Compensating Tax of Union Import and Export Corporation

January 30, 1958 BIR RULING NO. 061-58 MEMORANDUM FOR The Regional Director Regional District No. 3 Manila There is returned to you herewith the entire record of the case of the UNION IMPORT and EXPORT CORPORATION, hereafter referred to as The Corporation, involving the sum of P8,985.43 as compensating tax due and payable by it on the 100,000 pieces of jute bags which it imported on June 1, 1951. The facts of this case are briefly stated as follows: The Corporation is engaged in the buying of copra for export. Under its contracts with its foreign buyers, The Corporation is required to ship the copra in bags and not in bulk. Hence, it imported the 100,000 pieces of jute bags. Because the Bureau of Customs was convinced that the bags are to be re-exported as containers of copra, it allowed the release thereof without the prepayment of the compensating tax. The said bags were actually re-exported as in fact the Corporation was able to secure the refund of the 17% excise tax it paid on the importation. The issue is whether or not under the foregoing facts the importation is subject to the compensating tax. In support of the theory that the importation is subject to the compensating tax, it is contended that, in order that an importation maybe exempt from the tax, the importer himself must be the manufacturer or producer of the articles consigned abroad in which the imported materials were used and actually formed part thereof. The applicable provision of Section 190 of the Tax Code is the following: "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." It is also contended in support of the instant assessment that "The word 'preparation' as used in the Tax Code does not mean ordinary preparation for marketing purposes. It denotes preparation in the sense of manufacturing. There are articles which are not manufactured but prepared; they are prepared for consumption and not for marketing purposes". It is further contended that "The literal interpretation of the words of an Act should not prevail if it creates a result contrary to the apparent intention of the legislature and if the words are sufficiently flexible to admit of a construction which will effectuate the legislative intention. The intention must prevail over the letter, and the letter must, if possible, be read so as to conform to the spirit of the Act." cdti It appears, therefore, that the only question to be resolved here is whether or not the word "preparation" as used by the statute means "manufacturing". It is an elementary rule of construction that effect must be given, if possible, to every word, clause and sentence of a statute. A statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous void or insignificant, and so that one section will not destroy another unless the provision is the result of obvious mistake or error. (Sutherland Statutory Construction, Vol. 2, Sec. 4705, p. 339) If we are to give the word "preparation" a meaning akin to manufacturing, we would not be giving effect to the word. It becomes a mere surplusage. Any such attempt would contravene the elementary rule of construction as mentioned above. While it is also the established rule that the literal interpretation of the words of an act should not prevail if it creates a result contrary to the apparent intention of the legislature and if the words are sufficiently flexible to admit of a construction which will effectuate the legislative intention, nevertheless, in order to warrant a departure from the rule of literalness, it must be duly established by evidence that the literal interpretation of the words of the Act does not reflect the true legislative intent. In the instant case, for instance, while the above rule is invoked, there is no showing that the legislative intent is otherwise. For this reason, we cannot subscribe to the view that the word "preparation" connotes the same meaning as "manufacturing". Consequently, we are inclined to adopt the rule of literalness in deciding the instant case. Accordingly, the word "preparation" should be understood in its ordinary sense. In its ordinary sense or meaning, "preparation" means "act or process, or an instance of preparing; a fitting or making beforehand for a particular purpose, use, service, or condition; previous arrangement or adaptation; a making ready." (Webster's International Dictionary). Therefore, when the Union Import & Export Corporation imported the jute bags and used by it as containers of copra for export it certainly imported the jute bags for the purpose of preparing the copra for export. Moreover, it is clear from the explanatory note to House Bill No. 1691, which became Republic Act No. 253, that the purpose of the exemption is "to encourage exports inorder to hasten the restoration of the balance in foreign trade". With this end in view, it could not have been the intention of Congress to limit the exemption to importations made by manufacturers and producers because the end can be attained even if the exportation is made by persons who purchase the articles they export from the manufacturers or producers thereof. The view that the exemption can only be availed of by manufacturers or producers provides a setback to the policy of encouraging exports because it is a fact that should be taken cognizance of that many exporters are not themselves the manufacturers or producers of the products they export. The next point to be resolved here is whether or not the jute bags in question formed part of the exported copra. This question need not have to be discussed at length. It may be sufficient to state that this Office has for the past many years consistently held that containers are considered raw materials forming part of the articles containing therein. Having thus found that the jute bags were used in the preparation of articles for export and formed part thereof, the importation by the Union Import and Export Corporation of said bags is exempt from the compensating tax. Accordingly, you are hereby advised to withdraw the assessment of P8,985.43 against the Union Import and Export Corporation for compensating tax and to consider the case closed and terminated. cdt (SGD.) JOSE ARAAS Commissioner of Internal Revenue