RR, BIR rulings, Construction of Tax law CASES original.pdf

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G.R. No. L-19337 September 30, 1969 ASTURIAS SUGAR CENTRAL, INC., petitioner, vs. COMMISSIONER OF CUSTOMS and COURT OF TAX APPEALS, respondents. Laurea, Laurea and Associates for petitioner. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Esmeraldo Umali and Solicitor Sumilang V. Bernardo for respondents. CASTRO, J.: This is a petition for review of the decision of the Court of Tax Appeals of November 20, 1961, which denied recovery of the sum of P28,629.42, paid by the petitioner, under protest, in the concept of customs duties and special import tax, as well as the petitioner's alternative remedy to recover the said amount minus one per cent thereof by way of a drawback under sec. 106 (b) of the Tariff and Customs Code. The petitioner Asturias Sugar Central, Inc. is engaged in the production and milling of centrifugal sugar for exert, the sugar so produced being placed in containers known as jute bags. In 1957 it made two importations of jute bags. The first shipment consisting of 44,800 jute bags and declared under entry 48 on January 8, 1967, entered free of customs duties and special import tax upon the petitioner's filing of Re- exportation and Special Import Tax Bond no. 1 in the amounts of P25,088 and P2,464.50, conditioned upon the exportation of the jute bags within one year from the date of importation. The second shipment consisting of 75,200 jute bags and declared under entry 243 on February 8, 1957, likewise entered free of customs duties and special import tax upon the petitioner's filing of Re-exportation and Special Import Tax Bond no. 6 in the amounts of P42,112 and P7,984.44, with the same conditions as stated in bond no. 1. Of the 44,800 jute bags declared under entry 48, only 8,647 were exported within one year from the date of importation as containers of centrifugal sugar. Of the 75,200 jute bags declared under entry 243, only 25,000 were exported within the said period of one year. In other words, of the total number of imported jute bags only 33,647 bags were exported within one year after their importation. The remaining 86,353 bags were exported after the expiration of the one-year period but within three years from their importation. On February 6, 1958 the petitioner, thru its agent Theo. H. Davies & Co., Far East, Ltd., requested the Commissioner of Customs for a week's extension of Re-exportation and Special Import Tax Bond no. 6 which was to expire the following day, giving the following as the reasons for its failure to export the remaining jute bags within the period of one year: (a) typhoons and severe floods; (b) picketing of the Central railroad line from November 6 to December 21, 1957 by certain union elements in the employ of the Philippine Railway Company, which hampered normal operations; and (c) delay in the arrival of the vessel aboard which the petitioner was to ship its sugar which was then ready for loading. This request was denied by the Commissioner per his letter of April 15, 1958. Due to the petitioner's failure to show proof of the exportation of the balance of 86,353 jute bags within one year from their importation, the Collector of Customs of Iloilo, on March 17, 1958, required it to pay the amount of P28,629.42 representing the customs duties and special import tax due thereon, which amount the petitioner paid under protest. In its letter of April 10, 1958, supplemented by its letter of May 12, 1958, the petitioner demanded the refund of the amount it had paid, on the ground that its request for extension of the period of one year was filed on time, and that its failure to export the jute bags within the required one-year period was due to delay in the arrival of the vessel on which they were to be loaded and to the picketing of the Central railroad line. Alternatively, the petitioner asked for refund of the same amount in the form of a drawback under section 106(b) in relation to section 105(x) of the Tariff and Customs Code. After hearing, the Collector of Customs of Iloilo rendered judgment on January 21, 1960 denying the claim for refund. From his action, appeal was taken to the Commissioner of Customs who upheld the decision of the Collector. Upon a petition for review the Court of Tax Appeals affirmed the decision of the Commissioner of Customs. The petitioner imputes three errors to the Court of Tax Appeals, namely:

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G.R. No. L-19337 September 30, 1969

ASTURIAS SUGAR CENTRAL, INC., petitioner, vs.COMMISSIONER OF CUSTOMS and COURT OF TAX APPEALS, respondents.

Laurea, Laurea and Associates for petitioner.Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Esmeraldo Umali and Solicitor Sumilang V. Bernardo for respondents.

CASTRO, J.:

This is a petition for review of the decision of the Court of Tax Appeals of November 20, 1961, which denied recovery of the sum of P28,629.42, paid by the petitioner, under protest, in the concept of customs duties and special import tax, as well as the petitioner's alternative remedy to recover the said amount minus one per cent thereof by way of a drawback under sec. 106 (b) of the Tariff and Customs Code.

The petitioner Asturias Sugar Central, Inc. is engaged in the production and milling of centrifugal sugar for exert, the sugar so produced being placed in containers known as jute bags. In 1957 it made two importations of jute bags. The first shipment consisting of 44,800 jute bags and declared under entry 48 on January 8, 1967, entered free of customs duties and special import tax upon the petitioner's filing of Re-exportation and Special Import Tax Bond no. 1 in the amounts of P25,088 and P2,464.50, conditioned upon the exportation of the jute bags within one year from the date of importation. The second shipment consisting of 75,200 jute bags and declared under entry 243 on February 8, 1957, likewise entered free of customs duties and special import tax upon the petitioner's filing of Re-exportation and Special Import Tax Bond no. 6 in the amounts of P42,112 and P7,984.44, with the same conditions as stated in bond no. 1.

Of the 44,800 jute bags declared under entry 48, only 8,647 were exported within one year from the date of importation as containers of centrifugal sugar. Of the 75,200 jute bags declared under entry 243, only 25,000 were exported within the said period of one year. In other words, of the total number of imported jute bags only 33,647 bags were exported within one year after their importation. The remaining 86,353 bags were exported after the expiration of the one-year period but within three years from their importation.

On February 6, 1958 the petitioner, thru its agent Theo. H. Davies & Co., Far East, Ltd., requested the Commissioner of Customs for a week's extension of Re-exportation and Special Import Tax Bond no. 6 which was to expire the following day, giving the following as the reasons for its failure to export the remaining jute bags within the period of one year: (a) typhoons and severe floods; (b) picketing of the Central railroad line from November 6 to December 21, 1957 by certain union elements in the employ of the Philippine Railway Company, which hampered normal operations; and (c) delay in the arrival of the vessel aboard which the petitioner was to ship its sugar which was then ready for loading. This request was denied by the Commissioner per his letter of April 15, 1958.

Due to the petitioner's failure to show proof of the exportation of the balance of 86,353 jute bags within one year from their importation, the Collector of Customs of Iloilo, on March 17, 1958, required it to pay the amount of P28,629.42 representing the customs duties and special import tax due thereon, which amount the petitioner paid under protest.

In its letter of April 10, 1958, supplemented by its letter of May 12, 1958, the petitioner demanded the refund of the amount it had paid, on the ground that its request for extension of the period of one year was filed on time, and that its failure to export the jute bags within the required one-year period was due to delay in the arrival of the vessel on which they were to be loaded and to the picketing of the Central railroad line. Alternatively, the petitioner asked for refund of the same amount in the form of a drawback under section 106(b) in relation to section 105(x) of the Tariff and Customs Code.

After hearing, the Collector of Customs of Iloilo rendered judgment on January 21, 1960 denying the claim for refund. From his action, appeal was taken to the Commissioner of Customs who upheld the decision of the Collector. Upon a petition for review the Court of Tax Appeals affirmed the decision of the Commissioner of Customs.

The petitioner imputes three errors to the Court of Tax Appeals, namely:

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1. In not declaring that force majeure and/or fortuitous event is a sufficient justification for the failure of the petitioner to export the jute bags in question within the time required by the bonds.

2. In not declaring that it is within the power of the Collector of Customs and/or the Commissioner of Customs to extend the period of one (1) year within which the jute bags should be exported.

3. In not declaring that the petitioner is entitled to a refund by way of a drawback under the provisions of section 106, par. (b), of the Tariff and Customs Code.

1. The basic issue tendered for resolution is whether the Commissioner of Customs is vested, under the Philippine Tariff Act of 1909, the then applicable law, with discretion to extend the period of one year provided for in section 23 of the Act. Section 23 reads:

SEC. 23. That containers, such as casks, large metal, glass, or other receptacles which are, in the opinion of the collector of customs, of such a character as to be readily identifiable may be delivered to the importer thereof upon identification and the giving of a bond with sureties satisfactory to the collector of customs in an amount equal to double the estimated duties thereon, conditioned for the exportation thereof or payment of the corresponding duties thereon within one year from the date of importation, under such rules and regulations as the Insular Collector of Customs shall provide.1

To implement the said section 23, Customs Administrative Order 389 dated December 6, 1940 was promulgated, paragraph XXVIII of which provides that "bonds for the re-exportation of cylinders and other containers are good for 12 months without extension," and paragraph XXXI, that "bonds for customs brokers, commercial samples, repairs and those filed to guarantee the re-exportation of cylinders and other containers are not extendible."

And insofar as jute bags as containers are concerned, Customs Administrative Order 66 dated August 25, 1948 was issued, prescribing rules and regulations governing the importation, exportation and identification thereof under section 23 of the Philippine Tariff Act of 1909. Said administrative order provides:

That importation of jute bags intended for use as containers of Philippine products for exportation to foreign countries shall be declared in a regular import entry supported by a surety bond in an amount equal to double the estimated duties, conditioned for the exportation or payment of the corresponding duties thereon within one year from the date of importation.

It will be noted that section 23 of the Philippine Tariff Act of 1909 and the superseding sec. 105(x) of the Tariff and Customs Code, while fixing at one year the period within which the containers therein mentioned must be exported, are silent as to whether the said period may be extended. It was surely by reason of this silence that the Bureau of Customs issued Administrative Orders 389 and 66, already adverted to, to eliminate confusion and provide a guide as to how it shall apply the law, 2 and, more specifically, to make officially known its policy to consider the one-year period mentioned in the law as non-extendible.

Considering that the statutory provisions in question have not been the subject of previous judicial interpretation, then the application of the doctrine of "judicial respect for administrative construction," 3 would, initially, be in order.

Only where the court of last resort has not previously interpreted the statute is the rule applicable that courts will give consideration to construction by administrative or executive departments of the state.41awphîl.nèt

The formal or informal interpretation or practical construction of an ambiguous or uncertain statute or law by the executive department or other agency charged with its administration or enforcement is entitled to consideration and the highest respect from the courts, and must be accorded appropriate weight in determining the meaning of the law, especially when the construction or interpretation is long continued and uniform or is contemporaneous with the first workings of the statute, or when the enactment of the statute was suggested by such agency.5

The administrative orders in question appear to be in consonance with the intention of the legislature to limit the period within which to export imported containers to one year, without extension, from the date of

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importation. Otherwise, in enacting the Tariff and Customs Code to supersede the Philippine Tariff Act of 1909, Congress would have amended section 23 of the latter law so as to overrule the long-standing view of the Commissioner of Customs that the one-year period therein mentioned is not extendible.

Implied legislative approval by failure to change a long-standing administrative construction is not essential to judicial respect for the construction but is an element which greatly increases the weight given such construction.6

The correctness of the interpretation given a statute by the agency charged with administering its provision is indicated where it appears that Congress, with full knowledge of the agency's interpretation, has made significant additions to the statute without amending it to depart from the agency's view.7

Considering that the Bureau of Customs is the office charged with implementing and enforcing the provisions of our Tariff and Customs Code, the construction placed by it thereon should be given controlling weight.

In applying the doctrine or principle of respect for administrative or practical construction, the courts often refer to several factors which may be regarded as bases of the principle, as factors leading the courts to give the principle controlling weight in particular instances, or as independent rules in themselves. These factors are the respect due the governmental agencies charged with administration, their competence, expertness, experience, and informed judgment and the fact that they frequently are the drafters of the law they interpret; that the agency is the one on which the legislature must rely to advise it as to the practical working out of the statute, and practical application of the statute presents the agency with unique opportunity and experiences for discovering deficiencies, inaccuracies, or improvements in the statute; ... 8

If it is further considered that exemptions from taxation are not favored, 9 and that tax statutes are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, 10 then we are hard put to sustain the petitioner's stand that it was entitled to an extension of time within which to export the jute bags and, consequently, to a refund of the amount it had paid as customs duties. In the light of the foregoing, it is our considered view that the one-year period prescribed in section 23 of the Philippine Tariff Act of 1909 is non-extendible and compliance therewith is mandatory.

The petitioner's argument that force majeure and/or fortuitous events prevented it from exporting the jute bags within the one-year period cannot be accorded credit, for several reasons. In the first place, in its decision of November 20, 1961, the Court of Tax Appeals made absolutely no mention of or reference to this argument of the petitioner, which can only be interpreted to mean that the court did not believe that the "typhoons, floods and picketing" adverted to by the petitioner in its brief were of such magnitude or nature as to effectively prevent the exportation of the jute bags within the required one-year period. In point of fact nowhere in the record does the petitioner convincingly show that the so-called fortuitous events or force majeure referred to by it precluded the timely exportation of the jute bags. In the second place, assuming, arguendo, that the one-year period is extendible, the jute bags were not actually exported within the one-week extension the petitioner sought. The record shows that although of the remaining 86,353 jute bags 21,944 were exported within the period of one week after the request for extension was filed, the rest of the bags, amounting to a total of 64,409, were actually exported only during the period from February 16 to May 24, 1958, long after the expiration of the one-week extension sought by the petitioner. Finally, it is clear from the record that the typhoons and floods which, according to the petitioner, helped render impossible the fulfillment of its obligation to export within the one-year period, assuming that they may be placed in the category of fortuitous events or force majeure, all occurred prior to the execution of the bonds in question, or prior to the commencement of the one-year period within which the petitioner was in law required to export the jute bags.

