G.R. No.
L-18649 February 27, 1965 concessionaire or owner of mineral lands, at least
CEBU PORTLAND CEMENT COMPANY petitioner,
vs.
COMMISSIONER OF
INTERNALREVENUE, respondent
This is petition filed by the Cebu Portland Cement
Company (CEPOC) for review of the decision of the
Court of Tax Appeals (in CTA Case No. 706) denying
its claim against the Commissioner of Internal
Revenue for refund of the sum of P476,208.50,
representing alleged overpayments of ad
valorem taxes for the period of from January 1, 1957
to June 30, 1959, on the ground that said court
erred in upholding the assessment and collection
thereof based on the selling price of the cement
petitioner produced and not on the value of the
limestone and shale it quarried and used in the
production of the cement.
There is no controversy as to the fact that for the
period of from April 16, 1957 to July 20, 1959, for
the cement it produced and sold, petitioner was
assessed and paid ad valorem taxes in the total sum
of P502,975.28; that its demand for refund of alleged
overpayment having been denied, petitioner filed on
October 15, 1959, a corresponding petitioning the
Court of Tax Appeals against the respondent
Commissioner of Internal Revenue; and that after
due hearing, the Court of Tax Appeals rendered a
decision on June 21, 1961, declaring the collection
of the ad valorem tax based on the selling price of
cement to have been made in accordance with
Section 243 in relation to Section 246 of the National
Internal Revenue Code.
The National Internal Revenue Code, as
amended, 1 provides:
Sec. 243. Ad valorem taxes on output of mineral
lands not covered by lease. There shall be
assessed and collected on the actual market value of
the annual gross output of the minerals or mineral
products extracted or produced from all mineral
lands, not covered by lease, an ad valorem tax
payable to the Collector of Internal Revenue, in the
amount of one and onehalf per centum of the value
of said output.
Before the mineral products are removed from the
mines, the Collector of Internal Revenue or his
representatives shall first be notified of such removal
on a form prescribed for the purpose.
Sec. 245. Time and manner of payment of royalties or
ad valorem taxes. The royalties or ad valorem
taxes, as the case may be, shall be due and payable
upon removal of the mineral products from the locality
where mined. However, the output of the mine may
be removed from such locality without the pre-
payment of such royalties or ad valorem taxes if the
lessee, owner or operator shall file a bond in the
form and amount and with such sureties as the
Collector of Internal Revenue may require,
conditioned upon the payment of such royalties or
ad valorem taxes. ...
Sec. 246. Definition of the terms "gross output",
"minerals" and "mineral products" Disposition of
royalties and ad valorem taxes. The term "gross
output" shall be interpreted as the actual market
value of minerals or mineral products, or of bullion
from each mine or mineral lands operated as a
separate entity without any deduction from mining,
milling, refining, transporting, handling, marketing,
or any other expenses: Provided, however, ... . The
word "minerals" shall mean all inorganic substances
found in nature whether in solid, liquid, gaseous, or
any intermediate state. The term `mineral products'
shall mean things produced by the lessee,
eight per cent of which things must be minerals
extracted by such lessee, concessionaire, or owner of
mineral lands. Ten per centum of the royalties
and ad valoremtaxes herein provided shall accrue to
the municipality and ten per centum to the province
where the mines are situated, and eighty per
centum to the National Treasury. (Emphasis
supplied.)
