Commissioner of Internal Revenue v. Southern Negros Multi-Purpose Cooperative

TENTH DIVISION [CA-G.R. SP No. 38490. November 28, 2000.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . SOUTHERN NEGROS MULTI-PURPOSE COOPERATIVE and COURT OF TAX APPEALS , respondents . D E C I S I O N BARCELONA , J p : This is a petition for review filed by the Commissioner of Internal Revenue (CIR) assailing the Decision dated August 9, 1995 rendered by the Court of Tax Appeals allowing private respondent's claim for refund of the value-added tax it paid in the amount of P280,729.02. The dispositive portion of the assailed Decision reads: "WHEREFORE, in view of the foregoing, respondent Commissioner of Internal Revenue is hereby ordered to refund to petitioner the sum of P280,729.02 corresponding to erroneously collected value-added tax paid by petitioner on March 27, 1992. SO ORDERED." (p. 48, Rollo ) Private respondent Southern Negros Multi-Purpose Cooperative, Inc. (respondent Cooperative) is a multi-purpose cooperative duly registered with the Cooperative Development Authority, licensed to operate as a sugar trader, and composed of sugar-planter members whose produce are milled by the Central Azucarera de la Carlota in Bacolod City. AIaDcH On September 3, 1991, the Deputy Commissioner of the Bureau of Internal Revenue (BIR) who respondent Cooperative granting its request for tax exemption under the Cooperative Code of the Philippines. The Deputy Commissioner wrote, among others, to wit: "Based on the foregoing and pursuant to Article 61 of the Cooperative Code, you are exempt from all taxes and fees imposed under the internal revenue laws and other tax laws. This exemption however, does not include the 10% value-added tax which might be passed on or billed to you by the seller/vendor on your purchase of goods. In case you will distribute interest on capital, such interest shall be taxable to the recipient member and shall be declared in his income tax return for tax purposes. Moreover, your interest income from Philippine currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines shall be subject to the 20% final tax imposed by Section 24(e)(1) of the Tax Code, as amended. You shall also be taxed on prizes, winnings and capital gains realized on sales or exchange of property." (p. 79, Rollo) Thereafter, the Regional Director of the BIR informed respondent Cooperative that their district offices have already been instructed to allow withdrawals of the processed sugar by cooperatives without the payment of the advance Value-Added Tax (VAT). Nevertheless, the district offices were likewise instructed to inform the cooperative of the possibility that the BIR may either: "(1) Assess the individual member if withdrawals are made in their individual names considering that the exemption of the cooperative does not extend to the individual member; or (2) Assess the cooperatives themselves if proven that they have engaged in a systematic and business-like manner the trading of such processed sugar, i.e., buying and selling activities, etc., more so, if the funds used were borrowed. To our mind, these activities no longer constitute the ordinary and usual functions of a cooperative but rather are the activities of a sugar trader, for the purpose of making profit." (p. 18, Rollo ) Thereafter, some time in March 1992, the Acting Regional Director wrote the Central Azucarera de la Carlota informing the latter that while respondent Cooperative is exempt from all taxes and fees imposed under the internal revenue regulations and other tax laws, said exemption does not extend to its individual members. Hence, the sugar cane and refined sugar owned by the Cooperative's members and sold through it, is subject to the 10% value-added tax advance payment prior to its removal from the mill premises. (Annex "G", p. 80, Rollo ) Consequently, the Central Azucarera de la Carlota refused to allow the withdrawal of the sugar produce without prior payment of the value-added tax. CcHDaA For this reason, respondent Cooperative paid under protest said advance value-added tax in the amount of P280,729.02. On February 11, 1994, respondent Cooperative filed a claim for tax refund with the Commissioner of Internal Revenue, after which, it filed a petition for review with the Court of Tax Appeals. Per Decision dated August 9, 1995, the Court of Tax Appeals granted respondent Cooperative's claim for tax refund. Hence, the instant petition by the Commissioner of Internal Revenue. As aptly put by petitioner, the pivotal issue in this case is: ". . . whether or not the ownership of the raw cane sugar of respondent cooperative planter-member was effectively transferred to the cooperative by virtue of the Deed of Assignment executed by the planter-members in favor of the cooperative." (p. 8, Petition; p. 33, Rollo ) The Court is well aware of the tax exemption granted to cooperatives by virtue of Article 61 of the Cooperative Code of the Philippines [ Republic Act No. 6938 ], viz: "Article 61. Tax Treatment of Cooperatives . Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any government taxes or fees imposed under the Internal Revenue Laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section." The foregoing exemption is pursuant to the State's policy of providing assistance to cooperatives to enable them "to develop into viable and responsive economic enterprises and thereby bring about a strong cooperative movement that is free from any conditions that might infringe upon the autonomy or organizational integrity of cooperatives." ( Article 2, Declaration of Policy, Cooperative Code of the Philippines ) Petitioner, however, argues that respondent Cooperative is liable to pay the value-added tax as the processed sugar withdrawn from the Central Azucarera de la Carlota is still owned by the planter-members, and not by respondent Cooperative. On the other hand, respondent Cooperative claims that by virtue of the Deed of Assignment individually executed by the planter-members in favor of the former, ownership thereof was effectively transferred to it. CIcEHS Given these contentions, the decisive question that needs to be resolved is whether there was a bona fide sale of the raw cane sugar with the purpose of transferring ownership such that the same is covered by respondent Cooperative's tax exemption. The Deed of Assignment executed by the individual planter-members in favor of respondent Cooperative provides for the following stipulations, inter alia : "1. The Producer agrees to sell, transfer and convey to the Cooperative all his/her raw cane sugar produces in the following: xxx xxx xxx 2. The "Cooperative" hereby undertakes: xxx xxx xxx b. To pay the price of sugars manufactured including molasses and other derivatives on the basis of the current price obtainable in the market at the time of delivery of the quedans to the Cooperative after making deduction on cash advances, interest on advances and/or costs incident to the storing and handling of the sugar produced therefrom; xxx xxx xxx 3. All quedans covering such sugar manufactured shall be in the name of the Cooperative with a notation that it is for the account of a particular cooperative member so as to properly identify the planter to be paid and in order to properly record all transactions for purposes of accurately computing patronage refund and other accruing benefits." While the foregoing Deed of Assignment provides that the planter-member has conveyed to respondent Cooperative the raw cane sugar, there was no effective transfer of ownership by virtue of a sale to respondent Cooperative until after the raw cane sugar was finally processed and manufactured into refined sugar. This is evident from the Deed of Assignment itself where it is provided that respondent Cooperative undertook to pay the planter-member based on the price of the refined sugar less the cash advances, interest on advances and/or costs incident to the storing and handling of the refined sugar. Thus, it is apparent that the ownership of the raw cane sugar is retained by the planter-member at the time the same was delivered by respondent Cooperative to the Central Azucarera de la Carlota, up to the time the same is finally manufactured as refined sugar. Said finding is further bolstered by the fact that the quedans, though in the name of respondent Cooperative, included a notation that it is for the account of a planter-member "to properly identify the planter to be paid and in order to properly record all transactions for purposes of accurately computing patronage refund and other accruing benefits". If the sale was of the raw cane sugar, and ownership thereof was fully vested in respondent Cooperative at that juncture, there was no need for such notation as the agreement has already been completed. The Court cannot help but assume that the Deed of Assignment was merely executed as a means to escape the burden of taxation. All told, the Commissioner of Internal Revenue committed no error when it assessed a 10% value-added tax advance payment prior to the removal of the refined sugar from the mill premises, since ownership thereof never left the planter-members who are not exempt therefrom. Anent the Decision rendered by the Twelfth Division of this Court in CA-G.R. SP No. 38634 involving the La Carlota Mill District Multi-Purpose Cooperative, and which affirmed the Decision of the Court of Tax Appeals ordering the refund of the 10% Value-Added Tax, suffice it to say that said Decision has only persuasive and not conclusive effect on this Division, and its finality is binding only between the parties thereto, which notably, does not include respondent Cooperative. WHEREFORE, finding merit in the instant petition for review, the same is hereby GRANTED, and the assailed Decision dated August 9, 1995 of the Court of Tax Appeals is hereby REVERSED and SET ASIDE. SO ORDERED. Cosico and Reyes, JJ., concur.