You are on page 1of 4

8/31/2016 G.R.No.

L26686&L26698

TodayisWednesday,August31,2016

RepublicofthePhilippines
SUPREMECOURT
Manila

FIRSTDIVISION

G.R.No.L26686&L26698October30,1980

ATLASFERTILIZERCORPORATION,petitioner,
vs.
COMMISSIONOFINTERNALREVENUEandCOURTOFTAXAPPEALS,respondents

COMMISSIONEROFINTERNALREVENUE,petitioner,
vs.
ATLASFERTILIZERCORPORATIONandCOURTOFTAXAPPEALS,respondents.

DECASTRO,J.:

Thesetwo(2)casesareappealsbywayofcertiorarifromthedecisiondatedAugust24,1966oftheCourtofTax
AppealsgrantingAtlasFertilizerCorporationataxcreditinthesumofP81,899.00whichmaybeappliedbysaid
corporationinpayofitsoutstandingand/orfutureliabilityforinternalrevenuetaxes.

Forthematerialfacts,WecouldverywellquotefromthedecisionoftheCourtofTaxAppeals,thefollowing.

Petitioner Atlas Fertilizer Corporation was formerly a department of Atlas Mining z Development
Corporation.ThelatterwasgrantedbytheSecretaryofFinanceacertificateoftaxexemptionunder
RepublicActNo.901asanewandnecessaryindustryforengaginginthemanufactureoffertilizer
namely, sulphuric acid, phosphoric acid, superphosphate, triple superphosphate and sun the tax
exemption privileges of Atlas Consolidated Mining and Development Corporation were later
transferred to the petitioner under the written authority of the Department of Finance dated
November27,1957.DuringtheperiodfromJune26,1961toOctober24,1962,petitionerimported
raw materials, equipment, spare parts, containers and other supplies on which it paid onehalf or
60%ofthecompensatingtaxesduethereon(Exhs.1andG,pp.98100,BIRrec.).

While petitioner was still enjoying partial tax exemption of 50% as a new and necessary industry
underRepublicActNo.901,RepublicActNo.3050,whichtookeffectonJune17,1961,grantedtax
exemptiontoanyperson,partnership,companyorcorporationengagedorwhichshallengageinthe
manufactureofofwhatevernaturefromthepayment,amongothers,ofcompensatingtaxesontheir
importation of capital goods, equipment, snare raw materials, supplies containers and fuel To
implementzRepublicActNo.3050,theDepartmentofFinanceissuedDepartmentOrderNo.105,
datedSeptember15,1961,whichprovides,amongothers,asfollows:

Any ... corporation ... which shall engage in the manufacture of fertilizer and desiring to enjoy the
privileges grandted under the provisions of Republic Act No. 3050 may file its application therefore
withtheSecretaryofFinance.

Fertilizer manufacturer ... which are granted tax exemption under Republic Act No. should likewise
file appellant com/implications for tax exemption under Republic Act No. 3050, indicating therein,
among other things, that the applicant waives the benefits of tax exemption authorized under
RepublicActNo.3127.

Incompliancewiththeaboveregulation,petitionerfiledonJanuary25,1962withtheDepartmentof
Finance an application for tax exemption under the provisions of Republic Act No. 3050, which
application was approved by the Secretary of Finance on February 19, 1962. The tax exemption
granted by the said official to petitioner was made retroactive commencing on June 17, 1961, the
dateoftheeffectivityofRepublicActNo.3050(pp.9394,BIRrec.).

OnthebasisofthetaxexemptiongrantedbytheSecretaryofFinanceunderRepublicActNo.3050,
petitioner filed with responded on June 21, 1963 a claim for tax at of the compensating taxes
amounting to P 83,629.00 which petitioner allegedly paid to the Bureau of Customs on petitioner's
importationsoftaxexemptgoods,equipment,materialsandsuppliesduringtheperiodfromJune26,
1961toOctober24,1962(pp.8890,BIRrec.).OnJune22,1963,thedayafterpetitionerhadfiled
itsfortaxcreditwithrespondent,petitionerfiledapetitionforreviewwiththisCourtseekanorderto
compelrespondenttoissuethecorrespondingletteroftaxcredit.