2. The next argument of the petitioner is that granting that Customs Administrative Order 389 is valid and binding, yet "jute bags" cannot be included in the phrase "cylinders and other containers" mentioned therein. It will be noted, however, that the Philippine Tariff Act of 1909 and the Tariff and Customs Code, which Administrative Order 389 seeks to implement, speak of "containers" in general. The enumeration following the word "containers" in the said statutes serves merely to give examples of containers and not to specify the particular kinds thereof. Thus, sec. 23 of the Philippine Tariff Act states, "containers such as casks large metals, glass or other receptacles," and sec. 105 (x) of the Tariff and Customs Code mentions "large containers," giving as examples "demijohn cylinders, drums, casks and other similar receptacles of metal, glass or other materials." (emphasis supplied) There is, therefore, no reason to suppose that the customs authorities had intended, in Customs Administrative Order 389 to circumscribe the scope of the word

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"container," any more than the statures sought to be implemented actually intended to do.

3. Finally, the petitioner claims entitlement to a drawback of the duties it had paid, by virtue of section 106 (b) of the Tariff and Customs Code, 11 which reads:

SEC. 106. Drawbacks: ... b. On Articles Made from Imported Materials or Similar Domestic Materials and Wastes Thereof. — Upon the exportation of articles manufactured or produced in the Philippines, including the packing, covering, putting up, marking or labeling thereof, either in whole or in part of imported materials, or from similar domestic materials of equal quantity and productive manufacturing quality and value, such question to be determined by the Collector of Customs, there shall be allowed a drawback equal in amount to the duties paid on the imported materials so used, or where similar domestic materials are used, to the duties paid on the equivalent imported similar materials, less one per cent thereof: Provided, That the exportation shall be made within three years after the importation of the foreign material used or constituting the basis for drawback ... .

The petitioner argues that not having availed itself of the full exemption granted by sec. 105(x) of the Tariff and Customs Code due to its failure to export the jute bags within one year, it is nevertheless, by authority of the above-quoted provision, entitled to a 99% drawback of the duties it had paid, averring further that sec. 106(b) does not presuppose immediate payment of duties and taxes at the time of importation.

The contention is palpably devoid of merit. The provisions invoked by the petitioner (to sustain his claim for refund) offer two options to an importer. The first, under sec. 105 (x), gives him the privilege of importing, free from import duties, the containers mentioned therein as long as he exports them within one year from the date of acceptance of the import entry, which period as shown above, is not extendible. The second, presented by sec. 106 (b), contemplates a case where import duties are first paid, subject to refund to the extent of 99% of the amount paid, provided the articles mentioned therein are exported within three years from importation.

It would seem then that the Government would forego collecting duties on the articles mentioned in section 105(x) of Tariff and Customs Code as long as it is assured, by the filing of a bond, that the same shall be exported within the relatively short period of one year from the date of acceptance of the import entry. Where an importer cannot provide such assurance, then the Government, under sec. 106(b) of said Code, would require payment of the corresponding duties first. The basic purpose of the two provisions is the same, which is, to enable a local manufacturer to compete in foreign markets, by relieving him of the disadvantages resulting from having to pay duties on imported merchandise, thereby building up export trade and encouraging manufacture in the country. 12 But there is a difference, and it is this: under section 105(x) full exemption is granted to an importer who justifies the grant of exemption by exporting within one-year. The petitioner, having opted to take advantage of the provisions of section 105(x), may not, after having failed to comply with the conditions imposed thereby, avoid the consequences of such failure by being allowed a drawback under section 106(b) of the same Act without having complied with the conditions of the latter section.

For it is not to be supposed that the legislature had intended to defeat compliance with the terms of section 105(x) thru a refuge under the provisions of section 106(b). A construction should be avoided which affords an opportunity to defeat compliance with the terms of a statute. 13 Rather courts should proceed on the theory that parts of a statute may be harmonized and reconciled with each other. A construction of a statute which creates an inconsistency should be avoided when a reasonable interpretation can be adopted which will not do violence to the plain words of the act and will carry out the intention of Congress.

In the construction of statutes, the courts start with the assumption that the legislature intended to enact an effective law, and the legislature is not to be presumed to have done a vain thing in the enactment of a statute. Hence, it is a general principle, embodied in the maxim, "ut res magis valeat quam pereat," that the courts should, if reasonably possible to do so without violence to the spirit and language of an act, so interpret the statute to give it efficient operation and effect as a whole. An interpretation should, if possible, be avoided under which a statute or provision being construed is defeated, or as otherwise expressed, nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant, meaningless, inoperative, or nugatory. 14

ACCORDINGLY, the judgment of the Court of Tax Appeals of November 20, 1961 is affirmed, at petitioner's cost.

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G.R. No. L-66653 June 19, 1986

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents.

Sycip, Salazar, Feliciano & Hernandez Law Office for private respondent.

PARAS, J.:

Petition for certiorari to review and set aside the Decision dated June 27, 1983 of respondent Court of Tax Appeals in its C.T.A. Case No. 3204, entitled "Burroughs Limited vs. Commissioner of Internal Revenue" which ordered petitioner Commissioner of Internal Revenue to grant in favor of private respondent Burroughs Limited, tax credit in the sum of P172,058.90, representing erroneously overpaid branch profit remittance tax.

Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro Manila.

Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of P6,499,999.30 computed as follows:

Amount applied for remittance................................ P7,647,058.00 Deduct: 15% branch profit ,remittance tax ..............................................1,147,058.70

Net amount actually remitted.................................. P6,499,999.30

Claiming that the 15% profit remittance tax should have been computed on the basis of the amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax, computed as follows:

Profits actually remitted .........................................P6,499,999.30

Remittance tax rate .......................................................15%

Branch profit remittance tax- due thereon ......................................................P 974,999.89

Branch profit remittance

tax paid .............................................................Pl,147,058.70

Less: Branch profit remittance

tax as above computed................................................. 974,999.89

Total amount refundable........................................... P172,058.81

On February 24, 1981, private respondent filed with respondent court, a petition for review, docketed as C.T.A. Case No. 3204 for the recovery of the above-mentioned amount of P172,058.81.

On June 27, 1983, respondent court rendered its Decision, the dispositive portion of which reads—

ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to grant a tax credit in favor of petitioner Burroughs Limited the amount of P 172,058.90. Without pronouncement as to costs. SO ORDERED.

Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the instant petition before this Court with the prayers as herein earlier stated upon the sole issue of whether the tax base upon which the 15% branch profit remittance tax shall be imposed under the provisions of section 24(b) of the Tax Code, as

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amended, is the amount applied for remittance on the profit actually remitted after deducting the 15% profit remittance tax. Stated differently is private respondent Burroughs Limited legally entitled to a refund of the aforementioned amount of P172,058.90.

We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii) which states:

Sec. 24. Rates of tax on corporations....

(b) Tax on foreign corporations. ...

(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15 %) ...

In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made. " The said ruling is hereinbelow quoted as follows: In reply to your letter of November 3, 1978, relative to your query as to the tax base upon which the 15% branch profits remittance tax provided for under Section 24 (b) (2) of the 1977 Tax Code shall be imposed, please be advised that the 15% branch profit tax shall be imposed on the branch profits actually remitted abroad and not on the total branch profits out of which the remittance is to be made.