Herein petitioner contends that the collectible ad
valorem tax should be based on the actual market
value of the quaried minerals that were used in the
production of cement; whereas, respondent
Commissioner of Internal Revenue maintains that,
as the cement produced by petitioner consists of
80% minerals, the same is a mineral product
pursuant to the definition given in Section 246 of the
Tax Code, and the ad valorem tax should be based
on its selling price.1wph1.t
It is noteworthy that under Section 242 of the same
Code, with respect to leased mineral lands, the
lessee shall pay to the government, not only rentals
for the use of the land, but also royalty, on the
minerals extracted therefrom. These imposts are
levied "for the privilege of exploring, developing,
mining, extracting and disposing of the minerals"
from said land. With respect to mineral lands not
under lease, Section 243 governs, and imposes ad
valorem tax on the actual market value of the gross
output of the minerals or mineral products extracted
therefrom. Both sections 242 and 243 are under
Title VI of the Tax Code which refers to Mining
Taxes. As under Section 242, the rentals and
royalties collectible from the lessees and
concessionaires of the lease lands are for the
privilege of mining and extracting minerals
therefrom, so it may be said that the ad valorem tax
imposed by Section 243 upon those extracting
minerals and minerals products from lands not
under lease, is also for the same purpose, i.e., the
privilege of mining and extracting minerals from said
lands. In other words, ad valorem tax is a tax not on
the minerals, but upon the privilege of severing or
extracting the same from the earth, the
government's right to exact the said impost
springing from the Regalian theory of State
ownership of its natural resources.
There can be no question that quarried minerals
have their own market value. The dispute here
arose, however, from the construction given to the
term mineral products, which was defined in Section
246 of the Tax Code as, "things produced by the
lessee, concessionaire, or owner of mineral lands, at
least eighty per cent of which things must be
minerals extracted by such lessee, concessionaire or
owner of mineral lands." Respondent argues that
since the portland cement produced by
petitioner 2 consists of 80% minerals quarried from
its mines, such cement falls within the definition of
a mineral product and the imposable ad valorem tax
should be based on its selling price which it its
actual market value.
This line of argument suffers from two infirmities:
First ,while cement is composed of 80% minerals, it
is not merely an admixture or blending of raw
materials, as lime, silica, shale and others. It is the
result of a definite process. the crushing of
minerals, grinding, mixing, calcining, cooling, adding
of retarder or raw gypsum. In short, before cement
reaches its saleable form, the minerals had already
undergone a chemical change through
manufacturing process. this could not have been the
state of "mineral products" that the law
contemplates for purposes of imposing the ad
valorem tax. It must be remembered that, as
aforestated, this tax is imposed on the privilege of
extracting or severing the minerals from the mines.
To our minds, therefore, the inclusion of the term
mineral products is intended to comprehend cases
where the mined or quarried elements may not be
usable in its original state without application of
simple treatments, such as washing, or cutting them
into sizes, which process does not necessarily
involve the change or transformation of the raw
materials into a composite, distinct product.
Secondly, respondent cannot use the selling price of
the product in this case as gauge of its actual
market value. The cement here is manufactured by
petitioner itself out of materials quarried from its
actual market value. The cement here is
manufactured by petitioner itself out of materials
quarried from its mines. While the selling price of
cement may reflect the actual market value of
cement, said selling price cannot be taken as the
market value also of the minerals composing the
cement. And it was not the cement that was mined,
only the minerals composing the finished product.
Anent respondent's contention, however, that the
taxes collected and paid two years before the filing of
the action in the Court of Tax Appeals are barred by
prescription the same must be sustained. By specific
provision of Section 306 of the Internal Revenue
Code, action for recovery of tax payments
erroneously or illegally collected must be filed within
2 year from such payments. As the action in this
case was instituted only on October 15, 1959
overpayments made prior to October 15, 1957 are
not longer refundable.
WHEREFORE, the decision of the Court of Tax
Appeals under review is hereby modified, by holding
petitioner entitled to the refund of the corresponding
overpayments of ad valorem taxes made after
October 15, 1957. No costs. So ordered.
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR.,
Main issue
Whether or not the respondent NPC has ceased to
enjoy indirect tax and duty exemption with the
enactment of P.D. No. 938 on May 27, 1976 which
amended P.D. No. 380, issued on January 11, 1974.
HELD:
Now to the main issue.
