G.R. No. 155094 - Oriente vs. People

Case Summary (G.R. No. 155094)

Key Dates and Procedural Posture

Original CTA decision (as modified by the Supreme Court) awarded refund for ad valorem taxes. On March 28, 1968, after denial of motions for reconsideration, CEPOC moved for a writ of execution to collect the judgment. The Commissioner opposed the motion asserting a large outstanding sales tax liability and that the judgment debt should be credited thereto. CTA granted CEPOC’s motion on April 22, 1968. The Commissioner petitioned the Supreme Court to review that CTA resolution.

Applicable Statutory Provisions and Legislative Acts

Primary statutory framework: National Internal Revenue Code (as referenced in the decision): Sections concerning sales tax (Section 186), exemption/classification provisions (Section 188 and Section 246 as amended by Republic Act No. 1299), ad valorem (mining) tax returns (Section 245), required sales tax returns (Section 183[n] as referenced), prescription (Section 331), injunction against tax collection (Section 291, formerly Section 305), distraint/power of levy (formerly Sections 316 and 318, noted as now Sections 302 and 304). Relevant special statutes: Republic Act No. 1299 (amending Section 246) and Republic Act No. 1125 (providing exceptions to the general rule on suspension of tax collection).

Commissioner’s Principal Arguments

The Commissioner urged that the refund owed to CEPOC should be applied against CEPOC’s outstanding sales tax deficiency for cement sales. He maintained that cement is a manufactured product, not a mineral product, and therefore subject to sales tax under Section 186. He also relied on the Commissioner’s statutory powers to enforce tax assessments by distraint under the cited distraint provisions, and invoked the general statutory prohibition against injunctions restraining collection of national internal revenue taxes (Section 291), except as limited by Rep. Act No. 1125. The Commissioner further denied prescription of the sales tax assessments, arguing that the prescriptive period is counted from the filing of the applicable sales tax returns, which CEPOC had not filed.

CEPOC’s Principal Arguments

CEPOC disclaimed liability for the sales taxes, asserting that cement is a mineral product and therefore exempt under Section 188 after the effectivity of Republic Act No. 1299 (June 16, 1955). CEPOC relied on Cebu Portland Cement Co. v. Collector of Internal Revenue (1968) for the proposition that the enactment of RA 1299 effectively reclassified cement as a mineral product. CEPOC also argued that the sales tax assessment was not enforceable because it was still under protest and not final, and that the assessments had prescribed because the relevant sales tax returns had been filed (allegedly on June 30, 1962), so the five-year reglementary assessment period had already lapsed.

Nature of Cement — Legal Characterization and Precedent Analysis

The Supreme Court concluded that cement has consistently been considered a manufactured product, not a mineral product, for purposes of the Tax Code. The Court relied principally on Commissioner of Internal Revenue v. Republic Cement Corporation (G.R. No. L-35668-72 & others, decided August 10, 1983 and reaffirmed May 7, 1987), where Justice Efren L. Plana, after reviewing prior jurisprudence, held that cement qua cement was not within the Tax Code’s notion of a mineral product even if it contains a high percentage of mineral components, because it is the product of a manufacturing process and therefore not the “mineral product” contemplated for ad valorem mining tax treatment. The Court expressly held that reliance on portions of the CEPOC (1968) decision suggesting RA 1299 reclassified cement as a mineral product was misplaced, and overruled CEPOC insofar as it conflicted with the later Republic Cement ruling.

Prescription — Filing of Returns and the Run of the Statute

On the question of prescription, the Court rejected CEPOC’s contention that the five-year period under Section 331 began to run from CEPOC’s alleged filing of returns on June 30, 1962. The Court distinguished the ad valorem tax returns CEPOC did file (Section 245 returns) from the specific sales tax returns required by Section 183(n). The ruling adopted the principle that filing a return for one tax (ad valorem/mining) does not constitute filing the distinct required return for another tax (sales tax) so as to start the five-year prescription period for the latter. Citing Butuan Sawmill, Inc. v. CTA and other authorities, the Court held that because CEPOC did not file the required sales tax returns, the five-year statute did not commence; where a return is absent (or false or fraudulent), the rele

Case Syllabus (G.R. No. 155094)

