CTA Case No. 2001 (Decision)

,\El"UllLIC O'f THE PBIUPPIMEI COURT OF TAX APPE.ALI QUEZO,N CITY ' � SHITH BELL AND CO. (PHILS . ) INC. , Petitioner, - versus - C. T. A. CASE No . 2001 COl'INISS IONER OF TI~TERNAL REVEND""E, . Respondent . x- - - - - - ~ - - - - -x DECISION Petitioner appealed fro:in the decision of respond- ent, dated March 10, 1969, imposing a deficiency spe- cific tax of ~22 , 175. 20 on �220 cartons of ttBabycham.U I wi.ne imported by petitioner in 1965 and 1967, plus a compromise penalty of ~1 , 000. 00. Petitio.ner is a corporation duly organized and existing under the laws of the Republic of the Philip- pines wit h office at 1\m. 13 , South Super Highway , Para- fiaque , Rizal . In 1965 and1967 , petitioner imported � from England 220 cartons containing 96 bottles , each of 105 cc., per carton , or an aggregate of 2, 217. 6 ' gauge liters of ttBabycham 11 wine . Petitioner paid specific tax on the aforementioned importation amounting to �4,436. 00 at the rate of �2. 00 per gauge liter , provided in Section 134(c) of the I!evenue Code . Petitioner was investigated by a revenue agent in connection with the aforesaid impor~ation . He reported and recommended to respondent that petitioner be taxed /

DECISION - 'I' CTA CASE No. 2e01 2 at the rate of ~12. 00 per gauge liter, instead of ~2. oo, because the imported wine comes under the class :lfication of "sparkling wine . n Thereafter, re- �spondent assessed petitioner the amount of ~22,175. 20 .: as deficiency specific tax, plus the sum of ftl,ooo.oo as compromise penalty , or a total amount c� ~23 , 175. 20. Petitioner, hO\vever, requested respondent to hold in abeyance the.collection of the said assessment pend- ing f .inal resolution by the Supreme Court of a s :imi- lar case entitled "Smith Be.ll & Co. (Phils ), In c. v. Conuniss i one r of Internal Revenue:, tt G. R. lio . L-28271. The said request was denied by res pendent in his let- ter to petitioner dated October 22, 1968, wherein he reiterated the demand for the payment of the� defi- ' ciency specific tax. Subsequently, JB titioner re- quested respondent to reconsider his assessment be- ; cause the imported tJBabycham" wine is not a sparkling .wine . In support of its request, petitioner submitted to respondent a literature and/or brochure showing h ow the aforesaic'I 11Babychamtt wine is manufactured. In view of petitioner 's request for recons idera- tion, the Chief, Specific Tax Enforcement Division, Bureau of Internal Revenue , referred the said litera- ture and/or brochure to the Laboratory Center~ Bureau of Internal Revenue , �to determ.ine whether or not the ,

DECISION CTA CAS E r o. 2001 3 imported beverage is a s parkling wine under the exist- ing internal r e venue laws . and regulations . On February 11, 1 969, the Acting Chief, Labora- tory Center, Buraau of Internal Revenue, submitted to t he Revenue � Opera tions Head, Spec :ific Tax Divis ion of the same Bureau, his report and/or analys i s of the \vine imported by petitioner which \ve 't'{:UJ. dis cuss hereafter. The only question here at iss ce is whether or not the 11Babycham" wine imported by petitioner is a 11sparlding wine 11 ta..xable under Section 134(a) of the National Internal Revenue Code . Section 134(a) of the said Code imposes a speci- fie ta..x on ttsparkling .wine, 11 regardless of proof, at ~12. 00 pe r liter of volume capacity. The said legal provision was the basis of res pondent's deficiency specific tax assess ment of �23 ,17 5.20, inclusive of compromise penalty. The other provisions involved herein are Sections 134(c) a nd 135 of the same Code . It is to be noted that Section 134(c) of the Revenue Code provides that 11s till wine containing more than fourteen per ceptu..11 of alcohol'' is subject to speci- fic tax at t he rate of �2.00 per gauge liter . The said 1 egal pr ov is ion was -relied upon by the Collect- or of Customs of Manila in assessing and collecting from p3titio.ner the sum of 11'4,436. 00 when the imported

