Song Kiat Chocolate Factory v. Central Bank of the Philippines | G.R. No.

L-8888 | 29 November 1957

Plaintiff-appellant: Song Kiat Chocolate Factory

Defendant-appellees:Central Bank of the Philippines
Vicente Gella, Treasurer of the Philippines
Ponente: Justice Bengzon

FACTS:
 January 8 to October 9, 1953: Plaintiff-appellant imported sun dried cocoa beans with a
foreign exchange tax of 17 percent totaling P74,671.04
- Plaintiff is claiming exemption from said tax under Section 2 of Republic Act No. 601,
suing the Central Bank and the Treasurer
 May 1954: Plaintiff filed case at the Manila Court of First Instance

Defendants moved to dismiss the case on the following grounds:

1. Complaint stated no cause of action since cocoa beans were not “chocolate”
2. It was a suit against the government without its consent
 Judge Gregorio Narvasa dismissed the case on 19 November 1954
 Plaintiff appealed the case, alleging the lower court erred in dismissing the case and in
holding "chocolate" does not include sun dried cocoa beans

ISSUE:
Whether cocoa beans may be considered as “chocolate” for the purposes of exemption from the
foreign exchange tax imposed by RA 601, as amended by RA 1197

HELD: DISMISSED

RATIO:
SEC. 2: "the tax collected or foreign exchange used for the payment of costs transportation and/or other
charges incident to importation into the Philippines of rice, flour ..soya beans, butterfat, chocolate, malt
syrup .. shall be refunded to any importer making application therefor, upon satisfactory proof of actual
importation . . ."

 Plaintiff consulted dictionaries and encyclopedias, which interchangeably used the words
“chocolate”, “cacao”, and “cocoa” but the Court said the “cocoa” referred to as “chocolate
nut”, “chocolate bean”, or “chocolate tree”
 Legal exemption refers to “chocolate” itself and not the bean or tree
 Court agree with Solicitor General that common parlance of the law is presumed to refer to
chocolate as a manufactured or finished product made out of cocoa beans, or "cacao" beans
o The manufacture of chocolate involves several processes, such as selecting and
drying the cocoa beans, then roasting, grinding, sieving and blending
o Cocoa beans do not become chocolate unless and until they have undergone the
manufacturing processes above described. The first is raw material, the other
finished product
 Court define “chocolate” as:
o Preparation of roasted cacao beans without the abstraction of the butter and always
contains sugar and added cacao butter (Rockwood & Co., vs. American President
Lines, D. C. N. J., 68 F. Supp. 224, 226)
o Cocoa bean roasted, cracked, shelled, crushed, ground, and molded in cakes. It
contains no sugar, and is in general use in families. Sweetened chocolate is
manufactured in the same way but the paste is mixed with sugar, and is used by
Song Kiat Chocolate Factory v. Central Bank of the Philippines | G.R. No. L-8888 | 29 November 1957

confectioners in making chocolate confections (In re: Schiling, 53 F. 81, 82, 3 C. C. A.

440)
 Principle of strict construction of statutes exempting from taxation, the Court said the
exemption for "chocolate" in the above section does not include "cocoa beans"
o The one is raw material, the other manufactured consumer product; the latter is
ready for human consumption; the former is not

August 1954: Congress approved RA 1197, amending Section 2 by substituting "cocoa beans" for
"chocolate”
 Plaintiff: This shows the Legislature's intention to include cocoa beans in the word
"chocolate" according to the plaintiff, quoting the committee chairman who proposed the
bill
 Defendants: The chairman was not part of the Congress who passed the original act (RA
601) so he could not have spoken of the legislative intention, it was only his own
interpretation
 However, other debates on the amendatory bill show the discussion of the Congress agreed
to exempt cocoa beans to favor local manufacturers of chocolate
 It is a change of legislative policy and not a clarification of previous Congressional purpose
o Proclamation No. 62 (issued 2 September 1954): Stated exemption of cocoa beans
shall operate from and after September 3, not before
o Statutes operate prospectively, hence it does not cover the cocoa beans imported by
the plaintiff from January to October 1953
 No need to consider the other issue that this a suit against the government without its
consent