Procedural History

A decision of the Court of Tax Appeals dated June 21, 1961, as modified on appeal by the Supreme Court on February 27, 1965, ordered the Commissioner of Internal Revenue to refund to Cebu Portland Cement Company the amount of P359,408.98 representing overpayments of ad valorem taxes on cement produced and sold after October 1957. [1]
After denial of motions for reconsideration by both parties, on March 28, 1968 the private respondent moved for a writ of execution to enforce the said judgment. [2]
The petitioner opposed the motion for execution, asserting that the judgment debt had been credited against an outstanding sales tax liability of the private respondent in the amount of P4,789,279.85 plus 28% surcharge, and that the refund should be charged against that tax deficiency. [3]
On April 22, 1968, the Court of Tax Appeals granted the private respondent’s motion for writ of execution, on the ground that the alleged sales tax liability was still being questioned and therefore could not be set off against the refund. * (Judges Roman L. Umali, presiding; Ramon L. Avancena; Estanislao R. Alvarez.) [4]
The Commissioner filed a petition for review of the CTA resolution, challenging the CTA’s order permitting execution and urging that the refund be credited against the assessed sales tax deficiency. The matter reached the Supreme Court as G.R. No. L-29059, decided December 15, 1987.

Facts

The judgment debt ordered refunded to Cebu Portland Cement Company (CEPOC) totaled P359,408.98 for overpayments of ad valorem taxes on cement produced and sold after October 1957. [1]
The Commissioner alleged an outstanding sales tax liability against CEPOC in the amount of P4,789,279.85 plus 28% surcharge; he maintained the refund should be applied against that liability. [3]
The Commissioner’s position: cement is a manufactured product, not a mineral product, thus subject to sales tax under Section 186 of the Tax Code; enforcement of the tax deficiency had been pursued by distraint powers under Sections 316 and 318 of the Code; and courts lack authority to enjoin collection of national internal revenue taxes under Section 305 (now Sec. 291), subject only to the exception in Rep. Act No. 1125 (Sec. 11 exception). [5][6][7]
CEPOC’s position: cement is a mineral product and therefore exempt from sales taxes under Section 188 of the Tax Code after the effectivity of Rep. Act No. 1299 on June 16, 1955; CEPOC relied on Cebu Portland Cement Co. v. Collector of Internal Revenue (25 SCRA 789, CEPOC decision, October 29, 1968) as support. CEPOC also asserted that the sales tax assessments were not enforceable because they were still under protest and not final, and that assessments had prescribed under the five-year reglementary period, counting from CEPOC’s filing of gross sales returns on June 30, 1962. [8][9][10]
The parties admitted that ad valorem tax returns were filed; CEPOC argued those returns contained information necessary for sales tax assessment, while the Commissioner contended ad valorem returns were not sales tax returns and therefore did not trigger the five-year prescriptive period for sales tax assessments. (References to Secs. 245 and 183(n).)

Issues Presented

Whether the Commissioner’s refund obligation to CEPOC (P359,408.98) could be set off, credited, or retained by the Commissioner to satisfy CEPOC’s outstanding sales tax liability of P4,789,279.85 plus surcharge.
Whether cement is a “manufactured product” or a “mineral product” for purposes of sales tax liability under the Tax Code and the effect (if any) of Republic Act No. 1299 on that classification.
Whether the sales tax assessments against CEPOC were barred by prescription under the five-year reglementary period (Sec. 331) or were otherwise non-enforceable because they were still under protest and not final.
Whether collection of the tax deficiency could be enjoined or restrained by CEPOC pending resolution of the assessment’s validity.

Holdings (Resolution of the Court)

The Supreme Court held that the sales tax was properly imposed upon CEPOC because cement has always been considered a manufactured product and not a mineral product.
The Court overruled insofar as conflicting the CEPOC decision of October 29, 1968 (G.R. No. L-20563) to the extent that CEPOC could be read to imply cement became a mineral product and thereby exempt from sales tax after Republic Act No. 1299. The CEPOC decision was found not to be authority for reclassifying cement as a mineral product after RA 1299. [11]
The Court held that CEPOC’s contention that the assessment had prescribed failed because CEPOC had not filed the required sales tax returns; the returns it filed were ad valorem mining tax returns under Section 245, not the sales tax returns required under Section 183(n), and therefore the five-year prescriptive period under Section 331 did not begin to run. The assessment made in 1968 for cement sales from July 1, 1959 to December 31, 1960 was not barred by prescription. [13]
The Court held that injunction is not available to restrain collection of national internal revenue tax (citing Sec. 291): "No court shall have authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code." Consequently, CEPOC could not postpone collection by merely questioning the validity of the assessment. [13]
The Supreme Court concluded that the Court of Tax App