G.R. No. L-18354. December 29, 1962
[WITH RESOLUTIONS MAY 30, 1963 AND MARCH 21, 1964]
BAUTISTA ANGELO, J.:
the International Oil Factory engaged in the manufacture of vegetable lard out
of locally produced coconut oil. During the years 1953-1955, it imported to
Manila cottonseed and fish oils for use in the manufacture of lard, and upon
arrival of the shipment the Central Bank of the Philippines, thru its Office of
Exchange Tax Administration, held that the importation was not subject to the
17% special excise tax under the provisions of Republic Act 601, as amended.
Apparently, this exemption was granted in view of an opinion rendered by the
legal counsel of the Central Bank holding that hydrogenated cottonseed oil is
included in the term stabilizer used in the Act. As a consequence, the
Central Bank approved the application for exemption filed by the company and
even refunded the taxes which had already been collected, but paid under
protest, in the amount of P113,219.25.
However, in two letters dated March 6, 1958 sent to the International Oil
Factory, the auditor of the Central Bank demanded the payment of the total
amount of P185,884.09 representing the 17% special excise tax allegedly due the
government on the aforesaid importation of hydrogenated cottonseed and fish
oils, of which the sum of P113,219.25 representing the taxes paid by the company
under protest, which was later refunded, is included, while the balance of
P72,664.84 represents the tax which according to the auditor should have been
paid by the company but which the Office of Exchange Tax Administration had
already found not to be due in view of the opinion of its legal counsel.
In view of the refusal of the company to comply with the demand, the auditor
of the Central Bank, who disagreed with the opinion of the legal counsel,
referred the matter to the Auditor General for a definite ruling on “whether or
not hydrogenated cottonseed oil (stearine) used in the manufacture or
preparation of lard (shortening) may be considered as ‘stabilizer’ under Section
2 of Republic Act No. 601.” This latter official, however, before giving his own
opinion, endorsed the letter of the Central Bank auditor to the Secretary of
Finance for comment who, in an endorsement dated June 29, 1960, stated that, in
the light of the facts obtaining, the importation in question which is used
mainly as component in the manufacture of vegetable lard may not be considered
as falling under the category of stabilizer contemplated in Republic Act No.
601, as amended, and so the foreign exchange used in connection therewith is
subject to the special excise tax. And in reaching this conclusion, the
Secretary took into account the fundamental principle in taxation that exemption
provisos in tax laws must be strictly construed and not unduly enlarged
or extended.
The Auditor General, in his indorsement of February 15, 1960, after
consolidating the different opinions given by the successive Heads of the
National Institute of Science and Technology, together with that of the Chairman
of the National Science Development Board, who cited the opinion of the Acting
Deputy Commissioner of the former office, gave the following opinion: “It
appearing from this last opinion of the National Institute of Science and
Technology that hydrogenated seed oil (stearine) is used as a component in the
manufacture of vegetable oil lard, but not as stabilizer, this Office concurs in
the opinion of that Office and of the Secretary of Finance that the hydrogenated
seed oil (stearine) imported by claimants may not be considered as falling under
the category of ‘stabilizer’ contemplated in Republic Act No. 601, as amended.
Accordingly, the foreign exchange used in importing such hydrogenated cotton
seed oil is subject to the special excise tax.”
Acting upon this view, the Central Bank again demanded from the company the
payment of the amount of P185,884.90 representing the 17% special excise tax due
on its importation of hydrogenated cottonseed oil with the warning that, if not
paid, it will deny the clearance requested. Whereupon, the company filed the
instant petition for review byway of appeal from the decision of the Auditor
General.
The main issue to be determined is whether or not the hydrogenated cottonseed
oil in question when added to coconut oil in the making or preparation of
vegetable lard plays the role of a component or ingredient, or merely of a
stabilizer, as contemplated in Republic Act 601, as amended. If it constitutes a
component or ingredient then the foreign exchange used in its importation is
subject to the special excise tax, but if it is used as a stabilizer it may come
under the exemption enumerated in the law.
