COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. CEBU PORTLAND CEMENT COMPANY AND COURT OF TAX APPEALS, RESPONDENTS.

By virtue of a decision of the Court of Tax Appeals rendered on
June 21, 1961, as modified on appeal by the Supreme Court on February 27, 1965,
the Commissioner of Internal Revenue was ordered to refund to the Cebu Portland Cement Company the amount of P359,408.98, representing overpayments of ad valorem
taxes on cement produced and sold by it after October 1957.^[1]

On March 28, 1968,
following denial of motions for reconsideration filed by both the petitioner
and the Private respondent, the latter moved for a writ of execution to enforce
the said judgment.^[2]

The motion was opposed by the petitioner on the ground that the
private respondent had an outstanding sales tax liability to which the judgment
debt had already been credited. In fact, it was stressed, there was still a
balance owing on the sales taxes in the amount of P4,789,279.85
plus 28% surcharge.^[3]

On April 22, 1968,
the Court of Tax Appeals*
granted the motion, holding that the alleged sales tax liability of the private
respondent was still being questioned and therefore could not be set-off
against the refund.^[4]

In his petition to review the said resolution, the Commissioner
of Internal Revenue claims that the refund should be charged against the tax
deficiency of the private respondent on the sales of cement under Section 186
of the Tax Code. His position is that cement is a manufactured and not a
mineral product and therefore not exempt from sales taxes. He adds that
enforcement of the said tax deficiency was properly effected through his power
of distraint of personal property under Sections 316
and 318^[5]
of the said Code and, moreover, the collection of any national internal revenue
tax may not be enjoined under Section 305,^[6]
subject only to the exception prescribed in Rep. Act No. 1125.^[7]
This is not applicable to the instant case. The petitioner also denies that the
sales tax assessments have already prescribed because the prescriptive period
should be counted from the filing of the sales tax returns, which had not yet
been done by the private respondent.

For its part, the private respondent disclaims liability for the
sales taxes, on the ground that cement is not a manufactured product but a
mineral product.^[8] As such, it was exempted from sales
taxes under Section 188 of the Tax Code after the effectivity
of Rep. Act No. 1299 on June 16, 1955,
in accordance with Cebu Portland Cement Co. v.
Collector of Internal Revenue,^[9]
decided in 1968. Here Justice Eugenio Angeles
declared that “before the effectivity of Rep.
Act No. 1299, amending Section 246 of the National Internal Revenue Code,
cement was taxable as a manufactured product under Section 186, in connection
with Section 194(4) of the said Code,” thereby implying that it was not
considered a manufactured product afterwards. Also, the alleged sales tax
deficiency could not as yet be enforced against it because the tax assessment
was not yet final, the same being still under protest and still to be
definitely resolved on the merits. Besides, the assessment had already
prescribed, not having been made within the reglementary
five-year period from the filing of the tax returns.^[10]

Our ruling is that the sales tax was properly imposed upon the
private respondent for the reason that cement has always been considered a
manufactured product and not a mineral product. This matter was extensively
discussed and categorically resolved in Commissioner of Internal Revenue v.
Republic Cement Corporation,^[11]
decided on August 10, 1983,
where Justice Efren L. Plana,
after an exhaustive review of the pertinent cases, declared for a unanimous
Court:

“From all the foregoing cases, it is clear that cement qua
cement was never considered as a mineral product within the meaning of Section
246 of the Tax Code, notwithstanding that at least 80% of its components are
minerals, for the simple reason that cement is the product of a manufacturing
process and is no longer the ‘mineral product’ contemplated in the Tax Code
(i.e., minerals subjected to simple treatments) for the purpose of imposing the
ad valorem tax.

“What has apparently encouraged the herein respondents to
maintain their present posture is the case of Cebu
Portland Cement Co. v. Collector of Internal Revenue, L-20563, Oct. 29, 1968
(28 SCRA 789) penned by Justice Eugenio Angeles. For
some portions of that decision give the impression that Republic Act No. 1299,
which amended Section 246, reclassified cement as a mineral product that was
not subject to sales tax. x x x.

