Commissioner of Internal Revenue v. La Suerte Cigar and Cigarette Factory, Inc.

SECOND DIVISION [CA-G.R. SP No. 51371. August 23, 1999.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . LA SUERTE CIGAR AND CIGARETTE FACTORY, INC. , respondent . D E C I S I O N ABESAMIS , J p : This is a Petition for Review filed on March 15, 1999 from the Decision dated February 15, 1999 of the Court of Tax Appeals in CTA Case No. 5527, entitled La Suerte Cigar And Cigarette Factory, Inc. v. Commissioner of Internal Revenue, ordering the petitioner for refund in favor of respondent the amount Of P118,350.00 representing paid specific taxes on importation of stemmed-leaf tobacco for the month of May 1995. On April 30, 1999, without necessarily giving due course to the instant petition, we gave the respondent ten (10) days from notice thereof to file its comment (not a motion to dismiss) which shall be treated as an answer should the petition be given due course. Thereafter, petitioner may file its reply within five (5) days from receipt of respondent's comment. LLjur Meanwhile, we resolved to deny outright petitioners prayer to stay the judgment of the Court of Tax Appeals after finding the same not sufficient in form and substance in relation to Section 4(a), Rule 58 of the 1997 Rules of Civil Procedure. On May 28, 1999, respondent filed its Comment on the Petition For Review. Petitioner likewise filed its Reply on June 4, 1999. Hence, this decision. The factual antecedents of this case are: "During the month of May, 1995, Respondent collected from Petitioner the aggregate amount of P118,350.00, allegedly representing the specific taxes due on its bulk purchases of stemmed-leaf tobacco from foreign tobacco manufacturers, broken down as follows: Quantity of Stemmed-leaf ATAPET SERIAL Amount of Date tobacco purchased NUMBER Tax Paid Exh 5-04-96 138,600 Kgs. 2045164 P103,950.00 A 5-04-96 19,200 Kgs. 2045166 14,400.0 0 B P118,350.00 ========= The said amount was paid by petitioner under protest. On September 27, 1996 and October 2, 1996, Petitioner filed with Respondent claims for the refund of specific taxes it paid on imported stemmed leaf tobacco during the period October, 1994 to May, 1995, which included the amount of P118,850.00 claimed in the herein petition. The same was not acted upon by the Respondent, hence, on May 2, 1997, Petitioner filed with this Court the instant Petition for Review, which avers that: prcd I. The collection under Section 141(b) of the Tax Code of the P0.75/kilo excise tax on sales of stemmed-leaf tobacco to be used in the manufacture of cigarettes, is erroneous and/or illegal for the following reasons: a) Section 137 is the applicable provision, b) the administrative practice of the BIR since 1939 was not to subject stemmed leaf tobacco to excise tax, c) payment of specific tax on stemmed leaf tobacco amounts to double taxation because excise tax is again paid on the finished product, i.e., cigarettes, d) Section 141 is a general provision of law and does not apply to stemmed leaf tobacco, e) sale of partially manufactured tobacco is exempt specific tax under Revenue Regulations No. 17-67, f) BIR Ruling supports La Suerte's position, g) authority on tobacco law states that sale from one manufacturer to another is exempt from tax, and h) even if La Suerte is originally liable, it can no longer be held liable for specific tax at the present time. II. Assuming arguendo, specific tax was due, the amount collected was erroneous. On the other hand, Respondent, in her Answer, raised the herein special and affirmative defenses, thus: (1) Petitioner has no cause of action against Respondent, (2) under Revenue Regulations No. 17-67, specifically Sec. 1, paragraph 1 thereof, stemmed leaf tobacco is considered partially prepared tobacco thus subject to specific tax under Section 141(b) of the Tax Code, (3) imported stemmed leaf tobacco is subject to excise tax, pursuant to Section 128 of the Tax Code, (4) the application of exemptions under Section 137 of the Tax Code is not without limitations, therefore, applies only to local sales of stemmed leaf tobacco and if the sale is by one L-7 permitted directly to another L-7 permittee, (5) Petitioner has not shown that it falls squarely under Section 42(a) of Revenue Regulations No. 17-67, (6) assuming, that the BIR failed to subject stemmed leaf tobacco to specific tax, such failure does not bar the government from collecting, since the government is never stopped from collecting legitimate taxes due to the mistake of its agents, (7) BIR Ruling, dated December 12, 1972, which states that the sale of partially manufactured tobacco by an L-6/L-3R permittee to an L-7 1/2 permittee may also be allowed without prepayment of the specific tax, is erroneous, (8) the imposition of specific tax on stemmed leaf tobacco would not amount to double taxation in the prohibited sense, even if specific tax is also imposed on the finished product of which stemmed leaf tobacco is an integral part, for the reason that the tax is imposed on