Rules and Regulations for the Effective Implementation of R.A. 7686 (Dual Training System Act of 1994)

Case History [C.T.A. CASE NO. 2075. October 7, 1987.] CEPOC INDUSTRIES, INC., (Formerly Cebu Portland Cement Company) , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This case was submitted for decision upon an agreed stipulation of facts as follows: COME NOW the parties in the above-entitled case, through their undersigned counsels, and to this Honorable Court respectfully submit the following stipulation of facts, to wit: 1. That petitioner is a government-owned and controlled corporation duly organized and existing under and by virtue of the laws of the Philippines, formerly engaged in the production of Apo Portland Cement and other products, with principal office at the Apo Cement Building, corner Dasmarias and Barraca Sts., Manila; 2. That respondent is a public officer entrusted with the proper collection of internal revenue taxes; 3. That during the period from January 1, 1961 to June 30, 1962, petitioner produced Apo Portland Cement, more than 80% of which consist of limestone and clay quarried by petitioner from its own mineral land located in the Philippines; 4. That petitioner, for the purpose of computing the ad valorem tax on cement, filed with the respondent immediately after the end of the quarters ending in March, 1961, June, 1961, September, 1961, December, 1961, March, 1962 and June, 1962, the quarterly returns of the gross sales of the cement it produced, on the basis of which the respondent collected ad valorem tax thereon and that said ad valorem tax was the subject of an action for refund docketed as CTA Case No. 1336; 5. That during the period from January 1, 1961 to June 30, 1962, inclusive, the gross sales of the cement that petitioner produced and sold amounted to P13,655,583.04; 6. That after the promulgation on February 27, 1965 of the decision of the Supreme Court in G.R. No. L-18649, entitled "Cebu Portland Cement Co. vs. Commissioner of Internal Revenue", respondent subjected petitioner, as producer of cement, to the payment of the 7% sales tax due thereon; 7. That on March 14, 1968, petitioner received a letter dated March 4, 1968 from respondent assessing the petitioner the amount of P1,194,863.51 as deficiency sales tax and surcharge on the gross sales of cement produced by petitioner from January 1, 1961 to June 30, 1962; 8. That in a letter dated March 15, 1968 which was received by respondent on March 20, 1968, petitioner protested said assessment on the ground that cement is not subject to the sales tax and that the assessment had already prescribed; 9. That on February 10, 1970, petitioner was served by respondent a warrant of distraint and levy on the personal and real properties of the petitioner, No. N-34-B-69, to enforce the collection of the foregoing assessment; thus, in effect, respondent had denied petitioner's protest against the said assessment; 10. That on March 6, 1970, petitioner filed the instant petition with this Honorable Court. WHEREFORE, it is respectfully prayed of this Honorable Court that the foregoing stipulation of facts be approved. During the hearing of this case on March 14, 1978, for the submission and approval of the above stipulation of facts, both parties manifested that the whole of paragraph 5 and the words "due thereon" found in the last part of paragraph 6 thereof should be deleted. After the Court has noted the manifestation of the parties and approved their stipulation of facts, the parties submitted this case for decision. However, on July 6, 1978, respondent filed a manifestation and motion, to wit: COMES NOW the respondent, thru counsel, and to this Honorable Court respectfully manifests that: 1. The petition for review filed by the petitioner in the above-entitled case involves a protest over the assessment in the amount of P1,194,863.51 issued by the respondent against petitioner subjecting the cement it produced and sold for the period from January 1, 1961 to June 30, 1962 to the 7% sales tax as a manufactured product; 2. That the aforestated legal issue was resolved by this Honorable Court against the respondent Commissioner of Internal Revenue in a decision dated June 28, 1972 in the following cases involving similar protests: (1) Republic Cement Corporation vs. Commissioner of Internal Revenue C.T.A. Case No. 2020 (2) Filipinas Cement Corporation vs. Commissioner of Internal Revenue C.T.A. Case No. 2021 (3) Apo Cement Corporation vs. Commissioner of Internal Revenue C.T.A. Case No. 2022 (4) Bacnotan Cement Industries, Inc. vs. Commissioner of Internal Revenue C.T.A. Case No. 2023 (5) Philippine Portland Cement Co., Inc. vs. Commissioner of Internal Revenue C.T.A. Case No. 2027 and in a separate decision dated July 29, 1972 in C.T.A. Case No. 2057, entitled CEPOC Industries, Inc. vs. Commissioner of Internal Revenue; 3. That the aforesaid decisions of this Honorable Court were appealed by the government