COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. VICTORIAS MILLING CO., INC., AND COURT OF TAX APPEALS, RESPONDENTS.

This is a petition for review of a decision of the Court of Tax
Appeals, in its CTA Case No. 685, entitled “Victorias
Milling Co., Inc., Petitioner, versus Commissioner of Internal Revenue,
respondent”, declaring the former exempt from payment of advance sales tax
on its importations of ready-made cloth sugar bags and materials for conversion
into sugar Containers, and ordering the latter to refund the suit of
P66,949.79, without interest, representing the balance of compensating tax
already collected but applied as payment of advance sales tax, on said
importations.

The undisputed facts of
this case are:

Victorias Milling Co., Inc.
(hereinafter referred to as the Company for short) is a domestic corporation
engaged in the manufacture and sale of raw or centrifugal and refined
sugar.  As such manufacturer, and in the connection
with the sale of its product (sugar), it imported from abroad, during the months
of April to July, 1959, ready-made cloth sugar bags and appropriate materials
for con­version into sugar containers which were scheduled to arrive, on
different dates, at the Port of Iloilo.

Prior to its arrival, the Company made written requests to the
Commissioner of Internal Revenue (hereinafter referred to as the Commissioner
for short) to grant authority to his (latter’s) agent, the Collector of Customs
of Iloilo, to release the above stated imported goods without payment of
compensating or advance sales tax, claiming that they are not subject thereto
since they are not for resale but are exclusively used by the Company as
containers of its refined sugar, for which it (Company), as manufacturer, pays
the percentage tax imposed by Section 189 of the Tax Code.

The Commissioner denied the above requests, ruling that when said
imported goods are used as containers of sugar which, in turn, are sold to the
domestic market and not for export, they are subject to advance sales tax under
Section 183 (b) in relation to Section 186 of the Tax Code.

The Company moved to reconsider the above ruling, but without
success.  Consequently, to facilitate its
release upon arrival, the Company paid, under protest, to the Collector of Customs of Iloilo the total sum of P80,823.38, re­presenting compensating taxes on said
importations and, at the same time, claimed for refund of the same from the
latter official.

The Company followed up its claims for exemption and refund with
the Commissioner but the latter reiterated his ruling; hence, the Company filed
its petition for review with the Tax Court, contesting the Commissioner’s adverse
ruling and claiming that the assessment and collection of compensating or
advance sales tax on said importations is erroneous and illegal.

Subsequently, the Company amended its petition when the Collector
of Customs of Iloilo applied and
credited the sum of P13,873.53, as payment of
compensating tax on the Company’s importations for the year 1960 and 1961,
thereby reducing its claim for refund from P80,823.38 to P66,949.79.

The Tax Court, after due hearing thereon, found that the
importations in question are not for sale to other persons but are exclusively
used by the Company as containers of its sugar, and took judicial notice of the
fact that the selling price or market value of the sugar includes the value of
said imported sugar bags, for which the Company pays the manufacturer’s or
miller’s tax not only on the sugar itself but also on the sugar bags.  Accordingly, the Tax Court rendered its
decision, upholding the Company’s contentions, reasoning out that, as said
imported articles are for use of the Company and not for sale to others,
Section 190 of the Tax Code
should have been applied, and not sections 183 (b) and 186 (or 184 or 185) of the same Code; but since said Section 190
exempts said importations from payment of compensating tax, the same is not
liable for Payment of advance sales tax; that to hold otherwise and to subject
said importa­tions to advance sales tax would render invalid and ineffective
the exemption granted under said
section 190; and that since the Company, as a sugar central, is being subjected
to percentage tax under said section 189, said importations’ are exempt, pursuant to Section 188
(d) of the Tax Code, from payment of advance sales tax.  Not satisfied with the foregoing decision,
the Commissioner pre­sented the instant petition for review before this Court.

The Commissioner assails
the above decision of the Tax Court, con­tending that said articles were not
imported merely for the exclusive use of the Company but also for sale to the
public together with the sugar manufactured by the Company; and on
this basis, he insists that said importations are subject to payment of advance
sales tax under Section 183 (b) in relation to Section 186 of the Tax
Code, although they are not, pursuant to Section 190 of the same Code, subject
to compensating tax because they are to be used in the manufacture of articles
for sale and are to form part thereof.

He also insists that the imposition of advance sales tax on the
importa­tions in question does not render ineffective Section 190 of the Tax
Code since the reason for not so subjecting the same to compensating tax is
because they are subject to
another tax, similar to those enumerated in said Section 190 who are, likewise,
not so subjected to compensating tax because they have to pay another kind of
tax; and that the articles in question do not come within any of the exceptions
provided in said Section 183 (b); hence, they are subject to advance sales tax.

He further insists that
as the articles exempted from the sales taxed under Section 188 (d) are
those tax, under Section 189 and the articles in question are not among those
enumerated in said section 189, as subject to the 2% tax; hence, they are
subject to advance sales tax, as they are imported articles intended to be
sold, and in fact sold, as containers together with the sugar produced and sold
locally by the Company.

