CTA Case No. 3065 (Decision)

~--- - �t.PUBLI OP TH& P HIL PPI NES ..; JURT F AX APPE..ALS U�%0M Cl111' LOVSTED & CO. , I NC ., C. T.A. CAS E NO . 3065 Peti ti oner , - versus - COMMISSI ONER OF I NTERNAL REVENUE , Re spondent . X- - - - - - - - - ~- - X DEC I S I 0 N Th is i s an appeal from the decision of r espondent Comm i ss i one r of Internal Revenue denying the request of petitioner Lovsted , f or a r e fund of the amount of P36 ,0S6.0 0 , represent i ng alleged erroneously paid 25% advance sal �:� taxes and 50% mark-up on thirty-four ( 34 ) cases of Prestcold Condensing Units and Sear le Evapo- rato rs . ( Indust r ial Ref ri gera tion Mach i ne ry and Parts , Brochu r e , pp . 35- 49 , BI R rec .) Peti t ioner i s a corporation duly organized under the l aws of the Repub l ic o f the Philippines . I t has i ts principal office at Smith, Bell & Co., Inc ., Km. �1 3 , South Expressway , Paranaque, Metro Man ila. It i mpor ted from t he United States for r esale in the Philippines , I several un its o f i ndus t r ial ref i geration e quipmen t and spare pa rts which ar rived on board the vessel "Arnold Mearsk " wi t h Reg i str � No . 2645 , covered by Bill of Lad ing 196

DECI SIO CTA CAS E NO. 3065 - 2- No . NYCF 575 ~nd unde r Entry No. 0032 3 on Ju y 5, 19 79 . Subsequently, in a lett er dated J anu ary 2 , 19 79 , headlined "Authority to elease Imported Goods" o 8 IT-7 9-00000 66 , (Exh. B, p8 6 ,. CTA rec.) '� r espondent Comm issi oner of I nternal Reve nue a uthori zed the release of the imported merchand ise fr om cu stoms custody , s ub- jec t to the payment of 25% advance sales tax and 50% mar k-up , in accordance with Secti on 196 (i) ~nd ( m )~ in r e l at ion to Section 193 (ij) .of th e National Internal Reve nue Code , as amended . Quoted below are the pert i nent portions of said Section 196 : SEC . 196. Percentage tax on sales of semi-essential article s . - There shall be levied , assessed , and collected only once on every origina l sales, ba rte r, exchange, or similar transaction intended to t ransf er own ership of , or title to, the ar ticles here- inbelow enumerated , a tax equ i valent to twenty-f ive per c en t um of the g r oss selling pr ice or gross value, in money of the articles so s old, bartered , exchanged or transferred, such t ax t o be paid by the manufacture r s or producers : XXX XXX XXX XX XXX XXX ( i ) . bever age cooler s, ice cream cabinets , wa ter coolers, fo od and beverage storagecabinets , each h avi~g, or be i ng par tic ularly designated for use with a mechanical refrigerati ng unit ope rat ed by electrici ty , gas , kerosene or other means 1 XXX XX X XXX XXX XXX XXX rn ) Simila r or a nalogous artic le to t hose e umerated above, as determined by the Secretary lB7

DEC ! I ON - CTA CAS E NO . 3065 - 3- of F i nance upon r e commendat i on o f t he Commis- sione r of I nte rnal Revenue base on t he in- he e nt e ssen t i a l it o f t he produc t .w As an a fte rma th of sa id authority t o r elease goods , on wh i ch pe titioner paid (Annex E, p. 1 5 , CTA r ec. ) t he higher r a t e o f 25% a dvance sales tax as per Sec t ion 196 i) .and (m) _afor ement i oned , her ein petit ioner wrote a l e t te r to r esponden t on J anuary 5 , 197 9 , r equesting r econsidera ti on and asse r t i ng the re in that the imported me r c ha nd ise (un its and spar e pa rts ) .a r e "xxx f o r install- ation o f c ol d storage of fish, shrimp, meat and e tc., and not suitable f or a i r conditionin9, " and such being the c ase , t he sa i d i mpor ted articles should only be subject to 10~ a dvanc e sa l es tax and 25% ma r k-up , in accordance with Section 19 3 ( b )~ i n r elat i on to Section 199 o f the Na ti ona l I nter na l Revenue Code , as amended . The s ame r equest f or reconsiderat i on was later r eiterated in an- other l ett er dated January 19 , 1979, but the said request s f o r r e consider ation were denied . Henc e , this a ppeal . The i ssues are (l) .whethe r o r no t t he i mpo rted ar t i cles ar e subj ect to a 25% and 50% mark- up o r 10% advance sales t ax and 25% mark - up ; and (2) _whe~her or not pe titioner i s entitled to a refund of the amoun t o f P36,086 . 00, represen ting alleged err oneous pa Y.ment o f 25% acvanc e sales t a and 50% ma r k-up. I n his Answer to the pet ition for r eview, r espondent ave r red tha t "xxx t he descript i on and uses of s ubj ec t 198

