CTA Case No. 1932 (Decision)

I� �. i � ~� �. ._~PUBLIC OP TH~ PHILIHIMEI :; JURT OF TAX APPLU.S QUEZON CITY " MARINDUQUE MINING & C.T. A. CASE N08 1932 I N.DUSTRIAL CORPORATION, Petitioner , - .versus - COMMISSIONER OF INTERNAL REVENUE, Respondent . X - .- . . . . .- ... .- .- .- .- .X MARINDUQUE MINING AND C.T.A. CASE NO. 2061 INDUSTRIAL CORPORATION , Petitioner , - .versus - COMMISSIONER OF I NTERNAL REVENUE , Respondent . X - - - - . . .- .- .- .- .- .- .X MARINDUQUE MINING AND C.T.A. CASE NO . 2358 INDUS TRIAL CORPORATION , Petitioner , - .versus - COMMI SSIONER OF INTERNAL REVENUE, Respondent . X - .- .- .- .- .- .- . . .- .- .- .X DE C I S I 0 N Ma rinduque Mining & Industrial Corpo r ation , petitioner i n these three cases, poses the question of whether its importations of machineries , equipmen t, spare parts and s upplie s usea in t he construction , 63

I: !I 1� DECISION - CTA CASES ~OS . 1 932 , 20 61 a nd 2358- - 2- i nstallation , operation and maintenance of i ts cement plant i n Barr io Tagbac, Antipolo , Rizal , are covered by i ts. t ax: exempti on privilege as a Ne\>l Mine wi thin t he purview of Se ct i on 79-~ of Commonwealth Ac t No . 1 37, otherwise known as "The Mini~g Act" , the i nsertion of which there i n has been authorized by Republic Act No . 3823 .. In puisuance o f Sec tion 306 (now Sect i on 29 2) of t he Nationa l I nternal Revenue Code , pet i tioner filed wi t h responden t Comm i ss i oner of I nte rna l Revenue wr it ten claims f or ref und or tax: c redit in t he follow- ing amou nts: (1) . iil71, 706e00 and Pl03 , 460 . 00 in C.T .A . Case No . 1932 - .as alleged erroneous payments f or c ompen- sating t ax and advance . s ales t ax, respectively, on i mportations o f mach ine rie~ s , e quipmen t and spare pa rts fo r t he period fr om June 3, 1965 to J anuary 16, 1968; ( 2) . P235,691.00 in C.T .A. Case No. 2061 - as alleged erroneous payme nts fo r compensating tax on i mportations of machineries , equipment, spare parts and o ther suppl ies f or the period from February, 1 968 to July , 1968; and (3) . P261,7 �15. 00 i n C.T.A . Case No . 2358 - .as . alleged erroneous payments f or sales tax: and dampen- Sating tax on i mporte d equipment and/ or spar e parts 64

DEC I S I ON - . CTA CAS ES NOS . 1932 , 2061 and 2358. - 3- and kr aft sacking paper for its cemen t plant during the period from February, 1968 to July , 19 68 . After no action was seasonably taken by res pondent on i ts claims f or refund or tax credit , petitioner appealed to this Cour to The three appeals are c on - solidated inasmuch as they r aise the same i ssue . The oppos ing part i es are not in di spute on the provisions of l aw involved, t he administr at i ve r~le s and regu lations promu lgated thereunder , as well a s t he computa tion of the taxes paid by , or amoun t refu nd- able to , petitioner as the c ase may be . And while peti ti oner was gi ve n ample time , a~d was granted al l extensions requested by it, within which t o file i ts memor andum in support of i ts claims for r efund or tax credit , no memorandum was submitted by petitioner . The undisputed fa cts are stated in t he memorandum o f re spondent ~ated J uly 21 , 1983: As alleged in t he three ( 3) ~etitions filed wi th t h is Honorable Co ur t, t he f acts common to al l cases are as narrated herei n . Pe tit i one~ is a domestic c orporati on . engaged in mining and industrial enterprises. In line wi th i ts diversificati on pro- gram, petitioner put up and constr ucted a cement plant i n Barrio Tagbac , Antipolo , Riza l . It i mported mach i ner ies, equipment , spare parts and �supplies for the c onstruction , installation, operatioi and maintenance of its cement plant . Then ; to avai l itself of t he provis ions of Republic Act No . 3823 , 65