On this question three divergent opinions were given by three successive
Heads of the National Institute of Technology. Dr. A. S. Arguelles held that 13%
of cottonseed oil or stearine to be added to the coconut oil is too high to be
considered as purely stabilizer, and in order that stearine can be considered as
an stabilizer the amount to be added to the coconut oil for the manufacture of
vegetable lard should not be more than 2%; Commissioner Joaquin Marañon
maintained that hydrogenated cottonseed oil, or stearine, may serve as a
component or ingredient as well as stabilizer but without giving any
qualification as to the amount to be used to produce the desired effect; while
Acting Commissioner Canuto Manuel gave the opinion that 2% cottonseed oil will
not affect the stability of vegetable lard. Because of this divergence of
opinion, the Auditor General referred the three opinions of these three
scientists to the Chairman of the National Science Development Board for
clarification and definite ruling, and said Chairman, in reply to the inquiry,
cited the following opinion of the Acting Deputy Commissioner Flaviano M. Yenko
of the National Institute of Science and Technology:
“1. In the manufacture of vegetable lard hydrogenated cottonseed oil is added
to coconut oil so as to produce a mixture with high plasticity giving the oil
the characteristic structure of a plastic solid. The amount of hydrogenated
cottonseed oil usually added ranges from 10 to 15%. In other words, the
hydrogenated cottonseed oil becomes a component part of the plastic mixture.“2. A stabilizer is defined as a retarding agent or a substance that
counteracts the effect of a vigorous accelerator and preserves a chemical
equilibrium. It is employed to render the product more stable by preventing the
occurrence of undesirable changes in the product. For vegetable oils,
stabilizers are added in very small amounts, usually less than 2%, e. g. the
addition of an antioxidant to prevent rancidity.
“Although hydrogenated cottonseed oil when added to coconut oil in sufficient
quantities may change the physical state of the oil by rendering it semi-solid,
hydrogenated cottonseed oil does not affect the chemical stability of the
oil to which it is added. Hence in the manufacture of vegetable lard,
hydrogenated cottonseed oil serves as a component and not as a
stabilizer.”
And on the basis of the opinion above-quoted, which was endorsed by the
Chairman of the National Science Development Board, the Auditor General made the
following conclusion:
“It appearing from this last opinion of the National Institute of Science and
Technology that hydrogenated seed oil (stearine) is used as a component in the
manufacture of vegetable lard, but not as stabilizer, this office concurs in the
opinion of that Office and of the Secretary of Finance that the hydrogenated
seed oil (stearine) imported by claimants may not be considered as falling under
the category of ‘stabilizer’ contemplated in Republic Act No. 601, as amended.
Accordingly, the foreign exchange used in importing such hydrogenated cotton
seed oil is subject to the special excise tax.”
Considering that the term stabilizer is used in the law under
consideration in its technical sense and as such reliance must be placed on the
meaning attached to it by technical or scientific men, and considering further
that the opinion of the Auditor General is predicated upon the opinion expressed
by the Chairman of the National Science Development Board which is the highest
scientific institution in the Philippines, we have no other alternative than to
conclude that the importation in question when used in the manufacture of
vegetable lard out of the locally produced coconut oil is deemed to be a
component or ingredient and not merely a stabilizer that may come under the
exemption of the law.
Wherefore, petition is dismissed. The decision of the Auditor General is
hereby affirmed. Costs against appellant.
Padilla, Labrador, Concepcion,
Reyes, J. B. L., Barrera, Paredes, Dizon, Regala, and Makalintal,
JJ., concur.
BAUTISTA ANGELO, J.:
Petitioner seeks to reconsider our decision rendered on December 29, 1962 on
several grounds, among which, is that it is contrary to the legislative intent
and runs counter to general welfare and principles of equity which may work
hardship and injustice against petitioner and other lard manufacturers.
In support of his motion, petitioner submitted a certificate under oath of
Senate President Eulogio Rodriquez, marked as Annex A, the letter of the
Chairman of the National Science Development Board, marked as Annex B, the
latest opinion of the Deputy Commissioner of the National Institute of Science
and Technology, marked as Annex B-1, and the opinion of the American Consultant
to said Board from the Armor Research Foundation of the United States, marked as
Annex B-2. In addition, petitioner also asked that photostatic copies of
pertinenet pages of the scientific book entitled “Industrial Oil and Fat
Products” by Alton E. Bailey, from which Deputy Commissioner Flaviano M. Yenko
of the National Institute of Science and Technology quoted the authority for his
opinion that “commercial shortening cannot be made out of coconut oil by using
2% or less of hydrogenated cottonseed oil as sterine” which was given in his
memorandum to the Chairman of the National Science Development Board dated
january 23, 1963, be admitted as evidence in connection with this motion for
reconsideration. And during the oral argument held on April 24, 1963, counsel
for petitioner also asked for leave to submit certain documents which he marked
as Exhibits AA, BB, X and Y which are all attached to the record.
The main issue that was submitted to us for consideration is whether or not
the hydrogenated cottonseed oil when added to coconut oil in the making
orpreparation of vegetable lard plays the role of a component or ingredient, or
merely of a stabilizer as contemplated in Republic Act 601, as amended.