\ DECISION - " CTA GAS .E No. 2001 4 w.ine in ques tio:h arrived in t.1anila. On the other hand, Section 13 5 of the Revenue Code taxes ''other fermented liquors 11 at teo. 25 per gauge liter . Peti- tioner, therefore , contends tm t its importation of wine should be classified as "other fermented li - quor 11 and not 11s parkling wine 11 or 11s till wine rt as embodied in Sections 134(a) and 134(c) of the Reve- nue Code. In sustaining its position, petitioner finds solace and comfort in the absence of any specific legal provision defining the term 11spark:Ling wine" in our Revenue Code . In the absence of any statutory definition as to the mean~ng oi' the term 11sparkling vline 11 , petitioner vigorously contends that resort should be made to extrinsic aids in determining the meaning and scope of the term "sparkling w~e . 11 One r� these extrinsic aids , which petitioner considers reliable and Valid , is the application of the doctrine involvi.ng statutes in Eari m,ater!_C\� .Respondent considered the stand of petitioner as erroneous and without merit because the provisions of Sectio~ 134(a) of the Tax Code, which imposes a specific tax on ttsparkling wine", are clear and ex- plicit ,and, therefore, require .no further interpreta- tion. es pendent, howeve r , failed to quot �s or even

DECISION CTA CJ1SE No . 2001 5 cite any provision of the Revenue Code which would throw light on the correct meaning and inte~pretation of the term "sparkling wine . 11 After simply quoting paragraph (a) of Section 134, which merely provides that 11sparkling wine, regardless of proof' is taxed at t''l.'lelve pesos per liter of volume capacity, 11 respond- ent cited the definition of ''win$1 in Revenue Regula- tions No . 3 of the Department of Finance, \vhich seems . irrelevant and inapplicable to the case at bar be- cause there is no dispute that 11Babycham 11 is wine. As an act of self-contradiction, res pondent relied upon and res orted to the definition of 11s parkl ing wine 11 found in Webster 's New International Dictionary in interpreting what �he claims to be clear and explicit language of Section 134(a) of the Revenue Code. In- ferentially, res J.X)ndent admits and concedes that our Revenue Code does not contain any defiQition of "spa rkling wine 11 and there is no provision therein which would give any indication of the legisl a tive intent as to the meaning of the said term. Under t he fundamental rule of statutory con- struction that all statutes relating to the same sub- ject matter are to be cons trued with reference� to each other so that effect may be given to all the provisions thereof, tax statutes should be inter- �

DECISION - :, CTA CASE No . 2001 t 6 preted in connection vlith other tax legislation. (51 Am. Jur . 363; Madrigal v. Rafferty , 38 Phil . 414. ) The rule , therefore , which allm�rs the court to re - sort to statutes in pari materia finds justification in the assumption that statutes relating to the same subject matter were enacted in accord with the same legislative policy; together they constitute a har- monious or uniform system of law; and to maintain � this harmony, every statute dealit1g on the same subject matter should be analyzed and considered . As a re- sult , statutes in ~ materia should .not only be considered but also construed to be in harmony with each other in order that each may be fully effe c tive. They are to be construed togetl:er as if they consti- tute one act. (Crawford, Statutory Construction, pp. 431 - 434. ) . Followil~ the doctrine of statutes in pari materia , petitioner invited the attention of this Co urt t o Republic Act -No. 1937, otherwise known as the "Tariff and Customs Code of the Philippines, 11 to show t he correct meaning and interpretation of the term "sparkling Wine . It With Heading No. 22. o5, Chapter 22, Schedule IV, of the said Code as a basis, petitioner concluded that "sparkling winett refers only to wine of fresh grapes or grape must , yhat is, 11sparkling vrine 11 is wine made from the .fermented �juice of grapes . In short, petitioner claims that the 11Babychamu wine im- ,

.- DECISION - CTA CASE No . 2001 7 ported by it is not ''sparkling wine 11 because it is not fermented from fresh grapes or grape must ; and ttBabychamn Wine was produc~d from fermented juice of perry pears . Petitioner, therefore , submits that nBabycham 11 wine should be classified and taxed as :(!other fermented liquors" under Section 135 of the Re~e.nue Code � .Admitting the validity of the premises of peti- tioner ' s argument , we still disagree with the conclu- sion reached by petitioner in View of the wording a.nd intent of Heading No . 22. 05 of the Tariff and Customs Code . Contrary to petiti oner ' s interpretation , Head- ing No . 22. 05 doos not state that llsparkling winerr refers only to wine of fresh grapes or grape mus.t; much less does it define ttsparkling wine 1' as wine made from the fermented juice of grapes . The said Heading No . 22. 05 merely classifies, for purpos�es of customs duties , 'twine of fresh grapes , including grape must with added spi rit, 11 into : . . ... . . . Sparkling wines . ad val . 200% 11:8. Other: 1. Containing by volume fourteen per cent or less of alcohol: (a) In receptacles containing each more than two liters ��� 1 . ~ . 10 .. or ad val. 100%