Duringthependencyofthiscase,petitioner'sclaimfortaxcreditofP83,629.00filedwithrespondent
was referred on June 26, 1963 to the Regional Director of Manila, BIR Regional District No. 3, for
investigation, report and recommendation. On July 15, 1963, the case was assigned to Revenue
Examiner Benjamin Fernandez. Shortly thereafter, the Manila Regional Office (District No. 3) was
divided into two (2) districts North Manila and South Manila (District Nos. 5 and 6). As a
consequence thereof and the confusion which ensued as a result of the sorting and transfer of
revenuedocketsandrecords,allocationandassignmentofpersonnel,andthedivisionandtransfer
of supplies, equipment and furniture, the papers bearing on the tax credit of petitioner were
misplaced.ItwasonlyonJanuary25,1965whentheinvestigatingexaminersubmittedhisreportand
recommendedthereinthatpetitionerbegrantedataxcreditofP76,935.00,insteadofP83,629.00
asbecausetheimportationsandpaymentofthecompensatingtaxesunderItemNos.1,17,35,50,

http://www.lawphil.net/judjuris/juri1980/oct1980/gr_26686_26696_1980.html 1/4
8/31/2016 G.R.No.L26686&L26698

58,61,62,64,65,67and68werenotsupportedwithimportentrydeclarationsandreceiptsoftax
payment

Afterhearing,theCourtofTaxAppealsrendereditsdecisiononAugust24,1966fromwhichbothpartieshave
appealedtothisCourt.

Inhisappeal,theCommissionerofInternalRevenue(CommissionCommissionerforshort)assignsthefollowing
errors:

THECOURTOFTAXAPPEALSERREDINHOLDINGTHATTHEPETITIONERNEEDNOTPROVE
THATTHERAWMATERIALS,EQUIPMENT,SPAREPARTS,CONTAINERSANDOTHERSUPPLIES
ITIMPORTEDWEREUSEDBYITINTHEMANUFACTUREOFFERTILIZERTOBEENTITLEDTO
TAXEXEMPTIONUNDERREPUBLICACTNO.3050.

II

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT IT IS INCUMBENT UPON


RESPONDENT TO PROVE THAT THE IMPORTATIONS IN QUESTION WERE NOT USED BY THE
PETITIONER IN THE MANUFACTURE OF FERTILIZER NOTWITHSTANDING THE FACT THAT
THERE WAS ABSOLUTELY NO EVIDENCE INTRODUCED BY PETITIONER SHOWING THAT THE
SAIDIMPORTATIONSWEREUSEDBYITINTHEMANUFACTUREOFFERTILIZER.

III

THECOURTOFTAXAPPEALSERREDINHOLDINGTHATTHEPETITIONERNEEDNOTPROVE
THAT IT HAD PREVIOUSLY SECURED A SPECIFIC AUTHORITY FROM THE SECRETARY OF
FINANCETOIMPORTTHEGOODSINQUESTIONASAPREREQUISITEFORTHEENJOYMENT
OFITSRIGHTTOTAXEXEMPTIONUNDERREPUBLICACTNO.3050.

IV

THE COURT OF FAX APPEALS ERRED IN HOLDING THAT THE PETITIONER HAS IN EFFECT
ABANDONEDANDGIVENUPITSPARTIALEXEMPTIONPRIVILEGEUNDERREPUBLICACTNO.
901BYSEEKINGTOAPPLYITSTAXEXEMPTIONUNDERREPUBLICACTNO.3050.

THECOURTOFTAXAPPEALSERREDINORDERINGRESPONDENTTOGRANTPETITIONERA
TAX CREDIT OF P81,899.00 IN SPITE OF THE FACT THAT PETITIONER IS NOT ENTITLED
THERETO.

On the other hand, Atlas Fertilizer Corporation (AFC for short), as appellant has also assigned the following
errors:

THE COURT OF TAX APPEALS ERRED IN DENYING THE AWARD OF INTEREST TO THE
PETITIONERONTHEAMOUNTOFP81,899.00FOUNDTOBEDUEASTAXCREDITINFAVOROF
PETITIONER.

II

THE COURT OF TAX APPEALS ERRED IN CONCLUDING INCLUDING THAT PETITIONER FILED
ITSCLAIMFORTAXCREDITQUITELATEORALMOSTTWOYEARSFROMTHEFIRSTPAYMENT
OFTHECOMPENSATINGTAXANDEIGHTMONTHSFROMTHELASTPAYMENTTHEREOF.

III

THE COURT OF TAX APPEALS ERRED IN CONCLUDING INCLUDING THAT THE DELAY IN
PROCESSINGTHECLAIMFORTAXCREDITWASNOTPREMEDITATEDANDINTENTIONALBUT
CAUSEDBYCIRCUMSTANCESBEYONDTHECONTROLOFRESPONDENT.

IV

THECOURTOFTAXAPPEALSERREDINAPPLYINGTHEEXISTINGDOCTRINETHATINTEREST
ON REFUND (OR TAX CREDIT) IS AWARDED ONLY WHERE COLLECTIVE TION OF THE TAXES
WASATTENDEDWITHARBITRARINESS.

THE COURT OF TAX APPEALS ERRED IN NOT APPLYING THE APPLICABLE PROVISIONS OF
THE NEW CIVIL CODE, NAMELY, ARTICLES 2154, 2155 AND 2209, GOVERNMENT ING THE
RETURNOFPAYMENT'SBYREASONOFMISTAKEANDTHEAWARDOFINTERESTWHENTHE
OBLIGORINCURSDELAY.

AppealbytheCommissioner

ThepertinentsectionuponwhichAFCbaseditsclaimforexemptionreads:

Sec. 1. Notwithstanding any provisions of law to the contrary, subject to the conditions hereinafter
provided, any person, partnership, company or corporation engaged or which shall engage in the
manufactureoffertilizerofwhatevernaturebeentitledtoexemptionuntilDecember31,1965from
thepaymentofspecialporttax,marginfeeonforeignexchange,salesandcompensatingtaxesand
customs duties payable by such person, partnership, company or corporation, in respect to the
importationofcapitalgoods,equipment,spareparts,rawmaterials,supplies,containersandfuelby
anyofthoseengagedintheaboveindustry,...1

http://www.lawphil.net/judjuris/juri1980/oct1980/gr_26686_26696_1980.html 2/4
8/31/2016 G.R.No.L26686&L26698

Anentthefirstandsecondassignmentoferrors,theCommissionCommissionerpointsoutthatitiswellsettled
that exemptions are strictly construed and are never presumed. And the burden of proof is on the claimant to
establish clearly his right to exempt Being an essential and indispensable requisite for the enjoyment of its tax
exemption,thefactthattheAFCusedthegoodsforthemanufactureoffertilizermustbeshownbyit.

In refutation to the above contention, AFC claims that since the Secretary of Finance, on February 19, 1962,
approved its application for tax exemption under R.A. 3050, it may be assumed that among the matters
consideredbytheSecretaryofFinanceinprocessingtheclaimforexemptionwasthefactofactualuseforthe
manufactureoffertilizerbyAFCoftheimportationsmade.Itis,therefore,thepositionofAFCthatthecertificate
of exemption granted by the Secretary of Finance was sufficient proof that it used the imported articles in the
manufactureoffertilizer.

