CTA Case No. 3078 (Decision)

. .~ ltEPUBLIC OF THE PHIUPPINES COURT OF TAX APPEALS QUUON ClTY , MEGA GENERAL ~1.ERCHANDIS ING j CORPORATION, C.T.A. CASE NO. 3078 Peti tioner, - .versus - 'l'HE COill'liSS IONER OF INTERNAL REVENUE, Respondent . X. - - .- .- . . .- .x DE C I S I 0 N This is an appeal from the letter - ~ulings of the respondent Commissione r 9f Internal Revenue of January 28, 1977 and February 15, 1980, ordering petitioner to pay deficiency specific tax of Two Hundred Seventy Five Thousand Six Hu ndr ed Fifty Two Pesos (~275,652.00) on its importation of crude paraffin wax on June 21 and August 17, 1977, respectively . Sometime on June 2l,� and August 17, 1977 (pp. 195- 196, BIR Rec .) ~petitioner imported crude paraffin wax consisting of a total of 1,214,400 kilograms. Re1i ing ~ on the ruling of the Commissioner of Intern a l Revenue dated May 14, 1975 , which states to the effect that under Section 142(i) ?f the National Internal Revenue Code, as amended by PD 392, imported crude para ffin wax , which is used as raw materials in the manufacture of candles, \vax paper, matches, crayons, drugs, ointment, 115

DECISION - CTA CASE NO. 3078 - 2- etc. is not subject to specific tax but only to advance sales tax under Section 186 (Exhs . C, C-1_ , C-2_, pp. 73 - 75 CTA rec .) ~ Petitioner , according ly, paid advance sales tax in the sum of ~1 49,388 . However, the Commi s- sioner of Internal Revenue has previously required the payment on this importation specific tax of P321,436.79 which petitioner actually paid and which petiti oner requested to be refunded or credi ted by respondent Com- missioner of Internal Revenue in i ts letter of November 27 , - 1975 . (p. 138 , BIR rec .) In a ruling of J anuary 28 , 19 77, r espondent held petitioner liable f or specific tax of P321,436.79 and denied the latter ' ~ c laim for t he r efund or tax credit of the alleged overpaid specific tax of P321 ,436.79. (p . l.tJ,G, BIR rec .) . In a letter dated January 11, 1978, respondent ' Commissioner of Internal Revenue , acting on the request for reconsideration , approved the c laim for tax credit of petitioner �s_overpaid specific tax, which, in effect, held t hat petit i oner is not liable for specific tax on its imported crude paraffin wax. (p. 210 , BIR rec ; Exhs . E and E-1 , p. 77 CTA rec.) In view of the other conflicting ruling of January 28 , 1 977 (Exh . D. p; 76, CTA rec.) .which ruled and held pe titioner liable for spec ific tax on the imported crude 116

DECISION - CTA CASE NO. 3078 - 3- paraffin wax, as against that ruling of January 28, 1977 aforesaid , having its position on the fact that under the ruling of the BIR of May 14, 1975, stated earlier, interpreting the provisions of Section 142( i) ~ as amended by PD 392,of the Tax Code, and which remained unchanged ever since, petitioner on May 4, 1978 requested for recons iderati on pr aying that it shall be held not liable for specific tax on said importation. (p. 209- 214, BIR rec.) We hereby quote at leng th BIR rul ing o f May 14 , 1975 for more in depth analysis of the same. This refe�rs to your letter dated April 22, 19 75 requesting clarification a.s to whether imported crude paraffin wax is sub- ject to specific t ax under Section 142(i ) of the Tax Code, as amended by Presidential Decree No . 392, or to the 7% sales tax under Section 186 of the same Code. It is your opinion that crude paraffin wax, a raw material used in the manufacture of candles, wax paper , matches, crayons, etc. is not subje�ct to specific tax under Section 142(i) of the Tax Code, as amended , on the ground �hat what are s ubj ect to tax under said section are refined and manufac- tured mineral oils and motor fuels . In reply , I have the honor to inform you as follows: Section 142(i) of the Tax Code, as amended by Presidential Decree No. 392, provides as follows : "Sec. �142. Specific tax on manufactured oils and other fueis.- On refined and manufactured mineral 117