� I I �. \ ; DECISION . - .� CTA CASES NOS. 1932, 206 1 a nd 2.356 \, "t .4 . - -I '\ � '� I i ' ... , ; I it applied ' f .or tax e~~iu.pfion on all its a fores aid impo rt ation9 �f~i. c1 Satueb seq uentl y, i - i t was a of Qua lif gra~ted Certi cation for Tax Exemption [ (CQTE-6) ~hich states among other things, that peti- . tioner was granted "exemption for five (5 ) years from November ! 2, 1965 to November 1, 1 9 70 from p~yroent of all t axes excepb income tax~ payable by him in the conduct of his business and in the importation of machinery , spare parts and/ or equipment li sted in the stamped "ANNEX 1" which were considered to be indispensable in the operations and will be used by said oper- .. atorj l essee ~xclusively , in the minera l land(s ) mentioned above ." (p~ 2, additional BIR rec. , CTA Case No . 1 93~ , Folder I ) � I No twithstanding . the above privilege , ho\'Jever , there were levied, assessed and collected f r om petit i oner the sums e arlier enumerated. Consequently, in its l etters dated March 20, 1968 (pp . 1-~, BIR rec., CTA Case No. 1932, Folder I) i J anuary 12, 1970, (pp. 1-5, BIR r ec., CTA Case No . 2061); February 24 , i971, (Annex "B" of Petition � f or Review , CTA Case No . 2 358 ) and October 21, 1 971 , (Exh . 1, p. 1, BIR r ec. , ~TA Case No 2358) , petitioner. r equested from respondent the refund of the a forestated sums , on t he ground that it is exempt from such taxes for which payments were effected . No action having been taken on said request , petitioner fi led with this Honorable Court the t hree (3) .i nstant Peti tions for Review . Respon- . � dent r esisted the claims on the ground that pe.t itioner is not entitled to the exemption . and , if at all, the exemption does not cover consumable articles as asserted by taxpayer. Petitioner bases its claims for exemption from the compensating ' and advance sales t axes on its i mpor t- ations 6f machineries , equ ~pment , spare parts , supplies a nd materials for its ceme~ t plant in Barrio Tagbac , Antipolo, Rizal, on a Certificate of Qualification For p l I

�I , i ! DECISION ~ - 5- CTA CASES NOS. 1 9 32 , 2061 and 2358. II � b Tax Exempt i on (C TI'E-6.) t!.dated November 2 3 , 1965 , issued I I by the then Secr~tar y of Agri c ulture and Natural Yl Resource s J ose Feli~iano upon recommendation of the then Director ~f Mines Fernando s . Busuego, Jr ., which we re�produce: CERTIFICATE OF QUALIFICATION FOR TAX EXEMPTION CQTE No . 6 TO WHOM I T MAY CONCERN : Be it known that upon app lication filed by MARINDUQUE MINING & INDUSTRIAL CORP. operator/lessee of the mineral l and i n Antipolo , (Municipality ) Rizal, listed in stamped "ANNEX 1 " of this Certi- (Province ) ficate , t he said mineral l and has been a3certained to be a New Mine within the purview of Section 79-~ of the Mining Act (C.A . 137 , as amended) ~ the inser tion of which therein has been author- ' i zed by virtue of Repu~lic Act No~ 3823 , and Mines Administrat i ve O~der V-2.5 , in view of which this Certif i cate of Qualification for Tax Exemption has been issued en t itling the above-~amed operator / le:ssee t .o exemption for f ive year s from Nov a 2 , 1:965 to Nov. 1, 1970 from payment of all taxes , except income tax , payable by him i n the conduct of his business and in the i mportation of machi- nery, spare parts and/or equipment listed . in the 67

