Commissioner of Internal Revenue v. Marinduque Mining and Industrial Corp.

[CA-G.R. SP No. 20510. July 24, 1992.] (C.T.A. Case No. 3192) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . MARINDUQUE MINING AND INDUSTRIAL CORPORATION and THE COURT OF TAX APPEALS , respondents . D E C I S I O N YNARES-SANTIAGO , J p : This petition for certiorari seeks the review of the decision of the Court of Tax Appeals dated February 28, 1985, in C.T.A. No. 3192, the dispositive portion of which reads as follows: "WHEREFORE, the claim by petitioner Marinduque Mining & Industrial Corporation, for the refund of the documentary stamp taxes it paid to respondent in the amount of P365,683.20 is hereby granted without interest. Respondent Commissioner of Internal Revenue is hereby ordered to refund to petitioner the said amount within thirty (30) days from the date this decision becomes final. Without pronouncement as to costs. SO ORDERED." The facts of the case, as found by the respondent Court of Tax Appeals, are as follows: "This is a judicial claim for refund of the sum of P365,683.20 as documentary stamp taxes affixed on four (4) fire insurance policies obtained by petitioner from the Philippine American General Insurance Company covering its mining equipments, buildings, and other mining properties connected in its mining operations in Surigao del Norte during the periods from February 21, 1979 to February 21, 1980. It appears that petitioner had acquired four (4) fire insurance policies from the aforesaid fire insurance company, the Philippine American General Insurance Company, during the periods stated, with Policy Nos. F-173866, F-173905, F-177030, and F-189579, effective on February 21, 1979, March 1, 1979, April 24, 1979 and February 21, 1980 (Exhs. B, C, D, & E), respectively. The aforementioned policies contained endorsements (Exh. B-1, C-1, D-1 and E-1) to the effect that all the documentary stamp taxes affixed thereon shall be for the account of, and were in fact paid by petitioner. The corresponding amounts of documentary stamp taxes paid and affixed by the petitioner on the said fire insurance policies acquired are as follows: Policy No. Documentary Stamp Taxes Paid F-173866 P175,680.15 F-173905 11,237.55 F-177030 7,708.50 F-189579 171,057.00 P365,683.20 ========= The total amount of documentary stamp taxes paid and affixed for the period in question, or from February 21, 1979 to February 21, 1980, therefore, is P365,683.20, which amount is now the subject of petitioner's claim for judicial refund. It appears further that petitioner had, since July 3, 1968, an operating agreement with the Republic of the Philippines and continues to this date as an operator engaged in the development of the Surigao Mineral Reservation in Surigao del Norte and in the exploration and utilization of mineral deposits therein, other than nickel, cobalt and iron, apparently in order to meet and to take advantage of the increased world demand for mineral resources. This development, exploration and utilization of the mineral deposits aforesaid, of which petitioner is a participant, was with the intent to substantially help the Government in the generation of much needed foreign exchange in the fact of the international economic recession brought about by the energy or petroleum crises. Accordingly, the Government had rationalized its policies in the development of the Surigao Mineral Reservation towards giving more opportunity to private enterprises, of which petitioner is one of them, and which is willing to take the risk and which will undertake the generation of adequate technical and financial resources so as to achieve that goal of mineral development. Hence, on September 22, 1976, President Ferdinand E. Marcos had deemed it necessary to issue, and had in fact promulgated Presidential DecreeNo.1001 and decreed, among others, by inserting Section 6-A to Republic Act No. 1828, as amended, and providing categorically that operators contracted in the development, exploitation and utilization of mineral deposits in the Surigao Mineral Reservation, shall be subject to the most minimum of terms and conditions, among others, and which are pertinent to the case at bar, firstly , by paying to the Government only a royalty of 5% of the gross annual receipts resulting from the operation, processing and disposition of mineral deposits; secondly , that the said operator or contractor shall be " exempt from all taxes , duties, fees and charges, both national and local, directly payable by it for any work or activity , equipment, machinery, materials, instruments, supplies, accessories, structures, buildings, lands, improvement, and/or other properties directly connected with or needed in the operation . . . and exempt those fees and charges that are imposed for work or services actually rendered to the operator"; thirdly , that the operator shall furnish all the management, technological and financial services necessary to carry out the operation; and fourthly , the operator or contractor shall file a bond to guarantee full and fruitful compliance with all its obligations." After noting that the continued development of the Surigao Mineral Reservation has become more important to the national economy and that the costs of operations in such development has greatly increased, President Ferdinand E. Marcos, deemed it necessary to extend , and in fact extended the exemptions already granted to contractors and/or operators under P.D.1001, by reason of which he forthwith later issued Presidential DecreeNo.1714, which further amended paragraph (1) of Section 6 of Republic Act No. 1828, as amended. On the