ASIATIC PETROLEUM COMPANY (PHILIPPINE ISLANDS), LIMITED, PLAINTIFF AND APPELLEE, VS. JUAN POSADAS, JR., COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLANT.

The questions presented by assignments of error Nos. 1, 2 and 5 are
both novel arid interesting, and involve the legal construction to be
placed upon sections 1478 and 1480 of the Administrative Code, which
are as follows:

“SEC. 1478. Articles subject to specific tax.—Specific
internal-revenue taxes apply to things manufactured or produced in the
Philippine Islands for domestic sale or consumption and to things
imported from the United States or foreign countries, but not to any
thing produced or manufactured here which shall be removed for
exportation and is actually exported without returning to the Islands,
whether so exported in its original state or as an ingredient or part
of any manufactured article or product.

“In case of importations the internal-revenue tax shall be in addition to the customs duties, if any.

“No
specific tax shall be collected on any articles sold and delivered
directly to the United States Army or Navy for actual use or issue by
the Army or Navy, or on any article sold to the Bureau of Coast and
Geodetic Survey, purchased with funds furnished by the Government of
the United States, and any taxes which have been paid on articles so
sold and delivered for such use or issue shall be refunded upon such
sale and delivery.”

“SEC. 1480. Payment of specific tax on imported articles.—Internal-revenue
taxes on imported articles shall be paid by the owner or importer to
the customs officers, conformably with regulations of the Bureau of
Internal Revenue and before the release of such articles from the
customhouse.”

The defendant contends that the tax on the 300 tons of kerosene now
in dispute accrued upon the importation of the kerosene in question,
and that it became due and payable upon its transfer from the bonded
tank to the supply tank of the plaintiff. That it then became a part of
the mass of the property of the state, and that its subsequent
disposition is immaterial to this decision, citing the case of Asiatic
Petroleum Co. vs. Rafferty (38 Phil., 475-479), in which this court
said:

“The theory of the law, with reference to the internal-revenue tax upon such merchandise, seems to be that the tax is not due and payable until it is about to be put into the commerce or trade of the country.”

And submits that the kerosene in question was not only “about to be
put into the commerce or trade of the country,” but that it was
actually put into the commerce and trade of the country by its removal
from plaintiff’s bonded tank No. 1 to its supply tank, and defendant
then says:

“But even granting, for the sake of argument, that
the tax on said kerosene was not legally due, the same cannot be
recovered, for the reason that no protest accompanied its payment, as
will be shown later.”

He also says that while it is true that the 259.0118 tons were not
actually put into the commerce and trade of the country, because they
were not removed to plaintiff’s supply tank, yet the fact that the
plaintiff procured customs withdrawal permit No. 8495 for that kerosene
conclusively shows that it was about to be removed therefrom, and that
for such reason, the tax thereon became legally due and collectible,
again citing the case of Asiatic Petroleum Co. vs. Rafferty, where it
is said:

“While the law permits the producer of
taxable merchandise to delay the payment of the internal-revenue tax
until ‘immediately before removal of the same from the place of
production,’ the duly authorized and promulgated regulation of the defendant himself
permits the importer of taxable merchandise to deposit the same in a
bonded warehouse and to delay the payment of the internal-revenue tax
until the same is about to be removed therefrom.”

From which he contends that “the moment a withdrawal permit is obtained, the tax becomes due and collectible.”

The plaintiff contends that from the use of the words “for domestic
sale or consumption” in section 1478, it is apparent that it was the
intention of the Legislature that the tax should be collected only upon
those things “which are sold or consumed locally,” citing section 1460
which says:

“In computing the tax above imposed transactions in the following commodities shall be excluded:

“(a) Things subject to a specific tax.

“(b)
Agricultural products when sold by the producer or owner of the land
where grown, or by any other person other than a merchant or commission
merchant, whether in their original state, or not.”

It then points out that the merchant’s sales tax is not collectible
upon things subject to a specific tax, and that the specific tax is
collected before sale, and the merchant’s sales tax after sale. That
the one is on quantity or measure, and the other on value, and appellee
then says:

“But aside from these differences, they are intended
for the same purpose, that is, a tax on ‘things for domestic sales or
consumption otherwise why should the Legislature have exempted those
things covered by the specific tax from the provisions of the law
covering tax on sales? It is essentially the same tax but collected in
a different manner and at a different time. The reason for this in all
probability, is that on certain commodities it was deemed more
expedient to collect the tax before sale than after sale.”

And also cites the Rafferty case in which this court says:

“The theory of the law, with reference to the internal-revenue tax upon such merchandise, seems to be that the tax is not due and payable
until it is about to be put into the commerce or trade of the country.
The condition of the market at a particular time, or the situation in
business generally, might cause the producer to withhold his
merchandise and not allow it to be removed from the place of production
for months, or even years; could he, under the above quoted provision
of the law, be required to pay the internal revenue taxes until he saw
fit to place his product upon the market?”

The decision in the Rafferty case was founded upon the following
material facts: Plaintiff there, with the approval of the defendant,
entered the oils in bond, for storage in Internal Revenue Bonded
Warehouse No. 59, in the City of Manila, and furnished the bond for the
payment of all taxes that might accrue on the oils, and the defendant
issued a permit for the discharge of the oils from the ship into the
bonded Warehouse. During the removal of the oils from the ship to the
bonded warehouse 2,485 cases of gasoline and 500 cases of kerosene were
totally destroyed by fire and never reached the bonded warehouse. The
defendant required the plaintiff to make applications for withdrawal
from the bonded warehouse of the oils which had been destroyed and to
pay a specific tax of P3,033.20, which was paid under protest. Upon
those facts the court held that the plaintiff was entitled to have its
money refunded.

The decision in the Rafferty case was well written and is legally
sound, and although the facts are somewhat different, the underlying
fundamental law laid down in that case by inference at least tends to
support plaintiff’s contention in this case.

The very purpose and intent of the plaintiff here in removing the
kerosene in question from the bonded warehouse to its supply tank was
to place it on the market; otherwise, it would not have removed it or
paid the tax, and the removal was made on the assumption that the
kerosene was in a fit and suitable condition to sell to plaintiff’s
customers. At once upon the discovery that it was not, plaintiff called
attention of that fact to the Collector of Customs and asked for and
obtained a permit from him to ship the discolored kerosene out of the
Philippine Islands to its plant in Singapore, to have it there refined
and made suitable for the market. In the very nature of things,
plaintiff would not want to sell the discolored kerosene in the
Philippine Islands and could not do so without a substantial injury to
its business reputation. It was for such reason that upon making the
discovery, plaintiff applied for and obtained the permits and went to a
large amount of trouble and expense in removing the kerosene from the
Philippine Islands to its Singapore plant.

The real purpose and intent of the law in question is to require the
payment of the specific tax on things imported from foreign countries
for the purpose of domestic sale or consumption in the Philippine
Islands. It is very apparent that the discolored kerosene in question
was never imported by the plaintiff for domestic sale or consumption in
the Philippine Islands; otherwise, it never would have gone to the
trouble and heavy expense of removing it from the Islands to its
Singapore plant for the purpose of having it refined and made suitable
for the market. It never was the purpose or intent of the plaintiff to
ship to the Philippine Islands discolored kerosene to be there sold and
distributed to its customers, as there is no evidence that the
plaintiff was ever engaged in the sale or distribution of colored
kerosene. That is to say, it was the purpose and intent of the
plaintiff to import into the Philippine Islands kerosene which was fit
and suitable for sale on the market, and that it never was its
intention to import discolored kerosene. That when it discovered that
it had done so, it at once applied for and obtained a permit from the
Government to reship it to its Singapore plant for refining purposes,
which involved much trouble and a heavy expense, from all of which it
is very apparent that
the plaintiff never imported into the Philippine Islands discolored
kerosene for domestic sale or consumption. If that had been its purpose
and intent, it never would have applied for and obtained a permit for
its removal, and would never have reshipped the kerosene to its
refining plant in Singapore, so as to have it refined and put in a fit
and suitable condition for sale.

The defendant contends that the plaintiff should have made its
discovery before it paid the tax, and that having paid the tax before
the discovery, it is now estopped to claim or assert that the kerosene
was not imported for domestic sale or consumption. That is not tenable.
There is no evidence that, in the ordinary course of business, the
plaintiff could have made the discovery before it paid the tax or that
it was negligent in making the discovery. In the very nature of things,
plaintiff could not make the discovery until after the oil in question
was removed from the bonded tank to its supply tank, and when it was
removed, the discovery was made. How then could the plaintiff be
charged with negligence?

The net result of defendant’s contention would be to collect a
double specific tax on the quantity of kerosene in question. The
discolored oil on which the tax was paid was removed with the consent
of the government, and in the very nature of things, the plaintiff
would have to again import that same amount of kerosene, and to do so,
it would have to pay the same amount of specific tax as a condition
precedent to its consumption or domestic sale in the Philippine
Islands. In legal effect that would amount to the payment of two
specific taxes on that amount of oil.