Please be guided accordingly. Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an overpayment in the amount of P172,058.90 which is the difference between the remittance tax actually paid of Pl,147,058.70 and the remittance tax that should have been paid of P974,999,89, computed as follows

Profits actually remitted......................................... P6,499,999.30

Remittance tax rate.............................................................. 15%

Remittance tax due................................................... P974,999.89

is well-taken. As correctly held by respondent Court in its assailed decision- Respondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24 (b) (2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually remitted abroad and not on the total branch profit out of which the remittance is to be made. Based on such ruling petitioner should have paid only the amount of P974,999.89 in remittance tax computed by taking the 15% of the profits of P6,499,999.89 in remittance tax actually remitted to its head office in the United States, instead of Pl,147,058.70, on its net profits of P7,647,058.00. Undoubtedly, petitioner has overpaid its branch profit remittance tax in the amount of P172,058.90.

Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum circular states— Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad.

Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue Code which provides-

Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shag not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN

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Broadcasting Corp. v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a retroactive application of Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall under any of them. WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED. No pronouncement as to costs.

G.R. No. L-69136 September 30, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.MEGA GENERAL MERCHANDISING CORPORATION and THE COURT OF TAX APPEALS, respondents.

The Solicitor General for petitioner. Fortunato S. Rivera for respondents.

PARAS, J.:

This is a petition for review of the decision of the Court of Tax Appeals, promulgated on May 21, 1984, in CTA Case No. 3078 entitled "Mega General Merchandising Corporation vs. Commissioner of Internal Revenue," holding that respondent corporation is not liable for specific tax in the sum of P275,652.00 on its importations of crude paraffin wax on June 21 and August 17, 1977 under Section 142(i) of the Tax Code, as amended by P.D. No. 392, but to 7% advance sales tax, (now Section 197 II) in relation to Section 186 (now Section 200 of the Tax Code) and further ordering the Commissioner of Internal Revenue to refund or credit to petitioner the said assessment (Rollo, Annex "C", pp. 38-47).

The antecedent facts of this case are as follows:

Prior to the promulgation of P.D. No. 392 on February 18, 1974, all importations of paraffin wax, irrespective of kind and nature, were subject to 7% advance sales tax on landed costs plus 25% mark up pursuant to Section 183(b) now Section 197(II) in relation to Section 186 (now Section 200) of the Tax Code.

With the promulgation of P.D. No. 392, a new provision for the imposition of specific tax was added to Section 142 of the Tax Code, that is, sub- section (i) which reads:

Section 142. Specific tax on manufactured oils and other fuels.—On refined and manufactured mineral oils and other motor fuels, there shall be collected the following taxes:

xxx xxx xxx (i) Greases, waxes and petroleum, per kilogram, thirty-five centavos; ...

Therefore, beginning February 18,1974, the date of effectivity of P.D. No. 392, all importations of paraffin wax were subject to the specific tax imposed under Section 142(i) of the Tax Code, instead of the former 7% sales tax. Hence, respondent corporation paid the corresponding specific tax thereon in the total amount of P177,750.00 which applies to its total importation of crude paraffin on April 18, 1975, or exactly 1 year and 2 months after the effectivity of P.D. No. 392.

On April 22, 1975, the respondent corporation wrote the Commissioner of Internal Revenue for clarification as to whether imported crude paraffin wax is subject to specific tax under Section 142 (i) of the Tax Code, as amended by P.D. No. 392, or to the 7% advance sales tax.

Former Commissioner Misael P. Vera in his reply to said query dated May 14, 1975 ruled that only wax used as high pressure lubricant and micro crystallin is subject to specific tax; that paraffin which was used as raw material in the manufacture of candles, wax paper, matches, crayons, drugs, appointments etc., is subject to the 7% advance sales tax, the tax to be based on the landed cost thereof, plus 25% mark-up.

Due to Commissioner Vera's ruling of May 14, 1975, several importers including respondent corporation filed several claims for tax refund or tax credit of specific tax paid by them on importation of crude paraffin wax.

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Considering that respondent corporation had paid the amount of P477,750.00 as specific tax pursuant to Section 142(i) of the Tax Code on its importation of crude paraffin wax on April 18, 1975 (an amount bigger than the 7% advance sales tax prescribed under Section 183(b) (now Section 197 II) in relation to Section 186 (now Sec. 200 of the Tax Code) respondent corporation in a letter, dated November 27, 1975, requested for a refund or tax credit of the amount of P321,436.79 representing the difference between the amount paid as specific tax and the 7% advance sales tax.

Since the law (Section 142(i) of the Tax Code, amended by P.D. No. 392) does not make any distinction as to the kind of wax subject to specific tax, then Acting Commissioner of Internal Revenue Efren I. Plana, on January 28, 1977 denied respondent Corporation's claim for refund or tax credit of the amount of P321,436,79. On this ruling, respondent corporation filed a request for reconsideration. This was denied by petitioner.

During the pendency of respondent corporation's request for reconsideration, an investigation was conducted by the Bureau of Internal Revenue in connection with the importations of wax and petroleum that arrived in the country on or subsequent to the date of the ruling of January 28, 1977 and it was ascertained that respondent Corporation owes the government specific tax for importation of 1,214,400 kilograms of paraffin wax on June 21, 1977 and August 17, 1977 which gave rise to the letter of assessment dated May 8, 1978 for P275,652.00 re the subject matter in this case.

Prior, however, to the issuance of the said letter of assessment of May 8, 1978, petitioner in a letter dated January 11, 1978, granted respondent corporation's claim for refund or tax credit of the amount of P321,436.79 since the importation which had arrived in Manila on April 18, 1975 was covered by the ruling of May 14, 1975 (before its revocation by the ruling of January 28, 1977).

Respondent corporation protested the tax assessment of May 8,1978 in the amount of P275,652.00 in a letter dated June 5, 1978 alleging that crude paraffin wax is subject to 7% advance sales tax pursuant to petitioner's ruling of May 14, 1975. The protest was denied by petitioner in a letter dated February 15, 1980.

During the pendency of the request of respondent corporation for reconsideration, it appealed to respondent Court of Tax Appeals (Annex "A", Rollo, pp. 26-35) and petitioner filed his answer on September 10, 1980 (Annex "B", Rollo, pp. 3647).

On May 21,1984, respondent Court of Tax Appeals rendered its decision, the dispositive portion of which reads as follows: WHEREFORE, the decision of the Commissioner of Internal Revenue appealed from is hereby reversed. Petitioner is not liable for specific tax on its importation of crude paraffin wax in the sum of P275,652.00 imposed against petitioner, but only subject to the 7% advance sales tax which petitioner had already paid. Accordingly, respondent is hereby ordered to refund or credit petitioner specific tax it paid in the sum of P275,652.00. Without pronouncement as to costs. SO ORDERED. (p. 9, Decision; p. 46, Rollo)

This was later amended to read: WHEREFORE the decision of the Commissioner of Internal Revenue appealed from is hereby reversed. Petitioner is not liable for specific tax on its importation of crude paraffin wax in the sum of P275,652.00 imposed against petitioner but only subject to the 7% D advance sales tax which petitioner had already paid. Without pro- announcement as to costs.