Thattheburdenofproofisontheclaimanttoestablishhisrighttoexemptioncannotbegainsaid.Intheinstant
case,however,WefeelthatAFCneednotadducefurtherevidencetoshowthatitisentitledtoexemption.Itisto
beobservedthatthereisnodisputethatAFCisengagedinthemanufacturingcaptureoffertilizer,asthevery
name of AFC suggests the nature of its business. It is also pertinent to state that when R. A. 3050 took effect,
AFC was already enjoying partial exemption under R.A. 901 as a new and necessary industry engaged in the
manufacture of fertilizer. Furthermore, when the Secretary of Finance, on February 19, 1962, approved AFC's
applicationfortaxexemptionunderR.A.3050,Webelievethathealreadyconsideredthattheimportationswere
neededbyAFCforthemanufactureoffertilizer.ThismaybeinferredfromthefactthatbeforetheSecretaryof
Finance approves an application, he requires applicants to submit an application which "shall be in the form
prescribedbytheSecretaryofFinanceandcontaindetailedandcompleteinformationcagedforinsuchform.It
shallcontainacompleteofrawmaterials,supplies,conre/containers,andfuelneededandfortheexclusiveuse
in the manufacture of fertilizer. There shall be attached to the appellant com/implication a firm quotation of the
completemachineryequipmentandsparepartsthereofneededbyandfortheexclusiveuseoftheapplicantin
the manufacture of fertilizer. The appellant com/implication shall be sworn to before a notary public and filed in
quadruplicate.2Likewise,sinceitispresumedthatofficialdutyhasbeenregularlyperformed 3itcanbeassumedthatthe
SecretaryofFinanceinapprovingtheapplication,wassatisfiedthatthoseimportationswerenotonlyneededforexclusive
use in the manufacture of fertilizer but that they were actually used therefor, for otherwise, the Secretary would have not
approvedtheapplication.

We,therefore,agreewiththepositionofAFCthatthecertioraricertificateofexemptiongrantedbytheSecretary
ofFinanceonFebruary19,1962wassufficientproofthatitusedtheimportationsinquestioninthemanufacture
of fertilizer. This is bolstered by the fact that the certificate of exemption was granted after the imported goods
havealreadyarrived.

TheCommissioneralsoarguesthatAFCfailedtosecurefirstanauthorityfromtheSecretaryofFinancetoimport
thegoodswhichAFCwantedtobeexemptfromtaxbeforesaidgoodswereactuallyimported.Accordingtothe
Commissioner, such an authority is a prerequisite for the enjoyment of tax exemption, since in the letter of the
Secretary of Finance dated February 19, 1962 granting AFC tax exemption under R.A. 3050, the Secretary
stated:

As a bonafide fertilizer manufacturer under the provisions of the aforesaid Act, you are entitled to
exemption from the payment of the special import tax, margin fee on foreign exchange, sales and
compensating taxes, and customs duties directly payable by you in respect to the importation of
capital goods, equipment spare part. run materials, supplies, containers and fuel which this office
mayspecificallyauthorizeuntilDecember31,1965unlesssoonerlet/lat/afterterminatedforfailureto
complywiththerequirementsofthelawandexistingregulations.

Indeed,itwouldbeillogicalfortheAFCtoproducetheacquiredspecificauthoritytoimportbecausewhenthetax
exemptionwasgrantedonFebruary19,1962,sixtyone(61)oftheimportedgoodshavealreadyarrived,andthe
AFChaspaidthecorrespondingcompensatingtaxespursuantP.A.901grantingmanufactureroffertilizerpartial
exemptionfrompaymentofcompensatingtaxes.Withrespecttotheseven(7)importationwhicharrivedafterthe
grantofexemption,itshouldbenotedthatAFCwasabletowithdrawthemfromcustomscustody.Wemustnot
lose sight of the fact that before goods may be withdrawn from customs custody, it is necessary that "a true or
photostatcopyofthelettergrantauthorizingthetaxfreeimportationofthearticlesappliedtobewithdrawnfrom
customs custody" be presented, pursuant to paragraph of the implementing rules and regulations which is
DepartmentOrderNo.105A4issuedbytheSecretaryofFinance.SinceAFChassuccessfullywithdrawnalltheseven
(7) imported articles from customs custody, after payment of the compensating taxes, it may be inferred that AFC has
compliedwiththeaboveprovisionofDepartmentOrderNo.105AtoproduceAFC'sauthoritytoimport.

