Case Summary (G.R. No. L-20563)
Factual Background
Cebu Portland Cement Company manufactured and sold APO Portland cement and had been paying a 7% percentage tax computed on the gross selling price inclusive of the cost of bag containers and gypsum prior to June 16, 1955. After the approval of Republic Act No. 1299, petitioner ceased paying the 7% sales tax on gross sales and instead paid the ad valorem tax on the selling price after deducting the cost of containers. Petitioner had protested the imposition of the sales tax since 1952 and filed written claims for refund with the Collector in September, 1955 and again in July, 1956.
Procedural History
Petitioner filed a petition for review with the Court of Tax Appeals on January 24, 1957, alleging the Collector refused to entertain the refund claim and asserting exemption under Republic Act No. 1299. The petition was amended October 24, 1959 and again on June 23, 1961 to add claims for alleged overpayments of ad valorem taxes. The Court of Tax Appeals dismissed the petition. Petitioner appealed to the Supreme Court by petition for review, which rendered judgment on October 29, 1968.
Court of Tax Appeals' Ruling
The Court of Tax Appeals concluded: (1) cement was not exempt from the sales tax before Republic Act No. 1299 and thus was taxable as a manufactured product; (2) petitioner was not entitled to deduct the cost of raw materials, bag containers, and gypsum from gross selling price in the absence of proof that those materials had been previously subjected to the 7% tax; (3) amounts billed, charged to, and paid by customers did not entitle petitioner to claim refund; and (4) the right to claim refund for taxes allegedly erroneously paid had prescribed.
Issues Presented to the Supreme Court
The Supreme Court identified the principal issues as: whether Republic Act No. 1299 operated retrospectively so as to exempt prior sales from the 7% tax; whether the cost of bag containers and gypsum was deductible from gross selling price in computing the 7% percentage tax; whether petitioner, rather than its customers, was the proper party to claim refund; and whether the refund action was barred by prescription under section 306 of the Tax Code.
Parties' Contentions
Cebu Portland Cement Company argued that Republic Act No. 1299 merely clarified the meaning of “minerals” and “mineral products” and should be applied as if originally enacted, thereby rendering cement a mineral product exempt from the percentage tax under section 188(c); that the cost of gypsum and bag containers should be deductible; that petitioner, not its customers, was entitled to seek refund; and that the defense of prescription was waived by the Collector's failure to plead it earlier. The Collector maintained the amendment did not operate retroactively, that deductions were not shown to have been previously taxed, that the tax was properly billed and the economic burden might have fallen on purchasers, and that the refund claims were, in part, barred by section 306.
Supreme Court's Disposition
The Supreme Court modified the decision of the Court of Tax Appeals and affirmed it as modified. The Court held in substance that: (1) before the effectivity of Republic Act No. 1299 cement was taxable as a manufactured product under section 186 in connection with section 194(x); (2) the cost of bag containers and gypsum were deductible in computing the 7% percentage tax; (3) petitioner, not its customers, was the proper party to seek refund under section 186; (4) refund was not barred insofar as sales taxes paid after January 25, 1955; and (5) refund actions were prescribed for taxes paid before January 25, 1955 and for ad valorem taxes paid more than two years prior to October 24, 1959.
Legal Basis for the Prospective Application of the Amendment
The Court applied the rule that statutes operate prospectively unless legislative intent to the contrary is manifest. The Court examined the language of the amendment to section 246, noting the use of the word “shall,” and found no express or implied legislative intent to make Republic Act No. 1299 retrospective. The Court relied on precedent, including Central Azucarera de Don Pedro vs. Court of Tax Appeals, to support the proposition that tax law amendments that employ prospective language become effective only upon approval. The Court therefore held that cement remained taxable as a manufactured product prior to June 16, 1955.
Deductibility of Bag Containers and Gypsum
The Court found that the cost of bag containers and the gypsum constituent of cement were deductible from the gross selling price for purposes of computing the 7% percentage tax. The Court reasoned that there was no showing petitioner manufactured the bag containers, so they were purchased and likely previously subjected to tax by their sellers. The gypsum, being imported and subject to compensating tax under section 190, likewise could be deducted from the gross selling price when computing the percentage tax.