SO ORDERED. Hence, this petition filed on January 15, 1984 (Rollo, pp. 824).

The sole issue raised by petitioner is whether or not respondent corporation's importation of crude paraffin wax on June 21 and August 17, 1977 are subject to specific tax under Section 142(i) of the Tax Code, as amended by P.D. No. 392, promulgated on February 18, 1974.

Petitioner contends that the controlling interpretation is that given by Commissioner Plana and not that of Commissioner Vera. Petitioner further argues that respondent corporation's request for refund of the amount of P321,436.79 was granted in the letter of petitioner dated January 11, 1978 because the importation of private respondent was made on April 18,1975 wherein petitioner made clear that all importation of crude paraffin wax only after the ruling of January 28, 1977, is subject to specific tax prescribed in Section 142(i) of the Tax Code as amended by P.D. No. 392.

Moreover, the importation which gave rise to the assessment in the amount of P275,652.00 subject of this case, was made on June 27, 1977 and August 17, 1977 and that the petitioner's ruling of January 28,1977 was not revoked or overruled by his letter of January 11, 1978 granting respondent corporation's request for refund

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of the amount of P321,436.79. Petitioner's contention is completely meritorious.

The Court of Tax Appeals' decision aptly stated: It will be starkly noted that in a ruling of respondent Commissioner of Internal Revenue dated January 11, 1978 (p. 204, BIR Rec.), the request for reconsideration of petitioner of the ruling holding it liable for specific tax and for the tax credit of the sum of P321,436.79 paid as specific tax was granted by the Commissioner of Internal Revenue. In effect, this ruling overrules that of January 28, 1977 holding petitioner liable for specific tax on its importations of crude paraffin wax. The ruling of January 11, 1978 having overruled that of January 28, 1977, the importations of crude paraffin made on June 21 and August 17, 1977 ostensibly became once more subject to the ruling of May 14, 1975 which held such importation of crude paraffin wax as not liable to specific tax under the provisions of Section 142(i) of 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, except 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 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 which 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 has made the importations, would surely prejudice petitioner as it would be subject to a tax liability of which the Bureau of Internal Revenue has not made it fully aware. As a result, the rulings of May 8, 1978 and February 15, 1980 having been issued long after the importations on June 21 and August 1 7, 1977 in question cannot be applied with legal effect in this case because to do so will violate the prohibition against retroactive application of the rulings of executive bodies. Rulings or circulars promulgated 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 in the case at bar, would prejudice the taxpayer. (ABS-CBN Broadcasting Corp. vs. Court of Tax Appeals & Com. of Int. Revenue, G.R. No. L-523b6, October 23, 1981). Also, the re-enactment of Section 142(i) of the National Internal Revenue Code, as amended by PD 392, which provision of law has substantially remained unchanged is a clear indication that Congress has 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. Coll. of Int. Rev., 13 SCRA 601). (pp. 11-13, Petition; pp. 18-20, Rollo)

Contrary to the Court of Tax Appeals' ruling, We believe that the letter of Commissioner Plana dated January 11, 1978 did not in any way revoke his ruling dated January 28,1977 which ruling applied the specific tax to wax (without distinction). The reason he removed in 1978 private respondent's liability for the specific tax was NOT (as erroneously pointed out by the Court of Tax Appeals) because he wanted to revoke, expressly or implicitly, his ruling of January 28, 1977 but because the P321,436.79 tax referred to importation BEFORE January 28, 1977 and hence still covered by the ruling of Commissioner Vera, and not by the January 28,1977 ruling of Commissioner Plana.

PREMISES CONSIDERED, the decision of the Court of Tax Appeals is hereby REVERSED and SET ASIDE, and the private respondent is ordered to pay the tax as assessed by the Commissioner of Internal Revenue, together with interest. No costs. SO ORDERED.

G.R. No. 112024 January 28, 1999

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF APPEALS, respondent.

QUISUMBING, J.:

This petition for review assails the Resolution 1 of the Court of Appeals dated September 22, 1993 affirming the Decision 2 and a Resolution 3 of the Court Of Tax Appeals which denied the claims of the petitioner for tax

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refund and tax credits, and disposing as follows:

IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED due course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993, are hereby AFFIRMED in toto. SO ORDERED. 4

The Court of Tax Appeals earlier ruled as follows: WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax for 1985 in the amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986 claim for refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all likelihood automatically credited the same to the succeeding year. The petition for review is dismissed for lack of merit. SO ORDERED. 5

The facts on record show the antecedent circumstances pertinent to this case. Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively.

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year. But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986. On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.

Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of Communications vs. Commissioner of Internal Revenue."

The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:

1985 1986 ——— ——— Net Income (Loss) (P25,317,288.00) (P14,129,602.00)

Tax Due NIL NIL

Quarterly tax.

Payments Made 5,016,954.00 —

Tax Withheld at Source 282,795.50 234,077.69

———————— ———————

Excess Tax Payments P5,299,749.50* P234,077.69

=============== =============

* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A forty five centavo difference was noted.

On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary period provided for by law. The petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year. On June 22, 1993, petitioner filed a Motion for Reconsideration of the

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CTA's decision but the same was denied due course for lack of merit. 6

Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTA's resolution dated July 20, 1993. Hence this petition now before us.

The issues raised by the petitioner are: I. Whether taxpayer PBCom — which relied in good faith on the formal assurances of BIR in RMC No. 7-85 and did not immediately file with the CTA a petition for review asking for the refund/tax credit of its 1985-86 excess quarterly income tax payments — can be prejudiced by the subsequent BIR rejection, applied retroactivity, of its assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess quarterly income tax payments is not two years but ten (10). 7

II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBCom's claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere speculation, without proof, that there were taxes due in 1987 and that PBCom availed of tax-crediting that year. 8

Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years?

Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code. The pertinent portions of the circular reads:

REVENUE MEMORANDUM CIRCULAR NO. 7-85

SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN.

TO: All Internal Revenue Officers and Others Concerned.

Sec. 85 And 86 Of the National Internal Revenue Code provide:

xxx xxx xxx

The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which provide;

xxx xxx xxx

It has been observed, however, that because of the excess tax payments, corporations file claims for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of payment, in accordance with sections 292 and 295 of the National Internal Revenue Code. It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax credit.

It should he noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code.

In the above provision of the Regulations the corporation may request for the refund of the overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in processing said returns. Under these procedures, the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the return. After which, the refund or tax credit is granted, and, this procedure was adopted to facilitate immediate action on cases like this.

In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax credit the two year period. As already stated, actions hereon by the

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Bureau are immediate after only a cursory pre-audit of the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by law (Article 1144 of the Civil Code). 9 (Emphasis supplied.)

Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result to injustice to taxpayers. Citing ABS CBN Broadcasting Corporation vs. Court of Tax Appeals 10 petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers, In ABS-CBN case, the Court held that the government is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been a misrepresentation to the taxpayer.

Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rules as follows:

Sec. 246 Non-retroactivity of rulings— Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers except in the following cases:

a). where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue;

b). where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based;

c). where the taxpayer acted in bad faith.

Respondent Commissioner of Internal Revenue, through Solicitor General, argues that the two-year prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15 following the close of the calendar year. As precedents, respondent Commissioner cited cases which adhered to this principle, to wit ACCRA Investments Corp. vs. Court of Appeals, et al., 11 and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al.. 12 Respondent Commissioner also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek relief from the court. Further, respondent Commissioner stresses that when the petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to petitioner's cause of action.

After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.

Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. 13 Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. 14

From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected, viz.:

Sec. 230. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be maintained in any

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court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceedings shall begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied)

The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.

In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 15 this Court explained the application of Sec. 230 of 1977 NIRC, as follows:

Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. . . . As we have earlier said in the TMX Sales case, Sections 68. 16 69, 17 and 70 18 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it 19

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.

It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. 20 Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with the law they seek to apply and implement. 21

In the case of People vs. Lim, 22 it was held that rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter.

Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is contrary to the provisions and spirit of Act. No 4003 as amended, because whereas the prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five years duration, FAO No 37-1 fixed no period, that is to say, it establishes an absolute ban for all time. This discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act prevails, for the reason that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of the latter. . . . In this connection, the attention of the technical men in the offices of Department Heads who draft rules and regulation is called to the importance and necessity of closely following the terms and provisions of the law which they intended to implement, this to avoid any possible misunderstanding or confusion as in the present case. 23

Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. 24 As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC. for being contrary to the express provision of a statute. Hence, his interpretation could not be

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given weight for to do so would, in effect, amend the statute.

It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is estopped by the principle of non-retroactively of BIR rulings. Again We do not agree. The Memorandum Circular, stating that a taxpayer may recover the excess income tax paid within 10 years from date of payment because this is an obligation created by law, was issued by the Acting Commissioner of Internal Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim for a refund or tax credit and corresponding petition fro review within the two-year prescription period, and that the lengthening of the period of limitation on refund from two to ten years would be adverse to public policy and run counter to the positive mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has no application in the case at bar because it was not the Commissioner of Internal Revenue who denied petitioner's claim of refund or tax credit. Rather, it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to do so would in effect amend the statute. 25

Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. 27 Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. 28

On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTA's decision denying its claim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation, without proof, that PBCom availed of the automatic tax credit in 1987.

Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.

The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.

As stated by respondent Court of Appeals:

Finally, as to the claimed refund of income tax over-paid in 1986 — the Court of Tax Appeals, after examining the adjusted final corporate annual income tax return for taxable year 1986, found out that petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that petitioner had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative. 30

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to contovert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no showing of gross error or abuse on their part to disturb our reliance thereon. 31

WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals appealed from is

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AFFIRMED, with COSTS against the petitioner.

September 23, 1922

G.R. No. 18316LUZON STEVEDORING COMPANY, plaintiff-appellee,vs.WENCESLAO TRINIDAD, Collector of Internal Revenue, defendant-appellant.

Attorney-General Villa-Real for appellant.Fisher & DeWitt and A. M. Opisso for appellee.

Johnson, J.:

This action was commenced in the Court of First Instance of the City of Manila on the 18th day of May, 1921. Its purpose was to recover of the defendant as Internal Revenue Collector, the sum of P2,422.81, which sum had been paid by the plaintiff by the plaintiff to the defendant under protest. The defendant presented a demurrer to the complaint, which was overruled, and later answered. The answer contained a general and special defense. In his special defense the defendant alleged that during the first quarter of the year 1921 the plaintiff was engaged in business as a contractor, its gross receipts from said business during said quarter amounting to P242,281.33, and that the defendant, under the provisions of section 1462 of Act No. 2711, levied and assessed on the above-mentioned amount the percentage tax amounting to P2,422.81, which the plaintiff paid on April 18, 1921, under protest, this protest having been duly overruled by the defendant.

Upon the issue thus presented, the Honorable Pedro Concepcion, judge, for the reasons given in his decision, rendered a judgment in favor of the plaintiff and against the defendant for the said sum of P2,422.81, without any finding as to costs or interest. From that judgment the defendant appealed. The appellant contends that the lower court committed an error in holding that the plaintiff is not a contractor and in rendering a judgment in favor of the plaintiff.

From an examination of the evidence adduced during the trial of the cause and from the agreement of the parties, it appears that the plaintiff is and was a corporation duly organized under the laws of the Philippine Islands and doing business in the City of Manila; that it as engaged in the stevedoring business in said city, and said business consisting of loading and unloading cargo from vessels in port, at certain rates of charge per unit of cargo; that all the work done by it is conducted under the direct supervision of the officers of the ships and under the instruction given to plaintiff’s men by the captain and officers of said ships; that no liability attaches to the plaintiff for the improper loading or unloading of vessels, the captain being responsible for said work; that the captain answers for all the cargo placed on board and for the manner in which said cargo is loaded; that, while it is true that the plaintiff undertakes to work in the loading or unloading of cargo from any vessel in port, yet it always does the work under the direct supervision of the officers of the vessel; that said supervision is so effective that, while the loading is made, plaintiff’s laborers are under the direct control of the officers of the ship; and that said supervision is so direct, that no discretion is left to the plaintiff nor its men. It was mutually agreed at the time of the trial that the provisions of section 1462 of Act No. 2711 had been in force for a period of eight years (section 43, Act No. 2339; section 1617, Act No. 2657; section 1462, Act NO. 2711) before the defendant made any effort to collect the taxes in question.

The only question presented by the appellant upon the foregoing facts is: Is the plaintiff a contractor? Generally speaking, every person who enters into a contract may be denominated a contractor, but evidently the Legislature did not mean to apply the word “contractor,” as used in said section 1462, to every person, partnership or corporation who entered into a contract; or, otherwise, it would not have been necessary to have mentioned in the same section other classes of business, such as warehousemen, proprietors of dockyards and persons selling light, heat, or power, as well as persons engaged in conducting telephone or telegraph line or exchanges, and proprietors of steam laundries and of shops for the constructions and repair of bicycles or vehicles of any kind, and keepers of hotels and restaurants, etc. If the word

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“contractor” in said section 1462 meant every person who entered into a contract, then it would have included warehousemen, and the other classes of business mentioned in said section, for the reason that every transaction by the other persons mentioned in said section is by virtue of an express or implied contract. the same thing might be said with reference to section 1463, where keepers of every stables and garages, transportation contractors, persons who transport passengers or freight for hire, and common carriers, etc. are also subject to an internal revenue tax. If the Legislature had intended the word “contractor,” as used in section 1462, to cover all persons who entered into a contract then it would have been unnecessary to have mentioned the other persons referred to in sections 1462 and 1463.

