G.R. No. 86785 - Commissioner of Internal Revenue vs. Court of Appeals

Petitioner: A mining corporation organized under Philippine laws, engaged primarily in the mining of copper ore.
Principal operation: Extraction of copper ore from its mining property and concessions in Toledo, Cebu, reputedly the biggest copper mine in Asia.
Method of operation: Utilization of the open pit method, which involves the removal of surface materials such as limestone, soil, and rocks to access the copper ore deposits beneath.

Ownership of land: Petitioner owns the surface rights to the Biga Lime Quarry, which contains limestone.
Regulatory exemption: As owner, the petitioner was not required to secure a government permit to dig out the limestone during the period covered (1973–1975).
Process details:

Limestone extraction: Although limestone was dug out along with other surface materials, the majority was left in the mine as waste.
Processing: A small portion of the limestone was processed into lime, which was subsequently used as a flotation agent in the conversion of copper ore into copper concentrate.
Chemical reaction: The lime, when mixed with water, caused the copper mineral powder to float, separating it from the unwanted waste which sank and was discarded as tailings.
Export: The floating copper concentrate, which did not incorporate the processed lime, was accumulated, dried, and exported to Japan.

Activity costing: Petitioner assigned cost estimates to each identifiable activity in the mining process, including the excavation, crushing, and processing of copper ore.
Specific cost determination: The production cost of lime was computed to be P72,096.25, an amount used in computing the ad valorem tax of P181,925.25.
Claim for tax credit: On December 22, 1975, petitioner filed a claim with the Commissioner of Internal Revenue for a tax credit corresponding to the computed ad valorem tax on the lime.

Filing of petition for review: Since no timely action was taken by the Commissioner of Internal Revenue, petitioner filed a petition for review with the Court of Tax Appeals on February 18, 1976.
Court of Tax Appeals' decision: On February 16, 1988, the Court of Tax Appeals ruled in favor of petitioner by ordering a tax credit of P170,476.64 representing the erroneously paid ad valorem tax.
Review by Court of Appeals: Petitioner’s petition for review was elevated to the Court of Appeals (re-docketed as CA-G.R. SP No. 15429) where on January 20, 1989, the decision of the Court of Tax Appeals was affirmed, dismissing petitioner’s petition for review.

Whether the limestone that was dug out and processed into lime, used merely as an incidental flotation agent in the production of copper concentrate, should be subject to the ad valorem tax under Section 243 of the old National Internal Revenue Code (Section 255 of the IRC of 1977, as amended).

Determination of taxability: Whether the extraction and processing operation of limestone that does not have a separate market value and is never removed from the mine site constitutes “extraction” for tax purposes.
Double taxation: Whether imposing the ad valorem tax on limestone, which is incidental to the primary business of copper mining for which petitioner is already taxed, amounts to unjustifiable double taxation.
Interpretation of statutory language: Whether the term “extraction” in the tax statute applies solely to minerals with actual market value that are removed from the mining locality, thereby excluding incidental processes like the conversion of limestone to lime.