363 Phil. 130
PURISIMA, J.:
"Petitioner (private respondent CENVOCO herein) is a manufacturer of edible and coconut/coprameal cake and such other coconut related oil subject to the miller's tax of 3%. Petitioner also manufactures lard, detergent and laundry soap subject to the sales tax of 10%.Dissatisfied with the adverse action taken by the BIR, CENVOCO filed a petition for review with the Court of Tax Appeals, which came out with a decision, dated December 3, 1990, in favor of CENVOCO, disposing, thus:
In 1986, petitioner purchased a specified number of containers and packaging materials for its edible oil from its suppliers and paid the sales tax due thereon.
After an investigation conducted by respondent's Revenue Examiner, Assessment Notice No. FAS-B-86-88-001661-001664 dated April 22, 1988 was issued against petitioner for deficiency miller's tax in the total amount of P1,575,514.70 x x x .
On June 29, 1988, petitioner filed with respondent a letter dated June 27, 1988 requesting for reconsideration of the above deficiency miller's tax assessments, contending that the final provision of Section 168 of the Tax Code does not apply to sales tax paid on containers and packaging materials, hence, the amount paid therefor should have been credited against the miller's tax assessed against it. Again, thru letter dated September 28, 1988, petitioner reiterated its request for reconsideration.
On November 17, 1988, respondent wrote CENVOCO, the full text of which letter reads
November 17, 1988
Central Vegetable Oil
Manufacturing Co. Inc.
P.O. Box 2816
Manila
Attention: Mr. James Chua
President
Gentlemen:
We have received your letter of September 28, 1988, relative to our assessment against your company in the amount of P1,575,514.75, as deficiency miller's tax for the year 1986.
Section 168 of the Tax Code provides that 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. You contend that since packaging materials are not used in the milling process then, the sales taxes paid thereon should be allowed as a credit against the miller's tax due because they do not fall within the scope of the prohibition.
It is our position, however, that since the law specifically does not allow taxes paid on the raw materials or supplies used in the milling process as a credit against the miller's tax due, with more reason should the sales taxes paid on materials not used in the milling process be allowed as a credit against the miller's tax due. There is no provision of law which allows such a credit-to-be made.
In view of the above, we are reiterating the assessment referred to above. We request that you make payment immediately so that this case may be considered closed and terminated.
Very truly yours,
(SGD) EUFRACIO D. SANTOS
Deputy Commissioner
(CA Decision, pp.31-33 Rollo)
"WHEREFORE, in view of the foregoing, petitioner Central Vegetable Oil Manufacturing Co., Inc., is not liable for deficiency miller's tax for the year 1986 in the amount of P1,575,514.70.Appealed to the Court of Appeals, the said decision was affirmed in toto. (Rollo, p. 38)
No pronouncement as to costs.
SO ORDERED." (Rollo, p. 53)
"The main issue in this case is whether or not respondent CENVOCO is liable for deficiency miller's tax for the year 1986 in the amount of P1,575,514.70. This in turn hinges on whether or not containers and packaging materials are raw materials used in the milling process within the contemplation of the final proviso of Section 168 of the National Internal Revenue Code, which reads:Hence, the petition under consideration, posing the issue:
'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.'
xxx xxx xxx
"xxx We agree with respondent Court that containers and packages cannot be considered "raw materials" utilized in the milling process. In arriving at the conclusion, respondent Court quoted with approval the reasons cited by CENVOCO, as follows:'FIRST; The raw materials used by Cenvoco in manufacturing edible oil are copra and/or coconut oil. In other words, the term "used" in the final proviso of Section 168 of the NIRC refers or is strictly confined to "raw materials" or supplies fed, supplied or put into the apparatus, equipment, machinery or its adjuncts that cause or execute the milling process. On the other hand, the containers, such as tin cans, and/or packages are not used or fed into the milling machinery nor were ever intended for conversion to form part of the finished product, i.e., refined coconut/edible oil. Consequently, it would be absurd to say that said containers and packages are "used in the milling process", for the process involves "grinding, crushing, stamping, cutting, shaping or polishing". (See THE DICTIONARY, by TIME, COPYRIGHT 1974, p. 444) x x x"Tested in the light of the foregoing statutory definition, it is evident that containers and packages used by Cenvoco are not 'raw materials' and do not fall within the purview of the final proviso of Section 168 of the NIRC. x x x As a coup de grace, it is pertinent to note the case of Caltex (Phils.) Inc. vs. Manila Port Service (17 SCRA 1075) where the Supreme Court aptly defined containers and/or packages.
