Thursday, February 23, 2012

CIR vs. Cebu Portland

Facts: The Commissioner of Internal Revenue was ordered to refund to Cebu Portland the amount of P359,408.98, pursuant to a June 1961 CTA decision and as modified by SC on Feb 1965, representing overpayments of ad valorem taxes on cement it produced and sold after Oct. 1957. Both petitioner’s and private respondent’s motion for recon were denied, and subsequently, private respondent moved for a writ of execution to enforce the above judgment which was opposed by CIR on the ground that private respondent had an outstanding sales tax liability to which the judgment debt had already been credited, stressing in the amount of P4,789,279.85 plus surcharges, whereby the CTA granted such motion to determine its sales tax liability and which could not be set-off against the refund as yet. On his petition, the CIR claims that the refund should be charged against the tax deficiency of the private respondent on the sales of cement under Sec.186 of the Tax Code, his position is that cement is a manufactured and not a mineral product and therefore not exempt from sales tax. The petitioner also denies that the sales tax assessments have already prescribed because the prescriptive period should be counted from the filing of the sales tax returns, which had not yet been done by the private respondent Cebu Portland. The private respondent for its part disclaims liability for the sales taxes, on the ground that cement is not manufactured product but a mineral product and as such was exempted from sales taxes under Sec. 188 of the Tax Code after effectivity of RA no. 1299 on June 1955, and that the alleged sales tax deficiency could not yet be enforced against it because the assessment was not yet final, being still under protest. 

Issue: Whether or not cement is subject to ad valorem tax. 

Held: The ruling is that the sales tax was properly imposed upon the private respondent for the reason that cement has always been considered a manufactured product and not a mineral product. It is clear that cement was never considered as a mineral product within the meaning of Sec.246 of the Code, notwithstanding that at least 80% if its components are minerals, for the simple reason that cement is the product of a manufacturing process and is no longer the mineral product contemplated in the Tax Code, i.e., minerals subjected to simple treatments, for the purpose of imposing the ad valorem tax. Furthermore, the decision to be reconsidered referred to the legislative history of Rep.Act. No.1299 which introduced a definition of mineral and mineral products in Sec.246 of the Tax Code. Given the legislative intent, the holding in CEPOC case that cement was subject to sales tax prior to the effectivity of RA 1299 cannot be construed that, after the law took effect, cement ceased to be subject to tax, 

On the private respondent’s contention that the five-year reglamentary period for the assessment of its tax liability started from the time it filed its gross sales returns on June 1962, hence tax assessment for sales taxes made on jan and march 1968 were already filed out of time, this fails for what CEPOC filed was not the sales returns required in Sec183 but the ad valorem tax returns required under Sec245 of the Tax Code. 

SC held CTA ruling in err. 

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