G.R. No. 168987 - Philippine Airlines, Inc. vs. Lim

Petitioner: Commissioner of Internal Revenue (CIR)
Respondent: Central Vegetable Oil Manufacturing Co., Inc. (CENVOCO)
The case concerns deficiency miller’s tax assessment for the year 1986 and whether sales tax paid on containers and packaging materials can be credited against the miller’s tax due.

CENVOCO manufactures edible and coconut/copra meal cake and other coconut-related products subject to miller’s tax of 3%. It also manufactures lard, detergent, and laundry soap subject to 10% sales tax.
In 1986, CENVOCO purchased containers and packaging materials and paid sales tax on these items.
The BIR, after investigation, issued Assessment Notice No. FAS-B-86-88-001661-001664 dated April 22, 1988, assessing deficiency miller’s tax of P1,575,514.70 against CENVOCO.
CENVOCO filed letters for reconsideration arguing that sales tax paid on containers and packaging materials should be credited against the miller’s tax due, claiming these materials are not “raw materials used in the milling process” under Section 168 of the Tax Code.
The Deputy Commissioner of the BIR denied the claim based on the proviso in Section 168 disallowing credits for taxes paid on raw materials or supplies used in the milling process. The BIR posited there is no provision allowing credits for taxes paid on containers and packaging materials.
CENVOCO filed a petition for review with the Court of Tax Appeals (CTA). The CTA ruled in favor of CENVOCO holding that containers and packaging materials are not raw materials used in the milling process, thus the sales tax paid thereon can be credited against the miller’s tax due.
The Court of Appeals affirmed the CTA’s decision in toto.
CIR filed a Petition for Review on Certiorari before the Supreme Court.

Whether the sales tax paid by CENVOCO on containers and packaging materials for its milled products can be credited against the deficiency miller’s tax assessed for the year 1986.