Case Summary (G.R. No. 107135)
Undisputed Facts
CENVOCO manufactures edible coconut oil and copra meal subject to the miller’s tax (3%) and also manufactures products subject to sales tax (10%). In 1986 CENVOCO purchased containers and packaging materials (e.g., tin cans, tetra-paks) for its refined edible oil and paid sales tax on those purchases. A Revenue Examiner’s investigation led to Assessment Notice No. FAS-B-86-88-001661-001664 (April 22, 1988) assessing a deficiency miller’s tax of P1,575,514.70 for 1986. CENVOCO sought reconsideration (letters dated June 27, 1988 and September 28, 1988). By letter of November 17, 1988 Deputy Commissioner Santos reiterated the assessment and denied the requested credit.
Procedural History
CENVOCO filed a petition with the Court of Tax Appeals. The CTA rendered judgment on December 3, 1990, holding CENVOCO not liable for the alleged deficiency miller’s tax. The Court of Appeals affirmed the CTA decision in toto. The Commissioner of Internal Revenue petitioned the Supreme Court for review on certiorari.
Issue Presented
Whether the sales taxes paid by CENVOCO on containers and packaging materials for its milled products may be credited against the assessed deficiency miller’s tax under the final proviso of Section 168 of the NIRC, which disallows credit “for any sales, miller’s or excise taxes paid on raw materials or supplies used in the milling process.”
Applicable Law (Section 168, NIRC) and Interpretive Rules
Section 168 imposes a percentage (miller’s) tax on proprietors or operators of specified mills and includes a final proviso disallowing credit for taxes paid on “raw materials or supplies used in the milling process.” Revenue regulations cited define “raw materials” as articles that, when used in manufacture, become a homogenous part of the finished article and cannot be identified in their original state. Rules of statutory construction applied include that exceptions are to be strictly but reasonably construed and that words of a statute should ordinarily be given their plain, common meaning. The Court also invoked established principles that tax statutes are construed strictly against the government and that quasi‑judicial agencies such as the CTA merit respect for their expertise unless there is abuse.
CTA and Court of Appeals Reasoning — Characterization of Containers and Packaging
Both the CTA and the Court of Appeals concluded that containers and packaging materials (cans, tetrapaks) are not “raw materials” used in the milling process. The courts relied on (a) the ordinary and regulatory definition of “raw materials” as materials that merge into the product and cannot be separately identified; (b) the practical observation that containers are not fed into milling machinery nor converted into the finished edible oil; (c) dictionary and prior case definitions distinguishing packaging/containers from raw materials; and (d) the statutory context of Section 168, which limits the miller’s tax to specified milled products and their by-products. On that basis the CTA and CA held the sales taxes paid on containers and packaging were not barred by the proviso and therefore could be credited against the miller’s tax.
Commissioner’s Arguments and Non-Retroactivity Concern
The Commissioner argued the final proviso of Section 168 prohibits the claimed credit and relied on a different BIR ruling by Commissioner Ruben Ancheta in October 1984 that had allowed a similar credit to CENVOCO, asserting that reversal would conflict with the non-retroactivity rule for tax rulings (Section 278 of the old Tax Code) and would impermissibly create a perpetual exemption for CENVOCO. The CA addressed this contention but did not find the existence of an improvident or abusive exercise that would require overturning the CTA’s application of the statutory text.
Supreme Court Analysis — Statutory Construction and Policy Considerations
The Supreme Court applied strict but reasonable construction of the proviso, emphasizing that the disallowance expressly refers only to taxes paid on raw materials or supplies used in the milling process. The Court observed that exceptions to general statutory rules must not be extended by implication and that ambiguous or doubtful exceptions should be resolved in favor of the general provision. Given the regulatory and ordinary meanings of “raw materials,” the Court found that containers and packaging fall outside the proviso’s scope. The Court
...continue readingCase Syllabus (G.R. No. 107135)
Procedural Posture
- Petition for Review on Certiorari filed with the Supreme Court from a judgment of the Court of Appeals.
- Court of Appeals had affirmed in toto the decision of the Court of Tax Appeals (CTA) which denied the Commissioner of Internal Revenue’s assessment for deficiency miller’s tax against Central Vegetable Oil Manufacturing Co., Inc. (CENVOCO).
