CTA Case No. 3019 (Decision)

RK"'lL UC OF TH~ f.li!LlH? � .,;., �'' COURT OF TAX J:.L:l!~..c:.t\L~ Ol'l!7.0W C11'V MARINDUQUE r-HNING AND C . T . A. CASE NO. 3019 INDUSTRIAL CORPORATIONr Petitioner , - versus - EFREN I. PLANA, COMMISSIONER OF INTERNAL REVENUE , Re sponden t. X- - - - - - - - - - - - - X DE C I S I 0 N This is an appeal from the denial of the refund of an amount of Pl,335�631.80 representing the 35% transaction tax paid under Section 210(b) of the I National Internal Revenue Code of 1977. The Marinduque Mining & Industrial Corporation, petitioner, is a domestic corporatior organized and existing under Philippine laws engaged in mining operations which has such principal products as nickel, copper, gold and silver concentrates and cement. In an Operating Contract with the Philippine Government pursuant to the provisions of Republic Act No. 1828, as amended by Republic Act No.,. 2077 and 4167, otherwise known as the "Nickel Law'' , it has undertaken the exploration, development, explo i ~atlon and operation o� Parcel 11 of the Surigao Mineral Reser~atic~ in the Province of S~rigao 157 ..

.' DECISION ~� CTA CASE NO . 3019 2 de l Norte, together wi th the right t o e xtractu pro- cess, utilize and dispose o f the minerals , mineral and metal products, by products, residues and other products that may be extracted oi produced or may res ult from such ope ra tion ; furnishing at its own cost and expense all materials, labor, equipment, plants and other installations and processes that may be requ ir ed for c~rr ying on the o perations authorized or necessary or incident thereto , and all operatbns , processes , work or acts shall be carried out at its own cost and expense. Amo ng the consi- derat ions, it shall be entitled to the additional privilege specifical l y provided in Art i cle VI(S) .o f the Operating Contract plucked almost verbatim from the provision of Sec tion 6 (1) .of R.. A. No . 1828, which p in sofar as pertinent, r eads: "'l'ha t the oper. a tor shall , from the effective date of the c ontract of operation up to and i ncluding the fifth year after commencement of actual production , be exempt from all taxes , dutie s, fees and charges, both national and local, directly payable by it f o r any work or activity, equipment, machinery, materials, instru me nts, supplies, accessories, structures , bui ld ings, lands, improveme n ts and/or other p roperties directly connected with or needed and to be used exclusively in the operat i on, other than those provided in this Act and except those fees and charges that are imposed for work or services actually rendered to the operator: XXX XXX XXX." Like wise , Section 53 of Presidenti al Decree No . 463, entitled, f'"l'he Mineral Resources Dev0lopment 1 r-.: () ,,J ..)

DECISION - CTA CASE NO. 3019 3 I)ecree of 1974" is invoked, to wit.: "Tax exemptions. - Machineries, equip- ment, tools for production, plants to convert mineral ores into saleable form~ spare parts, cupplies, mat.erials, ac.cessories, explosives, chemicals and transportation and communication facilities imported by and for the use of new mines and old mines which resume operation, when certified as such by the Secretary upon recommendation of the Director, are exempt from the payment of customs duties and all taxes except income tax for a period starting from the exploration and ending five years from the first date of actual commercial production of saleable mineral products: Provided, That such articles are not locally available in reasonable quantity, quality and price and are necessary or incidental in the proper operation of the mines." Growing out and on the basis of the foregoing provisions, pe titioner seeks to enforce its claim for the refund of an amount representing payments of 35% transaction tax based on the gi:oss amount of interest on borrowings from financial institutions during the period from July 15, 1977 to January 27, _ 1978, imposed under Section 210 (b) .of the National Internal Revenue Code of 1977, insofnr as pertinent, quoted: "Commercial paper transactions . - .There shall be levied, assessed, collected and paid on every commercial paper issued in the primary marl~et as principal instruments, a transaction tax equivalent to thirty-five per cent (35%} based on the gross amount of interest thtireto as defined hereunder, which shall be paid by the bor rov.1er I issuer: xxx XXX XX ~{ . : 1 ~i")' n.:;