Moreover, if the general and broad meaning is to be given to the word “contractor” as used in said section 1462, it would include banders, merchants, brokers, lawyers, farmers in the sale of their product, and every person who enter into a contractor of whatever nature or character. It would also include school-teachers in the public and private schools as well as common laborers who work by the day under a contract. It would also apply to all persons loaning money upon promissory notes, for the reason that their transaction is a contract and the parties thereto, broadly speaking, are contractors.

From all of the foregoing it does appear that the word “contractor,” as used in said section 1462, must have a limited and a very restricted meaning. It cannot have the broad meaning which would include every person who entered into a contract. The lower court in holding that the plaintiff was not a contractor in the sense that that word is used in said section, relied upon the definition given in vol. 13 Corpus Juris, page 211, where we find a “contractor” defined. The definition is: “One who agrees to do anything for another; one who executes plans under a contract; one who contracts or covenants, whether with a government or other public body or with private parties, to furnish supplies, or to construct works, or to erect buildings, or to perform any work or service, at a certain price to rate, as a paving contractor, or a labor contractor; one who contracts to perform work, or supply articles on a large scale, at a certain price or rate, as in building houses or provisioning troops, or constructing a railroad. Although, in a general sense, every person who enters into a contract may be called a contractor, yet the word, for want of a better one, has come to be used with special reference to a person who, in the pursuit of an independent business, undertakes to do a specific piece or job or work for other persons, using his own means and methods without submitting himself to control as to the petty details. The true test of a ‘contractor’ would seem to be that he renders the service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished.” (In re Unger, 22 Okla., 755; State vs. McNally, 45 La. ann., 44, 46; Ney vs. Dubuque, etc., Railroad Co., 20 Iowa, 347, 352; Lehigh, etc., Co. vs. Central Railroad Co. of New Jersey, 29 N. J. Equity, 252, 255; State vs. Emerson, 72 Me., 455, 456; Todd vs. Kentucky Union Ry, Co., 52 Fed. Rep., 241, 247 [18 L. R. A., 305]; Hale vs. Johnson, 80 Ill., 185.)

The general rule, variously stated, is that when a person lets out work to another, the contractee reserving no control over the work or workmen, the relation of contractor and contractee exists and not that of master and servant, and the contractee is not liable for the negligence or improper execution of the work by the contractor. (Laffery vs. United States Gypsum Co., 83 Kan., 349, 354.)

It the one rendering service submits himself to the direction of his employer as to the details of the work, fulfilling his will not merely as to the result but also as to the means by which that result is to be attained, the contractor becomes a servant and is not a contractor in respect to that work. (Shearman and R. on Negligence, sec. 77; Knoxvill Iron Co. vs. Dobson, 7 Lea [Tenn. Rep.], 367, 374.)

If on the other hand a person is engaged under a contract in an independent operation not subject to the direction and control of his employer, the relation is not regarded as that of master and servant, but is said, in modern phrase, to be that of contractor and contractee. (Campfield vs. Lang, 25 Fed. Rep., 128, 131.)

The case of Brown vs. German-American, etc. Co. (174 Pa., 443) gave a definition for a contractor, which was adopted with approval in the case of In re Unger (22 Okla., 755) “as one

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who contracts or covenants either with . . . a public body or private parties . . . to . . . contract works or erect buildings . . . at a certain price or rate.” Said definition was adopted from the Century Dictionary. The definition of lexicographers, however, cannot always be adopted as a correct meaning for statutory words and phrases. The intention of the Legislature and the object which it intended to attain must be taken into consideration for the purpose of determining the meaning of words and phrases used, rather than the set definition of lexicographers. Moreover, revenue laws imposing taxes on business must be strictly construed in favor of the citizen. In construing a word or expression in the statute susceptible of two or more meanings, the court will adopt that interpretation most in accord with the manifest purpose of the statute as gathered from the context. Where a particular word is obscure or of doubtful meaning, taken by itself, its obscurity or doubt may be removed by reference to associate words. (25 Ruling Case Law, 994, 995.)

If the question presented in the interpretation of a tariff law is one of doubt, the doubt would be resolved in favor of the importer, as duties are never imposed upon citizens upon vague and doubtful interpretation. (Hart Ranft vs. Wiegman, 129 U.S., 609; Zamboanga Mutual Bldg. & Loan Association vs. Rafferty, 24 Phil., 408.)

A very instructive decision on the question of who is a contractor, is found in the very well reasoned case of Caldwell vs. Atlantic B.& A. Ry. Co., (161 Ala., 395). In the course of that decision the Supreme Court of Alabama said: “‘The true test of a “Contractor” would seem to be that he renders the service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished.”‘ (Halstead vs. Stahl, 47 Ind. App. 600; Johns’ Admr., etc. vs. Wm. H. McKnight & Co., 117 Ky., 655; Pitssburg Construction Co. vs. West Side, etc. R. Co., 232 Pa., 578; Freidman vs. Hampden County, 204 Mass., 494; Attorney-General vs. Detroit Board of Education, 154 Mich., 584.)

The appellant lays great stress upon the decision in the case of Murray vs. Currie (65 L.R.A., 470) as well as the case of Rankin vs. Merchants, etc. Co. (54 Am. Rep., 874, 876). In the first case, however, from a reading of the decision it will appear that “Kennedy, the stevedore, undertook to execute the work of unloading the ship, and for that purpose a steam winch belonging to the ship was placed at his disposal. The work of unloading was done by Kennedy under a special contract. He was acting on his own behalf, and did not in any sense stand in the relation of servant to the defendant. He had entire control over the work which he was doing.” In the second case (Rankin vs. Merchants, etc. Co., supra) there is nothing in the case which does not show that the stevedore was not acting under the ship’s order. The case of Haas vs. Philadelphia, etc. Co. (32 Am. Rep., 462) shows that the ship’s company had no control over the stevedore or his men or their work. The cases therefore relied upon as authority by the appellant do not support his contention in view of the definition of a “contractor” which is, by a large weight of authority, accepted.

From all of the foregoing it seems clear to us that the plaintiff is not a contractor in the sense that that word is used in said section 1462 of Act No. 2711, and therefore the tax paid by the plaintiff under protest was illegally collected and should be repaid. For all of the foregoing reasons, we are of the opinion, and so declare, that that judgement appealed from should be affirmed. So ordered.

G.R. No. L-24813 April 28, 1969

DR. HERMENEGILDO SERAFICA, plaintiff-appellant, vs.THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON. ESTEBAN C. CONEJOS, as Mayor of Ormoc City and ORMOC CITY, defendants-appellees.

Cleto P. Evangelista for plaintiff-appellant. The City Fiscal of Ormoc City for defendant-appellees.

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CONCEPCION, C.J.:

Direct appeal from a decision of the Court of First Instance of Leyte dismissing plaintiff's complaint, without pronouncement as to costs.

