Atlas Consolidated Mining & Development Corp. v. Commissioner of Internal Revenue

[CA-G.R. SP No. 26087. May 22, 1992.] (C.T.A. Case No. 3467 & 3825) ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and the COURT OF TAX APPEALS , respondents . D E C I S I O N DE PANO , JR ., J p : Review of the decision dated May 31, 1991 in CTA Cases Nos. 3467 and 3825, "Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue," rendered by the Court of Tax Appeals whose dispositive portion reads, thus: "WHEREFORE, petitioner should and is hereby ORDERED to PAY the total amount of the following: "a) P297,900.39 as 25% surcharge on silver extracted during the period November 1, 1974 to December 31, 1975. "b) P161,027.53 as 25% surcharge on silver extracted for the taxable year 1976. "c) P315,027.30 as 25% surcharge on said extracted during the period November 1, 1974 to December 31, 1975. "d) P260,180.55 as 25% surcharge on said during the taxable year 1976. "e) P53,585.30 as 25% surcharge on pyrite extracted during the period November 1, 1974 to December 31, 1975. "f) P53,283.69 as 25% surcharge on pyrite extracted during the taxable year 1976. "g) P316,117.53 as deficiency manufacturer's sales tax and surcharge during the taxable year 1975, plus 14% interest from January 21, 1976 until fully paid as provided under Section 183 of P.D.No.69. "h) P23,631.44 as deficiency contractor's tax and surcharge on the lease of personal property during the taxable year 1975, plus 14% interest from January 21, 1976 until fully paid as provided under Section 183 of P.D.No.69. "i) P91,883.75 as deficiency contractor's tax and surcharge on the lease of personal property during the taxable year 1976, plus 14% interest from April 21, 1976 until fully paid as provided under Section 183 of P.D.No.69. "With costs against petitioner. SO ORDERED." (Annex A, Petition; pp. 58-59, rec.). is sought to be reviewed in this petition. A brief summary of these two consolidated cases, is found in the questioned decision, to wit: "The Commissioner of Internal Revenue on April 29, 1980 served an assessment notice and demand for payment of the amount of P12,391,070.51 representing deficiency ad valorem, percentage and fixed taxes, including increments, for the year 1975 against petitioner Atlas Consolidated Mining and Development Corporation (ACMDC). "Similarly, another assessment notice with a demand for payment of the amount of P13,531,466.80 representing 1976 deficiency ad valorem tax and business taxes plus P5,000.00 compromise, penalty, was served on September 23, 1980 by the Commissioner on petitioner. "Petitioner protested both assessments but the protests were denied, and so, the subject petitions for review were filed. "The two cases being identical in most respect, except for the taxable periods and the amounts involved, were eventually consolidated." (Annex A, Petition; pp. 37-38, rec.) The petitioner, a corporation engaged in "the business of mining, principally from copper . . .," has filed a second amended petition dated March 14, 1983 CTA Case No. 3467, alleging that on April 29, 1980, it had "received a demand letter and assessment notice dated April 8, 1980, assessing against and demanding from it, the total amount of P12,391,070.51 allegedly representing the deficiency ad valorem, percentage and fixed taxes, including increment covering the year 1975," and that the petitioner had "duly protested the said assessment in a letter dated May 5, 1990, receipt of which was acknowledged by register on May 8, 1980." The petition alleges that the Commissioner of Internal Revenue (hereafter referred to as the Commissioner) had denied the protest, even if the above deficiency assessment "is not supported by the facts and law . . ." and despite the fact that the petitioner had fully paid all its tax liabilities to the government, and that it had, in fact, overpaid ad valorem taxes for the period November 1, 1974 through December 3, 1975. Furthermore, the petitioner contends that the respondent Commissioner is barred, under Rule 9, Section 4, Rules of Court, from his failure to set up the deficiency claim as a counterclaim in CTA Case No. 2842 between the same parties covering the same taxable period; and that this issue had been litigated upon previously, in addition to several additional defenses. It is also contended that the claim for deficiency taxes is barred by prescription, since more than five (5) years had passed from the time that the petitioner had filed its returns for the taxes involved in the cases, to the date the deficiency assessment was made on April 8, 1980. The respondent Commissioner's answer to this petition admits the allegations concerning the personal circumstances of the parties, and that deficiency assessment dated April 8, 1980 was for taxes due in 1974 and 1975. Special and affirmative defenses in the answer allege that the petitioner had failed to pay the correct taxes for 1975; that CTA Case No. 2842 does not have any bearing on the present case; that its assessment against the petitioner is legally and factually correct; and that all presumptions favor the correctness of the tax assessments. The petitioner had also filed a petition for review in CTA Case No. 3825, dated August 8, 1994, in which it alleges that on September 23, 1980, it had received from the respondent Commissioner an assessment letter dated September 15, 1980 for deficiency ad valorem tax and business tax amounting to P13,531,466.80 plus P5,000.00 for compromise penalty. The petition alleges that the petitioner had protested the said assessment, which the respondent Commissioner, however, denied. This deficiency assessment is said to be void because of lack of basis. The Commissioner's