DECISIOn - . CTA Cl~E No . 2001 '' 8 (b) In other recepta- cles . � � . . � � � 1 . ~ . 20 or ad vai. 100% (2) Containing by volume over fourteen per � cent of a1 cohol: (a) In receptacles containing each more than two liters �� 1. �0. 4o . or ad val. 100% (b) In other recepta- cles � ��� � ~ �� 1 . �0. 70 or ad val. 100%. u To paraphrase the above-quoted provision only makes it clear that , for purposes of customs duties, wines of fresh grapes, including grape must with added spirit (must of fresh grapes to which sufficient spirit has been added to arrest fermentation), varies in character a cco.rdi.ng to the quality and t ype of grapes from which t hey are prepared and the process of their manufacture . If the resultant product is 11sparkling wine, 11 then it is subject to an ad valorem duty of 200%; otherwise, t h.e collectible customs duty would depe.nd upon the alcohol content by .:t;he volume and t he receptacles used . Other _varieties a~d types .of Wines, also made of grape must or fresh grapes, depending upon their flavors and method of prepara- tion, are treated under Heading Nos . 22. 04 and 22. 06. And wines obtained by fermen tation of fruit or vege- table juices other than fresh grapes, fall under Heading �No . 22.07. (See Vol . I, Commentaries of the

,. DECISION - CTA CASE No . 2001 9 Tariff Code of the Philippines by Montano A. Tejam , p. 117.) Cons trued together in the light of the other headings mentioned above covering the various kinds and types of wines and other fermented beverages, Head- ing No . 22.05 yields th~ conclusion that sp~rkling wine is subject to the ad valorem duty of 200%. No- where and in no1vise can \ve extract the view, as peti- tioner would want us to do, that ''sparkling wi.nett �re- . fers only to wines of .fresh gra.Fet~ or grape must, .or Wine which is made only .from fermented juice of grapes . The stand of this Court is justified if we� take into consideration that Heading No . 22.05 falls under Section lOlf of the Tariff and Customs Code which enumerate.? the articles subject to customs duties and provides the rates which shall be levied, collected and paid upon the importation thereof � . These duti- able articles are classified according to their nature under 21 schedules and 99 chapters. Wines of different kinds and varieties are treat- ed under Chapter 22 - 11Beverages, Spirits and Vinegar" - depending upon whether they are: (a) obtained .from grape must , in fermentation or with fermentation arr�ested other- wise t~an by addition of alcohol; (b) wine of fresh grapes, including grape .. �

DECISION - ., CTA Ci~E No. 2001 ' 10 must wlth added spirit; (~) vermouths and other wines flavored with aromatic extracts; (d) rice wine or sake; or (e) other fermented teverages (e.g., cider, perry and mead). On the other hand, the ordinary dictionary mean- ing of tts parkling wine 11 reads . as follows: , "Sparkling - Effervescing or effer- vescent; Sparkling beverages containing the gas carbon dioxide under pressure . 11 (Webster's Nev.r International Dictionary, 2nd Edition. ) � Chern is ts describe us parkl ing wine n as : usparkling Wines - are bottled be- fore the fermentation has ceased s.o that they contain carbon dioxide gas in solu- tion at greater than atmospheric pres-:- s ure. 1men they are served, the carbon dioxide is liberated with effervescence. This gas and alcohol�ic contents vary ac- cording to the market for which they are intended . They may be dry or svTeet, light or strong . Champagne, sparkling Burgundy, and 1\sti-Spumante are examples of sparkling wine . '' (Chemistry and Tech- nology of Wine and Liquors by Hers tein and Jacobs, 2nd Edition, p. 185. ) The Explanatory Notes to the 1950 text of the Brussels Nomenclature upon whi~h the present Tariff and Customs Code of the Philippines was based read as follows: us parkl ing wines . These w;i,nes � (generally white) are charged with car- bon dioxide either by conducting the final ' fermentation in a closed vessel (spark-