Plaintiff, Dr. Hermenegildo Serafica, seeks a declaration of nullity of Ordinance No. 13, Series of 1964, of Ormoc City, imposing a "tax of five pesos (P5.00) for every one thousand (1,000) board feet of lumber sold at Ormoc City by any person, partnership, firm, association, corporation, or entities", pursuant to which the Treasurer of said City levied on and collected from said plaintiff, as owner of the Serafica Sawmill, the aggregate sum of P1,837.84, as tax on 367,568 board feet of lumber sold, in said City, during the third quarter of 1964. After appropriate proceedings, the lower court rendered judgment upholding the validity of said ordinance and denying the relief prayed for by Dr. Serafica. Hence, this appeal by the latter.

The contested ordinance reads:

ORDINANCE NO. 13

AN ORDINANCE IMPOSING A TAX OF FIVE PESOS (P5.00) FOR EVERY ONE THOUSAND BOARD FEET OF LUMBER SOLD AT ORMOC CITY AND FOR OTHER PURPOSES.

BE IT ORDAINED, by authority of the Municipal Board of Ormoc City, Philippines, pursuant to the provisions of Republic Act 179, as amended by RA 429, otherwise known as the Charter of Ormoc City, That:

SECTION 1. City tax. — There shall be paid to the City Treasurer a city tax of five pesos (P5.00) for every one thousand (1,000) board feet of lumber sold at Ormoc City by any person, partnership, firm, association, corporation or entity.

SECTION 2. Time and manner of payment and penalty for delinquency. — The city tax herein prescribed shall be payable without penalty within twenty (20) days after the close of every quarter for which the tax is due. Failure to pay the tax within the prescribed time shall render the taxpayer subject to a surcharge of fifty percentum (50%) for the first offense and one hundred percentum (100%) for subsequent failures to pay within the prescribed period.

SECTION 3. Payment to be rendered by taxpayer. — The taxpayer is hereby obliged to include the tax due in every invoice issued for the sale of lumber which tax shall be submitted for payment to the City Treasurer within twenty (20) days after the close of every quarter.

SECTION 4. Inspection of taxpayer's books and records. — For the purpose of enforcing the provisions of this Ordinance, the City Treasurer or any of his deputies specifically authorized in writing for the purpose, shall have authority to examine the books and records of any person, partnership, firm, association, corporation or entity subject to the tax herein imposed, PROVIDED, HOWEVER, That such examination shall be made only during regular business hours, unless the person, partnership, firm, association, corporation or entity concerned shall consent otherwise.

SEC. 5. Penalty for violation. — Any violation of the provisions of the Ordinance shall be punishable by a fine of not more than five hundred (P500.00) pesos and an imprisonment of not more than three (3) months.

SEC. 6. Construction of this Ordinance. — If any part or section of this Ordinance shall be declared unconstitutional or ultra vires, such part or section shall not invalidate any other provision hereof.

SEC. 7. Effectivity. — This Ordinance shall take effect immediately upon approval. ENACTED, June 17, 1964.lawphi1.nêt

RESOLVED, FURTHER, to authorize the City Treasurer to copies of this Ordinance for issuance to all concerned;

RESOLVED, FINALLY, to furnish a copy of this resolution-ordinance each to the City Treasurer, the City Auditor, the City Fiscal, the City Judge, and all concerned;

CARRIED. Six affirmative votes registered by Councilors Tugonon, Alfaro, Kierulf, Abas, Besabella, and Du;

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one abstention registered by Councilor Aviles.

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Plaintiff assails this ordinance as null and void upon the grounds that: (1) the Charter of Ormoc City (Republic Acts Nos. 179 and 429) authorizes the same to "regulate", but not to "tax" lumber yards; (2) the ordinance in question imposes, in effect, double taxation, because the business of lumberyard is already regulated under said Charter and the sale of lumber is "a mere incident to the business of lumber yard"; (3) the tax imposed is "unfair, unjust, arbitrary, unreasonable, oppressive and contrary to the principles of taxation"; and (4) "the public was not heard and given a chance to air its views" thereon.

With respect to the first ground, We have held in Ormoc Sugar Co. v. Municipal Board of Ormoc City, 1

that the taxing power of the City of Ormoc, under section 2 of the Local Autonomy Act 2 is "broad" and "sufficiently plenary to cover everything, excepting those mentioned therein". 3 It should be noted that in said case of Ormoc Sugar Co., We upheld the validity of a sales tax.

As regards the second ground, suffice it to say that regulation and taxation are two different things, the first being an exercise of police power, whereas the latter is not, apart from the fact that double taxation is not prohibited in the Philippines. 4

The third objection is premised upon the fact that the tax in question is imposed regardless of the class of lumber sold, although there are several categories thereof, commanding different prices. Plaintiff has not proven, however, or even alleged the prices corresponding to each category, so that, like the lower court, We have no means to ascertain the accuracy of the conclusion drawn by him, and must, accordingly, rely upon the presumption that the City Council had merely complied with its duty and that the ordinance is valid, unless and until the contrary has been duly established. 5

The last objection is based upon Provincial Circular No. 24 of the Department of Finance, dated March 31, 1960, suggesting that, "in the enactment of tax ordinances .. under the Local Autonomy Act ... where practicable, public hearings be held wherein the views of the public ... may be heard." This is, however, a mere suggestion, compliance with which is not obligatory, so that failure to act in accordance therewith can not and does not affect the validity of the tax ordinance.

Indeed, since local governments are subject, not to the control, but merely to the general supervision of the President, it is to say the least, doubtful that the latter could have made compliance with said circular obligatory. 6

We have not overlooked the fact that, pursuant to Sec. 2 of Republic Act No. 2264 as amended "no city, municipality or municipal district may levy or impose ...

x x x x x x x x x

(e) Taxes on forest products or forest concessions."

Although lumber is a forest product, this imitation has no application to the case at bar, the tax in question being imposed, not upon lumber, but upon its sale. Said tax is not levied upon the lumber in plaintiff's sawmill and does not become due until after the lumber has been sold. Hence, the case at bar is distinguishable from Golden Ribbon Lumber Co., Inc. v. City of Butuan 7 in that the ordinance involved therein provided that "every person, association or corporation operating a lumber mill and/or lumber yard within the territory of the City of Butuan shall pay to the City a tax of two-fifths (P.004) centavo for every board foot of lumber sawn, manufactured and/or produced." In short, the tax in that case was imposed upon the "lumber" — a forest product, not subject to local taxation — whether sold or not. Similarly, Santos Lumber Co. v. City of Cebu 8 and Jose S. Johnston & Sons v. Ramon Regondola 9 cited by the plaintiff, refer to situations arising before the enactment of Republic Act No. 2264, 10 and, hence, are inapplicable to the present case.

Neither have We overlooked the proviso in Sec. 2 of said Act prohibiting the imposition of "any percentage tax on sales or other taxes in any form based thereon," for this injunction is directed exclusively to

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"municipalities and municipal districts," and does not apply to cities.

WHEREFORE, the decision appealed from should be, as it is hereby affirmed, with costs against plaintiff herein. It is so ordered.