Who Is the Proper Party to Claim Refund
The Court interpreted section 186, which provided that the percentage tax “shall be paid by the manufacturer or producer,” to mean the statutory incidence of the tax fell upon the manufacturer or producer. The Court cited Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue & Court of Tax Appeals and observed that, although the economic burden of the tax might be shifted to purchasers in practice, the statutory obligation and the right to seek refund rested with the manufacturer. Accordingly, petitioner was the proper party to claim the refund of amounts it paid under section 186.
Prescription and the Requirements of Section 306
The Court applied section 306 of the Tax Code which mandates that a written claim for refund be filed with the Collector and that no suit be begun after two years from the date of payment. The Court treated the o
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Case Syllabus (G.R. No. L-20563)
Parties and Procedural Posture
- Cebu Portland Cement Company is the petitioner asserting claims for refund of sales and ad valorem taxes paid on APO Portland cement.
- Collector (now Commissioner) of Internal Revenue is the respondent who assessed and collected the taxes and denied the refund claims.
- The petitioner filed written claims for refund with the Collector in September 1955 and reiterated the claim on July 26, 1956.
- The petitioner filed a petition for review with the Court of Tax Appeals on January 24, 1957, and filed amendments on October 24, 1959, and June 23, 1961.
- The respondent answered, first without pleading prescription and later filed an answer dated February 26, 1960, pleading prescription as to portions of the claim.
- The Court of Tax Appeals dismissed the petition for review, and the petitioner elevated the case to the Supreme Court on a petition for review.
Key Factual Allegations
- The petitioner paid percentage (sales) tax on APO Portland cement produced by it from November 1, 1954 to March, 1955 and paid ad valorem tax from April, 1955 to September 30, 1956.
- The petitioner sought refund of P458,241.45 as sales tax and P427,552.95 as ad valorem tax in its later pleadings, with alternative computation claims of P590,649.92 and P854,619.89.
- Since 1952 the petitioner had protested the imposition of sales tax on its cement and on January 16, 1953 protested ad valorem tax assessments.
- Before June 16, 1955 the petitioner computed and paid the 7% sales tax on gross selling price inclusive of the cost of bag containers and gypsum.
- After the approval of Republic Act No. 1299 on June 16, 1955 the petitioner ceased paying percentage tax and paid ad valorem tax on selling price after deducting the cost of containers.
Statutory Framework
- Republic Act No. 1299 amended section 246 of the National Internal Revenue Code by defining the words "minerals" and "mineral products."
- Section 186 of the Tax Code imposed a 7% percentage tax on original sales and provided that the tax is to be paid by the manufacturer or producer and that the cost of materials also subject to the tax may be deducted from gross selling price.
- Section 190 prescribes the compensating tax equivalent to the percentage tax on imported components.
- Section 243 and other provisions prescribe the ad valorem taxation scheme applicable to mineral products.
- Section 306 of the Tax Code conditions judicial recovery of erroneously collected taxes upon filing a claim for refund with the Collector and instituting suit within two years from payment.
Issues Presented
- Whether Republic Act No. 1299 operates retroactively so as to render cement a mineral product exempt from percentage tax before June 16, 1955.
- Whether the petitioner may deduct from gross selling price the cost of bag containers and gypsum when computing the 7% percentage tax prior to the amendment.
- Whether the petitioner or its customers is the proper party to claim refund of percentage taxes that were billed, charged, and collected from customers.
- Whether the petitioner’s action for refund was barred by prescription under section 306 of the Tax Code.
- Whether ad valorem taxes alleged to have been overpaid were recoverable in the amended petition.
Contentions of the Parties
- The petitioner contended that Republic Act No. 1299 merely clarified the meaning of "minerals" and "mineral products" and should be construed as if originally enacted so that cement was a mineral product exempt under section 188(c).
- The petitioner contended that the cost of bag containers and gypsum should be deductible from gross selling price in computing the 7% percentage tax.
- The respondent contended that the amendment was prospective only, that no deduction was allowable absent proof that materials were previously taxed, that the petitioner’s customers were proper claimants for refunds for taxes billed to them, and that the refund action was prescribed.
Court of Tax Appeals Ruling
- The Court of Tax Appeals held that cement was not exempt from percentage tax prior to Republic Act No. 1299 and was taxable as a manufactur