On the fourth issue, the Commissioner contends that respondent court erred in ruling that AFC, by seeking to
availofitsexemptionunderR.A.No.3050,hasineffectabandonedandgivenupitspartialexemptionprivilege
underR.A.No.901.AccordingtotheCommissioner,AFCcouldnothaveabandonedorgivenupitsexemption
underR.A.No.901becauseithasalreadyappliedthesametotheimportationsinvolvedherein,andthatone
cannotabandonorgiveupwhathehasalreadytakenadvantageofFurthermore,taxexemptionsunderR.A.901
andR.A.3050cannotbeenjoyedsimultaneoussimultaneously.

TheCommissioner'scontentioniswithoutmerit.Department,OrderNo.105issuedbytheSecretaryofFinance
expresslydirectedfertilizermanufacturersenjoyingbenefitsunderR.A.No.901tolikewiseapplyforthebenefits
ofR.A.No.3050.SaidDepartmentOrderNo.105provides:

Fertilizer manufacturers who or which are granted tax exempt under R. A. No. 901 should likewise
fileapplicationsfortaxexemptionunderR.A.No.3050....

In compliance with said directive, AFC filed its application for total exemption under R. A. No. 3050 which was
granted by the Secretary of Finance. The Commissioner's argument that AFC enjoyed simultaneous exemption
underR.A.No.901andR.A.No.3050,iswithoutfactualbasis.R.A.No.901grantspartialexemptionwhileR.
A. 3050 grants total exemption. Once a manufacturer of fertilizer chose to come under R. A. 3050, his partial
exemptionunderR.A.901ceased.Ineffect,heenjoyedonlyoneexemptionbenefit,thefullexemptionunderR.
A.No.3050.Ascorrectlyruledbytherespondentcourt,whenAFCavailedofthetotalexemptionunderR.A.No.
3050,ithasineffectgivenupthepartialexemptionwhichitwasenjoyingunderR.A.No.901.

AppealbyAFC

TheassignmentoferrorsofAFCmaybesynthesizedtothesoleissueastowhetherornottheGovernmentis
liableforthepaymentofinterestonrefunds(ontaxcredit)oftaxeserroneouslyorillegallypaidtoitontheground
http://www.lawphil.net/judjuris/juri1980/oct1980/gr_26686_26696_1980.html 3/4
8/31/2016 G.R.No.L26686&L26698

thatthecommissionCommissionerisguiltyofunjustandunreasonabledelayinperforminganobligationofthe
Government.

AFC points out that the Commissioner received the claim for tax credit on June 21, 1963 but it was only on
January 11, 1965 or more than eighteen (18) months later that a BIR examiner came to the premises of the
taxpayer to investigate the claim. In other words, the Commissioner did not act on the claim of AFC and this
inaction is the essence of the delay incur red by the Commissioner in the performance of an obligation which
entitledAFCtoreparationintheformofinterestpayment.

Ontheallegeddelay,theCommissionerinhisbriefexplainingthefollowing:

The records of this case show that petitioner's claim for tax credit was received by the Records
Control Section of the Bureau of Internal Revenue on June 21, 1963 (Memorandum for Petitioner,
STA Case No. 1410, p. 2, p. 121 STA par. 5 of Answer, CTA Case No. 1410, P. 14 STA and was
receivedbytheAppellateDivisionofthesaidBureauwhichprocessesclaimsofthatnatureonJune
25,1963.Thefollowingday,oronJune26,1963,thesaidclaimwasindorsedtothenBIRRegional
DistrictNo.3,Manila,forinvestigationandreportand,onthesamedate,petitionerwasdulynotified
ofthesaidindorsement.(Exh.D,p.101,CTArec.).