DECISION - CTA CASES NOS . 1932, 2061 and 2358 6 ' stamped "ANNEX 1" which were considered t o be i nd ispensable in the operations and will be used by said operator/lessee exclu- sively in the mineral l and(s) mentioned above. The enjoyment of the exemption granted to the above -~amed operator/lessee i s sub- j ect to the faithful c ompliance of all the requisites , terms and conditions prescribed in Mines Administrative Order V-~5 dated December 3, 1963. Given at Diliman, Q.c. , Philippines, this 23rd day of Novembe r ~ � RECOMMENDED BY : (SGD. ) FERNANDO S. BUSUEGO , JR . (SGD .) JOSE �Y. FELICIANO - Director of Mines ~ecretary of Agri - culture and Natura+ Resources Are the i mportations of machineries , equipment , spare parts and supplies of petitioner Ma rinduque Mi ning & Industrial Corporation used in the construction , install- . ation , opera ti on and maintenance of its cemen t plant in Barrio Tagbac, Antipolo , Rizal, exempt from compens~t i ng and advance sales taxes under its tax exemption pri- vilege provided for under Republip Act No. 3823? It is to be admitted, as cont ended by r espondent, 68 -

II ' DECISION -- . CTA CASES NOS. 19 32 6 2061 and 235S.. .7 - that an exemption from taxation must be j ustified by words too cle ar t o be misread (Acting Commissione r of Customs vs. f-.1anila Electric Company and Court of Tax Appeals , L-2,3 63 2, J une 30 , 1977, 77 SCRA 469 ) '� because the law does no t look with favor on tax exemptions and that he who would seek to be thus privileged mu s t justify it by wo rds !�� plain to be mistaken and too catego rica l to be misin ter preted (Reagan vs . Commis- sioner o f I nter na l Revenue , L- 26379 ~ Decembe r 29 , 196 9 , 30 SCRA 968 ; Commissione r of I nternal Revenue vs. PsJ. Kien~r Company, Ltd . et al . , L-~4754, J uly 18, 1975 , 65 SCRA 142 ) �. As set f orth in Manila Electric Company vs . Vera , L-2.9987 & L-2,3 84 7 1 October 22 , 1975, 67 SCRA 351) :. "One who claims to be exemp t from the payment of a . particular tax must do so under clear and un- mistak able terms f ound in the statute . Tax exemptions . are strictly con strued agains t t he t axpayer, they. being highly disfavored and may almost be sa id � ~o be od ious to t he l aw. ' He who cla ims an e.xe.rnption mu s t be able to point to s ome positive. provision of law creating the right; it cannot be allowed to exist upon a mere vague i mplication or inference . The right of t axation will not be held t o have been surrendered unless the � . intention to surr ender is man ifested by words too plam to be mistaken (Ohio Life Insurance & Tru st Co . vs . 69