On this question three divergent opinions were given by three successive
heads of the National Institute of Science and Technology, but the opinion which
was given weight by respondent Auditor General, which was upheld by this Court,
is that of Acting Deputy Commissioner Flaviano M. Yenko of the National
Institute of Science and Technology, which was epitomized as follows:
“Although hydrogenated cottonseed oil when added to coconut oil in sufficient
quantities may change the physical state of the oil by rendering it semi-sold,
hydrogenated cottonseed oil does not affect the chemical stability of the
oil to which it is added. Hence in the manufacture of vegetable lard,
hydrogenated cottonseed oil serves as component and not as a
stabilizer.”
In the motion for reconsideration, petitioner now disputes the above opinion
by submitting the documents abovementioned, particularly the new opinion of
Deputy Commissioner Yenko from which we quote the following.
“Coconut oil yields a shortening of rather poor plastic range. If coconut oil
is to be used in a shortening in large proportions, the product is best made by
blending unhydrogenated coconut oil with about 8 to 12% of vegetable stearing
and as much cottonseed oil or other liquid oil as may be permissible to use.’” ‘Industrial Oil and Fat Products’, by Alton B. Bailey 2nd Edition
Interscience Publishers, Inc., New York 1951, p.241.”
Since the aforesaid documents are in the nature of new evidence
submitted in the case and respondent has not been given an opportunity to
examine them or nor to cross-examine the persons or officials who appear to
bethe authors or writers thereof, in order to test their credibility, the Court
resolved that, without acting for the present on said motion, the case be
remanded to respondent for whatever action he may deem proper to take in the
premises.
Bengzon, C. J., Reyes, J. B. L., Barrera, Paredes, Dizon, Regala, and
Makalintal, JJ., concur.
March 31, 1964
BAUTISTA ANGELO, J.:
Petitioner moves this Court to reconsider its decision rendered on December
29, 1962 wherein it held that the cottonseed oil it imported in the years
1953-1955 for use in the manufacture of lard from coconut oil is a component and
not a stabilizer and, therefore, is subject to the 17% special excise tax. In
support of its motion, petitioner submitted Annexes A, B, B-1, and B-2.
On February 12, 1963, respondent was required to comment on the motion for
reconsideration. Respondent submitted his comment on February 28, 1963 and
therein he prayed that the motion be denied for lack of merit. He reiterated the
arguments already advanced in his original brief.
In the meantime, petitioner prayed that Annexes A, A-1 to A-3, which are
photostatic copies of pertinent pages of Alton E. Bailey’s book “Industrial Oil
and Fat Products” be admitted as partsof his motion for reconsideration and, in
its reply to respondent’s comment, it also attached certain annexes representing
photostatic copies of pertinent pages of books and journals of some authorities
to bolster up the arguments advanced therein in refutation of respondent’s
comment.
During the oral argument held on April 24, 1963 on the motion for
reconsideration, petitioner again asked for leave to submit certain documents
which counsel marked as Exhibits AA, BB, X and Y, which petition was granted,
and because said documents partake of the nature of new evidence which was
submitted in the absence of respondent, the Court in its resolution of May 30,
1963 resolved to remand the case to respondent to give him and opportunity to
examine and cross-examine the persons or officials who appear to the authors or
writers thereof and to take wahtever action he may deem proper in the
premises.
On December 13, 1963, respondent filed his compliance with this Court’s
resolution, and therein he quoted a memorandum submitted by Deputy Commissioner
Flaviano M. Yenko of the National Institute of Science and Technology, which was
concurred in by the Chairman of the National Science Development Board, wherein
said official made a categorical statement that the views expressed by him as
contained in the letter sent to petitioner’s counsel dated January 30, 1963 did
not constitute a reversal of the previous opinion rendered by him on the matter
under consideration.
The contents of said memorandum reads as follows:
“We have your memorandum dated September 23, 1963 regarding a query from the
Auditor General on the use of hydrogenated cottonseed oil.“In this connection, please be informed that the views expressed by Mr.
Charles Schuh and the undersigned which were endorsed by the Chairman ih his
letter to Atty. Dinglasan, dated January 30 do not constitute a reversal of the
previous technical opinion rendered by this office that in the manufacture of
vegetable lard, hydrogenated cottonseed oil serves as component and not as a
stabilizer.“In the manufacture of vegetable lard, stearine (hydrogenated cottonseed oil)
is added to the already liquid coconut oil in order to form a plastic mixture
and afterwards air is incorporated into this stearine-coconut oil mixture to
improve its blending properties. From this point of view, stearine cannot be
considered a stabilizer.“While it is true that stearine forms with coconut oil a plastic mass that
can keep the entrapped air, the stearine primarily serves to solidify or
plasticize this liquid coconut oil, thereby forming a component part of the
coconut-stearine plastic mixture.“The stearine (hydrogenated cottonseed oil) therefore when used in the
manufacture of shortening is to be considered as component and not
stabilizer.”