We attach importance to the language in the third para- graph of
section 1478, not cited in either brief, which provides that no
specific tax shall be collected on any articles sold and delivered
directly to the United States Army, etc., and any taxes “which have
been paid on articles so sold and delivered for such use or issue shall
be refunded upon such sale and delivery.”

It will be noted that this paragraph, which is a part of section
1478, uses the words “sold and delivered,” and provides for a refund on
all of such articles “so sold and delivered.”

The defendant also relies on section 1579 of the Administrative Code, which provides:

“When the validity of any tax is questioned, or its
amount disputed, or other question raised as to liability therefor, the
person against whom or against whose property the same is sought to be
enforced shall pay the tax under instant protest, or upon protest
within ten days, and shall thereupon request the decision of the
Collector of Internal Revenue. * * * * *

But in the instant case, when the plaintiff paid the tax there was
no occasion to question the validity of the tax or the amount of it,
for the simple reason that its validity never arose until after the
discovery of the discolored kerosene, and in the final analysis the tax
was paid under a mistake of fact and not of law, between which there is
a very marked difference in the authorities.

Proceedings of this kind are more or less of an equitable nature and
are to be decided upon and are governed by rules of equity. Tested by
that rule, why should the plaintiff be required to pay two specific
taxes on the same amount of kerosene, of and for which, in the very
nature of things, there was not and could not be but one domestic sale
or consumption?

It appears from the stipulation of facts that withdrawal permit No.
8443 was issued on March 23, 1927; that permit No. 8495 was issued on
March 30, 1927; and that on April 1, 1927, the plaintiff wrote a letter
to the Insular Collector of Customs in which, among other things, it is
said:

“Under the circumstances, we shall be glad of
favorable consideration of our application and, when liquidation of the
entries on which we have already paid duties and taxes are made, we
shall be glad to receive refunds for the amount shipped out.”

It is conceded that this letter was written within the ten-day
limit, but the defendant contends that it was not a protest within the
meaning of section 1579 above quoted. If the question involved here
were one of law and not a mistake of fact, there would be much force in
that contention. But even so plaintiff in that letter specifically says
that when the proper liquidations on the entries on which we have
already paid duties and taxes, “we shall be glad to receive refunds for
the amount shipped out.” In the ordinary course of business, that
language should be construed to mean that the plaintiff, even then,
claimed and asserted that it was entitled to a refund of its money.
This letter was followed by another of April 12, 1927, in which
specific application was made “for refund of internal revenue taxes
amounting to P10,338.33”. The defendant says: “This letter may be
considered a protest because it is sufficiently clear and specific.”
The letter of April 1st was also clear and specific, except as to the
amount in pesos and the number of tons on which the refund was
requested. But that was a mere question of mathematics and computation,
all the data for which was in the possession and knowledge of the
defendant.

In its final analysis, the letter of April first should be construed
as a polite and courteous demand and request for the refund of the tax
in question, to be paid at such time as the correct amount was
ascertained and determined.

The case of Shevango Furnace Co. vs. Fairfield Township (78 Atl.,
937), is not in point under the facts in this case. There, it appeared
that the vice-president of the company wrote a letter after the payment
of the tax, showing that at that time the company did not intend to
contest the amount of the tax on certain grounds which were afterwards
urged, and it was held that the tax there was not paid by a mistake of
fact. Here, the condition is just the reverse. Upon making the
discovery, the plaintiff promptly notified the defendant that when the
amount of the refund was ascertained, “we shall be glad to receive
refunds for the amount shipped out.”

The case of Wright vs. Blakeslee, (101 U. S., 174; 25 Law. ed.,
1048), lays down the rule that under the internal revenue laws, it is
not necessary that the protest be reduced to writing. A verbal protest
is sufficient to give notice that the legality of the demand is
disputed.

If the letter of April 1st was not intended as a demand and a
request for the refund of money, why was that portion of the letter
ever written ? The mere fact that it was couched in polite and
courteous language ought not to be construed against the plaintiff. To
deny the plaintiff’s right of recovery, upon the undisputed facts,
would be to compel it to pay a double tax upon the amount of kerosene
in question, which equity and good conscience will not permit.

The learned and well written opinion of the trial court is affirmed, without costs. So ordered.

Johnson, Street, Malcolm, Villamor, Ostrand, Romualdez, and Villa-Real, JJ., concur.