He still further insists that the mere fact that the imported
sugar bags were used and sold together with the sugar, which latter product is
taxable under said section 189,
does not convert the former as subject to the same tax under the same section
189 for the provisions imposing the sales tax (Sections 184, 185, and 186) and 2% miller’s tax (Section
189), or the provisions exempting certain articles
and persons from the sales tax (section 188), do not expressly or impliedly
reduce the tax on said imported articles to the 2% tax under said section 189;
and that the imposition of advance sales tax on the imported sugar bags will
not result in double taxation since there was no evidence presented to show
that the 2% tax paid by the Company was based on the gross selling of the sugar
sold by it and that the said gross selling price included the value of said
sugar bags, and that, under the circumstances obtaining in the case at bar, two
distinct transactions and articles are being subjected to different taxes
because the advance sales tax is being imposed on one article, which is the
sugar bag, while the 2% tax prescribed in said section 189 is imposed on a
different article, which is the sugar itself.

And finally, the
Commissioner contends that, on account of all the above arguments, the Company
is liable for the payment of the sum of P20,206.13, as
deficiency advance sales tax due from
it, and the other sum of P13,873.59, representing the amount of compensating
tax credited against the advance sales tax due from the Company but erroneously refunded to it by the Collector of
Customs of Iloilo.

Upon the other hand, the
Company sustains the decision of the Tax Court as the proper, logical and correct application
and interpretation of the pertinent provisions, Section 183 (b) in relation to sections 184, 185 and 186;
Section 188 in relation to
Section 189; and Section 190) of the Tax Code.

The sole issue posed in
the instant petition is whether or not the articles in question (imported sugar bags) are subject to
advance sales tax under Section 183 (b) in relation to Section 186, both of the
National Internal Revenue Code.

The pertinent proviso of
Section 183 (b) of the Tax Code reads:

“(b)
Sales tax on imported articles. – When the articles are imported,
the percentage taxes established in sections one hundred eighty-four, one
hundred eighty-five, and one hundred
eighty-six of this Code shall be paid in advance by the importer, in accordance
with regula­tions promulgated by the Secretary of Finance and prior to the
release of such articles from customs’ custody, based on the import invoice
value thereof, certified to as correct by the Philippine Consul at the port of
origin if there is any, including freight, postage, insurance, commission,
customs duty, and all similar charges, plus one hundred per centum
of such total value in the case of articles enumerated in section one hundred
eighty-four; fifty per centum of such total value in case of
articles enumerated in section one hundred eighty-five; and twenty-five per
centum in the case of articles enumerated in section one hundred and
eighty-six.  The tax imposed in this
section shall not apply to articles to be used by the importer himself in the
manufacture or preparation of articles subject to specific tax or those for
consignment abroad and are to form part thereof.”

while the
pertinent proviso of Section 186 of the same Code also reads:

“Percentage tax on sales of other
articles. – There shall be levied, assessed and collected once only
on every original sale, barter, exchange, and similar transaction either for
nominal or valuable considerations, intended to transfer ownership of, or title
to, the articles not enumerated in sections one hundred and eighty-four and one
hundred and eighty-five a tax equivalent to seven per centum of
the gross selling price or gross value in money of the articles so sold,
bartered, exchanged, or transferred, such tax to be paid by the manufacturer or
produced: x x x x x x x .”

Among other arguments,
the Company resists the collection of the sales tax demanded by the Revenue
Commissioner on the ground that section 183 (d) of the Internal Revenue Code
exempts therefrom:

x x x x x x x                                                   x
x x x
x x x

“(d) Articles subject to tax under section one hundred
eighty-nine of this Code:”

and
Section 189 levies upon operators of sugar centrals, like the Company herein, a
tax of 2% on the money value (selling price or market value) of all sugar
manufactured by them.

“Sec. 189.  Percentage upon
proprietors or operators of rope factories, sugar centrals, coconut oil mills,
cassava mills and desiccated coconut fac­tories. – Proprietors or
operators of rope factories, sugar centrals, coconut oil mills,
cassava and desiccated coco­nut factories shall pay a tax equivalent to two per
centum of the value in money of all the rope, sugar, coconut oil,
cassava flour or starch, and desiccated coconut manu­factured or milled by
them, including the by-products of the raw materials from which said articles
are produced or manufactured, such tax to be based on the actual selling
price or market value of these articles at the time they leave the factory or
mill warehouse: xxxxx” (Emphasis supplied)

To this argument, the Commissioner, in turn, retorts that the 2%
tax of Section 189 applies only to sugar, but does not mention the containers
thereof, which should separately pay the percentage tax under sections 183 (b)
and 186.

We find the stand of the Commissioner to be untenable, for it
does not take into account two undeniable facts: (a) that there is no evidence
to the effect that the containers or sacks are separately charged against the
sugar buyers and, as a consequence, the domestic buyers of the sugar pay only
one price for both sugar and container and (b) that the buyer takes away with
him the sugar and its container.  On this
basis, the price paid by the customer either includes both the price of the
sugar and that of the container^[1],
or else it represents the price of the sugar alone.  If it be the first (the price paid is for
both sugar and sack), then the value of the sacks is already subjected to the
2% tax imposed by section 189, and the sugar company has paid the same; hence,
it may no longer be separately taxed (Section 188 (d), Tax Code).

If, on the other hand,
the price paid by the buyer is for the sugar alone, then obviously the
container is merely given away gratis, and not sold.  In which case, there is no sale
of the container that can be subjected to the percentage sales tax.

The foregoing renders unnecessary to discuss the merits of the
other arguments advanced by the parties.

WHEREFORE,
finding no reversible error committed in the decision under appeal, the
judgment of the Court of Tax Appeals in CTA Case No. 685 is hereby affirmed.  No costs.

Concepcion, C.J., Dizon,
Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez,
and Ruiz Castro, JJ.,
concur.

^[1]
The Court of Tax Appeals took judicial notice of this fact, as the practice of
respondent sugar company.