answer to this petition admits the allegations concerning the personal circumstances of the parties, but maintained the correctness and legality of the assessment for deficiency charges in CTA Case No. 3825. The CTA made the following findings on the imposition of 25% surcharge for late payment of the ad valorem tax on gold, silver and pyrite, thus: "Upon the other hand, petitioner argues against the imposition of the 25% surcharge for late payment of the ad valorem tax and late notice of removal for silver and gold pointing out that the silver and gold "cannot be separated physically from the copper concentrate until the processes were done in the smelter and refining plants in Japan.' Thus, 'as to notice of removal, that submitted for the copper concentrate sufficiently satisfied the requirement of the law and served as notice of removal too of these two minerals. If timely for copper, the same notice was timely too for the silver and gold contained in the copper concentrate.' "We disagree with this contention of the petitioner. "We see it that even if the silver and gold cannot as yet be physically separated from the copper concentrate until the process of smelting and refining was completed, the estimated commercial quantity of the silver and gold could have been determined in much the same way that petitioner is able to estimate the commercial quantity of copper during the assay. If, as stated by petitioner, it is able to estimate the commercial quantity of the copper based on the grade of the copper ore, and it has determined the grade not only of the copper but also those of the gold and silver during the assay (Petitioner's Memorandum, p. 207, Record), ergo, the estimated commercial quantity of the silver and gold subject to ad valorem tax could have also been determined and provisionally paid as for copper. "A 25% surcharge on ad valorem taxes due on the sale of pyrite was also imposed by respondent on petitioner for late filing of notice of removal of the pyrite from the mines and late payment of said taxes. It is the impression of petitioner that even as to the quantity that was used by its sister company Atlas Fertilizer Corporation (AFC) there is 'no removal as contemplated by the law because the AFC plant is located inside the mineral concession of the petitioner in Sangi, Toledo.' Petitioner apparently attaches to the phrase 'removal of the mineral products from the locality where mined' as it merely provides that 'Before the minerals or mineral products are removed from the mines, the Commissioner of Internal Revenue or his representative shall first be notified of such removal on a form prescribed for the purpose' (emphasis supplied). The construction to be given to the phrase, 'locality where mined' should be closely hued to the definitions that have been assigned to the word 'mine.' The Tax Code or the Revenue Regulations do not provide for its definitions/s but American Jurisprudence as a source is available. "In its 'primary and restricted meaning,' 'mine' usually refers to underground excavations and open workings where minerals or deposits are obtained (Grover vs. Terrace Mining Co., 92 ALR 2d 861, 867). In its broad and enlarged sense, 'mine' is any place where minerals are found (Id.). Verily, therefore, the construction of the term admits of variation depending on the circumstances. In the instant case, to agree to the interpretation suggested by petitioner would make for inefficient revenue regulation where the recordation and payment of ad valorem tax for pyrite would be left entirely to the convenience of petitioner. What should have been done is that, before pyrite is transported, from the place where it is extracted during the flotation process to the point of destination, whether it be in the AFC plant inside the concession area or some other place outside the concession area, notice of the removal and payment of the tax, should have been made first by petitioner. "In fine, some distinction can be and has been made in this case between the removal of pyrite and the removal of copper concentrate for the latter is actually transported out of the concession area while the pyrite is used by the AFC located within the concession area or shipped to other locations. With respect to pyrite shipped out of the concession area, petitioner does not make any allegation that it has filed the requisite notice upon removal or prepayments of taxes due or timely payments of the taxes upon removal as required. Petitioner could only pretend that there was no removal of the pyrite from the concession area. This is belied by the evidence showing that there were shipments of pyrite to other locations aside from those used by the AFC (Exh. 'Z', Folder I, BIR Record)." (Annex A, Petition, pp. 46-50, rec.) Additionally, the CTA found, as follows: "We have noted, however, that certain shipments already covered in C.T.A. Case No. 3467 were inadvertently still included by respondent in C.T.A. Case No. 3825. When we referred to the worksheets forming part of the evidence for the computation of the taxes to be imposed against petitioner, this error was, accordingly, taken due of." (p. 52, rec.) Further, the CTA also held: "Upon the other hand, the assessment of contractor's tax for lease of personal property should hold against allegations by petitioner that it did not gain any profit or income or that it is not engaged in the business of being a common carrier. The taxable activity is specified as the act of leasing personal property to others. It is enough, for purposes of the tax prescribed in Section 191 of P.D. 69 that petitioner performs the activity enumerated for a price, that is, lease of things (as defined in Article 1643, New