to the Supreme Court in G.R. No. L-35668, 35670, 35671, 35672, 35683 and 35677, respectively, and where said appeal is now pending and deemed submitted for decision. IN VIEW OF THE FOREGOING, respondent most respectfully moves that further proceedings in this case be held in abeyance to await the decision of the Supreme Court in the appealed test cases filed before the said court. In an order dated June 7, 1978, the Court granted the above motion of respondent. As stated in paragraph 8 of the stipulation of facts, petitioner Cepoc Industries, Inc., poses two issues: (a) whether petitioner's cement is subject to sales tax and (b) whether respondent's assessment had already prescribed. On August 10, 1983 the Supreme Court promulgated its decision in Commissioner of Internal Revenue vs. Republic Cement Corporation, Filipinas Cement Corporation, Apo Cement Corporation, Bacnotan Consolidated Industries, Inc., Rizal Cement Company, Inc., Philippine Portland Cement Co., Inc., and the Court of Tax Appeals, G.R. Nos. L-35668-72 & L-35683; and Commissioner of Internal Revenue vs. Cepoc Industries, Inc. and the Court of Tax Appeals, L-35677, 124 SCRA 46, wherein the High Tribunal unequivocally ruled that cement is a "manufactured product" and its sale is not exempt from the sales tax imposed by Sections 186 & 188(c) of the then in force National Internal Revenue Code. As a consequence of this ruling, the Supreme Court ordered the private respondents therein to pay the sales tax. Buttressed by the law, precedent and reason, we find unnecessary to re-echo the rationale of the ruling of the Supreme Court that cement is subject to the sales tax. For purposes of computing the correct tax liability of petitioner, however, some qualifications as pointed out in the decision are in order. To quote: (1) The disputed assessments carry a 25% surcharge pursuant to Section 183 (a) of the Tax Code (now Sec. 193 (a) (3)) which prescribes the said surcharge for late tax payment. In Connell Bros. Co. (Phil.) vs. Collector of Internal Revenue (10 SCRA 469 at 470-471), the then Justice Makalintal, speaking for the Court, rejected therein the imposition of 25% surcharge for late payment: xxx xxx xxx In the case at bar, the assessments are not undisputed or indisputable. The dispute as to the tax liability of private respondents for sales tax on the sale of cement arose not simply because of ordinary divergence of views in good faith vis-a-vis the interpretation of the law; the position of private respondents was founded upon the original stand of the Bureau of Internal Revenue itself that cement is a mineral product rather than a manufactured product and is therefore subject to ad valorem tax, not sales tax. As pointed out above, this stand was apparently given implied support in CEPOC vs. Collector, G.R. No. L-20563 (1968), 25 SCRA 789, penned by Justice Angeles. That the posture of private respondents is plausible despite the subsequent BIR position that cement is a manufactured product subject to sales tax is supported by the fact that the Court of Tax Appeals, the specialized body handling tax cases, sustained the private respondents in the decisions under review. Under the circumstances, the 25% surcharge imposed in the disputed assessment must be deleted. (a) The assessments in question seem to have computed the sales tax liability of private respondents on the basis of the total selling price of cement sold. If this was so, a recomputation is in order so as to deduct from the tax base the costs of raw materials used in the production of cement, such as gypsum, conformably with the provisions of Section 186 [now Sec. 199(a)] of the Tax Code as it stood during the tax period here involved: xxx xxx xxx Before closing, it may be noted in passing that in order to obviate any further controversy, cement qua cement has been expressly made subject to sales tax at the reduced rate of 5% on the implicit assumption that it is a manufactured product and therefore outside the purview of "mineral product" under Section 246 of the Tax Code. (See Presidential Decree No. 1358.) And on the issue of prescription of the government's right to make the subject assessment, which was upheld by the Supreme Court, we quote the pertinent portions of the resolution of the Supreme Court dated May 7, 1987 denying the motion for reconsideration of the decision. 