CTA Case No. 955 (Decision)

'Kl'UBLIC o:r TIE PBILIPPIND COURT OF. TAX APPEALI QUE~N CITY ~ I NORTHERN LI~'ES , INC. , Petitioner, - versus -:- C.T.A. CASES NOS . 955 & 960 COMMISSIONER CF CUSTO~� & COMMISSIONER OF INTERNAL REVENUE, Respondents. X- - ~ _ , _ - - - -X DECISION These are .separate but jointly heard appeals � from the decisions of respondent Commissioner of In- ternal Revenue, dated October 25, 1960 and October 28, 1960, holding petitioner liable for compensating .tax on the vessels nnon Amando" and "Don Salvador", which were purchased from the Reparations Commission. The facts, as stated in the parties� "Partial Stipulation of Facts," are as follows: 1. That petitioner is a corporation duly organized in accordance with Philippine laws, with office address at Chronicle Build- ing, Aduana, Mani_la; ~;espondent Commissioner � of� Customs holds office at the Bureau of Cus- toms, Manila; and respondent Commissioner of Internal Revenue at the Bureau of Internal Revenue, Manila; 2. That the vessel "Don Salvador" ex "Magsaysay" (subject-matter of CTA No. 960) and the vessel "Don Amando" ex 'Estancia" (subject-matter of CTA No � .955) are both owned by and registered in the name of the Reparations Commission, Republic of the Philippines; . 3. That said vessel nnon Amando11 was released to the petitioner as end-user _ thereof, since May, 1960, per Resolution No . 281 of the Reparations Commission dated May 19, 1960, and the Conditional Contract of Purchase and Sale, dated October 20, 1960; while said vessel "Don Salvador11 was re- leased to the petitioner as end-user there- of, since March 1960, per Resolution No . 239 of the Reparations Commission dated March 21, 1960, and the Conditional Con- tract of Purchase and � sale, dated Septem- b~r 12, 1960; -

DECISION - CTA CASES NOS. 955 & 960 2 ~. That the vessel "Don Amando" was issued a coastwise license dated Septem- ber 29, 1960; while the said vessel "Don Salvador" was issued a coastwise license dated May 19, 1960; 5. That petitioner has been operating both vessels in accordance with the pro- visions of Republic Act 1789 known as the Reparations Law and the Rules and Regula- tions of the Reparations Commission 1m- pl.ementing .the same; � 6. That both vessels '.'Don Amando" and ''Don Salvador" ply between Nanila (their port of registry) and the ports of Iloilo, Pulupandan, Zamboanga, Cotabato, Davao and Cebu, leaving Manila every other Saturday evening, allll.d they operate exclus- ively in the Philippine waters; 7~ That .respondent Commissioner of Customs has assessed and demanded pay- ment of compensating tax in the amount of �123,951.50 from petitioner on the vessel 11Don Salvador", and in the amount of �122,332.99 � on the vessel "Don Amandon; 8. That petitioner has questioned the imposition of the compensating tax and requested respondent. Commissioner of Internal Revenue to advise the re- spondent Commissioner of Customs to desis.t f'rom collecting the s_aid tax but respond- ent Comn1issioner of Internal Revenue de- c.ided that the compensating tax was due and demandable and that payment thereof should be made per assessment of the CommissioneE of Customs; 9� That on l{arch �10, 1966, the peti- tioner sent to the Reparations Commission the letter hereto attached as Annex ttA''; 10. That the petitioner did not exe- c'ute, sign or file any renovated utili- zation contract with the Reparations Com- mission covering the vessels "Don Salvador" and "Don Amando" as required by Section 20 of Republic Act No. 3079 amending Section 1~ of Republic Act No. 1789 in order to be exempted from the payment of compensating t~es on the aforesaid vessels; 11. That the parties hereby adopt, as evidence in the main cases, all evidence previously presented at the preliminary hear-

DECISION - CTA CASES NOS. 955 & 960 3 ings of the above-entitled cases anent the petition for � issuance of a writ of prelimi- ary inj ur..ctio ; anu, turtbermore, the par- ties hereby reserve their respective rights to present any other and further evidence as they may deem necessary under the premi- ses . (Pp . 100- 102, CTA rec . , CTA Case No . 955 . ) Petitioner rested its case on the basis of the partial stipulation of facts . Section 14 of Republic Act No. 1789 , which was amended by Republic Act No . 3079, and which took effect on June 17, 1969, pro- vides thus: Sec. 14. Exemption from tax.- All reparations goods obtained by the� govern- ment shall be exempt from the payment of all duties, fees and taxes . Reparations goods obtained by private parties shall be exempt from the payment of customs duties, compensating tax, consular fees and the special import ~ax . And Section 20 of said Republic Act No . 3079 reads as follows: Sec. 20 . This Act �shall take effect upon its approval, except that the amend- ment cont amned in Section seven hereof re- lating to the requirements for procurement orders including the requirement of down payment by private applicant end-users shall not apply to procurement orders already duly issued and verified at the time of the pas- sage dr this amendatory Act, and except fur- ther that the amendment contained in Section ten relating to the insurance of the repara- tions goods by the end-us.ers upon delivery shall apply also to goods covered by contracts already entered into by the Commission and the end~user prior to the approval of this amend- atory Act as well as goods already deli vered to the end-user, and except further that the amendments contained in Sections eleven and twelve hereof relating to the terms of installment payments on capital goods dis- posed of to private parties, and the execu- tion of ' a performance bond beforedelivery of reparations goods, shall not apply� to con- tracts for the utilization of reparations