“X          X          X.

“After a careful study of the foregoing, we conclude that
reliance on the decision penned by Justice Angeles is misplaced. The said
decision is no authority for the proposition that after the enactment of
Republic Act No. 1299 in 1955 (defining mineral product as things with at least
80% mineral content), cement became a ‘mineral product’, as distinguished from
a ‘manufactured product’, and therefore ceased to be subject to sales tax. It
was not necessary for the Court to so rule. It was enough for the Court to say
in effect that even assuming Republic Act No. 1299 had re-classified cement was
a mineral product, the reclassification could not be given retrospective
application (so as to justify the refund of sales taxes paid before Republic
Act 1299 was adopted) because laws operate prospectively only, unless the
legislative intent to the contrary is manifest, which was not so in the case of
Republic Act 1266. [The situation would have been different if the Court
instead had ruled in favor of refund, in which case it would have been
absolutely necessary (1) to make an unconditional ruling that Republic Act 1299
re-classified cement as a mineral product (not subject to sales tax), and (2)
to declare the law retroactive, as a basis for granting refund of sales tax
paid before Republic Act 1299.]

“In any event, we overrule the CEPOC decision of October 29. 1968 (G.R. No. L-20563) insofar as its pronouncements or any
implication therefrom conflict with the instant
decision.”

The above views were reiterated in the resolution^[12]
denying reconsideration of the said decision, thus:

“The nature of cement as a ‘manufactured product’ (rather than
a ‘mineral product’) is well-settled. The issue has repeatedly presented itself
as a threshold question for determining the basis for computing the ad valorem mining tax to be paid by cement companies. No
pronouncement was made in these cases that as a ‘manufactured
product’ cement is subject to sales tax because this was not at issue.

“The decision sought to be reconsidered here referred to the
legislative history of Republic Act No. 1299 which introduced a definition of
the terms ‘mineral’ and ‘mineral products’ in Sec. 246 of the Tax Code. Given
the legislative intent, the holding in the CEPOC case (G.R. No. L-20563) that
cement was subject to sales tax prior to the effectivity
of Republic Act No. 1299 cannot be construed to mean that, after the law took
effect, cement ceased to be so subject to the tax. To erase any and all
misconceptions that may have been spawned by reliance on the case of Cebu Portland Cement Co. v. Collector of Internal Revenue.
L-20563, October 29, 1968 (28 SCRA 789) penned by Justice Eugenio
Angeles, the Court has expressly overruled it insofar as it may conflict with
the decision of August 10, 1983, now subject of these motions for
reconsideration. “

On the question of prescription, the private respondent claims
that the five-year reglementary period for the
assessment of its tax liability started from the time it filed its gross sales
returns on June 30, 1962.
Hence, the assessment for sales taxes made on January 16, 1968 and March 4, 1968, were already out of time. We disagree. This
contention must fail for what CEPOC filed was not the sales returns required in
Section 183(n) but the ad valorem tax returns
required under Section 245 of the Tax Code. As Justice Irene R. Cortes
emphasized in the aforestated resolution:

“In order to avail itself of the
benefits of the five-year prescription period under Section 331 of the Tax
Code, the taxpayer should have filed the required return for the tax involved,
that is, a sales tax return.

(Butuan Sawmill, Inc. v. CTA, et al.,
G.R. No. L-21516, April 29, 1966.
16 SCRA 277). Thus CEPOC should have filed sales tax
returns of its gross sales for the subject periods. Both parties admit that
returns were made for the ad valorem mining tax.
CEPOC argues that said returns contain the information necessary for the
assessment of the sales tax. The Commissioner does not consider such returns as
compliance with the requirement for the filing of tax returns so as to start
the running of the five-year prescriptive period.

“We agree with the Commissioner. It has been held in Butuan Sawmill, Inc. v. CTA, supra, that the filing of an
income tax return cannot be considered as substantial compliance with the
requirement of filing sales tax returns, in the same way that an income tax
return cannot be considered as a return for compensating tax for the purpose of
computing the period of prescription under Sec. 331. (Citing Bisaya Land Transportation Co., Inc. v. Collector of
Internal Revenue, G.R. Nos. L-12100 and L-11812, May 29, 1959). There being no sales tax returns
filed by CEPOC, the statute of limitations in Sec. 331 did not begin to run
against the government. The assessment made by the Commissioner in 1968 on CEPOC’s cement sales during the period from July 1, 1959 to December 31, 1960 is not barred by the five-year
prescriptive period. Absent a return, or when the return is false or
fraudulent, the applicable period is ten (10) days from the discovery of the
fraud, falsity or omission. The question in this case is: When was CEPOC’s omission to file the return deemed discovered by
the government, so as to start the running of said period?“.^[13]

The argument that the assessment cannot as yet be enforced
because it is still being contested loses sight of the urgency of the need to
collect taxes as “the lifeblood of the government.” If the payment of
taxes could be postponed by simply questioning their validity, the machinery of
the state would grind to a halt and all government functions would be
paralyzed. That is the reason why, save for the exception already noted, the
Tax Code provides:

“Sec. 291. Injunction
not available to restrain collection of tax. – No court shall have
authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by this Code.”

It goes without saying that this injunction is available not only
when the assessment is already being questioned in a court of justice but more
so if, as in the instant case, the challenge to the assessment is still -and
only – on the administrative level. There is all the more reason to apply the
rule here because it appears that even after crediting of the refund against
the tax deficiency, a balance of more than P4 million is still due from the
private respondent.

To require the petitioner to actually refund to the private
respondent the amount of the judgment debt, which he will later have the right
to distrain for payment of its sales tax liability is in our view an idle ritual. We hold that the
respondent Court of Tax Appeals erred in ordering such a charade.

WHEREFORE, the
petition is GRANTED. The resolution dated April 22, 1968, in CTA Case No. 786 is SET ASIDE, without
any pronouncement as to costs.

SO ORDERED.

Teehankee, C.J., Narvasa,
Paras and Gancayco, JJ.,
concur.

^[1] Rollo, pp. 34-37.

^[2] Ibid.. p. 67.

^[3] Id., pp.
69-70.

* Judges Roman L. Umali, presiding, Ramon
L. Avancena and Estanislao
R. Alvarez.

^[4] Id., pp.
69-71.

^[5] Now Secs. 302
& 304, National Internal Revenue Code.

^[6]
Now Sec. 291, National Internal Revenue Code.

^[7] “Sec. 11. x          x          x.

“No appeal taken to the Court of Tax Appeals from the
decision of the Collector of Internal Revenue or the Collector of Customs shall
suspend the payment, levy, distraint, and/or sale of
any property of the taxpayer for the satisfaction of his tax liability as
provided by existing law: Provided,
however, That when in the opinion of the Court the collection by the Bureau
of Internal Revenue or the Commissioner of Customs may jeopardize the interest
of the Government and/or the taxpayer the Court at any stage of the proceeding
may suspend the said collection and require the taxpayer either to deposit the
amount claimed or to file a surety bond for not more than double the amount
with the Court.”

^[8] Rollo, pp. 77-78.

^[9] 25 SCRA 789.

^[10] Rollo. p. 78.

^[11] 142 SCRA 46.

^[12] Commissioner of Internal Revenue v. Republic Cement Corp., et al.,
G.R. Nos. L-35668-72 & L-35683, May 7, 1987; Commissioner of Internal Revenue v. CEPOC Industries, Inc., et
al., G.R. No. L-35677, May 7,
1987.

^[13] Ibid.