Civil Code) without regard to whether gain or income is derived or that petitioner is not engaged in the lease business. There should not also be any problem with the admissibility of these findings as they are adequately supported by other documents on record (Exhs. '12 & 13', Exhs. '1 & 6', pp. 294-295. p. 180 and 213, respectively, BIR Record III and 3825). As it is, the denial by petitioner's witness and the aforestated arguments were not enough to overcome these evidence. "We cannot hold likewise, however, on the real estate dealer's tax assessed against petitioner. The working papers submitted by respondent merely contain a plain computation of the real estate dealer's tax allegedly due devoid of any supporting basis. And so, while petitioner with regard to the above mentioned contractor's tax found the necessity to defend against its imposition, this assessment was left to stand on its left if it has any. It has none, for the rule it settled that assessments must rest on facts but these assessments do not appear to have factual basis." (pp. 55-56, rec.) "Apropos the manufacturer's sales tax computed against petitioner, we find the same well-grounded. The records show that some of the grinding balls which were manufactured by petitioner originally for its own use were, in effect, sold by petitioner to some of its competitors like Marcopper. The nature of the transaction as one of 'sale' is not diminished by the declaration of petitioner that 'ACMDC agreed to share its grinding balls at cost' (Exh. 'U,' p. 131, Record). The intention of deriving profit is not material in a 'sale'. The respondent found the value of the consideration in the books of accounts of ACMDC, and, rightfully, based the tax from the gross value of the consideration in the absence of other factors (Exh. 'Y', p. 8; p. 306 BIR Record, Folder III)." (pp. 56-57, rec.) The said judgment, viewed as legally and factually infirm by the petitioner, is sought to be overturned in this petition on the basis of the following errors allegedly committed by the respondent Court of Tax Appeals, to wit: "Petitioner contends that respondent Tax Court erred: "A. in holding the petitioner liable to pay the 25% surcharge and manufacturer's sales tax and contractor's tax and the interests thereon, enumerated in the dispositive portion of the decision, Annex A hereof. "B. in finding the petitioner's defense of prescription to be unavailing since said defense was allegedly raised only during the appeal. "C. in failing to rule on whether or not "(1) the deficiency assessments were vitiated, as to CTA Case No. 3467, by "(A) including shipments made in 1974, "(B) including shipments that have prescribed for being assessed beyond the 5-year statute for limitations, "(C) the contrary findings of the Honorable Tax Court in CTA CASE NO. 2842, involving the same parties and insofar as the correct computation of the ad valorem tax due on shipments from November 1974 through December 1975 are concerned, and "(D) (i) the rule on compulsory counterclaim, (ii) prohibition against multiplicity of suits, (iii) and prohibition against multiple investigation of same tax year within 5 years. "(2) the deficiency assessments were vitiated, as to CTA Case No. 3825, by "(A) including shipments made in 1975 already included in the deficiency assessment issued for 1975 and contested in CTA Case No. 3467. "D. in failing to make and state findings of facts on which that portion of the decision, ordering the taxpayer to pay the 25% surcharges on gold, silver and pyrite, manufacturer's sales tax and contractor's taxes plus interests, is based." (p. 8, Petition for Review). The Court is attracted, first of all, to the petitioner's invitation to take a hard look at its defense of prescription alleged in its second assignment of error which the respondent CTA had shunted aside, because the petitioner had not raised the defense before the respondent Commissioner, stating that the defense was articulated for the first time on appeal before the Court of Tax Appeals. The CTA at this point, said: "As to the defense of prescription availed of by petitioner to shield itself from the assessments issued for shipments of copper concentrate during the period November 1,1974 through April 8, 1975, we find it to be unavailing under the circumstances. The effect is, of course, now limited to the surcharges for late payment imposed against the pertinent shipments of silver and gold or pyrite considering the discussion above already made. The surcharges should, nevertheless, be imposed since the defense of prescription was raised only during the appeal, as correctly noted by respondent. The case of Aguinaldo Industries Corporation v. Commissioner of Internal Revenue, G.R. No. L-29790, February 28, 1982, 112 SCRA 136, 140, cited by respondent is appropriate as it was there said: 'To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the court which is supposed to review administrative determinations would not review, but determine and decide for the first time, a question not raised at the administrative forum. This cannot be permitted, for the same reason that underlies the requirement of prior exhaustion of administrative remedies to give administrative authorities the prior opportunity to decide within its competence, and in much the same way that, on the judicial level, issues not raised in the lower court can not be raised for the first time on appeal.' "And even if a case in this court stands for trial de novo, the effect is still subject to the limitation laid for appeals from different courts, and applicable in our court that the parties cannot allege in their new pleadings causes of action or defenses that have not been pleaded