.. DECISION ~ CTA CASE NO. 3019 4 "The transaction tax imposed in this section s hall be a final tax to be paid by the borrower and shall be allowed as a deductible item for purposes of computing the borrower's taxable income ." The question for decision is whether petitioner is exempt from the payment of the transaction tax on i nterests consequenced by its borrowings, which respondent c sts aside as not among those legal en- ~itlements co n templated in petitioner's tax exemption privilege under the provisions of the Operating Contract , Republic Act No. 1828 and Presidential Decree 463. The statutory grant is not of such a broad spectrum with open-~nded featu~es as would sire e �ery conceivabl e tax asses sment or burden which petition~r may proffer to attach. Of equal signi- ficance although far less noticed is Section 3(2) of R.A . No. 1828 or Article Vl(2) of the Operating Contract which establishes the metes and bounds of the benefits to be availed under the privilege expressed in generality, under Section 6, .~.E r ~, thus, "Section 3(2). -Exemp tion from the laws and reg ulations relating to: (a} importation of machinery, equipment, access ories, spare parts, and/or supplies and ma t erials necessary for or in connection with said operation or processing of minerals; (b) cons tructi ons r i n stal lation and operation "of power plants, including importation of machinery and equipmenc, accessories, spare parts and/or o_erating supplies and materials, should the Na tional PmoJer Corporation fail to supply within 1GO

DECIS ION - CTA CASE NO. 3019 5 reasonable period and at reasonable cost the power needed in the operation; (c) exportation of such machinery and equ{pment which were imported solely for construction and installation purposes in connection with the afore- said operation and processing and which are no longer needed in the operation; XXX XXX xxx" Section 6, supra ~ cannot be naively viewed as an absolute warr a nt of exemption but finds confine- ment to the kind of articles and facilities in- tended to be used , likewise, compatibility with the activity peculiar and appropriate in the proj ect being undertaken, e.g., importation, construction, installation, operation and exportation . It is a principle of statutory construction that general t e rms may be re stricted by specific wo~ds, with the result that the general language will be limited by the specific language which indicate the statute's obj ect and purpose (Statutory Construction by c �a;, ford , 1940 eu. pp. 324-325), and, the particular claus es and phrases o~ the statute should not be taken as det.ached and iso l ated expr.:e s'�ion but the whole and every part thereof must be considered in fixing the me a ning of its parts. In fact every statute shou ld receive such construction as will make it ha~mo ni z e with the pre -existi ng body of laws. (Commissioner of Customs vs. Esso Standard Eastern, Inc., L-28329 , Aug . 7, 1975, 66 SC RA 120) ~ Gt

DECISION - CTA CASE NO. 3019 6 There must be reasons of substantial nature for such limitations and it is for us to give effect as expressed. The fiscal stakes in terms of revenue foregone are considerable, unless carefully con- trolled and restrained the undertaking might as well be deemed sol ely for the benefit and convenienced the petitioner-operator. The broad grant of tax exemption benefits is not necessarily to be given a literal meaning. "In construing the act it is our duty to seek the real intent of the legislature, even though by so doing we may limit the literal meaning of the broad language used." (Greenwich Trust Co. vs. Tyson, 129 Conn. 211 , 222, 27 A. 2d 166, 172) �. The gross amount of .interest upon which the transaction tax is imposed under Section 210(b) ~ suer~, is remote and remove d from the activities normally involved or necessarily connected with the undertaking. It never could have been supposed that the tax relief did apply or was designed to apply to s uch pecuniary bu r dens wh ich petitioner may incur in fund raising, least expected of one supposedly "fully qualified a s to organi zation , finances, resources, experience and technical com- petence" (Sec. 2, R.A. 1828) .in undertaking the nickel project for the Philippine governme nt. 1 ... ') WJ /...,; 1

DECISION - CTA CASE NO. 3019 7 Exemption is never presumed. Especially whe~ it is considerGd tbat for the Phil.ipp1nc gove.rnnt2:1.t~~ "the exception contained in ths tax stat~t:s must be strjctly conctrued against the one claiffiing the e . empt,".�lOn. n (Union Garment Co . , Inc. vs. Court of Tax Appeals, L-16809, January ~1, 1962, 4 SCRA 304; Commissioner of Inter1al Revenue vs. Guerr~ro, L- 2 0 942, September 22F 1967 , 21 SCRA 180; Republic Flour r ills, Inc. r vs . Commissioner of Internal Re"�:;;nuc:; , L���25G02, Fei:nua:cy 18, 1970, 31 SCRA 520) because the law 'tbes not look with favor on tax exemptions and th~t he who would seek to be thus privileg.ed must justify it by wordE; too pl;:.tin t.o be mist.aken and too categor i.cal to be misi'J.terpreted" (Reagan vs. Cornmiss ioner of Internal Rev,.nuc, L... 263 7 9, December 27, 1969, 30 SCRA 968 ; Ohio Life Insurance & Trust Co . , vs. Debolt, 60 Eov1ard 416 ; Commissioner of Internal Revenue vs. P . J. Kein0r Co. , Ltd. L-24754, ,July 18 , 1975 p 6~:i SCRll. 153) ,_ for t .he: state cannot strip .i. tself of the r ost essential power of taxation by doubtful words ~ it cannot by ambiguous langu~ge be deprived of the highest attribute of sovereignty. (Erie Railway Co. v s . Common� ealth of Pennsylvania, 21 Wallace, 492 499) 1G3