It may be useful to make a distinction, for the
purpose of this disposition, between a direct tax and
an indirect tax. A direct tax is a tax for which a
taxpayer is directly liable on the transaction or
business it engages in. Examples are the custom
duties and ad valorem taxes paid by the oil
companies to the Bureau of Customs for their
importation of crude oil, and the specific and ad
valorem taxes they pay to the Bureau of Internal
Revenue after converting the crude oil into
petroleum products.
On the other hand, "indirect taxes are taxes
primarily paid by persons who can shift the burden
upon someone else ."13 For example, the excise
and ad valorem taxes that oil companies pay to the
Bureau of Internal Revenue upon removal of
petroleum products from its refinery can be shifted
to its buyer, like the NPC, by adding them to the
"cash" and/or "selling price."
The main thrust of the petition is that under the
latest amendment to the NPC charter by Presidential
Decree No. 938, the exemption of NPC from indirect
taxation was revoked and repealed. While petitioner
concedes that NPC enjoyed broad exemption
privileges from both direct and indirect taxes on the
petroleum products it used, under Section 13 of
Republic Act No, 6395 and more so under
Presidential Decree No. 380, however, by the
deletion of the phrases "directly or indirectly" and
"on all petroleum products used by the Corporation
in the generation, transmission, utilization and sale
of electric power" he contends that the exemption
from indirect taxes was withdrawn by P.D. No. 938.
Petitioner further states that the exemption of NPC
provided in Section 13 of Presidential Decree No.
938 regarding the payments of "all forms of taxes,
etc." cannot be interpreted to include indirect tax
exemption. He cites Philippine Aceytelene Co. Inc. vs.
Commissioner of Internal Revenue.14 Petitioner
emphasizes the principle in taxation that the
exception contained in the tax statutes must be
strictly construed against the one claiming the
exemption, and that the rule that a tax
statute granting exemption must be strictly
construed against the one claiming the exemption is
similar to the rule that a statute granting taxing
power is to be construed strictly, with doubts
resolved against its existence.15 Petitioner cites
rulings of the BIR that the phrase exemption from
"all taxes, etc." from "all forms of taxes" and "in lieu
of all taxes" covers only taxes for which the taxpayer
is directly liable.
Hence, petitioner cannot invoke the rule
on strictissimi juris with respect to the interpretation
of statutes granting tax exemptions to NPC.
Moreover, it is a recognized principle that the rule on
strict interpretation does not apply in the case of
exemptions in favor of a government political
subdivision or instrumentality.28
The basis for applying the rule of strict construction
to statutory provisions granting tax exemptions or
deductions, even more obvious than with reference
to the affirmative or levying provisions of tax
statutes, is to minimize differential treatment and
foster impartiality, fairness, and equality of
treatment among tax payers.
The reason for the rule does not apply in the case of
exemptions running to the benefit of the government
itself or its agencies. In such case the practical effect
of an exemption is merely to reduce the amount of
money that has to be handled by government in the
course of its operations. For these reasons,
provisions granting exemptions to government
agencies may be construed liberally, in favor of non
tax liability of such agencies.29
MELECIO R. DOMINGO, as Commissioner of
Internal Revenue, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as
Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the
Intestate Estate of the late Walter Scott
Price, respondents.
Office of the Solicitor General and Atty. G. H.
Mantolino for petitioner.
Benedicto and Martinez for respondents.
LABRADOR, J.:
This is a petition
for certiorari and mandamus against the Judge of
the Court of First Instance of Leyte, Ron. Lorenzo C.
Garlitos, presiding, seeking to annul certain orders
of the court and for an order in this Court directing
the respondent court below to execute the judgment
in favor of the Government against the estate of
Walter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon.
