Agreement between Victorias Milling Co. and NASUTRA Executive Committee Does Not Affect Miller's Tax Liability

July 25, 1986 BIR RULING NO. 128-86 168 000-00 128-86 Gentlemen : This refers to your letter dated May 22, 1986 addressed to Revenue Region No. 6-B, Bacolod City, stating, among others, that your original agreement with the NASUTRA Executive Committee was for them to withhold their payment to your of the corresponding production (miller's) tax on refined sugar and for them to remit the same to BIR; that this procedure is embodied in their letter to you dated June 6, 1979, in which they informed you that "NASUTRA shall continue the payment of the corresponding percentage tax due on refined sugar"; that in June, 1985, however, when the volume of refined sugar that NASUTRA, tolled with you was becoming bigger but they could not afford to pay you in cash, you came into an agreement with NASUTRA that you could accept payment in the form of raw sugar; that such payment should be evidenced or supported with sugar quedans which should be assigned to you; that with this new agreement, you decided that since it will be easy for NASUTRA to pay their account in kind, meaning in the form of raw sugar, you might as well include in your billing to them the production tax and this time, for you to remit the same to BIR; that while you had been continuously allowing such a payment scheme NASUTRA, you later on found out that when you tried to withdraw already the raw sugar from various sugar centrals (because the assigned quedans are from various sugar centrals), many of them do not have anymore the physical raws and therefore you were not able to withdraw the raw sugar; that with such a situation, you decided not to remit the refined sugar tax to the BIR corresponding to the amount paid by NASUTRA in the form of assigned quedans but which you were unable to withdraw because of the non-existence of the physical raw sugar; that the total value of the refined sugar tax which remain unremitted is P5.283 million; and that at present, these quedans with approximate value of P45,000,000.00 are still with you and remain unwithdrawn. cdt Based on the foregoing facts, you request the position of this Office on the said unpaid tax including penalties, surcharges or interest that may arise therefrom. In reply, please be informed that under Section 168 of the Tax Code as amended, pertinent portion of which provides as follows: "Sec. 168. Percentage Tax Upon Proprietors or Operators of Rope Factories , Sugar Centrals and a Mills , Coconut Oil Mills , Palm Oil Mills , Cassava Mills , and Desiccated Coconut Factories . Proprietors or operators of rope factories, sugar centrals and mills, coconut oils mills, palm oil mills, cassava mills, and desiccated coconut factories, shall pay a tax equivalent to three (3) per cent of the gross value of money of all the rope, sugar, coconut oil, palm oil, cassava flour or starch, desiccated coconut, manufactured, processed or milled by them, including the by-product of the raw materials, from which said articles are produced, processed, 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:" xxx xxx xxx "A proprietor or operator of a refined sugar factory shall be subject to the tax imposed by this section but any miller's tax paid under this section on the raw sugar shall be credited against the tax due on the refined sugar." the 2% (now 3%) miller's tax on the refined sugar is your client liability for being the proprietor or operator of a refined sugar factory. The liability for taxes, in favor of the taxing authority or Government is not affected by any agreement between private parties as to their respective liability for taxes. (see Vol. 2, The Law of Taxation by Thomas M. Cooley, page 1257 Commissioner vs. CTA and Smith Kline & French Overseas Co., G.R. No. 54108, January 17, 1984) Moreover, as a rule, contracts can bind only the parties, their assigns and heirs, and never third persons who have not participated therein. (Art. 1311, new Civil Code). In view thereof, this Office is of the opinion and hereby holds that the agreement entered into between the Victorias Milling Company, Inc. and the NASUTRA Executive Committee does not relieve, bind and/or affect your Miller's tax liability to the Bureau of Internal Revenue imposed under Section 168 of the Tax Code, as amended. In other words, despite the said agreement, you still remain the party liable for the payment of the tax, inclusive of surcharge, interest and penalties for late payment. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner