Commissioner of Internal Revenue v. Court of Tax Appeals

SPECIAL FORMER EIGHTH DIVISION [CA-G.R. SP No. 34125. November 28, 1997.] THE COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . THE COURT OF TAX APPEALS and BORDEN INTERNATIONAL PHILS., INC. , respondents . D E C I S I O N AUSTRIA-MARTINEZ , J p : This is a petition for review filed by the Commissioner of Internal Revenue (CIR) seeking to reverse and set aside the Decision dated April 14, 1994 rendered by the Court of Tax Appeals in CTA Case Nos. 4169 and 4329 cancelling the two assessments issued against Borden International Phils., Inc. The facts as found by the Court of Tax Appeals are as follows: "During the period from 1982 to 1984, petitioner made importations of 'methanol' to be used as raw material for its main business of manufacturing resin adhesives. Petitioner paid advance "sales tax for all the importations involved and not specific tax. For which reason, respondent issued two assessments assessing petitioner for the difference in the tax rate. Consequently, on September 26, 1985 respondent issued Demand Letter No. 002-85 received by the petitioner on January 15, 1986 demanding payment of deficiency specific tax in the amount of P629,311.37 inclusive of surcharge and P25,000.00 for importer's privilege tax, inclusive of surcharge or a total amount of P654,311.37. "Again on January 27, 1988, respondent issued another assessment bearing No. FAS-484-88-00488 in the amount of P3,028,509.08 inclusive of surcharge. Both assessments were protested by petitioner on January 20, 1986 and February 26, 1988, respectively. In a letter dated March 29, 1987 but received by petitioner on May 30, 1987, respondent denied petitioner's protest covering the P654,311.37 assessment. Likewise, in a letter dated December 26, 1988 but received by petitioner on December 29, 1989, through its external auditor, Joaquin Cunanan & Co., respondent denied the protest." ( Annex " E ", pp . 59-60 , Rollo ) From the denial of the protest, Borden International Phils., Inc., (BORDEN) filed a petition for review before herein public respondent Court of Tax Appeals. On April 14, 1994, the Tax Court rendered herein assailed Decision, the dispositive portion of which reads: "WHEREFORE, in view of all the foregoing the Court hereby orders the cancellation of the two assessments in the amount of P654,311.37 and P3,028,549.08 issued by respondent, without pronouncement as to costs. "SO ORDERED." ( Annex E , p . 65 , id .) Hence, the instant petition on the sole issue of "whether or not 'methanol' falls under the term 'solvents' as mentioned under Section 153 (f) of the National Internal Revenue Code, therefore, subject to specific tax." Section 153 of the National Internal Revenue Code of 1977, subject of the present controversy, reads as follows: "Section 153. Specific tax on manufactured oils and other fuels . On refined and manufactured mineral oils and motor fuels, there shall be collected the following taxes which shall attach to the articles hereunder enumerated as soon as they are in existence as such: "(a) Kerosene, per liter of volume capacity, seven centavos; "(b) Lubricating oils, per liter of volume capacity, eighty centavos; "(c) Naphtha, gasoline and all other similar products of distillation, per liter of volume capacity, ninety-one centavos; provided , That on premium and aviation gasoline the tax shall be one peso per liter of volume capacity; "(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one centavo; Provided , That unless otherwise provided for by special laws, if the denatured alcohol is mixed with gasoline, the specific tax on which has already been paid, only the alcohol content shall be subject to the tax herein prescribed. For the purposes of this subsection, the removal of denatured alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to have been removed for motive power, unless shown to the contrary; "(e) Process gas, per liter of volume capacity, three centavos; (f) Thinners and solvents, per liter of volume capacity, fifty-seven centavos; "(g) Liquefied petroleum gas, per kilogram, fourteen centavos; Provided , That liquefied petroleum gas used for motive power shall be taxed at the equivalent rate as the specific tax on diesel fuel oil; "(h) Asphalts, per kilogram, eighty centavos; "(i) Greases, waxes and petrolatum, per kilogram, fifty centavos; "(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five centavos." ( Emphasis supplied ) BORDEN invoked the rule of noscitur a sociis in the court a quo and argued that "methanol" is not the "solvent" contemplated under Section 153 (f) of the Tax Code since it is neither a "mineral" nor "oil" derivative as provided by said Section 153. The CIR, on the other hand, argued that the article is a solvent and derived from mineral oil like all other products enumerated in said section. The Tax Court resolved the issue in this wise: ". . . We agree with the petitioner that pursuant to the generally accepted principles of noscitur a sociis and ejusdem generis , the term 'solvent' should be understood within the context of the class or enumeration that goes with it in the particular provision of law. Section 153 is very clear that it covers only 'refined and manufactured mineral oils and motor fuels' and all other products enumerated like kerosene, "lubricating oils, Naphtha, gasoline, denatured alcohol for motive power, processed gas, thinner, liquified (sic) petroleum gas, diesel fuel, asphalt, grease, waxes and aviation turbo jet fuel belong to the same class. Solvents mentioned in subletter (f) together with thinner should likewise be understood to be within the same class. Solvents as used in the law should not be understood in their ordinary meaning but should be understood in its technical sense, otherwise, even water may fall under this category which is clearly not the intention of the law. At this point, even the respondent agrees with this interpretation but insisted that the methanol subject of this case is a solvent manufactured out of mineral oil or petroleum based." ( pp . 62-63 , id .) We agree with the Tax Court that the term "solvents" must be deemed to refer only to refined and manufactured oils and motor fuels. It cannot be supposed that any and all types of solvents are taxable under said provision of the Tax Code. Section 153(f) should be read not in isolation from but within the context formed by said section relating to specific tax on manufactured oils and other fuels, specifically to refined and manufactured minerals oils and motor fuels. It is evident that there is a unifying element which runs through subsections (a) to (j) and that is, they all refer to refined and manufactured mineral oils and motor fuels. The maxim, noscitur a sociis , states that where a particular word is equally susceptible of various meanings, its correct construction may be made clear and specific by considering the company of words in which it is found or with which it is associated ( Buenaseda vs . Flavier , 226 SCRA 645 ). Further, the Tax Court correctly referred to the classifications set forth in the Tariff and Customs Code in order to clarify the scope of the term 'solvents', to wit: "The Tariff law is generally divided into schedules, the latter into chapters and further subdivided into tariff headings. Thus, Schedule I pertains to Live Animals, Schedule II to Vegetable Products and so forth. Mineral Products is under Schedule V and Products of Chemical and Allied Industries under Schedule VI. "Refined and manufactured mineral oils and motor fuels are found on Chapter 27 of Schedule V. Note that the said chapter includes all the products mentioned in Section 153 of the National Internal Revenue Code including some known solvents like Benzole, Toluole, Xylole, Napthalene, Phenols and low aromatic solvents. (Tariff Heading Nos. 2707.10, 2707.20, 2707.30, 2707.40, 2707.60 and 2710.0030). However, 'methanol' or 'methyl alcohol' is not one of those enumerated in the said Chapter 27 but is found under Chapter 29, Organic Chemicals, of Schedule VI. More specifically it is Tariff "Heading No. 29.048, as Acyclic Alcohols and their Halogenated, Sulphoneted, Nitrated or Nitrosated Derivatives. This is now Tariff Heading No. 29.05 under the Tariff and Customs Code of 1991 with the same classification. "In fact, one of the particular shipments involved (Exhibit 1-3) covered by C. Itoh Invoice No. EB02088 dated September 12, 1984 was classified by the Bureau of Customs as organic chemical under Tariff Heading No. 29.04 at 30% tariff rate of duty (Exhibit I-4). Had this been classified as mineral oil under Tariff Heading No. 27.07 where most of the solvents derived from mineral oils are classified, the tariff rate will only be 10% duty. We do not believe that the law intends to have a multiple classification of the same article or products and more so to classify the same as to fall under a different category depending upon which imposes the higher rate more favorable to the government. To adopt the stand of the respondent that 'methanol' should be classified as mineral oil derivative for the purpose of imposing specific tax will have this effect." ( pp . 63-65 , id .) The rule is that a statute should be construed not only to be consistent with itself but also to harmonize with other laws on the same subject matter, as to form a complete, coherent and intelligible system. This is expressed in the maxim, interpretare et concordare legibus est optimus interpretandi , or every statute must be so construed and harmonized with other statutes as to form, a uniform system of jurisprudence ( Corona vs . Court of Appeals , 214 SCRA 378 ). This maxim also means that the best method of interpretation is that which makes laws consistent with other laws and that courts should harmonize them, if this is possible, because they are equally the handiwork of the same legislature ( Gordon vs . Veridiano II , 167 SCRA 51 ). Finally, petitioner is plainly in error in insisting that "methanol is a solvent manufactured from mineral oil" in order to bring said article under the operation of Section 153 of the Tax Code. The Encyclopedia Americana , Volume I , 1956 Ed ., p . 346 states that: ". . . The simplest of all primary alcohols is methanol. . . . Until a few years after World War I, practically all commercial methanol resulted from the destructive distillation of hardwoods. The main components of the liquids coming off from wood heated in ovens away from air were acetic acid and methanol. . . . Since 1929 a process of synthesizing methanol (methyl alcohol) has been developed to such an extent that the synthetic product has largely displaced the wood distillation variety. This process involves that action of hydrogen at high temperature and pressure in the presence of a catalyst on carbon monoxide, . . ." Clearly, methanol is neither a manufactured oil nor motor fuel so as to fall under the scope of Section 153 of the Tax Code. It is an alcohol, either of the wood alcohol variety or of the synthetically produced compound. Specific alcohols such as ethanol, methanol, and glycerol, are consumed in enormous amounts for literally thousands of applications ( Encyclopedia Britannica , Vol . I , 1975 Ed ., p . 453 .) Methanol is widely used as an anti-freeze in automobile and truck trailers ( Encyclopedia Americana , Id .) WHEREFORE, the Decision of the Court of Tax Appeals dated April 14, 1994 in CTA Case Nos. 4169 and 4329 is AFFIRMED in toto . SO ORDERED. * Mabutas, Jr . and Salas, JJ . , concur. Footnotes * Vice Justice Jaime M. Lantin, per raffle by the Raffle Committee dated November 24, 1997.