Oro Enterprises, Inc. v. Court of Tax Appeals

TWELFTH DIVISION [CA-G.R. SP No. 33866. April 20, 1995.] (CTA Case No. 3440) ORO ENTERPRISES, INC. , petitioner , vs . HON. COURT OF TAX APPEALS, and COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N TAYAO-JAGUROS , J p : Before the Court is a petition for review filed by Oro Enterprises, Inc. from the decision of the Court of Tax Appeals in C.T.A. Case No. 3440 entitled "Oro Enterprises, Inc. vs. Commissioner of Internal Revenue," denying the claim of said petitioner corporation for the refund of tax credit in the amount of P939,195.22 representing the internal revenue taxes which were allegedly erroneously imposed and illegally collected from it on its sale of Citrobelle Skin Lotion. These are the antecedent facts: During the period from the first quarter of 1980 until the fourth quarter of 1981 inclusive, petitioner Oro Enterprises, Inc., a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, was engaged in the manufacture and sale of CITROBELLE SIN LOTION for which it paid the total amount of P939,195,22 as and for sales tax under the provisions of Section 194(b) of the National Internal Revenue Code of 1977. On April 2, 1982, however, petitioner filed with the Bureau of Internal Revenue a written claim for the refund or tax credit of the above-paid amount, claiming that: "Citrobelle is a medicinal preparation with ethyl alcohol, a distilled spirit, comprising 90% more or less of the finished product by volume excluding water. Essentially, Citrobelle is an antibacterial and antipruritic agent. Particularly, it is indicated for the treatment of acne and pimples. Such characteristics of Citrobelle have been certified to by the Food and Drug Administration of the Ministry of Health, as evidenced by the Certification issued by the office, dated 5 February 1979, a photocopy of which we hereto attach as Annex "A". The ethyl alcohol which our client used in the manufacture of Citrobelle sold in 1980 and 1981, had already been subjected to specific tax on distilled spirits. Therefore, the manufacture and sale by our client of Citrobelle in 1980 and 1981 were no longer subject to any specific or percentage tax. We base our contention on Section 138 of the National InternalRevenueCodeof 1977, as amended, which we quote in pertinent portion as follows: 'Medicinal preparation, flavoring, extracts, and all other preparations, of which, excluding water, distilled spirits form the chief ingredients, shall be subject to the same tax as such ingredients.' In BIR RulingNo.59-81, you interpreted the above-quoted provision as follows: 'In connection with your request for determination of the tax to be imposed on Johnson's Baby Cologne, a product of your client, Johnson & Johnson (Phils.), Inc., I have the honor to inform your that said product falls under the term 'other preparations' as determined by the U.P. Chemistry Department. Accordingly, and as the chief ingredient of the preparation is alcohol, a distilled spirit, the aforesaid product is subject to specific tax as such distilled spirit pursuant to Section 138 of the TaxCode. However, since the specific tax on the alcohol used as chief ingredient in the manufacture of Johnson's Baby Cologne has already been paid, no further specific tax is due and payable on the said product. Furthermore, no further percentage tax is due and payable on the same product.' Considering, therefore, that Citrobelle is a medical preparation and that specific tax had been paid on the ethyl alcohol used in the manufacture of said product, we believe that our client is entitled to the refund or tax credit of the total amount of NINE HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETY FIVE PESOS AND TWENTY TWO CENTAVOS (P939,195.22). In support of this request, we attach hereto the business tax returns as well as the official receipts and confirmation receipts evidencing payment by our client of P939,195.22, broken down in detail as follows: Annex Number Quarter/Year Amount Tax Return Official Receipt 1st-1980 P71,544.66 B B-1 2nd-1980 140,586.13 C C-1 3rd-1980 101,905.38 D D-1 4th-1980 60,913.55 E E-1 1st-1981 62,136.84 F F-1 2nd-1981 149,832.98 G G-1 3rd-1981 169,941.30 H H-1 4th-1981 181,334.38 I I-1 Total P939,195.22" (pp. 57-58, Rollo) The Bureau of Internal Revenue not having refunded the amount claimed by petitioner nor issued a tax credit certificate for the same amount, petitioner filed a petition for review with the respondent Court of Tax Appeals against respondent Commissioner of Internal Revenue. In its petition, petitioner substantially alleges matters which were already raised in its above April 2, 1992 written claim, with a prayer that respondent Commissioner be ordered to refund the total amount P939,195.22 as claimed or to issue a tax credit certificate for the same amount. (pp. 52-55, id .) In his answer, Respondent Commissioner, while denying some allegations of petitioner, alleges inter alia , that petitioner's citrobelle products are "toilet preparations" and do not fall under "other preparations", as contemplated under Section 138 of the Tax Code of 1977 considering that Citrobelle products are intended to improve body appearance and contribute to health of skin as shown by the description of their labels and advertisements relative thereto, thus they are subject to sales tax under Section 