D...::CISlON CTA CASE NO. 3019 8 th~Phei.F . Nor COiJl.d -ceti tioner so obssessed wi - iJ.e ability to cling to exe~)tion fall back and take hardly necessary to observe that the provision deals centrally on the nature of the articles and facilities to be imported, which are determinative of the sense and co~erage of the grant. The impo- sitions upon which the privilege of petitioner have been tacked are clearly discernible in such levies partaking the attributes of a tax or i mpost on im- portations. The reason is plain. As characterized in an analogous case, "The government has conceded the privilege of exemption to these items because the same may not be economically procurable in terms of price, and quality in the Philippines '' (Commissioner of Internal Revenue Vf3. P. ,J. I\e iner, Co. f ~.E.�.0) . To assure, hoHever, that. the privilege is not abused or circumve11ted , the imtortation thereof must be certified by the Secretary of Agriculture upon re- commendation of the Director of Mines. No other con- elusion can be drawn from the language of the pro- vision as would adcqua:.:ely desc.ribe tne affiliating circumstances for the enjoyment of the privilege � . Thus, in c ases similarly conceived and claimed as p rivileg e, ti e Supreme Court ha s consisten t ly t ~k en 1 G�1

.. DECISIO;;-J - CTA CASE NO. 3 19 9 t:he vie\<l that the liability for: the payment of taxes subsists unl0ss the privilege is express ~ d in clear and anambiguous ter ms. Exemption from the common burden cannot be permitted to exist upon vague im- plications (~siatic Petroleum v. Llanes, 49 Phil 466; Philippjre Acetylene Co., Inc. vs. Commissioner of Internal Revenue, L-19707, August 17, 1967, 20 SCRA 1056 ; Collector of Internal Revenue vs. ManD Jockey Club, Inc. L-37S5 , March 23, 1956, 98 Phil 676; Wonder Mechanical Engineering Corporation vs. Court of Ta}~ Appeals, 64 SCRA 563) �. We are not to confuse about what seems feasible with about what r right .. The for.eejoing suffices fo1: tht~ dismissal >f the petition. Accordingly, we need not and do not think it nece=sary to discuss further the nature of the transaction tax more than to say that the incipient scheme in the issuance of Letter of Instructio ns No. 340 on November 24, 1975 (O.G. Dec. 15, 1975) ~ i. e ., to achieve operational simplicity and effective '-1 Jtrifiistra\ion in captu: ir.g 'he interest-income "v;indfall 11 from money market perations as a new source o~H~vc~nue, has lost none of its animating principle i~ partu:iticn o~ am~ndatory Presidential Dec~ce No. 1154, now SecLion 2l0(b) of _he T~x Code. 1G5

DECISION �� .. CTA CASE NO. 3019 10 The tax t ~-~~ �rn 1osad is act1ally a ~ax on interest earnings of the lenders or placers who are actually the taxpayers in whose income is imposed. Thus, " the borrov-Jer. withholds the t .ax of 3 �% frOin the interest he would have to pay the lender so that he (borrower) _can pay the� 35% of the interest to th<? Government.n (President Marcos, Times Jo~rnal, June 17, 1977 cited in Respondent's Memorandum, p. 6) ~ Petitioner's contention that LOI No. 340 was not carried into law and therefore not a law is a profligacy of inference and Non Sequ_i:_~Of_. t-Ie a1:e unlikely imp{essed. It falls fla~ly in conflict with law. Instructions of the President are part of the law of the land (Art. XVII , Sec . 3 (2) ~ Philippine Cons t i t ution ) _and their non-observance shall not b e excused by disuse (Art. 7, Civi l Code of the Philippi n es)~ Suffice i t to state that the broad~ consensus �)� fiscal and mo.. etary au thor i ties is that "even if nominally, the borrower is made to pay the tax, actually, the tax is on the interest earning of the immediate and all prior lenders/placers of the money." These are no mere splendiferous fustians but respectable opinions which make us hes itate to correct. \�Jc� t b~r o f or. e uphoid t.h (~ co~ r sc'.llCSS of t he 1GG

.. DECISION - CTA CASE NO . 3019 11 the soundness of ':he ruling wi U1 r.:espect to t.h;;,. na t:ur;.;~ and purpose of the transaction tax impoced unde~ Sect i on 210 (b)'� E..~L~.r by respondent Comrnissioner of Internal Revenue. WHEREFOR~, the petition fo review is dis~issed with cost to petitioner . SO ORDERED. Quezon City , March 27, 1981 . I CO. CU--.. : ~P~resti dtin~!5dige kJ. �"-- ('). ~4. /);u.~ CONS TArTE C. m-R(~O.QA_~~i-~-:r , ) . Assoc i ate Judge 1G7