two different subject matters, namely, stemmed leaf tobacco and cigarettes, (9) in an action for tax refund, the burden of proof is on the taxpayer to establish its right to the refund and it is incumbent upon the herein Petitioner to show compliance with the provisions of Sections 204 and 230 of the Tax code, and (10) tax refunds are construed strictly against claimants since, they partake of the nature of exemption from taxation." (pp. 1-4, Decision, C.T.A. Case No. 5527, February 15, 1999, pp. 27-30, Rollo) prLL On February 15, 1999, the Court of Tax Appeals came out with its Decision in C.T.A. Case No. 5527, the dispositive portion of which states that: "IN THE LIGHT OF THE FOREGOING, Respondent is hereby ORDERED to REFUND to herein Petitioner the total amount of P118,350.00, representing its erroneously paid specific taxes for May, 1995, without pronouncement as to costs. SO ORDERED." (p. 12, Decision, supra.) Before Us, petitioner contends that: "I. THE COURT OF TAX APPEALS, RELYING UPON THE RULING IN CA-G.R. SP NOS. 38219 AND 40313 ENTITLED COMMISSIONER OF INTERNAL REVENUE VS. FORTUNE TOBACCO CORPORATION", ERRED IN HOLDING THAT STEMMED LEAF TOBACCO IS NOT SUBJECT TO THE SPECIFIC TAX IMPOSED UNDER SECTION 141 OF THE TAX CODE. II. THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT UNDER SECTION 137 OF THE TAX CODE, STEMMED LEAF TOBACCO IS EXEMPT FROM SPECIFIC TAX WHEN SOLD IN BULK AS RAW MATERIAL BY ONE MANUFACTURER DIRECTLY TO ANOTHER UNDER SUCH CONDITIONS AS MAY BE PRESCRIBED IN THE REGULATIONS OF THE DEPARTMENT OF FINANCE." (pp. 4-5, Petition For Review, pp. 12-13, Rollo) The instant petition is not impressed with merit. The only issue before us is whether or not respondent is entitled to the refund of the amount of P118,350.00 representing erroneously paid specific taxes on various importation of stemmed leaf tobacco for the month of May 1995. It is the contention of the petitioner that stemmed-leaf tobacco is partially processed tobacco pursuant to the provisions of Section 1 (L) of the Revenue Regulations No. 17-67, and thus embraced within the scope of Section 141 b). The respondent however, failed to consider Section 137 of the Tax Code, which is the applicable provision. Section 137 states that: LLpr "Stemmed leaf tobacco, fine cut shorts, the refuse of fine cut chewing tobacco, scraps, cuttings, clippings stems or midribs, and sweepings of tobacco may be sold in bulk as raw material, by one manufacturer directly to another, without payment of tax." Section 1 (h) of Revenue Regulations No. 17-67, known as "The Revenue Tobacco Regulations", defined "manufacturer of tobacco" as including "every person whose business it is to manufacture tobacco or snuff or who employs others to manufacture tobacco or snuff, or who employs others to manufacture tobacco or snuff, whether such manufacturing is by cutting, pressing (not balancing), grinding, or rubbing (grating) any raw or leaf tobacco, or partially manufactured tobacco and snuff or putting up for consumption scraps, refuse, or stems of tobacco resulting from any process of handling tobacco stems, scraps, clippings, or waste sifting, twisting, screening or by any other process." La Suerte is engaged in manufacturing cigarettes. La Suerte utilizes the stemmed leaf tobacco to manufacture cigarettes. It is thus manufacturer of tobacco. When the law and regulations enumerate and define various categories of manufacturers subject to excise tax and thereafter, exempt from excise tax the sale of stemmed leaf tobacco "by one manufacturer directly to another", this broad and unqualified provision manifestly covers the sale of stemmed leaf tobacco by any manufacturer to another. Since Section 137 broadly grants excise tax exemption for tobacco products sold as raw material "by one manufacturer directly to another", without distinction, it must be deemed to refer to all "manufacturers of tobacco products", whether they be manufacturers of cigars, manufacturers of cigarettes or manufacturers of tobacco, and whether or not they are located abroad or in the Philippines. where the law uses a general term without qualification, it must be so understood. This means that Section 137 covers all "manufacturers", without distinction The maxim " Ubi lex non distinguit nec nos distinguere debemos ", or "where the law does not distinguish, neither do we distinguish" ( Pilar vs . Commission on Elections , 245 SCRA 759 ), finds application in the case at bar. Thus, La Suerte, a manufacturer of tobacco, cannot be held liable for the payment of any excise tax, since it purchased stemmed leaf tobacco in bulk from other tobacco manufacturers, and thus fell within the clear terms of Section 137 of the Tax Code. cdll Any administrative attempt to restrict the application of Section 137 would amount to legislation, which is manifestly beyond the powers of the petitioner. WHEREFORE, premises considered, the instant petition is hereby DENIED DUE COURSE and DISMISSED. Luna and Regino, * JJ . , concur. Footnotes * per Office Order No. 142-99-E.