G.R. No. 64768. November 05, 1987
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. COURT OF TAX APPEALS AND WINTHROP-STEARNS, INC., RESPONDENTS.
YAP, J.:
This case involves an action for the recovery of the sum of P509,825.00
as overpaid sales tax paid by private respondent for the following
products: a) Tussy
Lemon Hand and Body Lotion, b) Tussy Hand and Body
Lotion, c) Tussy Lemon Moisturizer, and d) Tussy Lemon Cleansing Cream.
The question presented here is whether or not these products are
taxable as medicinal preparations subject to the 7% sales tax prescribed in
Section 186 of the 1939 National
Internal Revenue Code, or as toilet articles or preparations within the purview
of Section 184 (b) of the same code subject to the 70% sales tax prescribed therein. Section 184 (b) of the said Tax Code reads as
follows:
“Sec. 184. Percentage
tax on sales of jewelry, toilet preparations and others. – There shall be levied, assessed and
collected once only on every original sale, barter, exchange or similar
transaction for nominal or valuable consideration intended to transfer
ownership of, or title to, the articles hereinbelow
enumerated a tax equivalent to seventy per centum of the gross value in money
of the articles so sold, bartered, exchanged, transferred, such tax to be paid
by the manufacturer or producer: Provided,
further, That, where the articles enumerated hereinbelow
are manufactured out of materials subject to tax under this section, the total
cost of such materials, as duly established, shall be deductible from the gross
selling price or gross value in money of such manufactured articles:
“xxx xxx xxx
“(b) Perfumes,
essences, extracts, toilet waters, cosmetics, petroleum jellies, hair oils,
pomades, hair dressings, hair
restoratives, hair dyes, aromatic cachous, toilet powders, and any similar substance, article
or preparations, by whatsoever
name known or distinguished; and any of the above which are used or applied or
intended to be used or applied for toilet purposes; except tooth and mouth
washes, dentifices, tooth paste; and talcum or
medicated toilet powders.
“xxx xxx xxx.”
Briefly, the facts are as
follows:
Respondent is a domestic
corporation engaged in the manufacture and sale of pharmaceutical, medicated,
cosmetic and toilet products, among which are the Tussy
Lemon Hand and Body Lotion, Tussy Hand and Body
Lotion, Tussy Lemon Moisturizer and Tussy Lemon Cleansing Cream, hereinafter referred to as
“Tussy Products”.
On the sale of the aforesaid products for the period starting
from the 4th quarter of 1975 up to the 4th quarter of 1976, respondent
corporation made a total gross sales amounting to P1,975,979.00 with a net
sales of P809,144.00. On said net sales, respondent paid sales tax
in the sum of P566,471.00 at the rate of 70% under Section 184(b) of the Tax
Code.
On January 17, 1978, respondent corporation filed with petitioner
a written claim for refund or tax credit of P509,825.00 on the contention that
the Tussy Products are medicinal preparations
subject only to the 7% sales tax under
Section 186 of the Tax Code and not the 70% sales tax under 184 (b). The said amount represents the overpaid sales
tax for the period starting the 3rd quarter of 1975 to the 4th quarter of 1976.
On January 20, 1978, before the expiration of the period of two
years for seeking recovery of tax erroneously paid, respondent corporation
filed with respondent court a petition for review praying that its “Tussy Products” be declared medicinal preparations
subject to 7% sales tax, and that herein petitioner be ordered to grant
respondent corporation’s claim for tax credit or refund in the amount of P509,825.00. The alleged overpaid sales tax for the 3rd
quarter of 1975 was excluded from respondent corporation’s claim.
In its decision dated May
30, 1983, the respondent court declared the “Tussy
Products” as “medicinal preparations subject to 7% sales tax
prescribed in Section 186 of the Tax Code, instead of the 70% sales tax paid by
private respondent under Section 184(b)” and therefore ordered herein
petitioner to grant a tax credit in favor of private respondent the amount of
P509,825.00. Its motion for
reconsideration having been denied, herein petitioner filed the instant
petition for review on certiorari.
Petitioner contends that
in the case of La Tondena Inc. vs. Collector of
Internal Revenue,[1] the term “medicinal preparation”
has been defined as follows:
“‘Medicinal preparations’ consists of two words, ‘medicinal’
and ‘preparations’. ‘Medicinal’ means curative or alleviative, used for the
cure or alleviation of body disorders (Words and Phrases, Volume 26-A, p. 616).
‘Preparations’ are those which are prepared or something equipped or
compounded for particular purposes (Words and Phrases, Volume 33, p. 380).
‘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 (Law Dictionary with Pronounciation,
Ballantine, Phil. Ed.).
As used in the Tariff Act of March 3, 1983 (C. 121, Schedule 2,
22 Stat. 494), 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 disease or affliction of the human body (Words and Phrases, Volume 26-A,
p. 617).”
It is argued that from
the said definition, it is clear that to be classified as medicinal
preparation, a product should have the following characteristics:
(a) The product must have
been prepared, equipped or compounded for a particular purpose;
(b) The product is of use
or believed to be of use by prescriber or user in
curing, alleviating, palliating or preventing some disease or affliction of
the human body.
The labels of the above
products represent their characteristics and uses as follows:
(1) “TUSSY LEMON MOISTURIZER
Natural Lemon for
Natural Beauty
Medicated
TUSSY LEMON
MOISTURIZER
Restores Moisture
Balance
*The secret of soft, smooth
skin complexion is moisture balance. Dry
skin is caused by moisture loss from aging, sun, sun, wind, air-conditioning
and detergents.
Counter-act skin
dryness with new Tussy Lemon Moisturizer. Enriches with allantaoin,
a moisture balance, and Vitamin A, a skin nutrient.