II 'I I DEC I SION ... . CTA CASES NOS e 19 32 , 2061 and 2358. - .a Debolt, 60 Howar d , 41 6 ) ~ for t he state c a nno t str i p it sel f o f t he most essentia l power of t axa tion by doubtfu l wo r d s ; it cannot, by amb i guous language , be deprived of t hi s highest attribute of sovereignty (Erie Ra i lway Co . vs . Commonwealth of Pennsylvania , 21 Wa l lace , 492 , 499 ) ~ So , when e xemption i s c l a i med , i t must be s hown indub itably to ex is t , f o r e ver y pre - sumption is a gains t i t , a nd a we l l-~ounded doubi i s f a t al t o the c l aim (Farrington vs s Tennessee & County Shel by , 95 u. s . 6 79 , 686 ) ~" Af fi r mativel y put , the law fr own s on exempt i on fr om t a xation , henc e , a n e xemp t i ng prov i sion shou ld be construed str i Gtiss i mi j uris. (Jai-Alai Corporation vs . Collecto r , 1 06 Phi l . :, 3 4 5 ; Esso Standard Eas te rn vs. Cornrn ~ss i one r o f Cus t oms , /~ L- 21641 , Oc t . 28 , 1966 ,. 25 SCRA 488 ; )P hi l. Acetyl ene �. v s . Comm issioner of I nternal Revenue ; L- ~970 7 , Aug . 1 7 , 1 967 , 20 SCRA 1 0 5 6; Comm i ss i one r of I nt e r na l Revenue v s . Gue r re r o , L- 2.0942, Sept . 22 , 19 67 , 21 SCRA 180. ) . � In these cases, we do no t see i n pe t itioner �s. Ce rt i - ficate o f Qu a l i f i c ation For Tax Exempt i on (CQTE No . 6) . wha t may be consider ed as "words tQo plain t o be mi s - t aken and 122 categor ica l t o be mis i n t e r p r e t ed " , o r "clear a nd unmistakable ter ms ", declaring Mari nduqu e Mini ng & I ndustr i a l Cor porat ion exemp t f rom pa~ i ng � c ompen sa ting and advance s a l es t a xes on i ts impo r ts of machine ries , equi pment , s pare parts and s uppl i es used 70

DECISION -- . CTA CASES NOS ., 1932, 2061 and 2358 - - .9 - in the construction , installation , operation and maintenance of its cement plant in Barrio Tagbac, Antipolo, Rizale Note t hat what the above Certifi- cate of Qualification f or Tax Exemption exempts �, petitioner from, for five years from November 2, 1965. to November 1 , 1970, is the payment of all t axes , . except income tax, payable by petitioner on the con- duct of its business and "in the impor tation of machinery , spare parts ana/or equipment x x x x which were considered to be indispensable in the ope r a tions and will be used by" peti tioner "exclusively in th~ mineral land(s) men t ioned above ; i . e . , mi ne ra l land i n Anti pol o , Rizal , ascertained to be a New Hine within the purview of Section 79-~ of the Mining Act . Reduced to simple terms , the privilege of tax free importation granted to petitioner under its certificate of qualification authorized by virtue of Republic Act No . 3823 is restricf'.ed and l imited to imports whicn are directly related to and necessarily connected wi th the exploration, development and extraction of natural resources from its mineral land in Bar rio Tagbac , Antipolo , Rizal , because the said mineral land has been ascertained to be a New Mine within the purview of Section 79 -A o f the Mining A~t., The phrase "considered to be i ndispensable i n t he operations and will be used by said operator/ lessee exclusively in the mineral -� 71

DECISION _- . CTA CASES NOSe 1932, 2061 and 2~58. - 10 - land s ) ~enti oned above " is not so broad and sweeping as to include cement-~anufacturing because i t is con- � ditioned upon the prerequisite that the mineral land should be a New Min e~ Cement manufacturing cannot , by any stretch of the i magination , be considered a ~ mine , much l ess indispen sable in the operation of a ~ mi ne. A "new mi ne" as amplified in Mines Administ:rati've Orde r Noo v-~5, Series of 1963, and Mines Admin istr ative Order No . V- ~ 1 , Series of 1 97 0, p r omu lgated by the Secretary of Agriculture and Natural Resources upon r ecommenda tion of t he Director of Mines , is a mi neral l and that has never been in actual commercial pro- . duction on the date of f iling of the application f or tax exemption, a nd not .considered .to be a continuation and/or expansion of the operati on of an existing mine . Indeed, the ordinary and even j urisprudential meaning of t he word "mine" is simply an excava tion or pit 1.n the earth fr om which ores , coal, precious stones , � or other mineral substances are removed by digging or other mining methods . ( Webs te r '~ New Intern a t i onal Dictionary of t he Engl ish Language ; 27 Words and Phrass , 195l Cumulati ve Annual Pocket Part; Acoje Mining Co . , Ince vs e Comm issioner of Internal Revenue , CTA�Case No . 1 835, Mar ch 30, 19 70. ) From t h is, we canno t but 72