initially (Bernardo V. Genato, 11 Phil. 603, 605, [1908] Beech v. Jimenez, 12 Phil. 212, 218 [1908]." (Annex A, Petition; pp. 50-52, rec.). The CTA, as is obvious from the above, leaned upon the decision in "Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue, et al.," 112 SCRA 136, to support the view that prescription as a defense cannot be availed by the petitioner because it had not been set up in the first instance before the respondent Commissioner. It seems, however, that the case cited by the CTA is not apropos and, consequently, does not support the CTA's conclusion. First, because the Aguinaldo Industries case refers to a claim that was not at all raised before the administrative forum, and second, it is a case where the defense of tax exemption was not raised on time. In the present case, the defense of prescription was, in fact, raised before the administrative forum before the Court of Tax Appeals and not for the first time before the Court; it is obvious that the defense of prescription raised by the petitioner here is not the same as the defense of tax exemption raised in the Aguinaldo Industries Corporation case. The law expressly limits the government right to make assessments and to collect taxes within five (5) years from the filing of the return. Section 331 of P.D. No. 69 says so: "Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of taxes shall be begun after the expiration of such period. For the purposes of this section a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, that this limitation shall not apply to cases already investigated prior to the approval of this Code." (Emphasis supplied) It is admitted by the respondent Commissioner, in his answer to the petition for review in CTA Case No. 3467, that the demand letter and assessment notice for alleged "deficiency ad valorem, percentage and fixed taxes, including increments covering the year 1975," was served on April 29, 1980. The petitioner contends that the respondent Commissioner is without authority to assess and collect any tax against it, nor to file any case in court for recovery of such tax covering November 1, 1974 to April 8, 1975. The Court agrees. The Court agrees that the respondent Commissioner possesses no legal authority to assess and collect any taxes against the petitioner for the period November 1, 1974 to April 8, 1975, regardless of whether the issue was raised before the respondent Commissioner or not. First, the law expressly limits the Commissioner's power to assess and to collect taxes to a period of five (5) years after the filing of the returns for such taxes. It would be hypocritical for the respondent Commissioner to pretend that he has legal authority to assess and collect taxes beyond the five-year limitation; nor would the Court sanction such unlawful exercise of authority. Second, the allegations of the petition in CTA Case No. 3467 admitted in the respondent Commissioner's answer makes it clear that the demand letter and assessment of April 8, 1980 cannot cover alleged transactions previous to the five-year period of limitation. This being so, the failure to raise the defense of prescription before the Commissioner cannot be deemed to be a waiver of the defense (Philippine National Bank vs. Pacific Commission House, 27 SCRA 766). Where the action is barred by time and it is clear from the pleading that it is so the action may properly be dismissed by the Court (Jicano, et al. vs. Gegalo, et al. vs. 157 SCRA 140). It was, therefore, error for the respondent to spurn the petitioner's plea that the CTA is barred by time and by law from assessing and collecting taxes five (5) years beyond April 8, 1975, simply because the petitioner had not originally raised the defense before the respondent Commissioner. Thus, any and all assessments for deficiency taxes in CTA Case No. 3467 prior to April 8, 1975 are proscribed by law. Government must be the first in showing fidelity and compliance with the law. The first, third and fourth errors alleged in the petition refer to findings of fact. The findings above reproduced show support by substantial evidence. Substantial evidence is such "relevant evidence as a reasonable man might accept as adequate in support of a conclusion" (De Lamera vs. Court of Agrarian Relations, 173 SCRA 368). Supreme Court Circular No. 1-91, February 27, 1991, in Section 8 thereof, bluntly states, thus: "8. WHEN GIVEN DUE COURSE . The Court of Appeals shall give due course to the petition only when it shows prima facie that the court, commission, board, office or agency concerned has committed errors of fact or law that would warrant reversal or modification of the order, ruling or decision sought to be reviewed. The findings of fact of the court, commission, board, office or agency concerned when supported by substantial evidence shall be final." The petition fails to present a prima facie showing that would warrant a reversal or modification of the Court of Tax Appeals' findings of fact, as the said findings are supported by substantial evidence. They are final and binding. WHEREFORE, the decision of May 31, 1991 is hereby MODIFIED, by deleting therefrom the following: (1) the award under paragraph (a) of P297,900.39 as 25% surcharge on silver extracted during the period November 1, 1974 to December 31, 1975; (2) the award under paragraph (c) thereof of P315,027.30 as 25% surcharge on gold extracted during the period November 1, 1974 to December 31, 1975; and (3) the award under paragraph (e) thereof of P53,585.30 as 24% surcharge on pyrite extracted during the period November 1, 1974 to December 31, 1975. The decision is AFFIRMED in all other respects. SO ORDERED. Elbinias and Gutierrez, JJ ., concur.