- The Commissioner of Internal Revenue sought review of the CA decision before the Supreme Court, challenging the CTA/CA rulings allowing credit of sales taxes paid on containers and packaging materials against the alleged deficiency miller’s tax for 1986.
- Supreme Court disposition: Petition dismissed; decision of the Court of Appeals affirmed. No pronouncement as to costs. Opinion by Justice Purisima; Romero (Chairman), Panganiban, and Gonzaga-Reyes, JJ., concur. Justice Vitug on official leave.
Undisputed Facts
- CENVOCO is a manufacturer of edible coconut oil, copra/mealk cake and other coconut-related oils subject to the miller’s tax of 3%.
- CENVOCO also manufactures lard, detergent and laundry soap subject to the sales tax of 10%.
- In 1986 CENVOCO purchased a specified number of containers and packaging materials for its edible oil and paid the sales tax due thereon.
- After investigation by the BIR Revenue Examiner, Assessment Notice No. FAS-B-86-88-001661-001664 dated April 22, 1988 was issued assessing CENVOCO with deficiency miller’s tax totaling P1,575,514.70 (amount appears variously as P1,575,514.70 and P1,575,514.75 in the record excerpts).
- CENVOCO filed a request for reconsideration by letter dated June 27, 1988 (filed June 29, 1988) and reiterated the request by letter dated September 28, 1988, contending that sales tax paid on containers and packaging materials should be credited against the miller’s tax because the final proviso of Section 168 of the Tax Code does not apply to such items.
- BIR (Deputy Commissioner Eufracio D. Santos) responded by letter dated November 17, 1988, reiterating the assessment and denying the credit, stating that no provision of law allows such a credit and that Section 168’s final proviso bars credits for taxes paid on raw materials or supplies used in the milling process.
- CENVOCO filed a petition for review with the Court of Tax Appeals; CTA rendered a decision on December 3, 1990 in favor of CENVOCO, holding it not liable for the deficiency miller’s tax for 1986 in the amount assessed.
- The Court of Appeals affirmed the CTA decision in toto.
Core Issue Presented
- 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.
- More specifically, whether containers and packaging materials are “raw materials or supplies used in the milling process” within the meaning of the final proviso of Section 168 of the National Internal Revenue Code (NIRC), such that sales or excise taxes paid thereon are excluded from credit against miller’s tax.
Relevant Statutory Provision
- Section 168, National Internal Revenue Code (as quoted in the source), including the final proviso:
- Full section text quoted in the source delineates the 3% percentage tax upon proprietors/operators of specified mills and factories and includes the final proviso: “Provided, finally, That credit for any sales, miller’s or excise taxes paid on raw materials or supplies used in the milling process shall not be allowed against the miller’s tax due, except in the case of a proprietor or operator of a refined sugar factory as provided hereunder.” (underscoring supplied in source)
Position of the Commissioner of Internal Revenue (Petitioner)
- The Commissioner relied on the final proviso of Section 168 to deny credit for sales tax paid on the containers and packaging materials.
- The Commissioner’s letter (Deputy Commissioner Eufracio D. Santos, November 17, 1988) maintained that there is no provision of law allowing such a credit and argued that since Section 168 specifically disallows credits for taxes paid on raw materials or supplies used in the milling process, the disallowance should extend to taxes paid on materials not used in the milling process as well.
- The Commissioner also argued that reversal of an earlier favorable ruling (Commissioner Ruben Ancheta’s October 1984 ruling granting CENVOCO’s request) would violate the rule on non-retroactivity of rulings of tax officials when prejudicial to the taxpayer (Section 278 of the old Tax Code), and complained that allowing the credit effectively created a perpetual exemption in favor of CENVOCO.
Position of CENVOCO and the Tax Tribunal Rulings (CTA and CA)
- CENVOCO contended that containers and packaging materials are not “used in the milling process” and therefore sales taxes paid on them do not fall within the final proviso of Section 168 and should be credited against the miller’s tax.
- CTA agreed with CENVOCO and held that CENVOCO was not liable for the alleged deficiency miller’s tax for 1986 (December 3, 1990 decision).
- Court of Appeals affirmed the CTA decision in toto, adopting CTA’s reasoning that containers and packages cannot be considered “raw materials” utilized in the milling process.