REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLEE, VS. LA PERLA CIGAR AND CIGARETTE FACTORY, INC., DEFENDANT-APPELLANT.

Appeal by defendant La Perla Cigar and Cigarette Factory, Inc. from a decision of
the Court of First Instance of Manila, sentencing said defendant to pay to plaintiff Republic of the Philippines the following
amounts, with legal interest
from the dates following each, apart from the costs:

Defendant is a domestic
corporation engaged in the manufacture of cigars and cigarettes.  During the years 1954 to 1955, it imported therefor tobacco flavors the special excise tax on which
aggregated P32,759.93.  Defendant filed
applications for exemption therefrom, which were
approved by the Office of the Exchange Tax Administra­tion of the Central Bank
of the Philippines, but, disallowed by the Auditor thereof, who, accordingly,
demanded payment of said sum.

Prior thereto, or during
the years 1953 to 1954, defendant had, also, imported several quantities of
similar tobacco flavors, for which it had paid the aggregate sum of P100,197.59,
as special ex­cise tax, which was later refunded upon defendant’s applications
for exemption, approved by said Office of the Exchange Tax Administra­tion and
the Assistant Auditor of the Bank. 
Acting, however, in compliance with an order of the Auditor General,
dated December 8, 1955, pursuant to Section 657 of the Revised Administrative
Code, the Auditor of the Central Bank proceeded to review all previous refunds
of exchange taxes, and found, inter alia,
that said sum of P100,197.59 had been erroneously and illegally refunded.  Accord­ingly, on December 3, 1957, the Auditor General demanded payment of
said sum of P100,197.59; but, to no avail. 
Hence, on September 21, 1959, plaintiff commenced the present action, in
the Court of First Instance of Manila, to recover not only the latter amount,
but, also, the sum of P32,759.93 allegedly due for the tobacco flavors imported
from 1954 to 1955.

After appropriate
proceedings, said court rendered judgment for the plaintiff, upon
the ground that, although exempt from the payment of the special excise tax,
under our ruling in Colgate-Palmolive Phil. Inc. vs. Jimenez,^[1] defendant can no longer contest plaintiff’s right to collect said sums of P32,759.93 and
P100,197.59 as special excise taxes, it having failed to appeal from the action
of the Auditor General incorporated into his demand letter of December 3, 1957.

Defendant assails the
appealed decision upon the ground that said letter of the Auditor General does
not partake of the nature of a deci­sion, because the same did not settle any
particular claim and had been written in consequence of a policy calling for
the revision or review of all previous refunds of exchange taxes.  Consequently, ap­pellant argues, an appeal
from said action of the Auditor General could not have been properly taken,
pursuant to the view expressed in Cheng Ban Yek
Co. vs. Auditor General.^[2]
Regardless, however, of the applicability of the doctrine therein laid down to
the case at bar, we are of the opinion and so hold that the decision appealed
from should be affirmed.

Indeed, Republic Act No.
601 imposed “a special excise tax of 17%” on the value in Philippine
peso of foreign exchange sold and/or authorized to be sold by the Central Bank
of the Philippines or any of its agents.^[3]
Section 2 of House Bill No. 1513, which upon approval became said Republic Act
No. 601, exempted “rice, flour, canned milk, cattle and beef, canned fish,
fertilizer, drugs, medicines and medical supplies” from said tax.  Several amendments – among which was the insertion
of the terms “stabilizer and flavors” – were introduced in
Congress.  As finally approved, said
Section 2, reads:

“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, butterfat, 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 Board on 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, anti-biotics, 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 medicines 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 hereof. “

Thus, the exempted
articles are grouped therein as follows:

(a) “rice, flour, canned milk, cattle beef, canned fish, soya beans, butterfat, chocolate, malt syrup, tapioca, stabilizer
and flavors, vitamin concentrate, fertilizer, poultry feeds;”

(b) “textbooks, reference books, and supplementary readers
approved by the Board on Textbooks and/or established public or private
educational institutions;”

(c) “newsprint imported by or for publishers for use in the
publication of books, pamphlets, magazines and newspapers;”

(d) “book paper, book cloth, chip board imported for the
print­ing of supplementary readers (approved by the Board on 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;”

(e) “anesthetics, antibiotics, vitamins, hormones, x-ray
films, laboratory reagents, biologicals, dental
supplies and pharmaceutical drugs necessary for compounding medicines;”

(f) “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;”

(g) “drugs and medicines listed in said appendix;” and

(h) “such other drugs and medicines 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.”

By reason of their nature, the exempted objects belong to the
following general categories, namely: (1) food or goods used for the production
of food; (2) drugs or medicines; (3) medical and hospital supplies; (4) books
and materials for the printing of books for schools; and (5) newsprint for the
publication of reading materials.   It seems
so clear that the exempted “stabilizer and flavors”, do not constitute, by
themselves, a class distinct, separate and independent from that of the other
exempted articles, but refer to “stabilizer and flavors” for food.  Hence, said term was inserted among the goods
belonging to this category.

