COLGATE-PALMOLIVE PHILIPPINES, INC., PETITIONER VS. HON. PEDRO M. GIMENEZ AS AUDITOR GENERAL AND ISMAEL MATHAY AS AUDITOR OF THE CENTRAL BANK OF THE PHILIPPINES, RESPONDENTS.

Colgate-Palmolive Philippines versus Gimenez

The Case

This is a petition for review brought by Colgate-Palmolive Philippines, Incorporated against the Auditor General and the Auditor of the Central Bank of the Philippines. The petitioner seeks to overturn the denial of its claim for refund of the seventeen percent special excise tax on foreign exchange, which it paid on materials imported for use in manufacturing dental cream. The case matters because it fixes how our courts read an enumeration in a tax-exemption statute: where the law does not distinguish, neither may the interpreter, and a general term in a list is not to be narrowed merely because most of its neighbors belong to one class.

Procedural History

The petitioner first filed its applications for refund with the Central Bank of the Philippines. The Officer in Charge of the Exchange Tax Administration processed the claims and approved a reduced amount, but the Auditor of the Central Bank refused to pass even that reduced claim in audit. The petitioner then appealed to the Auditor General, who affirmed the ruling of the Central Bank auditor. Still unsatisfied, the petitioner came to the Supreme Court through the present petition for review.

Facts

Colgate-Palmolive Philippines, Incorporated is a corporation engaged in the manufacture of toilet preparations and household remedies. On several occasions it imported from abroad various materials, among them irish moss extract, sodium benzoate, sodium saccharinate, precipitated calcium carbonate, and dicalcium phosphate, for use as stabilizers and flavoring of the dental cream it manufactures. For every importation, the petitioner paid to the Central Bank the special excise tax on the foreign exchange used to pay the cost, transportation, and other charges incident to the importation, pursuant to the Exchange Tax Law.

On March 14, 1956, the petitioner filed with the Central Bank three applications for refund of the seventeen percent special excise tax it had paid, in the aggregate sum of 113,343 pesos and 99 centavos. The claim rested on section 2 of the Exchange Tax Law, which provides that foreign exchange used for the payment of the cost, transportation, and other charges incident to the importation of stabilizer and flavors shall be refunded to any importer making application, upon satisfactory proof of actual importation.

After processing, the Officer in Charge of the Exchange Tax Administration advised the petitioner that of the total claimed, the amount of 23,958 pesos and 13 centavos, representing the tax on the foreign exchange used to import irish moss extract, sodium benzoate, and precipitated calcium carbonate, had been approved. The Auditor of the Central Bank nevertheless refused to pass the claim in audit, on the theory that toothpaste stabilizers and flavors are not exempt under section 2. The Auditor General affirmed, holding that the term stabilizer and flavors refers only to those used in the preparation or manufacture of food or food products.

Issues

• Whether or not the foreign exchange used by the petitioner for the importation of dental cream stabilizers and flavors is exempt from the seventeen percent special excise tax under the Exchange Tax Law, so as to entitle it to refund under section 2.
• Whether or not the term stabilizer and flavors in section 2 is limited to materials used in the preparation or manufacture of food or food products.

Applicable Provisions

Section 2 of Republic Act Number 601, the Exchange Tax Law, provides:

Section 2. The tax collected under the preceding section on foreign exchange used for the payment of the cost, transportation and/or other charges incident to importation into the Philippines of rice, flour, canned milk, cattle and beef, canned fish, soya beans, butter, fat, chocolate, malt syrup, tapioca, stabilizer and flavors, vitamin concentrate, fertilizer poultry feed; textbooks, reference books, and supplementary readers approved by the Board on Textbooks and/or established public or private educational institutions; newsprint imported by or for publishers for use in the publication of books, pamphlets, magazines and newspapers; book paper, book cloth, chip board imported for the printing of supplementary readers (approved by the Hoard of Textbooks) to be supplied to the Government under contracts perfected before the approval of this Act, the quantity thereof to be certified by the Director of Printing; anesthetics, antibiotics, vitamins, hormones, X-Ray films, Laboratory reagents, biologicals, dental supplies, and pharmaceutical drugs necessary for compounding medicines; medical and hospital supplies listed in the appendix to this Act, in quantities to be certified by the Director of Hospitals as actually needed by the hospitals applying therefor; drugs and medicines listed in the said appendix; and such other drugs and medicine as may be certified by the Secretary of Health from time to time to promote and protect the health of the people of the Philippines shall be refunded to any importer making application therefor, upon satisfactory proof of actual importation under the rules and regulations to be promulgated pursuant to section seven thereof.

This is the very provision under which the petitioner claims refund, and its scope decides whether dental cream stabilizers and flavors fall within the exemption.

Ruling

On the first issue, the Court ruled that the foreign exchange used for the importation of dental cream stabilizers and flavors is exempt, and the petitioner is entitled to refund. On the second issue, the Court rejected the Auditor General's reading. The Auditor General had relied on the rule that general terms may be restricted by specific words, so that general language is limited by the specific language indicating the statute's object and purpose. The Court held that this rule applies only where, except for one general term, all the items in an enumeration belong to one specific class.

Here, although stabilizer and flavors is preceded by articles that may be classified as food or food products, the items immediately following it do not belong to that class. Fertilizer and poultry feed are used in farming and poultry industries. Vitamin concentrate is more a medicine than a food, appearing in the appendix list of medicines and drugs. Cattle includes those for breeding, not only those for slaughter. And under the amendatory law, industrial starch, which does not always refer to food for human consumption, was added to the same grouping. The Court therefore held that, on the grouping alone, the term cannot be limited to food manufacture.

The Court grounded its conclusion on the maxim that where the law does not distinguish, neither should the interpreter:

Ubi lex non distinguit nec nos distinguire debemos

Since the law does not distinguish between stabilizer and flavors used in the preparation of food and those used in the manufacture of toothpaste or dental cream, the Court held that it was not authorized to make any distinction and must construe the words in their general sense. The rule restraining general terms by particular recitals, the Court added, does not require rejecting the general terms entirely; it is merely an aid in ascertaining legislative intent, to be taken with the other rules of construction. Having so concluded, the Court found it idle to pass upon the other questions raised.

Doctrine

A Bar candidate should retain these rules. First, the rule that general terms are restricted by specific words applies only where, except for the one general term, all items in the enumeration fall under a single specific class. Second, where the law does not distinguish, neither may the courts distinguish; general terms in a tax-exemption enumeration are construed in their general sense absent a legislative line drawn between classes. Third, the rule restraining general by particular terms is only an aid to legislative intent and does not justify rejecting the general term altogether. These rules govern the reading of section 2 of the Exchange Tax Law and similar enumerations.

Disposition

The Court reversed the decision under review and ordered the respondents to audit the petitioner's applications for refund approved by the Office in Charge of the Exchange Tax Administration in the total amount of 23,958 pesos and 13 centavos. The petitioner prevailed.

Remember This

Memorize the maxim: where the law does not distinguish, neither do we distinguish, so stabilizer and flavors covers dental cream and not food alone. Examiners use this case on statutory construction of tax exemptions, particularly the ejusdem generis rule and its limits.