I ' DECISION - CTA CASE NO. 3065 - 4- i mpor ted refri ger at i on machines show tha t t he s o-ca lled ' small walk-in col d s torage f or food 0 is actually a cooled refrigera tor undoubt edly to be used for stor ing and keeping.food and other i tems c ool and , therefore, similar or analogous to ' food and beverage storage c abinets'" within the c on text o f Secti on 196 ( i) .and (m) . in relation to Section 193(b) of the Ta x Code , as ame nded by P .o. No . 1358, sub j ect to t he higher rate of tax at 25% advance sales t a x a nd SOi mark-up . As a consequence of t he above posit i on of the respondent , peti t i oner had paid an add itional amoun t of ~36 , 086 .00 or 25% advance sales tax plus 50~ mark-up on May 14, 197 9 . (Annex "E", p. 15 , CTA rec .) . However , shortly after, or on July 24 , 1979 , petitioner filed a claim for r e f und of said amount of P36 ,0 86 . 00 , stat ing the re in th~ the payment a nd collection thereof was erroneous and i s not in accordance with law. It stead- fas tl y c lung to its be lief th a t t he quest i oned me r chan dise should be subjec t only to the l ower r ate of 10% advance sales tax and 25% mar - up , and i t c a l led r espon- dent 's attention t o an .earli e r ruli ng da ted August 9, 1973 of the then Commissione r of In ternal Revenue Misael P. Ve ra (Exh . " K", p. 54, CTA r ec ., underlining ~ � ) .quo ted he reunder� 199

l DECISION - CTA CASE NO . 3065 - ,5 - Aug us t 9 , 1973 Mr . D. A. Monteliba o Executi ve Vice- Presi dent Smith , Be ll & Company, Inc. P.O Box 311, Manila Si r : This r e f ers to your letter dated August 8 , 973, r equest ing c onfirmation that the impor t - ations of your corporations, name ly: Comm ins Diesel Sales and Se rvice Corporation of the Philippines; Smith, Bell & Company, Inc .,; and G. M. Lo.v sted & Co. (P h il), Inc. of Frigi- king Ca r r �cr -Tr a nsicold , Krack, J & E Hall, Copela nd, Spa rland and Penn indust rial refri- ge ration equ ipment and parts and accesso ries thereof are subj ect only to the 7% advance sales tax. It is sta t ed in your letter t hat the i m- ported i ndus trial r efrigeration equipment a re for i nstallation in built-in truck refriger- ation units, concrete war ehou ses, i nsul ated con tainers and boxes or i nsulated ships 0 holds of your cli ents who are engaged in shrimp , and f ish processi ng f 0 r ~xpo!!L_frozen food manu- f acturers, frozen chicken producers, supermar ket cold storage , fi shing boats, etc . In reply , I have the honor to infor m you that consider i ng the f oregoing na ture and uses o f t he ind ustr i ~ l refr igerators imported by you r above-named corpor ations and our appreciation of the brochur e s s ubm itted, said i mportations of i ndustr ial refr igerator s toge ther with par ts a nd accessories t heJ:eof __E..y your aforenamed c or - porations_are sub j ect to the 7% advance sales t a x based on the l and ed cos t thereof plus 25% ma r k- up , pu rsuant to s�ection lSJ(b) in r elati on to Section 1 86 , bo th o f t he Tax Code . Very tru ly yours, HISAEL P . VERA Comm issioner of Internal Re venue TAN 1 601-593-5 200