*Massage on face, arms,
elbows, all of you, after every bath, outdoor exposure, overnight as make-up
base. Refreshing Lemon scent.
(2) “TUSSY HAND & BODY LOTION
With Vitamin A
Specifically
formulated to maintain the petal-fresh smoothness of the skin.
*Instantly softens,
soothes, moisturizes the hands, elbows, shoulders, arms, legs, knees,
lubricates the dry skin continuously without clogging pores.
*Use in the morning;
after washing, bathing, exposure to sun; as overnight lotion. Keeps skin beautifully soft and smooth.
“TUSSY
Cleansing
Cream with Pridem
*Exclusive
deep-cleansing emulsifier.
*Deep-cleanses; draws
out hidden grime.
*Gently removes make-up
. . . . . even stubborn eye shaddow and mascara.
*Protects skin with a smooth base of
softening moisture.
*Non-greasy, leaves
complexion fresh, glowing. Apply morning
and night and before using make-up.
(5) “TUSSY
Honey & Almond
Hand and Body Lotion
With Vitamin A
Medicated
*Vitamin A helps heal
skin damage by sun, detergents. Special
softening ingredients smooth and soften hands, elbows, shoulders, arms, legs
and knees.
*Use morning and
overnight; after washing, bathing, exposure to sun and whenever your skin feels
dry.
*Keeps skin fresh and
fragrant.
“Manufactured in
the Philippines
WINTHROP-STEARNS,
INC.
74 E. delos Santos,
Mandaluyong, Metro Manila
By authorization of
the
TUSSY DIVISION OF
VALMONT, INC.
New
York, N.Y. USA”
Petitioner maintains that
from the labels and descriptions of the Tussy
products, it is evident that they are not used or intended to be used to cure
any skin disorder or disease. The labels
do not state that the Tussy products can be used in
curing, alleviating, palliating and preventing some disease or affliction of
the human body.
What they state is simply that the Tussy
products are good for cleansing, moisturizing, lubricating, oiling or
protecting the skin. The function therefor of the Tussy products is
simply to improve body appearance or enhance the health of the skin.
On the other hand,
private respondent contends that the findings of fact by respondent court are
conclusive and no longer reviewable since they are
supported by substantial evidence. The
respondent court relied principally on the certification of the Food and Drug
Administration to the effect that in
view of the medicinal components
present in the Tussy Products, “the preparations
are used in the treatment and prevention of skin problems and for medicated
skin cleansing and to nutrify the skin.”
Respondent claims that petitioner’s reliance on the labels of Tussy products, rather than on their medicaments, functions
and therapeutic uses, is erroneous, giving more importance to form rather than
substance. Stressing this line of
argument, the respondent Court of Tax Appeals stated in its decision”
“In an effort to discredit the medicinal functions and
therapeutic uses of Petitioner’s ‘Tussy products’,
respondent would however find comfort in the labels of the products which
present and describe them as lotions, moisturizers and cleansing creams instead
of names and descriptions indicating their medicinal characteristics. Nevertheless, to quote once more the
observations of Judge Alex Z. Reyes on this point in Oro
Enterprises:
‘The apparent quibble on the descriptive term, ‘lotion’ as creating
the impression and evoking the connotation that the preparation is cosmetic,
does not change the basic fact that the controverted
products by nature, formulation and purpose, as found and certified, is
medicinal. ‘What’s in a name? that which we call a rose, by any other name
would smell as sweet! We do not think the certification is a mere cosmetic
effort to disguise the true nature and character of the questioned
product. We therefore feel compelled to
affirm its import and force lest it be suffered to petrify in futility.’
At any rate, as explained by petitioner in his letter dated January
13, 1978 to respondent requesting a tax credit/refund of the amount involved in
this case, ‘these names are marketing strategies designed to attract more the buying
public than if they are to be called by medical names.’ (p.28, BIR
records). And a medicinal preparation
does not lose its character as such because it is sold over the counter to the
public generally, rather than to druggist, physician and medical institution to
be administered hyperdermically by physicians. (Vital Corp. vs. Knox Co., Crest. & App.
143 F, 2d, 883, 888).”
We find merit in the
petition. In the La Tondena
case[2],
we held that “medicinal preparations” are 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; they 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 disease or affliction of
the human body.” Tested by such standards, we find it difficult to uphold
the respondent court’s decision.
It is undisputed that the
respondent has been publicly representing the Tussy
products as good for cleansing, moisturizing, lubricating or oiling the skin;
in other words, their function is principally to improve bodily appearance and
enhance the health of the skin, making it soft, smooth and fragrant. The preparations fall squarely under the
definition of “toilet preparation” which has been defined as
“any preparation which is intended to affect and conceivably improve the
bodily appearance, such as a lotion intended to contribute to the health and
appearance of the skin.”[3]
The marketing presentation of the Tussy
products by the manufacturer as a toilet article, rather than a medicinal
preparation, cannot be dismissed as a mere matter of form rather than substance.
For it is the perception of the public carefully and assiduously
built over the years that lends substance to the claim of the manufacturer that
its product is a toilet preparation good for beautifying or enhancing the
health of the skin. It cannot be said
that the public “fairly and honestly” believe the Tussy
products to be of use in curing or alleviating some disease or affliction of
the body.
WHEREFORE, the petition is hereby granted and
the decision of the respondent Court of Tax
Appeals is REVERSED and
SET ASIDE. No pronouncement as to costs.
SO ORDERED.
Melencio-Herrera, Paras,
Padilla, and Sarmiento,
JJ., concur.
[1]
10 SCRA 709.
[2]
Supra.
[3]
Peroxide Chemical Company v. Sheehan and Collector of Internal Revenue,
108 F. 2d 306, 308, 309.