However,shortlyaftertheclaimfortaxcreditwasreferredtoRegionalDistrictNo.3forinvestigation
andreport,thesaiddistrictwasdividedintotwodistrictstobecomeRegionalDistrictNos.5and6.

Asaconsequenceofthedivision,revenuedocketsandrecordsthenhandledbyRegionNo.3hadto
be sorted and apportioned between the two new districts. Office supplies, equipment and furniture
werelikewisedividedandtransferredandpersonnelhadtobeallocatedandassignedtoeachofthe
newdistricts.Unfortunately,intheprocess,thepapersbearingonpetitioner'sclaimfortaxcreditwas
misplaced.

This was discovered when the report previously requested on the said claim was called up in a
memorandumoftheDeputyComCommissionerdatedNov.23,1964.AsthefieldmenoftheBureau
ofIninternalRevenuearegroundedduringthemonthofDecemberofeachyear,theinvestigation
couldnotbeimmediatelyundertakenafterthesaidcallupbuthadtowaituntilJanuary.OnJanuary
27, 1965, the desired report contained in an indorsement dated January 25, 1965 was submitted
(Exh.1,supra).

Findingtheaboveexplanationmeritorious,Weagreewithrespondentcourtthatthedelayinprocessingtheclaim
ofAFCfortaxcreditwasneitherpremeditatednorintentional.TheCommissionerdidnotsitontheclaimofAFC.
Iftherewasanydelay,itwasduetothesplittingintotwo(2)districtsofRegionalDistrictNo.3wheretheclaim
was filed, as a result of which the documents requesting for refund was misplaced. But the more important
considerationisthewhensettledrulethatintheabsenceofastatutoryprovisionclearlyorexpresslydirectingor
authorizingpaymentofinterestontheamounttoberefundedtotaxpayer,theGovernmentcannotbeacquiredto
payinterest. 5Likewise,itistherulethatinterestmaybeawardedonlywhenthecollectionoftaxsoughttoberefunded
was attended with arbitrariness. 6 Such circumstance is not present in the case at bar as the payment of compensation
taxesinquestionwasmadefreelyandvoluntarilyandconformablywiththepartialexemptiongrantedbyRepublicActNo.
901.

WHEREFORE, judgment is hereby rendered affirmed the decision of the Court of Tax Appeals. Without special
proannouncementastocost.

SOORDERED.

Fernandez,GuerreroandMelencioHerrera,JJ.,concur.

Teehankee,ActingC.J.,concursintheresult.

Makasiar,J.,Ireservemyvote.

Mr.JusticedeCastrowasdesignatedtositwiththeFirstDivisionunderSpecialOrderNo.225.

Footnotes

1Section1,R.A.3050.

2Paragraph3,DepartmentOctober10

3Section5(m),Rule131,RulesofCourt.

4DepartmentOrderNo.105AistheimplementingrulesandregulationsrelativetoSectionIof
RepublicActNo.3050.

5CollectorofInternalRevenuevs.BinalbaonEstate,Inc.,13SCRA10CollectorofInternalRevenue
vs.Fisher,1SCRA113CourtlectorofInternalRevenuevs.Sweeney,106Phil.65.

6CollectorofInternalRevenuevs.BinalbaganEstate,Inc.,supraCollectorofInternalRevenuevs.
Prieto,3SCRA101CommissionerofInternalRevenuevs.AsturiasSugarCentralInc.,3SCRA727
OrmocSugarCo.,Inc.vs.TreasurerofOrmocCity,22SCRA607VictoriasMillingCompany,Inc.vs.
CommissionerofInternalRevenue,19SCRA430AmericanRubberCo.vs.Commission
CommissionerofinternalRevenue,39SCRA174.

TheLawphilProjectArellanoLawFoundation

http://www.lawphil.net/judjuris/juri1980/oct1980/gr_26686_26696_1980.html 4/4

You might also like