LA TONDEÑA, INC., PETITIONER, VS. COLLECTOR OF INTERNAL REVENUE AND COURT OF TAX APPEALS, RESPONDENTS.

Facts.—The
petitioner is a domestic corporation engaged in manufacturing wines and
liquors, rectifying and denaturing ethyl alcohol. It prepares
especially denatured alcohol either for its own use or for the
production of its rubbing alcohol commercially sold under the name
“Jai- Alai”; or for sale to different grantees of special permits
issued by the Bureau of Internal Revenue.

After more than 23
years of consistently holding that such especially denatured alcohol
manufactured by petitioner was tax free, the Bureau of Internal Revenue
assessed and demanded from it in 1955, payment of specific tax on
391,396 proof-liters of denatured alcohol used in the production of
rubbing alcohol and other medicinal preparations. The specific tax due
thereon, covering the period from July, 1951 to May, 1954, amounted to
P273,977.20; but as petitioner had already paid the sum of P5,823.47 as
the 7% sales tax thereon, an assessment and demand for the payment of
P268,153.73 was issued. The amount of P10,000 was also demanded as
penalty for the illegal removal of alcohol from the place of production
without the prepayment of the specific tax due thereon (violation of
Section 124 in relation to Sections 127 and. 133 and penalized under
Section 174, all of the Tax Code).

In due time, La Tondeña submitted said assessment and demand for review
to the Court of Tax Appeals; but the latter concurred with the Bureau’s
stand, for lack of jurisdiction, it took no action as to the penalty.
Within the statutory period, petitioner filed a motion for
reconsideration and for new trial. The Tax Court denied the motion.
Wherefore, the present appeal.

Question.—As
stated, the subject matter of the controverted assessment and demand is
the specially denatured” alcohol manufactured by petitioner and used in
the preparation of its “Jai-Alai” rubbing alcohol, or sold to the
different grantees.

Sections 127 and 133 of the Tax Code provides as follows:

Sec. 127.—Tax on Preparation’s Containing Distilled Spirits as Chief
Ingredient.—Medicinal preparations, flavoring extracts, and all other
preparations, of which excluding water, distilled spirits the chief
ingredient, shall he subject to the same tax as such chief ingredient.
* * *.”

Sec. 133.—Specific Tax on Distilled Spirits.—On distilled spirits there
shall be collected subject to the provisions of section one hundred and
twenty-eight of this act, except as hereinafter provided, specific
taxes as follows: * * *

‘Distilled spirits’, as here used, include all substances known as
ethyl alcohol, hydrated oxide of ethyl, or spirits of wines which are
commonly produced by the fermentation and subsequent distillation of
grain, starch, molasses, or sugar, or of some syrup or sap, including
all dilutions or mixtures; and the tax shall attach to this substance
as soon as it is in existence as such, whether it be subsequently
separated as pure or impure spirits, or be immediately or at any
subsequent time transformed into any other substances cither in process
of original production or by any subsequent process. * * *.”

Ruling of the Tax Court.—On
the basis of the meaning of the term “medicinal preparation” as found
in the law dictionaries, and in accordance with the opinion of expert
witnesses, the Tax Appeals Court held that petitioner’s aforesaid
rubbing alcohol is a medicinal preparation as contemplated by law. As
to the term “distilled spirits”, upon examination of its definition
under Section 133 of the Tax Code, the said court concluded that such
especially denatured alcohol is distilled spirits.

The Tax
Court dismissed petitioner’s theory that under Section 127 of the Tax
Code, a preparation, the chief ingredient of which is distilled spirits must be potable
to be subject to specific tax. It considered such theory as contrary to
the statutory rule of construction “ubi lex non distinguit, nec nos
distinguere debemus”. It viewed the said Section 127 as speaking of
medicinal and toilet preparations and all other preparations in
general, without distinction as to potability.

As regards
petitioner’s contention that under Section 128 of the Tax Code, alcohol
used in industries, like its especially denatured alcohol which is used
in the “industry of manufacturing medicinal preparations”, is exempt from the specific tax, the said court ruled that the exemption applies only to domestic denatured alcohol used in the operation
of industries and not to denatured alcohol used as an ingredient in the
preparation of another product which turns out to be medicinal.

Petitioner also contends that the Collector’s interpretation of Section
127 and 128 of the Code should not be given retroactive effect-taxing
products made before the ruling because of long-continued practice with
apparent legislative approval by reenactment of the’ sections of law as
already construed and applied. However, the Tax Appeals Court rejected
this contention, citing as authority therefor, the ruling in Hilado vs. Collector of Internal Revenue, et al.^[1]
wherein it was held that the Secretary of Finance is vested with
authority to revoke, repeal or abrogate the acts or previous rulings of
his predecessors in office; that the construction of a statute by those
administering it, is not necessarily binding on their successors.

Appellant’s Theses.—In
the instant appeal, petitioner reiterates the same arguments it
presented in the Tax Court. It again insists that the rubbing alcohol
in question is not medicinal preparation because:

1. The word “medicinal” is derived from the term “medicine”, that is, to
   be taken internally. The medicinal preparations mentioned by law are
   those intended for oral intake. The rubbing alcohol and especially
   denatured alcohol manufactured by petitioner are not fit for human
   consumption.
2. Section 127 uses the term
   “distilled spirits” as forming the chief ingredient of a medicinal
   preparation to be subject to specific tax. “Distilled spirits” mean
   purified alcohol and when it is purified, it is potable or drinkable. *
   * *.