DECISION - CTA CASES NOS e 1932 , 2061 and 2358- - ll - extract the view that the tax exemption granted to petitione r "from paymen t of all taxes, except income tax , payable by him in the conduct of his business and in the i mportation of machinery , spare parts and/ �, or equipment l isted in the stamped uA.nnex l 8 .which were considered to be indispensable i n the operations and will be used by said operator/lessee exclusively in the mineral land (s) .mentioned above" r efers to taxes related to, or connected with, petition er i ~ privileg e of exploring , developing , mining and disposing of t he minerals from its mineral land in Antipolo , Rizal , which has qualified as a "New Mine." unde r Section 79-A. of the Mining Act. In other words , taxes directed against the production or severance from the mineral l and of such natural resources as oil , natural gas , ores , or the like , and the i mportation of machinery , spare par t s and/or equipment considered to be indis- pensable in such operations or activiti es and to b�e used by petitioner exclusively in said mineral land . On this point , responden t correctly argues that what was ascertained and certified to be a "New Mine" wi thin the purview of Section 79-A of the Mining Act . by the Secretary of Agriculture and Natural Resources entitling petitioner certain, tax exemption privileges a~ operator/lessee thereof was only the mineral land,

- DECISION .- .� CTA CASES NOS. 1932 , 2061 and 2358. .12 - no more no less , in Barrio Tagbac , Antipolo , Rizal. Hence , in o rder tha t petitioner may avail itself of its tax exemption privilege, its imported machinery , ~ � .. .. . equip~ent and spare parts must be used solely for mining purposes. I n other words , they must be utilized for the process of extracting ores and other minerals f rom the soil of its mineral land. Considering that petitioner admitted in all its petitions that its i mported machineries, equipment, spare parts and supplies were used for the construction , i nstall ati on and oper- at i on o f its cement plant , it is pat~ntly not exemp t from the payment of compensating and advance sales taxes due on said i mportations. Since a cement plant i s a manufacturing establishment, it can never be con- sidered a "new mine" o r "old mine" within the contemp- . la ~i on of Republic Ac t No . 3823 . (PP e 239-~41 , CTA records, CTA No. 1932. ) . That cement is a manufactured product, and the process involved in the production thereof is const-- dered manufacturing and not mining, first found support i n Cebu Portland Cement Co . vs. Commissioner of Internal Revenue , L- ~ 8649 , Feb . 27 , 1965 , 13 SCRA 333 . The Supreme Court , in its resolution dated December 29 , 1967 , stated that "while cemen t is composed of� 80% minerals , i t is not merely an admixture or blending of 74

... DECISION ~ . CTA CASES NOS . 1932, 2061 and 2358. - .13 - raw materials , as lime, silica , shale and others. It is t he result of a definite process - .the crushing of miner als , grinding , mixing, calcining, cooling, adding of retarder or raw gypsum. In short , before cement reaches i ts saleable form, the minerals had already undergone a chemical change through manufact- ur ing process." This ruling was reiterated in the subsequent case of CEPOC vs. Commissioner of Int~rnal Revenue , L-2.26.05 , Jan . 17, 1968, 22 SCRA 56 ; and still later in Republic Cement Corp. vs . Commissioner of Interral Revenue, L-20660 , June 13, 1968, 23 SCRA 967. Consequent ly, in Commissioner of Internal Revenue vs. Republic Cement Corporation , et al ., L-~ 5668-~2, L-3.5683; Commissioner of Igternal Revenue vs. Cepoc I ndustries , Inc., et al. , L-~5677 , Aug . 10, 1983 , 124 SCRA 46 , the Supreme Court c learly and unequivocally ruled that cement ~ cement was never considered as a mineral product within the meaning of Section 246 of the Tax Code , notwithstanding that at least 80% of its components are minerals, for the simple reason that cement is a product of a manufacturing process and is no longer the "mineral product" contemplated in the Tax Code . While it i s to be admit~ed that this ruling has reference to the law imposing the ad valorem t ax, t he

