of otp�r ~rt19les . --There shall be levied, as- sessed and collected once only on every original sale, barter, excP~ge, and similar transaction either for nominal or valuable considerations? intended to transfer owner- ship of, or title to, the articles not enu- merated in sections one hundred and eighty-four

DECISION - C.T.A. CASE NO. 731 - 4- and one hundred and eighty-five a tax equi- valent to seven ~ centum of the gross sell- ing price or gross value in money of the art- icles so sold, bartered, exchanged, or trans- ferred, such tax to be paid by the manufac- t~er or producer: PrQv1d~9, That where the articles subject to tax under this section are manufactured out of materials likewise subject to tax under this section and sec- tion one hundred and eighty-nine, the total cost of such materials, as duly established, shall be deductible from the gross selling price or gross value in mo�ney of such manu- factured articles x x x. " There is no question that petitioner made the import- ation of 15 units of Ford Consul Sedan (CKD) for his ow.n use and not for resale to the general public. Hence, he is liable for the payment of compensating tax imposed by Section 190 of the Revenue Code. The question is, what tax applies? Is it the tax imposed by Section 184 or by Section 186? After a careful study of the question at issue, / we have arrived at the conclusion that importations of assembled automobiles for resale as well as importations by importer-end-users, who are not car assemblers or manufacturers, of chassis and bodies ready for mounting are subject to a tax equivalent to fifty� (50) ~ _gent:wn of the landed cost plus mark-up, or of the landed cost without mark-up , as the case may be (Sees . l83LB7 & 190, in relation to Sec . 184, Revenue Code) , while parts or accessories of automobiles imported as completely knocked down parts for assembly by car assemblers and manu~acturers are subject to a tax equivalent to seven (7) ~ centum of the gross value in money of said articles (Sec. 186).

DECISION - C.T.A. CASE NO. 731 - 5- This finds support in an opinion of the Secretary of Justice, in which we fully concur. "The Bureau of Internal Revenue holds the vievJ that the reduced 7% sales tax rate may be availed of only by car assemblers and manu- facturers who import parts and accessories for the purpose of assembling cars and that where the said parts and accessories are imported by one who is not an assembler or manufacturer the tax that should be paid is the usual rate of 50%, but where the importer is also the end-user, as in the instant case, the tax due is the compensating and not the advance sales tax. On the other hand, the Mu.fioz (Hi) Motors, Ins., asserts that the importation in question should be entitled to the reduced tax rate of 7% on the ground that it comes within the purview of the underscored proviso of section 184(a) there being an importation of completely knocked- down parts intended for the assembly of auto- mobiles. . "After an examination of the above- quoted provisions, we have come to the con- clusion that the view of the Bureau of In- ternal Revenue is the correct one. Accord- ing to the fir~t p~agraph of section 184 'such tax to Lshall/ be paid by the mgnufa~ turer or produc�l'11 � Hence, the reduced tax payable pursuant to the proviso under con- sideration of paragraph (a) of the same section should be deemed to have been pro- vided for the benefit of the said 'manufac- turer or producer'. "This view finds ample support in the conference report, quoted below, of the com- mittee which prepared House Bill No. 5809 (now Republic Act No. 1612): "'Report consolidates into one paragraph all proVisions covering tax on automobile chassis and bo- dies, so as to avoid confusion in the manner and rate of taxing lo- cally-assembled cars. With that, Mr. President, there has been con- fusion in the manner of i mposing tax on assembled cars here. The spare parts were made to pay taxes,

DECISION - C.T.A. CASE NO. 731 - 6- and when the assembled cars were sold, a luxury tax is imposed on the assembled cars, so that in ef- fect, the industry is paying two kinds of taxes. With this confer- ence report, we ~onsolidated all tne�~ provisiqns, so that the t~3 ~a1d on spare parts are deducti- ble wh�n these parts are assembled into finished cars. Otherwise, the assembling industry here would be paving two kinds of taxes, which is contrary to the basic philosophy of our taxation system; and second, with that kind of double taxation, these cars would have to be sold at exhorbitant prices. x x x' (Senate Congressional Record, July 11, 1956, p. 365; Underscoring supplied.) 11 "It is quite evident that it was the le- gislative purpose to do away _with the prac- tice then prevalent in taxing twice locally assembled cars. A tax was collected initially on the spare parts and accessories, and ano- ther on the assembled car when it was sold. Pursuant to the amendment, the tax paid on the spare parts and accessories would be �deductible when these parts are assembled into finished cars'. End-users who are not car assemblers or manufacturers do not fall within the purview of this amendment since .they would be required to pay only the tax assessable on the CKD parts and accessories. the H"uBfioezsid(Heis~ the interpretation urged by Notors , Inc., would result in gross inequality in the taxation of the same article. A car locally manufactured from spare parts and accessories imported by one who is not an assembler otrhme a7n%uftaacxtuarnedr, would be subject only to no mor~. On the other � hand, if the spare parts were imported bsyubajnecatsstoemtbhleer7%or m a n u f a c t .t r e r , besides being tax, the dif- ference in value between the spare parts and the finished product would still be subject to the regular rate of tax, 50% or more, as the case may be. This is a situation which could not have been within the legislative contemplation. Furthermore , this would in- directly open the door to circumvention of the law by the simple expedient of making

DECISION - C.T.A. CASE NO . 731 - 7- it appear that the end-user, and not the assembler or manufacturer, is the importer of the spare parts and accessories. "It is stated that during the era of import and exchange controls the Central Bank limited the importation of CKD units to car assemblers and did not allow their importation by ordinary importers and end- users. (See letter of Munoz (Hi) ?1otors, Inc. to the BIR , dated July 18, 1962.) This bolsters the 7%c omn acyl ubsei o na vtahi laetd t he reduced tax rate of of only by importers who are car assemblers or manu- facturers. Republic Act No . 1612 was passed during this time of controls and statutes should be construed in the light of contem- porary events existing at the time of their passage and not in the light of subsequent events. (See 82 CJS 739-743; 50 Am. Jur. 276-277.)" (Opinion No . 44 , s. 1~63) In the light of the above findings, we are of the opinion that petitioner's importation of the 15 units of Ford Consul Sedan (CKD) is subject to the 50~ com- pensating tax. WHEREFORE , petitioner Jose Zamora is hereby ordered to pay the amount of ?23 ,103. 85 as deficiency compensat- ing tax. Without pronouncement as to costs. SO ORDERED. March 21, 1964. ROMAN H. Dr1ALI Associate Judge WE CONCUR: �