I, DECISI0~1 - CTA CASE No . 2001 11 ling wines proper) or- by ,adding the gas artificially after bottli11g (aerated wines) . 11 (Vol. I, Commen- taries of the Tariff Code of the PhiJippines by J.iontano A. Te jam, p. 117.) . From t he fore going d iscuss ion 'Tile are cons trained to conclude t hat 11s parkling wine tt is obtained .by the fenen t a tio.n of fruit j uice �ib.Cl\ui':lng fres h grapes . If t he re s ~ting alcoholic beverage from the juice of any ~t are produced by fermentation (not dis- tillation) and they are charged with carbon dioxide, either by conducting the f :inal fermentation thereof in a close:tvessel or by , adding the gas artificially after bottling the same so that the carbon dioxide is liberated with effervescence when it j,.s served, rth'e the resulting beverage, whether they a re -obtained from . fermented fruit or even vegetable juices, are class- ified as s parkling wine. In the case at bar, our attention is focused on paragraph 13 , incl Ud ing its Annexes 0 and . P, of the . S tipulation of Facts submitted by the parties. � The . memorandum report dated February 11, 1969 (p. 90, BIR rec . ) of t he Acting Chief, Laboratory Center of the Bureau of Internal Revenue, gives the following data, namely: u1. Tha t 'Babychara' Perry is an al �coh olic beverage . found to conta in 7. 6% alcohol b,y volume~~ (Identif ica-

DECISION - CTA Cl-iBE r'o. 2001 12 tion Laboratory No. 13321, copy hereto attacmd. ); 112. That the alcohol is produced by natQral ferme tat on of the expressed juice of ;eears a f,ruit); tr3 . That carbonation is by natural process where excess and resid~21 carbon dioxide is dissolved and retained W1der pressure throyghout the processing ang into the bottle; ~- That effervescence is due to the presence .or- carbon dioxide under a pressure in e?Ccess of normal atmospheric pressure; rr5. � That 1Babycham' Perry is made in the manner of wine � 11 The said :memorandum-report also reveals that: � "FTil DINGS : I . Description of sample: (a) Baby Cham, 1 Champagne Perry ' (b) Alcohol content - 14. 7� - proof spirit (c) Auxiliary label No . 1311223 II. Color:- Straw color III. Characteristic: - Effervesces on openirig and positive to carbon dioxide test. IV. 1Ucohol Content: - 7. 6% or 1 5. 2 proof RENABI\S: - Th<? sample is Chamgagne . 11 From the fore going facts and figures, we hol~ that the 11Babycham11 wine imported by petitioner fall$ under the category of 11sparkling wine . n T)::ley are, therefore, s ubject to s pecific tax at the ~ate of �12. 00 per gauge liter� under Section 134(a) of the Revenue Code because the provisions thereof are broad

l!).ECIS ION _ CTA CASE No . 2001 13 . and ComprehensiVe SO as to inclUde Within its scope . all kinds of sparkling wine, whetrJ.er obtained by fermentation of fresh grapes , grape must , fruit juice , or_even vegetable juice . The collection of the compromise penalty of "1,000. 00 is not jw tified because a compromis <3 im- plies mqtual agreement betvmen the parties involved. One party cannot exact from or impose upon another a compromise. If the Commiss io.ner of Internal Revenue believes that petitioner has incurred a penal liabi- ' lity for violation ,of the Revenue Code , he is free to institute criminal proceedings . For respondent to impose a -penalty without the conformity of peti- tioner is illegal and unauthorized. (Cell. of Int. R~v. v . University of Santo Tomas , et al . , G. R. Nos . I L-11274 �& 1 -11280, November 28 , 1958 ; Cell . of Int . ev. v. Bautis t a , et al ., G. R. Nos . L- 12250 and L-12259, May 27, 19' 59; Phil . International Fair , Inc., J v. Cell. of' Int . Rev., G. R. Nos . L- 12928 & L- 12932, 11ar. 31 , 1962.' ) \�lBERJ~FORE, the dec is ion o:f the res pendent Com - missioner of Internal Revenue appealed from is af - firmed . Petitioner Smith, Bell & Co. (Phils . ) Inc . is hereby ordered to pay respondent Comr.aiss ioner of Inter,nal Revenue or his duly authorized collection

7 DECISION - CTi Cli.S E No . 2001 , agent the amount of 22,175.20 as deficiency speci- fic tax on the 220 cartons of 11Babycham 11 vTine 1m- ported by it in 1965 and 1967 . 1Jlithout pronouncement as to costs . SO ORDERED. Quezon City, De cember 27, 1971. ffi CON CUR: ~~ Presiding Judge /2_ -Ytv-~ � ANON L. VAIWnr � Associate JUdge