G.R. No. L-10431 - Collector of Internal Revenue vs. La Tondena, Inc.

La Tondena, Inc., a duly licensed rectifier, is engaged in the manufacture of wines and liquors.
The company operates a distillery located at 1068 Velasquez, Tondo, Manila, producing known brands such as “Ginebra San Miguel,” “Manila Rum,” “Oak Barrel Rum,” “Mallorca Wine,” “Anizado,” “Creme de Mente,” and “Creme de Cacao.”

Since 1929, La Tondena, Inc. has purchased crude alcohol from suppliers such as Binalbagan Isabela Sugar Central in Negros Occidental and Central Azucarera Don Pedro in Nasugbu, Batangas.
The purchased alcohol is removed under a joint bond arrangement and delivered to the distillery without the prepayment of specific taxes, with the express permission and approval of the Collector of Internal Revenue (CIR).

The production of “Manila Rum” involves using low test alcohol purchased in crude form which undergoes further rectification (or redistillation) to produce a high-quality finished product.
In the process of re-rectification, evaporative losses occur. Historically, the CIR had allowed a loss tolerance of up to 7% for such evaporation losses.

The CIR issued a demand letter on May 8, 1954, requiring payment of specific taxes amounting to P154,663.10 for the alcohol lost through evaporation during further distillation, covering the period from June 7, 1950, to February 7, 1954.
Subsequent extensions were granted, and communications were exchanged, including:

A first extension of 30 days followed by a request on July 26, 1954, for an additional 30-day extension.
A final reply period of only 5 days granted on August 2, 1954.

La Tondena, Inc. responded on August 6, 1954, contesting the assessment and later appealed the demand when the CIR maintained its position via a letter dated August 26, 1954.
Administrative recourse was pursued when the respondent appealed the assessment to the Conference Staff on September 1, 1954, which was given due course on September 3, 1954.
Before any hearing could be held, on January 8, 1955, the CIR required the respondent to deposit one-half of the tax assessment in cash and to secure the balance with a surety bond pursuant to Department of Finance Order No. 213.
Motions for reconsideration were submitted on January 10, 1955, and subsequently on February 15, 1955 (supplemented on February 17, 1955), but both were denied.

Dissatisfied with the administrative decisions, La Tondena, Inc. filed an action before the Court of Tax Appeals on March 18, 1955.
On December 7, 1955, the Court of Tax Appeals modified the CIR’s decision by:

Ordering the company to pay a nominal sum of P672.15 by way of specific tax.
Declaring the company exempt from the payment of the remaining balance, specifically regarding the assessment for the period from January 1, 1951, to February 27, 1954, in view of Republic Act No. 592.

The initial tax assessment was based on section 133 of the Tax Code which, up to December 31, 1950, mandated that the tax attaches “as soon as it is in existence as such”—covering all distilled or rectified alcohol.
On January 1, 1951, Republic Act No. 592 amended section 133 by eliminating the clause that made the tax attach immediately upon the existence of the alcohol, thereby implying that the tax should be levied only on finished products removed from the factory or warehouse.
Later, on August 23, 1956, Republic Act No. 1608 was passed, which restored the earlier clause. However, the Court found that its retroactive application would be unjust, as it would affect losses incurred well before its enactment.

The petitioner argued that the Tax Court lacked jurisdiction due to the late filing of the petition for review, which was required to be within 30 days under section 11 of Republic Act No. 1125 (Law creating the CTA).
La Tondena, Inc. contended that the filing was timely because:

The taxpayer first sought redress through an internal administrative appeal to the Conference Staff.
The period for filing the petition was effectively suspended until all administrative remedies had been exhausted, with the final ruling being received on March 6, 1955.

Consequently, the petition was filed on March 18, 1955, well within the statutory period after considering the delay induced by the administrative process.

Whether the specific tax on alcohol lost by evaporation in the process of further rectification from January 1, 1951, to February 27, 1954, should be imposed on La Tondena, Inc., considering the legislative amendments (Republic Act No. 592) that changed the moment of tax attachment from “creation of the substance” to the finished product removed from the premises.
Whether the Court of Tax Appeals had jurisdiction over the case, particularly addressing the contention that the petition for review was filed beyond the 30-day period provided under section 11 of Republic Act No. 1125, given that the administrative appeal process had effectively suspended the running of the deadline.