strength of the above provisions of law, and considering itself under the ambit of said laws (P.D. 1001 and P.D. 1714) as a tax-exempt operator, petitioner wrote a letter to respondent on December 9, 1980, claiming for the refund of the aforesaid sum of P365,683.20 as erroneously paid documentary stamp taxes affixed on the four (4) fire insurance policies to insure its mining equipment, buildings, and other properties, consisting of refinery, chemical plant, explosives, mine and mobile equipment, etc. connected and used in its mining operations in Surigao Mineral Reservation in Surigao del Norte. (see Annex A, Petition for Review, p. 4, CTA rec.). Despite its formal request, this claim for refund was never acted upon by respondent Commissioner of Internal Revenue. Hence, petitioner filed its judicial claim for refund in a "PETITION" brought to Us on January 20, 1981." After trial, respondent court held that private respondent MMIC is exempt from the payment of documentary stamp taxes under P.D. Nos. 1001 and 1714. As a consequence of which, petitioner was ordered to refund the amount of P365,683.20, which was paid by private respondent to petitioner. Hence, this petition for review filed before the Supreme Court, which was referred to this Court for disposition, pursuant to Section 9 of B.P. 129. Petitioner raised the following assignment of errors allegedly committed by the respondent Court of Tax Appeals, to wit: I RESPONDENT TAX COURT ERRED IN DISREGARDING PETITIONER'S CONTENTION THAT THE DOCUMENTARY STAMPS TAX SUBJECT OF THE CASE IS NOT "DIRECTLY PAYABLE" BY PRIVATE RESPONDENT MARINDUQUE MINING & AND INDUSTRIAL CORPORATION AND IN RULING THAT THE PURCHASE OR PROCUREMENT OF INSURANCE POLICIES BY PRIVATE RESPONDENT MARINDUQUE MINING AND INDUSTRIAL CORPORATION FROM PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY IS AN ACTIVITY "DIRECTLY CONNECTED WITH OR NEEDED" IN PRIVATE RESPONDENT MARINDUQUE'S MINING OPERATION, AS CONTEMPLATED UNDER THE TAX EXEMPTING, PROVISIONS OF PRESIDENTIAL DECREENO.1001, AS AMENDED BY PRESIDENTIAL DECREENO.1714; AND COROLLARILY. II RESPONDENT TAX COURT ERRED IN DECLARING PRIVATE RESPONDENT MARINDUQUE MINING AND INDUSTRIAL CORPORATION MINING AND INDUSTRIAL CORPORATION EXEMPT FROM THE PAYMENT OF DOCUMENTARY STAMPS TAX AFFIXED ON THE INSURANCE POLICIES OBTAINED FROM THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY AND ORDERING REFUND OF SAID PAYMENT." The issues raised before Us may be summarized as follows: (1) whether the documentary stamp taxes subject of the claim for refund is " directly payable " by private respondent Marinduque Mining & Industrial Corporation, and (2) whether private respondent Marinduque Mining and Industrial Corporation's purchase or procurement of insurance policies from Philippine American General Insurance Company is an activity "directly connected with or needed" in its mining operation, as contemplated in the tax exempting provisions of P.D. No. 1001, as amended by P.D. No. 1714. Petitioner contends that P.D. 1001, as amended by P.D. 1714, is strictly limited to "all taxes, fees and charges, both national and local, directly payable by it for any work or activity, equipment, machinery, materials, instruments, supplies, accessories, structures, buildings, lands improvement and/or other properties, directly connected with or needed, and to be used, or being used exclusively in the operation"; that the exemption does not include documentary stamp tax on insurance policies for the following reasons: (1) The documentary stamp taxes involved is not a tax directly payable by the insured private respondent MMIC, but is a burden imposed upon the maker or issuer of the policy, the insurer Philippine American General Insurance Company; (2) The insuring by private respondent MMIC of its property against loss is an activity distinct and separate from, and not directly connected with its mining operation. On the other hand, private respondent, in its Comments, claims that Section 222 of the National Internal Revenue Code, provides that the stamp tax is payable not only by the person issuing the document, but also by the person accepting the document; thus, either MMIC who accepted the insurance policies and who in fact paid the documentary stamp taxes, as well as the Philippine American General Insurance Co., who issued the policies, may pay the stamp tax; that under Section 2, Revised Regulation No. 26, the insured, as well as the insurer, are liable for documentary stamp tax on the insurance policy. (Jose Araas, National InternalRevenueCode of 1977 (as amended), 1978 Ed., Vol. 2, p. 366). As regards the claim of petitioner that insurance is not an activity directly connected or needed in the mining operation of MMIC, private respondent contends that without the loan from the DBP and PNB, it would not have the money to finance the equipment and other property indispensable in its mining operation; that unless it complied with the insurance requirement of DBP and PNB, it would not have been able to obtain the loans necessary for its mining operation. In its Reply to private respondent's Comment, petitioner argues that not all activities or transactions relative to private respondent's mining operations are entitled to exemption, which attaches only to activities connected with the development, exploitation and utilization of the mineral deposits with the Surigao Mineral reservation. The affixture of documentary stamps on the insurance policies is an imposition on a transaction intended to indemnify MMIC against loss or damage to the properties insured, occasioned by fire, lighting, typhoon, or earthquake as