As alternative argument, petitioner submits
that granting that the rubbing alcohol and the specially denatured
alcohol are medicinal preparations, distilled, spirits do not form the
chief ingredient and therefore the preparation is not covered by the
law. Petitioner explains that the “Jai-Alai” rubbing alcohol has for
its chief ingredient the especially denatured alcohol; that scenting
substances and water have been added; that the especially denatured
alcohol is not anymore the distilled spirits or ethyl alcohol
defined under Section 133 of the Tax Code, because this ethyl alcohol
has already been modified by the addition of a denaturant that destroys
the purity of alcohol.

Petitioner attempts to bolster its
position by reproducing before this Court, the policy basis of the
specific tax on alcohol. It is alleged that from the socio-economic
point of view, the specific tax upon alcohol is essentially sumptuary
in nature; that the tax is principally aimed to discourage excessive
oral consumption.

Another defense against petitioner’s tax liability is that the
especially denatured alcohol being used in the manufacture of rubbing
alcohol and other medicinal preparations, a sort of industry, is exempt
from specific tax under Section 128 of the Tax Code.

Lastly, petitioner believes that granted its liability, the tax should
correspond only to the quantity of denatured alcohol used in the
manufacture of its own product, the “Jai-Alai” rubbing alcohol—not to
alcohol sold to others.

Discussion.—The
issue involved in this appeal is petitioner’s tax liability under
Section 127 in relation to Section 133 both of the Tax Code hereinabove
quoted; and it hinges on the interpretative connotations of the words
“medicinal preparations” and “distilled spirits”.

“Medicinal preparations” consists of two words, “medicinal” and
“preparations”. “Medicinal” means curative or alleviative, used for the
cure or alleviation of body disorders.^[2] “Preparations” are those which are prepared or something equipped or compounded for particular purposes.^[3]
“Medicinal preparations” are therefore descriptive of and refer to
substances used in medicine and prepared for the use of the apothecary
or the physician to be administered as a remedy for diseases.^[4] As used in the Tariff Act of March 3, 1883^[5],
these medicinal preparations mean such articles as are of use or
believed by the prescriber or user fairly and honestly to be of use, in
curing or alleviating or palliating or preventing some diseases or
affection of the human body.^[6]

This Court shall avoid confusing itself with terms that have been well
and clearly defined. It shall hesitate to state that petitioner’s
products, especially the rubbing alcohol are medicinal preparations.
The rubbing alcohol which is essentially denatured ethyl alcohol is
used as an antiseptic to inhibit the growth of bacteria. Petitioner,
itself, advertises the “Jai-Alai” rubbing alcohol as “alcohol 70%” and
its uses as disinfectant, sterilizer, antiseptic and other external
medical purposes.

As aptly observed by respondent Collector, petitioner does not
categorically deny that the alcohol in question is medicinal in
character. The essence of its argument is that the taxable medicinal
preparations contemplated by law are those intended for oral intake. We
cannot subscribe to such a proposition. Firstly, Section 127 makes no
distinction as to medicinal preparations intended for internal or
external use. Secondly, the policy of the state to discourage the
indiscriminate purchase and excessive consumption of alcohol as the
basis of the prohibitive treatment and the imposition of specific tax
is true only with respect to wines or liquors.

In fact in Com. of Internal Revenue vs. Central Azucarera, Don Pedro, this Court held that rubbing alcohol is a medicinal preparation of which distilled spirits form the chief ingredient.

Insisting on exemption, the petitioner advances the argument that even
if its rubbing alcohol be considered a medical preparation, and that
denatured alcohol is its chief ingredient, still, denatured alcohol is
not “distilled spirits” because to the ethyl alcohol, something is
added. We find no merit in the argument because the law expressly
considers as distilled spirits “ethyl alcohol” including all “dilutions
or mixtures”. It is admitted that denatured alcohol is made by pouring
certain additives into ethyl alcohol. It is improbable that the
Legislature intended to distinguish between dilutions and mixtures on
the one hand and compounds on the other, as appellant attempts to do.

Judgment.—This
appellant is liable; but we agree that its liability attached not upon
its manufactured ethyl alcohol but upon its medicinal product—the
rubbing alcohol.

Accordingly, in the instant case, above
petitioner (La Tondeña) shall pay only for the specific tax
corresponding to the quantity of rubbing alcohol it marketed or only on
35,298 proof liters. Needless to add, the appellant is not responsible
for taxes on the alcohol it sold to permittees of the Internal Revenue
Office.

The decision appealed from is hereby modified. Petitioner is liable
only for the amount of P24,708.60 representing the tax liability on the
35,298 proof liters of rubbing alcohol. So ordered.

Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, and Makalintal, JJ., concur.

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^[1] 100 Phil., 288.

^[2] Words and Phrases, Vol. 25A, p. 616.

^[3] Words and Phrases, Vol. 33, p. 380.

^[4] Law Dictionary with pronunciation, Ballantine, Phil. Ed.

^[5] C. 121, Schedule 2, 22 Stat. 494.

^[6] Words and Phrases, Vol. 26A p. 617.