194(b) of the Tax Code; that the findings of the Food and Drug Administration are not controlling in the determination of whether a particular compound is a medicinal or toilet preparation within the meaning and intendment of the law; that the question of whether a preparation is medicinal or not, does not entirely depend on the amount of its alcohol contents but rather on whether it is principally prepared to alleviate, palliate or cure skin or body disorders; that the BIR Ruling No. 59-81 alleged in the petition is not applicable because that ruling covers an entirely different product; that assuming that the subject matter of the petition is covered by the said BIR ruling, still the Government is not estopped by the mistakes and errors of its agents from collection taxes; and that in an action for refund the burden is upon the petitioner to prove that the collection of the tax was erroneous and not in accordance with law, and failure to sustain this burden is fatal to the action for refund . (pp. 59-62, id .) Emphasis supplied. Moreover, respondent Commissioner contends that petitioner failed to show proof of alleged overpayment of percentage tax and/or advance sales tax on Citrobelle products; that the alleged sales tax paid pertains to gross sales of the entire business of petitioner and does not correspond to the payments of percentage tax and/or advance sales tax on the sale of Citrobelle Skin Lotion which are being claimed to be refunded; that the quarterly percentage tax returns submitted as evidence by petitioner reflects the gross selling price of all non-essential articles under Section 194 and all essential articles under Section 203 of the Tax Code of 1977; that not a single proof was presented to show the percentage tax paid on the sale of Citrobelle products; and that accordingly, respondent Commissioner moves for the denial of the refund/tax credits sought for lack of merit. On the scheduled hearing of the case on September 22, 1993, the respondent Court of Tax Appeals denied petitioner's written motion to cancel and reset hearing upon the objection of respondent's counsel who believes that petitioner's motion is for the purpose "merely to delay proceedings' (p. 307, CTA Records). The case was deemed submitted for decision as of said date. No motion for reconsideration of said order denying petitioner corporation's motion to reset hearing, and considering the case submitted for decision, was filed by petitioner corporation. After consideration of the case, respondent Court of Tax Appeals issued a decision dated December 24, 1993, dismissing the petition for review for lack of merit (p. 8, Dec.; p. 318, Orig. Rec.). The subsequent motion for reconsideration filed by petitioner was also denied by respondent Court of Tax Appeals (p. 359, id .). Not contented, petitioner corporation now comes to this Court via this petition for review, interposing the following assignments of error: I THE COURT OF TAX APPEALS ERRED WHEN IT DECLARED THAT PETITIONER FAILED TO PRESENT EVIDENCE THAT THE AMOUNT SOUGHT TO BE REFUNDED PERTAINS TO THE SALE OF CITROBELLE SKIN LOTION CONSIDERING THAT: a. RESPONDENT COMMISSIONER OF INTERNAL REVENUE HAS ADMITTED THE SAME IN ITS ANSWER TO THE PETITION FOR REVIEW b. THE RECORDS IN THE TRIAL OF THIS CASE WILL SHOW THAT THE AMOUNT SOUGHT TO BE REFUNDED PERTAINS TO THE SALE OF CITROBELLE SKIN LOTION AND NO OTHER PRODUCT (p. 17, Rollo) We do not find merit in this petition. The fundamental issue raised by petitioner herein is that the Court of Tax Appeals erred when it declared that petitioner failed to present evidence that the amount sought to be refunded pertains to the sale of Citrobelle Skin Lotion. It alleges that respondent Commissioner admitted in his Answer dated July 16, 1982 without any qualification that during the first quarter of 1980 until the fourth quarter of 1981 what was manufactured and sold by petitioner was Citrobelle Skin Lotion. Accordingly, from petitioner's viewpoint, there was no need for the said petitioner to present proof that during the period in question the amount sought to be refunded pertains to the sale of Citrobelle Skin Lotion alone, since such alleged admission made by the Commissioner in the case on trial constitutes a waiver of proof, generally dispensing with the production of evidence by the opposing party as to the fact admitted. We find such assertion to be incorrect. The respondent Commissioner's Answer dated July 16, 1982, has, among other things, the following admission, denial, and defenses: "2. He ADMITS the allegation in paragraph III of the petition that during the period from the 1st quarter of 1980 until the 4th quarter of 1981, petitioner was engaged in the manufacture and sale of Citrobelle Skin Lotion. He, however, SPECIFICALLY DENIES for lack of knowledge or information sufficient to form a belief the allegation that petitioner paid the amount of P939,195.22 as sales tax, under Section 194(b) of the TaxCodeof 1977, for the 1st quarter of 1980 to the 4th quarter of 1981. Whether said payment was actually received by the Bureau of Internal Revenue has to be verified. xxx xxx xxx 6. Petitioner's citrobelle products are toilet preparations' and do no fall under 'other preparations', as contemplated under Section 138 of the TaxCodeof 1977, as amended; 7. Citrobelle products are toilet articles or cosmetics