Judge S. C. Moscoso, G.R. No. L-14674, January 30,
1960, this Court declared as final and executory the
order for the payment by the estate of the estate and
inheritance taxes, charges and penalties, amounting
to P40,058.55, issued by the Court of First Instance
of Leyte in, special proceedings No. 14 entitled "In
the matter of the Intestate Estate of the Late Walter
Scott Price." In order to enforce the claims against
the estate the fiscal presented a petition dated June
21, 1961, to the court below for the execution of the
judgment. The petition was, however, denied by the
court which held that the execution is not justifiable
as the Government is indebted to the estate under
administration in the amount of P262,200. The
orders of the court below dated August 20, 1960 and
September 28, 1960, respectively, are as follows:
Atty. Benedicto submitted a copy of the contract
between Mrs. Simeona K. Price, Administratrix of the
estate of her late husband Walter Scott Price and
Director Zoilo Castrillo of the Bureau of Lands dated
September 19, 1956 and acknowledged before
Notary Public Salvador V. Esguerra, legal adviser in
Malacaang to Executive Secretary De Leon dated
December 14, 1956, the note of His Excellency, Pres.
Carlos P. Garcia, to Director Castrillo dated August
2, 1958, directing the latter to pay to Mrs. Price the
sum ofP368,140.00, and an extract of page 765 of
Republic Act No. 2700 appropriating the sum of
P262.200.00 for the payment to the Leyte Cadastral
Survey, Inc., represented by the administratrix
Simeona K. Price, as directed in the above note of
the President. Considering these facts, the Court
orders that the payment of inheritance taxes in the
sum of P40,058.55 due the Collector of Internal
Revenue as ordered paid by this Court on July 5,
1960 in accordance with the order of the Supreme
Court promulgated July 30, 1960 in G.R. No. L-
14674, be deducted from the amount of
P262,200.00 due and payable to the Administratrix
Simeona K. Price, in this estate, the balance to be
paid by the Government to her without further
delay. (Order of August 20, 1960)
The Court has nothing further to add to its order
dated August 20, 1960 and it orders that the
payment of the claim of the Collector of Internal
Revenue be deferred until the Government shall
have paid its accounts to the administratrix herein
amounting to P262,200.00. It may not be amiss to
repeat that it is only fair for the Government, as a
debtor, to its accounts to its citizens-creditors before
it can insist in the prompt payment of the latter's
account to it, specially taking into consideration that
the amount due to the Government draws interests
while the credit due to the present state does not
accrue any interest. (Order of September 28, 1960)
The petition to set aside the above orders of the
court below and for the execution of the claim of the
Government against the estate must be denied for
lack of merit. The ordinary procedure by which to
settle claims of indebtedness against the estate of a
deceased person, as an inheritance tax, is for the
claimant to present a claim before the probate court
so that said court may order the administrator to
pay the amount thereof. To such effect is the
decision of this Court in Aldamiz vs. Judge of the
Court of First Instance of Mindoro, G.R. No. L-2360,
Dec. 29, 1949, thus:
. . . a writ of execution is not the proper procedure
allowed by the Rules of Court for the payment of
debts and expenses of administration. The proper
procedure is for the court to order the sale of
personal estate or the sale or mortgage of real
property of the deceased and all debts or expenses of
administrator and with the written notice to all the
heirs legatees and devisees residing in the
Philippines, according to Rule 89, section 3, and
Rule 90, section 2. And when sale or mortgage of
real estate is to be made, the regulations contained
in Rule 90, section 7, should be complied
with.1wph1.t
Execution may issue only where the devisees,
legatees or heirs have entered into possession of
their respective portions in the estate prior to
settlement and payment of the debts and expenses
of administration and it is later ascertained that
there are such debts and expenses to be paid, in
which case "the court having jurisdiction of the
estate may, by order for that purpose, after hearing,
settle the amount of their several liabilities, and
order how much and in what manner each person
shall contribute, and may issue execution if
circumstances require" (Rule 89, section 6; see
also Rule 74, Section 4; Emphasis supplied.) And
this is not the instant case.
The legal basis for such a procedure is the fact that
in the testate or intestate proceedings to settle the
estate of a deceased person, the properties belonging
to the estate are under the jurisdiction of the court
and such jurisdiction continues until said properties
have been distributed among the heirs entitled
thereto. During the pendency of the proceedings all
the estate is in custodia legis and the proper
procedure is not to allow the sheriff, in case of the
court judgment, to seize the properties but to ask
the court for an order to require the administrator to
pay the amount due from the estate and required to
be paid.