stipulated in the insurance policies. This transaction is distinct and separate from, and is not directly connected with, respondent's mining operations. We find merit in the petition. The pertinent provisions of P.D. 1001 and P.D. 1714, pertinent to the instant case, are as follows: Presidential DecreeNo.1001: "Sec. 6-A. Should the President of the Philippines decide to have the operation or any part thereof conducted as authorized by section 2-A hereof, the same shall be subject to the following minimum terms and conditions: (a) The operator shall pay and guarantee payment to the government out of the gross annual receipts from all minerals, mineral and metal products, and by-products resulting from the operation, processing and disposition of mineral deposits, other than those of nickel, cobalt and iron, a royalty of not less than five per centum (5%) of the said gross annual receipts. F.O.B. points of export beginning with the end of the first year after the effective date of the contract: Provided, That the operator shall from the effective of the contract up to and including production, be exempt from all taxes, duties, fees and charges, both national and local, directly payable by it for any work or activity, equipment, machinery, materials, instruments, supplies, accessories, structures, buildings, lands, improvement, and/or other properties directly connected with or needed and to be used or being used exclusively in the operation , other than those provided in this Act and except those fees and charges that are imposed for work or services actually rendered to the operator: Provided, further , That the operator shall put in operation the area or areas covered by the contract within two (2) years from the effective date of the contract. Thereafter, penalties may be applied against the operator for failure to effect such production and/or reach certain levels of production within specific time periods, as may be agreed upon: Provided, finally, That exemptions from taxes shall not extend to taxes due from contractor's personnel in their personal capacities ." Presidential DecreeNo.1714: "Sec. 1. Paragraph (1) of Section 6 of Republic Act No. 1828, as amended, is hereby further amended to read as follows: (1) The operator shall be paid for services rendered and expenditures incurred beginning with the end of the first year after the effective date of the contract the sum of one pesos (P1.00) per year, and the operator shall receive by way of additional compensation, an amount equivalent to a portion of the gross annual receipts, from all minerals, mineral and metal products, and by-products resulting from the operation, processing, and disposition thereof computed such that the Government shall retain not less than three and one-half per centum of the gross annual receipts, f.o.b. point of exports: PROVIDED, That the operator shall, from January 1, 1980, to December 31, 1981, be exempt from all taxes, duties, fees and charges, both national and local, directly payable by it for any work or activity, equipment, machinery, materials, instruments, supplies, accessories, structures, buildings, lands, improvements and/or other properties directly connected with or needed and to be used or being used exclusively in the operation, other than those provided in this Act and except those fees and charges that are imposed for work or services actually rendered to the operator : Provided, however , That the operator shall put the area or areas covered by the contract into actual production within five years from the effective date of the contract. Thereafter, penalties may be applied against the operator for failure to effect such production, and/or reach certain levels of production within specific time period, as may be agreed upon: And Provided , further , That exemptions from all taxes shall not extend to taxes due from contractor's personnel in their personal capacities." xxx xxx xxx In order to be exempted from all taxes, duties, fees and charges, both national and local, the following requisites must be met by the one claiming for exemption: (1) said taxes, duties, fees and charges must be directly payable by it for any work or activity, equipment, machinery, materials, instruments, supplies, accessories, structures, building, lands, improvement, and/or other properties; and (2) such work or activity etc., must be directly connected with or needed to be used or being used exclusively by private respondent in its operation. However, in the case at bar, the documentary stamp taxes are directly payable by the insurer PhilAmGen, not by the insured respondent MMIC; Furthermore, the procurement of insurance policies is not an activity directly connected with the mining operation of respondent MMIC. We find that the insuring by private respondent MMIC of its property against loss is an activity separate and distinct from its mining operations. Insurance does not directly form part of respondent's mining operations at the Surigao Mineral Reservations. Any claim for exemption from the tax statute should be strictly construed against the taxpayer. Where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense being entertained to justify non-compliance. All that has to be done is to apply it in every case, that falls within its terms. Statutes are to be construed in the light of the purpose to be achieved and the evils sought to be remedied (Luzon Stevedoring Corp. vs. CTA, 163 SCRA 647). IN VIEW THEREOF, the petition is GRANTED. The decision appealed from is hereby REVERSED and SET ASIDE. Costs against private respondent. SO ORDERED. De Pano, Jr . and Gonzaga-Reyes, JJ ., concur.