DECISION - CTA CASE NO . 3078 - .4 - oils and motor fuels, there shall be collected the following: "i) Greases, waxes and pet- . rolatum, �pe r kilogram, thirty-f~ ive centavos. " The title of Presidential Decree No . 392 runs as fo llows: INCREASING THE SPECIFIC TAX ON KEROSENE, LUBRICATING OIL, GASOLINE , BUNKER FUEL OIL AND DIESEL FUEL OIL AND IMPOSI NG SPECIFIC TAX ON OTHER REFINED AND MANUFACTURED MINERAL OI LS BY AMENDING SECTIONS 142, 144 AND 145 OF THE NATIONAL INTERNAL REVENUE CODE AS AMENDED. Among the statements in the d eclaration of policy of Presidential Decree No . j92, are the following: "WHEREAS , in order to improve and s implify tax administration , it is desirable to adopt a uniform tax treatment for all refined and manu- factured petroleum products; WHEREAS, the increase in tax on motor fuels and oil is consistent with the present policy to conserve fuel. " In deter mining whether imported crude paraffin wax. i s subject to specific tax or to the sales tax, it is important to know the nature, charac- teristic and uses of paraffin wax. "Paraffin, a colorless or white, waxlike substance, a solid at ordinary temperatures, which is odorless and tasteless and slightly greasy to touch . It is obtained from certain types of paraffin-pase petroleum oils, such as Pennsylvania crudes (not from asphaltic oils, as produced in Mexico and Cali- fornia), and sometimes from shale oil .' Crude p~troleum oils is subject to a process of. fr actional distillation, by which gasoline, kerosine , gas oils, paraffin distillate, and lubricating 118

DECISION - CTA CASE NO. 3078 - .5 - oils are successively obtained. The ~r a f f in w~ is separated from the paraffin distillate and f rom the gas oil and lubricating oils, wh ich also c ontain paraffin, by a process of chilling, followed by filtration. When the pa r affin- . cont ain i ng oil is refr i ge rated , the wax crystallizes out. If a solvent such as methyl ethyl ke tone, which is a good solvent for oil and a poor one for wax, is added to the paraffin-~earing oi l, the separation is facilitated. The p a raffin i~ f ur the r refined by recr ystalli zation fr om solvent. "One of the outstanding physical charac teristics of paraffin is its resistance to water and water vapor. More than half the paraffin produced is used as a coating for paper (milk cartons, frozen food containers). Paraffin has important uses in the manufacture of drugs and cosmetics (lipstick, o i ntments) and candles. It is also used for elecirical insu lation . "x x x . The chlorina t ion of par affin is used to produce methyl chlor ide, a refrigerant and solvent, ethyl chlor i de for tetr aethyl lead manu f act ure, and chlor ina ted paraffin waxes for us e� as hig.l}-pressur e l ubr i - cants . x x x." (Vol . 21 , pages 274d - .274e, Encyclopedia Americana) On the other hand, wax is defined, viz: "Wax - .a ny of a number of natural or synthetic substances that are oi l y, gr easy, inso luble i n water, a nd very sensitive to changes in temperatur e . Waxes differ widely in chemical compo- sition. Some waxes are esters of high~ mo lec ular-~ei g ht fatty acids. An ester is one of the products of a reaction between an ac id and alcohol. These waxes may be animal, vegetable, or mineral 119

DECISION - CTA CASE NO . 3078 - 6- in or1g 1n. Some waxes obtained from petroleum and therefore are hydrocarbon. "The petroleum waxes are produced mainly from petroleum lubricat ing oils in a process called dewaxing. Petroleum waxes, microcrystallin waxes, and petro- latum." (Vol . 19, pages 351- 3.52, Merit Student s Encyclopedia, 1974 Ed it ion) "Microcrystallin waxes, which are closely r elated chemically to paraffin but have higher melting poi nts, are obtained from residual oils from the distilla t ion of crude petroleum oil." (Vol. 21, p . 274e, Encyclopedia Americana} Fr om the title of the law and the declarat i on of policy as hereinabove quoted, and considering the nature, char act eristic and uses of paraff in waxes as stated above, it i s the opinion of this Office as it he reby holds that only waxes which are used as high-pressure lubricants and micro- . crystallin wa xes are subject to the specific tax prescribed in Section 142(i} of the Tax Code, as amended by PD 392. Accordingly, imported crude paraffin waxes which are used as raw materials in the manufacture of candles, wax paper, matches , cr ayons, drugs, .ointments, e t c. are subj ect to the 7% advance sales t a x, the tax to be based on the landed cost thereof plus 24% mark - ~p pursuant to Section 183(b} in relation to Section 186, both of the Tax Code. On May 8, 1978, respondent Commissioner of Internal Reve nue found, after investigation , that based on the impo r tation of crude paraffin wax on June 21 and August 17, 1977, petitioner was held liable for deficiency specific tax of P275, .652.oo. (p . l76, BIR rec . } The above letter was subsequently followed by

DECISION - CTA CASE NO. 3078 - 7- another l etter of respondent Commiss ioner of Internal Revenue dated February 15, 1980, replying to the peti- tioner's reque st for reconsideration, which ma in tai ned the liability of petitioner for specific t ax on the im- ported crude pa raf fi n wax (pp. 217 - 218, BIR rec . ) '� which is quoted below: Wi th reference t o your request for r econsiderati on of our decision demandi ng payment f rom your client, MEGA GENERAL MERCHAND I SING CORP O~.TION the sum of ~275 , 652 . 00 a s deficiency s pec ifi c tax on impor ted crude paraffin wax wh ich ar rived in Manila on June 21 a nd August 17, 1977, I have the honor to inform you that x x x this Office finds no justifiable reason to mod ify o r alter its previou s rulin g on the ma tter . Section 142(i) of the Tax Code , as amended by Presideniial Decree No. 39 2, which is the l aw perti nent to the case provides as follows: Sec. 142 .- Spec ifi c tax on manu- . factured o ils an d other fuels.- On ref ined and manufactured minerai oils and motor fuel, there shall be coll ec t ed the following: XXX XXX XXX (i ) Greases, waxes and petrolatum, pe r kilogram, thi rty-f,ive centavos. The sa id provi sion of the law does not distinguish the kind of wax that is subject to the spec if ic tax. Our earlier ruling da ted May 14, 1 975 , holding that crude paraffin wax is subject t o the advance sales tax is, therefore, supe~seded by the recent ruling dated January 28, 1977. 121

DECISION - CTA CASE NO . 3078 - .8 - As it appears that the i mportat i ons i n question arrived in Manila and the t ax paid thereon after the effectivity of our ruling of January 28, 1977, the assessment of P275 , 652 . 00 was, therefore , correctly issued against your client. Hence , this appeal. Fr om the facts of this case, the issues boil down to the following 1. May specific tax be imposed on t he importati on of crude paraffin wax? and 2. ~a y the rul~ng of theComm i ss i oner o f In te rnal Revenue of J anuary 28, 1977 be made to apply on t he importation of crude paraffin wax or shall it be t he ruling of Ma y 14 , 1975 which prev i ousl y held petit i one r not l iable for specific ~ax on such impo rtation? 'l'i1e foregoing issues raised being very closely inter r el ated, we shal l discuss these jointly and at l ength. It will be starkly noted that in a ruling of r espondent Commissioner of Internal Revenue dated Januar y 11, 1 978 (p . 204 , BIR r ec.) ~ the request for reconsideration of petitioner of the ruling holding it liabl e for specific tax and for the tax credit of the sum of P321 , 436 . 79 paid a s specific tax wa s granted by the Commissioner of I nternal Revenue . In effect, this ruling overrules that of January 28, 1977 holding petitioner l iable for specific tax on its importations of crude paraffin wax. The r uling of January 11, 1978, having overruled that of January 28, 1977, the import- . ations of crude paraffin wax made on June 21 and August 122