Indeed, commenting on said House Bill No. 1513, Congressman Allas, Chairman of the Committee on Ways and Means, said,
on the floor of the House of Representatives:

“While worker’s cost of living may rise a little, the people most
affected are the consumers of large quantities of imported articles (in case of
visible payments, and the people who travel or have families living abroad, or
for any reason have to make foreign remittances.   The rich and the middle class will bear
proportionately more of the burden of the tax than the poor, inasmuch as the
latter group consume mostly articles of local production.   Furthermore, the exemption of a few food
articles, such as flour, canned milk and fish, and of fertilizers, cattle and
beef, has removed from the operations of the exchange tax, a large portion of
the imported articles commonly consumed among the poor and the lower middle
class, as well as articles needed to increase agricultural production.  (Congressional Records, House of
Representatives, Volume I, No. 8, January 17, 1951).

In answer to a question, propounded by Congressman Villarin, on the purpose of the exemptions, Congressman
Alls explained:

                 “The reason
is very simple.   The articles contained
in Section 2 are the bulk of the articles consumed by the lowest class of our
people and in order to make this tax reasonable, a  great portion of the goods needed by the poor
will not be burdened by the tax – we exempt them from the operation of this
Act.” (Id.)

The proceedings in the
Senate reveal the same trend of thought We quote from the journal of said
chamber:

“MANIFESTACIONES DEL SEN. TIRONA

“EL SENADOR TIRONA:  x x x Este
Proyecto de Ley que se somete a la consideracion del Senado no puede causar ningun
perjuicio a los intereses del prelatoriado.  Precisamente, por este motivo,
el Comite de Hacienda ha hilado
muy delegado en la deliberacion sobre las exenciones que se han some­dito
a la consideration del Comite; practicamente,
el Proyecto excluye de sus efectos toda
importacion de alimentos de
primera necessidad, como la leche y otros productos comestibles que vienen del es­trangero, para proteger precisamente el interes de las masas.” (Diario No. 29,
March 2, 1951, Senate Journal)

“ENMIENDA RODRIGUEZ

“SENATOR RODRIGUEZ:  For
an amendment, Mr. President. On Page 1, Sec 2, line 13, after the word
‘fertilizer’ insert the following:  ‘SOYA
BEANS, BUTTERFAT, CHOCOLATE, MALT SY­RUP, TAPIOCA, STABILIZER AND FLAVORS,
VITAMIN CONCENTRATE.’

“SENATOR TIRONA:  Mr.
President, taking into consideration that these articles are really needed
especially by those people who need more vitality, the Committee accepts
the amendment.

“THE PRESIDENT:  Is there any objection?  (Silence). 
The chair hears none.  The
amendment is approved.” (Diario No. 33, Pages
24-25, March 8, 1951)

“SENATOR TIRONA:  x x x That, Mr. President, is the very reason why the
Committee on Finance, composed of members of different parties whose zeal and
interest for the welfare of the masses cannot be put into doubt because their
past and present record of public and loyal service to our people had almost unanimously endorsed this
bill although introducing certain amendments which if in one hand reduce the
expected yield are considered however as reasonable because for them the
foremost and most important thing to be considered is the welfare of the masses x x x.

“SENATOR OSIAS:  I am
sensible, Mr. President,  that in the bill
under consideration, the Senate Finance Committee in its wisdom introduced
certain exemptions on matters affecting food, the drugs and the medicines
so necessary for public welfare. 
Naturally these and similar provisions make the measure less objection­able.”
(Senate Journal, March 7, 1951)

Thus, “food, drugs and medicine” summed up the
exemptions from the viewpoint of the lawmakers, with the particularity that by
“food” they meant what is necessary
to nourish the body and the mind of the people, including, not only children in
schools, but, also, the masses in general.

In fact, with the exception of food or goods used for the
production of food, all other exempted goods are subject to qualifications.  Thus: 
(a) the drugs and medicines must be either listed in the appendix to the
Act, or necessary for compounding
medicines or “certified by the Secretary of Health x
x to promote
and protect the health of the people;” b) the medical and hospital
supplies must be listed in said appendix and “certified by the Director of Hospitals as actually needed by the hospitals applying therefor;” (c)
the books must be “textbooks, reference books and supplemen­tary
readers approved by the Board on Textbooks and/or established public or
private educational institutions,” and the materials for the printing of
school books are limited to “book paper, book cloth, chip board imported for
the printing of supplementary readers (ap­proved by the Board on Textbooks) to be supplied to the Government
under contracts perfected before the approval “of R.A. No. 601; and
(d) the materials for the publication of reading matters in gene­ral must be
“newsprint imported by or for publishers.”

Upon the other hand, if appellant’s pretense were accepted,
tobacco flavors and stabilizers would be exempted without any qualification whatsoever, thereby placing said
goods on a better and more privileged category than “medicines and drugs”, medical and hospital
supplies, books for educational institutions and materials for newspapers and magazines.  Manifestly, the language of the law and its
spirit, as reflected by the circumstances surrounding its en­actment and the
deliberations on the floor of Congress, reject such view.

WHEREFORE, the decision appealed from is hereby af­firmed, with costs
against defendant La Perla Cigar and Cigarette
Factory, Inc., and insofar as inconsistent with this opinion, our ruling in the
Colgate-Palmolive case should be deemed modified.

IT IS SO ORDERED.

Reyes, Dizon, Makalintal,
Zaldivar, Sanchez, Castro, Angeles, and Fernando, JJ., concur.

^[1]
G.R. No. L-14787, January 28, 1961,
in which Irish Mosh extract, sodium saccharine,
precipitate calcium carbonate and dicalcium phosphate
for use as stabilizer and for flavouring of dental
cream was held to be exempted from the excise tax.

^[2]
G.R. No. L-18354, decided on December
29, 1962.

^[3]
Section 1.