'SECOND; Petitioner's interpretation of the term raw materials is contrary to law and jurisprudence. Thus, raw materials as used in the definition of " manufacture", denotes materials from which final product is made (Black's Law Dictionary, 4th ed. citing State vs. Hennessy Co., 71 Mont. 301, 230, p. 64, 65). And consistent with said definition, Revenue Regulations Nos. 2-86 and 11-86 [effective January 1, 1986 and August 1, 1986, respectively] which govern the filing of quarterly percentage tax returns and payment thereof under the provisions, inter alia, of Section 168 of the NIRC, define raw materials or material, to wit:
Any article which when used in the MANUFACTURE of another article becomes a homogenous part thereof, such that it can no longer be identified in its original state nor may be removed therefrom without destroying or rendering useless the finished article to which it has been merged, mixed or dissolved. x x x'
'x x x a package or a bundle made up for transportation; a packet; a bale; a parcel; or that in which anything is packed: box, case, barrel, crate, etc. in which goods are packed: a container.' (Underscoring Ours)
"The definition is an emphatic rejection of petitioner's construction that Cenvoco's containers and packages are raw materials used in the milling process. x x x
"xxx Moreover, Section 168 of the Revenue Code expressly limits the articles subject to percentage tax (miller's tax) to: 'rope, sugar, coconut oil, palm oil, cassava flour or starch, desiccated coconuts, manufactured, processed or milled by them, including the by-product of the raw materials, from which said articles are produced, processed or manufactured'. x x x "
(CA Decision, Rollo pp. 34-36)
WHETHER OR NOT THE SALES TAX PAID BY CENVOCO WHEN IT PURCHASED CONTAINERS AND PACKAGING MATERIALS FOR ITS MILLED PRODUCTS CAN BE CREDITED AGAINST THE DEFICIENCY MILLER'S TAX DUE THEREON.Resolution of the issue posited by the petitioner hinges on the proper application of Section 168 of the then applicable National Internal Revenue Code, particularly the last proviso of said section, which reads:
"Sec. 168. Percentage tax upon proprietors or operators of rope factories, sugar centrals and mills, coconut oil mills, palm oil mills, casava mills and desiccated coconut factories. Proprietors or operators of rope factories, sugar centrals and mills, coconut oil mills, palm oil mills, cassava mills, and desiccated coconut factories, shall pay a tax equivalent to three (3) percent of the gross value of money of all the rope, sugar, coconut, oil, palm oil, cassava flour or starch, dessiccated coconut, manufactured, processed or milled by them, including the by-product of the raw materials, from which said articles are produced, processed or manufactured, such tax to be based on the actual selling price or market value of these articles at the time they leave the factory or mill warehouse: Provided, however, that this tax shall not apply to rope, coconut oil, palm oil and the by-product of copra from which it is produced or manufactured, and dessicated coconuts, if such rope, coconut oil, palm oil, copra by-products and dessicated coconuts, shall be removed for exportation by the proprietor of operator or the factory or mill himself, and are actually exported without returning to the Philippines, whether in their original state or as an ingredient or part of any manufactured article or product: Provided further, That where the planter or the owner of the raw materials is the exporter of the aforementioned milled or manufactured products, he shall be entitled to a tax credit of the miller's taxes withheld by the proprietor or operator of the factory or mill, corresponding to the quantity exported, which may be used against any internal revenue tax directly due from him: and 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)Notably, the law relied upon by the BIR Commissioner as the basis for not allowing Cenvoco's tax credit is just a proviso of Section 168 of the old Tax Code. The restriction in the said proviso, however, is limited only to sales, miller's or excise taxes paid "on raw materials used in the milling process".
"x x x This refers to your letter dated September 5, 1984 requesting that the 10% sales tax paid on container cans purchased by you, be credited against the 2% (now 3%) miller's tax due on the refined coconut edible oil.According to petitioner, to hold, as what the Court of Appeals did, that a reversal of the aforesaid ruling would be violative of the rule on non-retroactivity of rulings of tax officials when prejudicial to the taxpayer (Section 278 of the old Tax Code) would, in effect, create a perpetual exemption in favor of CENVOCO although there may be subsequent changes in circumstances warranting a reversal.
It is represented that you process copra and/or coconut oil and sell the refined edible oil in cans; that said cans are purchased from can manufacturers who in turn bill to you the price of the cans and the 10% tax paid thereon which are separately shown on the invoice; and that the cost of the cans, including the 2% millier's tax is computed.
In reply, I have the honor to inform you that your request is hereby granted. x x x (Pacific Oxygen & Acetylene Co. vs. Commissioner, GR No. L-17708, April 30, 1965)." (Rollo p. 36)