intended to improve body appearance and contribute to health of skin as shown by the description of their labels and advertisement relative thereto. As such, they are subject to sales tax under Section 194(b) of the TaxCode, as amended;" xxx xxx xxx (pp. 1 & 3, Answer; pp. 20 & 22, Orig. Rec.) It is very patent therefore that what was merely admitted in respondent Commissioner's Answer is that " during the period from the 1st quarter of 1980 until the 4th quarter of 1981, petitioner was engaged in the manufacture and sale of Citrobelle Skin Lotion ." Nowhere from the letters and intent of said admission was expressly or impliedly admitted that what was sold by petitioner Oro was Citrobelle Skin Lotion only and no other product, and that the claimed amount constituted the sales tax paid for the said product alone. In fact, in the above Answer respondent Commissioner maintains that Citrobelle lotion is a toilet preparation subject to sales tax. Also, in the above-cited Answer, respondent Commissioner " SPECIFICALLY DENIES for lack of knowledge or information sufficient to form a belief, the allegation that petitioner paid the amount of P939,195.22 as sales tax, under Section 194(b) of the Tax Code of 1977, for the 1st quarter of 1980 to the 4th quarter of 1981. Whether said payment was actually received by the Bureau of Internal Revenue has to be verified ." The above denial, therefore, leads to no other conclusion that the amount P939,195.22 claimed as tax refund still needs further verification for its correctness or actual receipt. Moreover, this petition for review is predicated as a claim for tax refunds or for issuance of tax credit certificates. As correctly observed by the respondent Court of Tax Appeals in its decision, to wit : " Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law . . . and cannot be permitted to exist upon vague implication . (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 446; Northern Phil. Tobacco Corp. vs. Mun. of Agoo, La Union 31 SCRA 304; Reagan vs. Commissioner, 30 SCRA 968; Asturias Sugar Central, Inc. vs. Commissioner of Customs, 29 SCRA 617; Davao Light and Power Co., Inc. vs. Commissioner of Customs, 29 SCRA 617; Davao Light and Power Co., Inc. vs. Commissioner of Custom, 44 SCRA 122). Thus, when tax exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well founded doubt is fatal to the claim . (Farrington vs. Tennessee and Country Shelby, 95 U.S. 679, 686; Manila Electric Co. vs. Vera, L-29987, Oct. 22, 1975; Manila Electric Co. vs. Tabios, L-23847, Oct. 22, 1975, 67 SCRA 451)." (pp. 6-7, Dec.; pp. 316-317, Orig. Rec.) (Emphasis supplied) Furthermore, the respondent Court of Tax Appeals explained that: "In the case at bar, there are reasonable grounds to doubt petitioner's entitlement to the refund or tax credit claimed . Respondent validly raised the fact that petitioner failed to establish clearly that the amount sought to be refunded or issued tax credit certificate pertains to sales tax paid on sales of Citrobelle Skin Lotion for the period January 1980 to December 1981. Taken in the light of petitioner's own statement that it is 'engaged in the manufacture and sale of various pharmaceutical and other allied products', there is a hollow ring to petitioner's claim that the amount being refunded pertains to sale of Citrobelle Skin Lotion and not other product since there is absence of indubitable proof to support the same ." (pp. 7-8, Dec.; pp. 317-318, id.; Emphasis supplied) Indeed, for failure of petitioner corporation to adduce evidence during the scheduled hearing of this case before the respondent Court of Tax Appeals as said petitioner did not appear on trial, petitioner's claim for refund has no clear evidence to stand on. In the light of the above findings of the respondent Court of Tax Appeals duly supported by the facts and law, We therefore cannot adhere to the assertion of the petitioner that there was no need for it to present evidence that the amount sought to be refunded pertains to the sale of Citrobelle Skin Lotion alone because respondent Commissioner of Internal Revenue has allegedly admitted the same in its Answer. There can be no waiver of proof by such vague admission in as much as jurisprudence dictates that the burden of proof in this case lies with the petitioner. Thus, it must adduce competent evidence to satisfy the Court of its claim and not merely rely on alleged admissions of the respondent Commissioner which admissions petitioner corporation erroneously interpreted to serve its purpose. Finally, in the case of Commissioner of Internal Revenue v. C.A., 204 SCRA 12, the Supreme Court reiterated, to wit : "Moreover, it has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority. Therefore, finding no such abuse or improvident exercise of authority or discretion, the decision of respondent court, affirming that of the Court of Tax Appeals, must consequently be upheld." This Court finds no compelling reason to deviate from the above doctrine as applied in the case at bar. WHEREFORE, the instant petition for review is hereby DISMISSED by the Court for lack of merit. The questioned decision dated December 24, 1993 and resolution dated April 12, 1994 of the respondent Court of Tax Appeals in C.T.A. Case No., 3440 are affirmed. Cost against petitioner. IT IS SO ORDERED. Elbinias and Adefuin-Dela Cruz , JJ ., concur.