DECISION - - .� CTA CASES NOS~ 1932, 2061 and 2358 - .14 - pronouncement that cement is a product of a manufact- uring process patently demonstrates in clear and unmistakable terms the absence of similarity or analogy of a mineral land which has been ascertained to be a new mine and a cement plant which is a manufacturing est?b- . li shment . To say, the refore, that the imported machineries, equipment , spare parts and s upplies used in t he construction, i nstallation and opera tion of. petitioner ' ~ cement p l ant were indispensable in the mining operations and used exclusi vely in the mineral l and ascertained to be a New Mine in Antipolo , Rizal , is to read an exemption i nto peti~io~er ' ~ certificate of qualif ication for t ax exemption which i s not clearly intended to be so included . We cannot ignore t he principle that express mep ti on of one exempt i on precludes readingdhers i nto i t . (Manila Electric Company vs . Vera, L-29987 & L-2.3847, Oc t. 22, 1975 , 67 SCRA 351 , citing Hoard 'vs. �sears , Roebuck & Co. , 122 Conn . 185 , 193 , 188A . 269e ) The explanatory note of the house bill which later became Republic Act No . 3823 , authorizing the i n sertion of Section 7~-~ of the Mining Act , furni shed the motive fo r which the Mi ning Law was amended and bolsters the conclusion that a cement plant can never be considered � a "ne w mine" or " old mine" within the tax-~xemption pr ovision of t he l aw . The l aw was mot i vated by the 76

.- F DECISION '!"' CTA CASES NOS . 1932 , 2061 and 2358 . - 15 - desire t o stimulate mine prospecting and give impetus to the development of new mining deposits. To quote : "This bill s eeks to stimulate mi ne prospecting and develop new mining depo- sits . It will invite , encourage , and induce the general public to invest in new c ompanies that may be formed t o promote the expansion of the mining industr y. It is believed that t he five years ' .tax exemption proposed here will provide t he much - ~eeded incentive to the development of new mines whi c h have tremendous potential � .The proposed bill , if enacted, will r elease hoarded l ocal cap i ta l for i nvestment in new mines . The concessions granted by the Govern- . men t will eventually produce greater returns in the f orm of increased nat i onal i ncome . It migh t even eliminate t he need for foreign capital t o develop our mining potential with t he exception of Surigao nickel - ~ron depos i ts. � "I t is als o our considered op1n1on that a f ive- year period of t ax exemption for the e xpansion o r development of new mines will r esult in the collecti on of more taxes . "For these reasons , approval of the attached bil l is strongly r ecommended ." (Sgd. ) LUIS HORA Congressman , 3rd Dist ri ct Mountain Province (Explanatory Note , House Bill No . 5603) ~ Unquestionably, if the spirit of the l aw is to be f ol lowed and i ts objec tive f ulf illed , the term "mineral l and has been ascertained to be a New Mine within the . purview o f S~ction 7 9-~ of the Mining Ac t " , should not be given a meaning s o as to i nclude a cement plant , or cement manufacturing , for the l atter is distinct and

DECISION -- . CTA CASES NOS. 1932 , 2061 and 235& - ,16 - d ifferent frommine prospecting or development of new mining deposits e Premises considered , t he machiner ies, equipment , spare parts, supplies and materials i mpor t ed by peti- tione r Ma rinduque Mining & I ndustrial Corporation f o r its cemen t plant are not ex~mpt fr om the cornpen- . sating and advance sales taxes under the provisions of Republic Act No. 3823 . WHEREFORE, the pe titi ons for review filed i n these cases are hereby dismissed, wi th costs aga i ns t petitioner i n all i nstances . SO ORDERED . Quezon City, Metro Manila , March 30 , 1 984 . ~4-r;::,)_ / AMANTE ~ Presiding Judge WE CONCUR: 78