DECISION - CTA CASE NO . 3078 - 9- 17, 1977, ostensibly became once more subject to the ruling of May 14, 19 75 which held such importation of crude paraffin wax as not liable to specific tax under the provisions of Section 142(i) ?f the National Internal Revenue Code, as amended by PD 392. In other words, there was no other ruling which is prior to or was made to apply to the importations of petitioner of crude paraffin wax on June 21 and August 17, 1977 , ex- cept only that ruling of the Commissioner of Internal Revenue of May 14, 1975 which applied Section 142(i) ~ as amended by PD 392, of the National Irternal Revenue Code, which took effect on February 18, 1974 , and that this provision of Section 142(i ) ~as amended, has remained unchanged since then. It is clearly and legally justified to conclude that this ruling of the Commissioner of Internal Revenue of May 14, 1975 shall prospectively apply in favor of the importations of crude paraffin wax on June 21 and August 17, 1977 in question . This is the ruling whi ~h assured the taxpayer, Mega General Merchandising Corporation, that for its importations of crude paraffin wax, it shall only be liable to 7% advance sales tax and no more. To make petitioner liable for specific tax after it had made the importations would surely prejudice pet.i timer as it would be subject to a tax liability of which the Bureau of Internal 123

DECISION - CTA CASE NO . 3078 - ,10 - Revenue has not made it fully aware . As a result , the ru l ings of May 8, 1978 and February 15, 1980 having been issued long after the importations on June 21 and A~~ust 17 , 1977 in question cannot be applied with le9al e ffect in t his case because to do so will v i olate the prohibition against retroactive applicat i on of the rulings of executive bodies . Rulings or circulars pro- mulgated by the Commissioner of Internal Revenue, such as the rulings of January 28, 1977 and those of May 8, 1978 and February 15, 1980, can not have any retroactive application, where to do so, as it did i n the case at bar, would prejudice the taxpayer. (ABS-~BN Broadcasting Corp. vs. Court of Tax Appeals & Com. of Internal Revenue, G.R. L-~2306, October 23, 1981 . ) Also, the re- ~nactment of Section 142(i) ~f the National Internal Revenue Code, as amended by PD 392 , which provision of law has subs- tantially remained unchanged , is a clear indication that Congress had adopted its prior executive construction and which means that imported crude paraffin wax is not subject to specific tax thereunder pursuant to the BIR ruling dated May 14, 1975 . (Alexander Howden & Co, Ltd, vs. Col l . of Int. Rev ., 13 SCRA 601.) Consequently, we are of the opinion and so hold tha t the rulings of the Commissioner of Internal Revenue of May 8, 1978 and February 15, 1980 cannot be made to -l� . 'r!..). ,,.. "Jl

DECISION - CTA CASE NO. 30 78 - ,1 1 - apply r e troactive ly so as to subject the impor ted crude paraffin wax of petitio ne r to specific tax in the sum of 1:1275,652.00, plus increments thereto. WHEREFORE, the deci s ion of the Commissioner of Internal Revenue appealed from is hereby reversed . Pe- titioner is not liable for specific tax on its import- atio ns of crude p a raffin wax in t he sum of 1:1275,652 . 00 i mposed against petitioner, but only subject to the 7% advance sal e s tax wh i c h petitioner had already paid. Accordingly, r e s pondent is hereby o r dered to refund or credit petition e r specific tax it paid in the sum of 1:1275,652.00. Without pronounceme nt as to costs. SO ORDERED. Que zon City, Metro Manila. May � ROAQUIN / As sociate Judge / WE CONCUR: a,..~~- AMANTE FI Presi d ing 125