It should be noted that in said memorandum Commissioner Yenko merely states
that the views expressed by him and Mr. Charles Schuh do not constitute a
reversal of the previous opinion rendered by him that in the manufacture of
vegetable lard hydrogenated cottonseed oil serves as a component and not as
stabilizer, but does not refute nor comment on the views expressed by the
authors mentioned in the new evidence submitted by petitioner. Some of these
views follows:
“If an all-vegetable shortening is to be made a minimum amount of hardening
oil, the latter is usally hydroenated to an iodine value of 15 or less. In
the case of shortening which is to be made entirely of cottonseed oil, about 10%
to 15% of hardened oil or vegetable stearine is required in the mixture, the
exact amount depending upon the iodine value and titex of the stearine.“Coconut oil, as stated previously yields a shortening of rather poor
plastic range. If coconut oil is to be used in a shortening in large
proportions, the product is best made by blending unhydrogenated coconut oil
with about 8% to 12% of vegetable stearine and as much cottonseed oil or
other liquid oil as may be permissible to use. Completely hydrogenated coconut
oil has a melting point of but 110 deg. F., hence vegetable stearine cannot be
made from this oil.” (Industrial Oil and Fat Products by Alton E. Bailey, pp.
237-238, Annex “A-3”, Petition)“Stabilizers. In general, any substance which makes a solution, mixture,
suspension, or state, etc, more stable. Specifically, there are stabilizers
which may retard a reaction rate or preserve a chemical equilibrium, act as
antioxidants, keep pigments and other components in emulsion form in an
emulsion paint, or prevent the particles in a colloidal suspension from
precipitating.” (Exh. X)“Coconut oil consists of complex mixture of the glyceride esters of fatty
acids. Analysis show that the amount of unsaturation is low. This may be
interpreted as giving the oil a high degree of resistance to the development
of oxidative rancidity. This has been verified experimentally by Roduta and
Dyogi (2) who found coconut oil 2531 days old to give a negative Kreis test.”
(Exh. Y)“2.0% hydrogenated cottonseed oil to be used as a stabilizer is not enough
to plasticize liquid coconut oil. The general limits for the solid particles
shall generally be within the range of 5.0% to 25.0%. In the case of shortening
produced in the United States which is to be made entirely of cottonseed oil
about 10.0% to 15.0% of hardoilor vegetable stearine is required in the
mixture. In the United States the most commonly used oil for cooking is
cottonseed oil in place of coconut in the Philippines. If coconut oil is to be
used in a shortening in large proportion, the product is best made by
blending unhydrogenated coconut oil with 8.0% to 12.0% vegetable stearine.”
(As explained by Alton E. Bailey in his book, Industrial Oil and Fat Products,
pp. 209, 237-238)
On the other hand, on August 24, 1961, respondent filed a motion to dismiss
this appeal on the ground that the decision from which petitioner has appealed
to this Court as contained in an indorsement sent by respondent to the Auditor
of the Central Bank is not really a decision in the legal sense but merely an
opinion which respondent has rendered on the question whether the use of
hydrogenated cottonseed oil in the manufacture of lard may be considered as
stabilizer within the meaning of the law. It is not a decision or order on any
money claim which petitioner had filed with the Central Bank concerning the
refund of a particular duty or exchange tax, which was adverse to petitioner,
The nature of this appeal, it is claimed, is merely in the form of a declaratory
judgment which cannot be the subject of an appeal of this nature. To this motion
petitioner filed an opposition, and this court deferred action thereon until the
case is decided on the merits.
We find this motion meritorious, for really the alleged decision appealed
from is merely an opinion rendered by respondent on the matter under
consideration for guidance of the Foreign Department of the Central Bank. It was
not rendered in connection with a specific claim for refund by petitioner or any
other company for that matter, and so is not appealable under Section 1, Rule
44, of our Rules of Court.
Considering that the views expressed by the authors mentioned in the new
evidence submitted by petitioner do not appear controverted, clarified, nor
commented in any manner by respondent, and the issue herein involved is
important and far-reaching, the Court is of the opinion that this is not the
appropriate occasion to pass upon it but when the same is raised in an
appropriate case if and when the amount of exchange tax which the Central Bank
seeks to collect from petitioner is actually pressed in court, when an
opportunity for examination of the evidence may be given to both parties.
Meanwhile, this appeal should be dismissed, as prayed for by respondent, there
being no final order or decision that may be the subject of appeal under Section
1, Rule 44, of our Rules of Court.
Wherefore, the decision rendered by this Court on December 29, 1960 is hereby
set aside. The Court orders the dismissal of this appeal, without costs.
Padilla, Labrador, Concepcion, Reyes, J. B. L., Barrera, Paredes,
Dizon, and Makalintal, JJ., concur.