DEC I SI ON - CTA CASE NO. 3065 - 6- To i ll c i da te furt her on the s i gnif i c anc e o t he above ru ing t o the c ase at hand , i s t he f ol owing exp lan at i on o f pe t it ione r t o the pr esen t r a t e o f 10~ from t he o ri gin a l 7 ~ , which pe t i t i one r now be lie ves a s the on l y corr ect r ate upon wh i c h a mo r e judicious asses s - men t o f t he goods s hou l d be made : A l ook- back of the h i sto ry of Sec tion 199 o f t he Ta x Code , as amende d , wil l l e ad us to concl ude t hat t he l aw ma king body or t he t axin g a u tho rity t hemse l ve s have in t ended t o tax these equ i pmen t s at t he r ate of 10~ advan c e s ale s tax a nd 25% ma r k- up a s p rovi ded f or i n Sec tions 19 9 in r elat i on to 193( b) and no t 25% a dv ance sales tax and 50% ma rk - up � unde r Sect i on 1 96 ( i) in r e lat ion t o 193 (b) � ther eof . � I t must be noted that be fo r e t he ena c t - ment of P . D. 1358 , t he p rov is i on c ove ri ng t he " Percentag e Tax o n Sa le s o f Othe r Ar ticles " wa s Sect ion 18 6 o f t he Tax Code p r ovid i ng fo r a r a te o f 7% . Upon. t he e nac tmen t o f P . O. 1 358 , Sec t i on 186 of t he Tax Code was amended a nd bec ame Section 199 t he reof provid i ng t he tax ra te of 10% . Su bs tan ti a l l y , t he amendment wa s on th e i ncr ease of th e tax r ate from 7% to 10% . P eD. 1 358 , li kewise , a mended a ll other s ale s t a x pr ov ision s e numerating therein add itional a r t i cles or pr oduct s covered by t he va r i ous r ates prov i ded fo r in the amended provision s wh i c h ar e now Sect ions 1 94 , 19 5, 19 6 , 1 97 , 1 98 a nd 20 1 of t he Tax Code , as amended . Ye t in al l these amendments , eve n i n the p revious sale s _!ax provisions , c omme r - c ia l and/or industrial r efrigeration e qu i pmen t units wer e n ot amon9 those enumerated t herein . The i n t ent i on , ther efore , i s c l e ar a nd indubi - t able - that t hese art i c l es a r e to be t axed under Sect ion 199 , "Perc entage tax on other s emi-essent i al ar ticles ." The in t en t to t ax t he a rt i cles in quest i on under Sec t i on 19 9 no t under Sec tion 1 96 or other 201

DECIS ION - CTA CASE NO . 3065 - 7- Sect i on s of the Ta x Code , as amended , be comes mor e a ppa ren t when we ta ke c ogn izan ce of ~ pen dent ' s r u lin g, dated Au gu st 9, 1973, spec i - . fic a lly sta ting t herein t hat herein peti t ioner 's i mpor t ed ref ige rat i on equipment a nd parts a re s ubj ect only to 7% advance sale s t ax pursu an t to Section 183 b ) (now Section 19 3 (b ) in rel a - tion to Section lB6 (now Sect i on 199) 'of t he Ta x Code , as amended. (Un de r lin ing ours.) Petitioner then p r ocee de d t o state t ha t : Accord ing t o the weigh t of a uthori t y , and surely th e bette r view, t he cour t may consider the ge ner al hi stor y of a s t a tu te , including its derivation xxx" (Penn. Mutual Life Ins. Co . v. Lederer, 252 u. s. 32 3 , 64 L. Ed. 698 , 40 s . Ct. 39 7; Kell y v. Dewey, 111 Conn, 201 , 149, p. 382 Statu tor y Const r uction, Crawfor d ) Con t rari l y , respond ent avers that , mer c handise in q uestion consis ti ng of re frige r a ti on equipment a nd pa rts are s im ila r or analogo us to those e nume r ate d under Sect i on 196 ( i) .a nd (m) of th e Tax Code, as amended . To d isprove this point, i n one of the hearings in this court, an af fid a vit was pr esented and on which t he witne ss te s tifi e d on t he ba s ic dif fe renc e betwee n the c ommerc ial r e frig e r- ation equipment a nd the household re fr igerator/ f r ee ze r/ coole r, (pp. 17-19 , t s n , Oct . 9, 1981) .thus : Q. In th i s af f idav~ t there i s a c a ption of "Ba sic Differ e nces Be t ween Commercial Re fri ge r at i on Equ ipme n t a nd Ho usehold . Fr ee zer/Re fri ge r ato r/Coo l e r. Are t here X X X? A. Ye s. Q. Will you please re ad the difference of what is sta t ed ther e x x x? A. We ll, a household re fri ger ato r un it is s elf-contained one whe re i n you can ju st