Another ground for denying the petition of the
provincial fiscal is the fact that the court having
jurisdiction of the estate had found that the claim of
the estate against the Government has been
recognized and an amount of P262,200 has already
been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the
above circumstances, both the claim of the
Government for inheritance taxes and the claim of
the intestate for services rendered have already
become overdue and demandable is well as fully
liquidated. Compensation, therefore, takes place by
operation of law, in accordance with the provisions
of Articles 1279 and 1290 of the Civil Code, and
both debts are extinguished to the concurrent
amount, thus:
ART. 1200. When all the requisites mentioned in
article 1279 are present, compensation takes effect
by operation of law, and extinguished both debts to
the concurrent amount, eventhough the creditors
and debtors are not aware of the compensation.
It is clear, therefore, that the petitioner has no clear
right to execute the judgment for taxes against the
estate of the deceased Walter Scott Price.
Furthermore, the petition
for certiorari and mandamus is not the proper
remedy for the petitioner. Appeal is the remedy.
The petition is, therefore, dismissed, without costs.
Maceda v Macaraig
Facts:
The petition seeks to nullify certain decisions,
orders, ruling, and resolutions of the respondents
(Macaraig et. al) for exempting the National Power
Corporation (NPC) from indirect tax and duties.
Commonwealth Act 120 created NPC as a public
corporation. RA 6395 revised the charter of NPC and
provided in detail the exemption of NPC from all
taxes, duties and other charges by the government.
There were many resolutions and decisions that
followed after RA 6395 which talked about the
exemption and non-exemption from taxes of NPC.
Issue:
Whether or not NPC is really exempt from indirect
taxes
Held:
Yes. NPC is a non-profit public corporation created
for the general good and welfare of the people. From
the very beginning of its corporate existence, NPC
enjoyed preferential tax treatment to enable it to pay
its debts and obligations. From the changes made in
the NPC charter, the intention to strengthen its
preferential tax treatment is obvious. The tax
exemption is intended not only to insure that the
NPC shall continue to generate electricity for the
country but more importantly, to assure cheaper
rates to be paid by consumers.
------------------
Some Notes on Direct and Indirect Taxes:
Direct Taxes those which a taxpayer is directly
liable on the transaction or business it engages in.
Examples are: custom duties, ad valorem taxes paid
by oil companies for importation of crude oil
Indirect Taxes paid by persons who can shift the
burden upon someone else.
Examples are: ad valorem taxes that oil companies
pay to BIR upon removal of petroleum products from
its refinery can be shifted to its buyer, like the NPC

DOMINGO V GARLITOS
FACTS:
In Domingo vs. Moscoso (106 PHIL 1138), the
Supreme Court declared as final and executory the
order of the Court of First Instance of Leyte for the
payment of estate and inheritance taxes, charges
and penalties amounting to P40,058.55 by the
Estate of the late Walter Scott Price. The petition for
execution filed by the fiscal, however, was denied by
the lower court. The Court held that the execution is
unjustified as the Government itself is indebted to
the Estate for 262,200; and ordered the amount of
inheritance taxes be deducted from the
Governments indebtedness to the Estate.
ISSUE:
Whether a tax and a debt may be compensated.
HELD:
The court having jurisdiction of the Estate had
found that the claim of the Estate against the
Government has been recognized and an amount of
P262,200 has already been appropriated by a
corresponding law (RA 2700). Under the
circumstances, both the claim of the Government for
inheritance taxes and the claim of the intestate for
services rendered have already become overdue and
demandable as well as fully liquidated.
Compensation, therefore, takes place by operation of
law, in accordance with Article 1279 and 1290 of the
Civil Code, and both debts are extinguished to the
concurrent amount.