:. I DECISION - CTA CASES NOS. 955 & 960 goods already entered into by the Commi~sion and the end-users prior to the approval of this amendatory Act1 Provided, That any end- user may apply for the renovation of his utilization contract with the Commission in order to avail of any provision of this amendatory Act which is more favorable to an applicant end-user than has heretofore been granted in like manner and to the same extent as an end-user filing his ap- plication after the approval of this amend- atory Act, and the Commission may agree to such renovation on condition that the end- user shall voluntarily assume all the new obligations provided for in this amendatory Act~ The issue to be resolved is whether or not peti- tioner is liable for the payment of'- ~J22,332.99 - and ~123 ,951.50 as compensating tax on the vessels "Don Amandon and "DonSalvador11 which were acquired from the R~parations Commi~sion on October 20, 1960 and Septembe"r' 12, 1960, respectively, or prior to the amend- ment of Republic Act No . 1789 by Republic Act No . 3079. The issue before us is not new. In a previous case involving a similar issue, this Court applying the aforesaid provisions of law ruled as follows: From the above quoted provisions of law, it appears that goods acquired bx private parties from the Reparations Commission prior to the effectivity of Republic Act No . 3079 were subject to the compensating tax and that goods acquired thereafter are exempt from said tax. How- ever, with respect to goods acquired prior to the approval_of said Act, Section 20 thereof provides that any private party or end-user may apply for the renovation of his utilization contract with the Re- parations Commission in order to avail him- self of any provision of said Act which is more favorable to him than has heretofore been granted "in like manner and to the same extent as an end-user filing his ap- plication after the approval -of this amend- atory Act." And the Reparations Commis- sion is authorized to agree to such re-

''I DECISION - CTA CASE NOS. 955 & 960 5 ... novation �~on condition that the end-user shall voluntarily assume all the new obli- gations provided for .in the amendatory Act.'' Section 20 of Republic Act No . '3079 makes the provisions thereof favorable to the end-users, among which is ' the exemp- tion from compensating tax, applicable to transactions effected prior to its approv- al, provided that (1) the end-user applies for renovation of his utilization contract with the Reparations Commission and (2) the applicant . end-user voluntarily ~ssumes all the new obligations provided for in said Act. (Philippine Ace Lines, Inc. vs. Comm . of Int. Rev. & Comm. of Customs, C.T.A. Cases Nos . 964 & 984, Jan. 25, 1963; under- lining supplied.) Similarly, it has � been held by the Supreme Court that those who purchased reparations goods prior to June 17, 1961, the date Republic Act No. 3079 took effect, will not enjoy exemption from compensating tax, unless they comply with the prov- . isions of Section 20 of said Act with respect to the renovation of -their utilization contracts with the Reparations Commission. Said the Supreme Court - It is true that Republic Act No . 307$ does not explicitly declare that ' those who purchased reparations goods prior to June 17, 1971, are exempt from compensating tax. It does not say so, because they do not really enjoy such exemption, unless they comply with the proviso J in Section 20 of said Act, by applYing for the renovation of their respective utilization contracts, "in order to avail of any provision of the Amendator Ac.t which is more fa~orable to the applicant. x x x. Co~nissioner of Internal Revenue and Commissioner of Customs vs. Botelh~ Shipping Corpora- tion and . General Shipping Co., Inc., G.R. Nos . L-21633 & L-21634t June 29, 1967; underlining supplied.) Ih a case where the end-user was found to be without any renovated contr~ct, as it .failed to adduce

DECISION - CTA CASES NOS . 955 & 960 6 evidence relative thereto, this Court held that the end- user is subject to compensating tax under Section 190 of the National Internal Revenue Code, in rela- tion to Section 14 of Republic Act No . 1789. (Liber�- tion Steamship v. Commissioner of Internal Revenue, C. T. A. Cas e No . 976, June 3 , 1970. ) In the cases at bar, there is no evidence that renovated utilization contracts were executed by and between petitioner and the Reparations Commission concerning the vessels 11Don Amando11 and "Don Salvador" pursuant to the amendatory law. Consequently, the vessels in question are not exempt from the payment of compensating t ax. WHEREFORE , the decisions appealed from are hereby affirmed . It appearing that petitioner's liability for the compensating tax on said vessels is guaranteed by surety bonds filed by F~eldmen 1 s Insurance Co. , Inc . (FICI Bonds Nos . 50ll ' and 5035 dated October 24 and October 28 , 1960, respectively) , petitioner and its surety, Fieldmen 1 s Insurance Co . , Inc . , are ordered to pay respondent Commissioner of Internal Revenue, or his duly authorized representative, the amounts of iil22,332.99 and !ll23,951 . 50 as compensating tax on the vessels 11Don Amando" and 11Don Salvador . "

DECISION - CTA CASES NOS. 955 & 960 7 With costs against petitioner. SO ORDERED. Quezon City, November 29, 197lo WE CONCUR: . ~e~ ::_ .AkO ;RR. A?LV~~~ Associate Judge ~ /!~ .� ~~� RM'ION L. AVANCENA Associate Judge