DECIS I ON - CTA CASE NO. 3 06 5 - 8- plug i t on. It is completely bui t . The r anges of horsepowe r is between 1/ 6 to 1/4. The conden ser s ar e f inned ser- pentine coil without any fan . There is no receiver and the evaporator s are printed plates wi th bar e p i pe coil . x x x . XXX XXX XXX A. x x x They are portable . They do not ne ed maintenance ~~p le and t hey are mostly single phase unit ; and the y are generally cabinet t ype package . Q. How about t his one ? A. The commercia l type un i ts are the ones you can see i n t he supe rma rkets , hotels , re staurants . Example of the s e are dis- Elay ca se s wher e you c a n see i n t he suEermarkets ; x x x Actually, you can go ins ide the room . x x x The type o f unit is sp lit t ype e Actually th e y are no t pre-assembled . x x x . XXX XXX XXX A. Yes , t he y are in s talled on s igh t. The r an ges of hor sepower is 1/3 horsepower to 100 . The condensers are fin ned coil with fan mo tors . The e xpansion valves are ther mally ac t uated . The units are fix e d and canno t be tr ansferred o r moved. Mos tly , they are three-phase- vo l tage requiremen t . x x x . " (!:!.!}derscor ing supEli ed .) Meanwhile , on cr oss- exam ination by r espondent Com- missione r o f In ter na l Re venue , the witness further t e st ifie d (pp . 3-4, t sn , Dec . 3, 1981) .t o wit : Q. Mr . Pangi l ina n , in the previous hearing you tr i ed t o di ffe r entiate t he different t ypes of re frigerati on units . Could you poss ibly descr ibe to us how t his refri- � geration mach i e looks 1' e ? � A. Usually , t he household tyEe is someth ing l ike cabinet wherein you could store food ~hile those in commerc ial t ypes th ey ar e 203

DECISION - CTA CASE NO. 3065 - 9- li ke chiller rooms. You can enter th e ~ � They a r e the displ ay cases , x x x Q. The pureose of this, I understand , is to keep the food and other f ood i tems cold and frozen? A. ~ � (EmQhasis Supp lied. ) From t he above , it would seem, therefore, that through the years from 1973, when t he first ruling on the applicabl e tax rate to the questioned merchandise (commerc ial r e fri gera ti on equipment and spare par ts) '� carne out, to the present, the taxing a uthority has not, in the l east , bothered to mak e a posit i ve change in the rate of tax appl i cable to the goods in question . It is also no ted that in certain recently amended sect ions of the Tax Code which en ume ra te goods s ub j e ct to higher rates of tax, the items or goods which are newly inserted therein do not i nclude any of the goods in question in t he i nstant case . Expressio unius e s t exc l usio al te ri us . The ment ion of one thing i mpl i es the exclusion of all others not men ti oned . (Dela Rosa vs . Revita Santos , 1 0 Phil. 148 , 149; Misael P. Vera vs . Hon . Jose F . Fernan dez , 89 SCRA 199 , 203; Ph il. International Fair , I nc . vs . Coll . of Int . Rev., 114 SCRA 710, 717~ In recapit ula ti on , the Cou rt may now safely conclude that re s ponden t' s position that Section 196(i) .an d (m) . correctly apply to the products in controversy is erroneous . We are in no position , or withou t justi fia ble reason , to 204

DECISION - CTA CASE NO . 3065 - 10 - de pa r t fr om the rul ing dated Au gus t 9 , 1973 , (E h. "K" , s upra ) ? f the t hen Commi ssione r o f I nte rn a l Re ven ue Misae l P . Ve r a t hat said artic les are subject t o the l ower r a te of 10% advance sal es � t ax (then only 7 ~ advanc e s ale s tax ) ~ pl us 2 5% ma rk-up . The pa yme nt of the 25% advance sa l es t a x plus 50 ~ mar k- up i n the sum ofP 36 , 086 . 00 i s e rroneous and , therefore , r efundabl e to pe titioner Lov s ted & Co ., I nc . WHE RE FORE, r esponden t is he r e by o rde r ed to g r ant t ax cred it or r ef und t o pe ti t ione r t he a mou n t of P36, 08 6 . 00 wh ich i t pa id on May 1 4 , 1979 c or responding to t he e rr o- ne o us ly pai d 25% a dvan c e s a les t a x , plu s 50 % mark- up on the i mpo rte d Pres t c old Condensing Un its and Sea rle Evapo- rate r s . No pr onouncement as to inter ests a nd cos ts . SO ORDERED. Que zon Ci ty , Me tr o Mani l a , Aug ust 27, 1984 . WE CONCUR: 205