3. Finally, the Motion for Reconsideration filed by private respondent CEPOC raises anew the issue of prescription of the government's right to make the subject assessment in the light of Sec. 331 of the Tax Code. Unlike the non-retroactivity issue, prescription has been ventilated by the movant even during the pendency of the case in the Court of Tax Appeals, and in its pleadings filed with this Court. Both the Court of Tax Appeals decision and the decision sought to be reconsidered are, however, silent on that point. We clarify. Considering that the decision on the tax liability of private respondents, as in fact, the dispositive portion thereof ordered them to pay the 7% sales tax, the prescription issue with regard to the movant CEPOC merits clarification. Left unresolved, it will only serve to nurture the lingering doubt which CEPOC continues to harbor insofar as its tax liability is concerned. Besides, the issue was squarely raised at the proper time and in the proper forum. We elect to discuss the issue, but as already said, only as a clarification of the decision which needs no reconsideration on its merits. In order to avail itself of the benefits of the five-year prescription period under Sec. 331 of the Tax Code, the taxpayer should have filed the required return for the tax involved, that is, a sales tax return. (Butuan Sawmill Inc. v. CTA et al., G.R. No. L-21516, April 29, 1966, 16 SCRA 277). Thus CEPOC should have filed sales tax returns of its gross sales for the subject periods. Both parties admit that returns were made for the ad valorem mining tax. CEPOC argues that said returns contain the information necessary for the assessment of the sales tax. The Commissioner does not consider such returns as compliance with the requirement for the filing of tax returns so as to start the running of the five-year prescriptive period. We agree with the Commissioner. It has been held in Butuan Sawmill Inc. v. CTA , supra , that the filing of an income tax return cannot be considered as substantial compliance with the requirement of filing sales tax returns, in the same way that an income tax return cannot be considered as a return for compensating tax for the purpose of computing the period of prescription under Sec. 331. (Citing Bisaya Land Transportation Co., Inc. v. Collector, G.R. Nos. L-12100 and L-11812, May 29, 1959). There being no sales tax returns filed by CEPOC, the statute of limitations in Sec. 331 did not begin to run against the government. The assessment made by the Commissioner in 1968 on CEPOC'S cement sales during the period from July 1, 1959 to December 31, 1960 is not barred by the five-year prescriptive period. Absent a return, or when the return is false or fraudulent, the applicable period is ten (10) years from the discovery of the fraud, falsity or omission. The question in this case is: When was CEPOC's omission to file the return deemed discovered by the government, so as to start the running of said period? It may be recalled that prior to the interpretation made by the Court in the first CEPOC case in 1965 on the nature and taxability of cement, the Commissioner of Internal Revenue was of the opinion that sales tax was not due on cement. Consequently, said private respondent did not file the required sales tax returns on its gross sales of cement for the period from July 1, 1959 to December 31, 1960. However, it was only in 1968, and by reason of said interpretation, that the Commissioner changed his opinion and assessed sales tax against the private respondents, including the movant CEPOC. The Commissioner contends that his duty to assess the sales tax in question arose only after the Court ruled in the first CEPOC case (G.R. No. L-18649, February 27, 1965) that cement was subject to the tax. Thus, according to him, the statute of limitations began to run only in 1967, when the Motion to Reconsider said decision was denied. The net effect of this argument is that the prescription period for the assessment of the sales tax was suspended during the time that the Commissioner held the opinion that cement was not liable to tax. For its part, CEPOC maintains that the statute of limitations cannot be suspended because of the Commissioner's erroneous interpretation of the Tax Code which is not among the grounds for suspension under Section 333. Following this line of argument, the omission of CEPOC would be deemed "discovered" by the government as early as 1960 , after the filing of CEPOC's ad valorem returns. Whether We consider the discovery of CEPOC's omission to file a sales tax return to have taken place in 1960 , immediately after the filing of its returns for ad valorem tax, or in 1967, when the Commissioner changed his erroneous ruling, We will arrive at the same result. Since the subject assessment was made in 1968, the same still falls within the ten-year prescriptive period either from 1960 or from 1967. WHEREFORE, the decision appealed from its affirmed; and it is hereby ordered that petitioner Cepoc Industries, Inc., pay to respondent Commissioner of Internal Revenue the 7% sales tax on cement, subject of this case, the same to be computed on the basis of the gross selling price, less appropriate deductions corresponding to the costs of raw materials used in the manufacture of cement, conformably with Section 186 of the applicable National Internal Revenue Code, and without the imposition of 25% surcharge. No costs. SO ORDERED. AMANTE FILLER Presiding Judge WE CONCUR: CONSTANTE C. ROAQUIN Associate Judge ALEX Z. REYES Associate Judge