February 1965 - Philippine Supreme Court Decisions/Resolutions
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G.R. No. L-18649 February 27, 1965 - CEBU PORTLAND CEMENT CO. v. COMMISSIONER OF INTERNAL REVENUE:
EN BANC
[G.R. No. L-18649. February 27, 1965.]
CEBU PORTLAND CEMENT COMPANY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Government Corporate Counsel Simeon M. Gopengco for Petitioner.
Solicitor General for Respondent.
SYLLABUS
1. TAXATION; AD VALOREM MINING TAXES ON CEMENT; BASED ON ACTUAL MARKET VALUE OF QUARRIED MINERALS. — The collectible ad valorem tax on cement under Sections 243 and 246 of the Tax Code is based on the actual market value of the quarried minerals, like limestone and shale, and not on the selling price of the cement produced.
2. ID.; AD VALOREM MINING TAXES; NATURE AS TAX ON PRIVILEGE OF MINING. — The ad valorem tax on mining is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government’s right to exact the said impost springing from the Regalian theory of State ownership of its natural resources.
3. ID.; MINERAL PRODUCTS; NATURE OF, FOR AD VALOREM TAX. — The inclusion of the term mineral products is intended to comprehend cases where the mined or quarried elements may not be usable in its original state without application of simple treatments, such as washing, or cutting them into sizes, which process does not necessarily involve the change or transformation of the raw materials into a composite, distinct product.
4. ID.; CEMENT NOT CONSIDERED MINERAL PRODUCTS FOR PURPOSES OF AD VALOREM TAX. — While cement is composed of 80% mineral, it is not merely an admixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite process, the crushing of minerals, grinding, mixing, calcining, cooling, adding of retarder or raw gypsum. In short, before cement reaches its saleable form, the minerals had already undergone a chemical change through manufacturing process. This could not have been the state of "mineral products’ that the law contemplates for purposes of imposing the ad valorem tax. While the selling price of cement may reflect the actual market value of cement, said selling price cannot be taken as the market value also of the minerals composing the cement. And it was not the cement that was mined, only the mineral composing the finished product.
2. ID.; AD VALOREM MINING TAXES; NATURE AS TAX ON PRIVILEGE OF MINING. — The ad valorem tax on mining is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government’s right to exact the said impost springing from the Regalian theory of State ownership of its natural resources.
3. ID.; MINERAL PRODUCTS; NATURE OF, FOR AD VALOREM TAX. — The inclusion of the term mineral products is intended to comprehend cases where the mined or quarried elements may not be usable in its original state without application of simple treatments, such as washing, or cutting them into sizes, which process does not necessarily involve the change or transformation of the raw materials into a composite, distinct product.
4. ID.; CEMENT NOT CONSIDERED MINERAL PRODUCTS FOR PURPOSES OF AD VALOREM TAX. — While cement is composed of 80% mineral, it is not merely an admixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite process, the crushing of minerals, grinding, mixing, calcining, cooling, adding of retarder or raw gypsum. In short, before cement reaches its saleable form, the minerals had already undergone a chemical change through manufacturing process. This could not have been the state of "mineral products’ that the law contemplates for purposes of imposing the ad valorem tax. While the selling price of cement may reflect the actual market value of cement, said selling price cannot be taken as the market value also of the minerals composing the cement. And it was not the cement that was mined, only the mineral composing the finished product.
D E C I S I O N
BARRERA, J.:
This is a petition filed by the Cebu Portland Cement Company (CEPOC) for review of the decision of the Court of Tax Appeals (in CTA Case No. 708) denying its claim against the Commissioner of Internal Revenue for refund of the sum of P476,208.50, representing alleged overpayments of ad valorem taxes for the period of from January 1, 1957 to June 30, 1959, on the ground that said court erred in upholding the assessment and collection thereof based on the selling price of the cement petitioner produced and not on the value of the limestone and shale it quarried and used in the production of the cement.
There is no controversy as to the fact that for the period of from April 16, 1957 to July 20, 1959, for the cement it produced and sold, petitioner was assessed and paid ad valorem taxes in the total sum of P502,975.28; that its demand for refund of alleged overpayment having been denied, petitioner filed on October 15, 1959, a corresponding petition in the Court of Tax Appeals against the respondent Commissioner of Internal Revenue; and that after due hearing, the Court of Tax Appeals rendered a decision on June 21, 1961, declaring the collection of the ad valorem tax based on the selling price of cement to have been made in accordance with Section 243 in relation to Section 246 of the National Internal Revenue Code.
The National Internal Revenue Code, as amended, 1 provides:jgc:chanrobles.com.ph
"SEC. 243. Ad valorem taxes on output of mineral lands not covered by lease. — There shall be assessed and collected on the actual market value of the annual gross output of the minerals or mineral products extracted or produced from all mineral lands, not covered by lease, an ad valorem tax payable to the Collector of Internal Revenue, in the amount of one and one-half per centum of the value of said output.
"Before the mineral products are removed from the mines, the Collector of Internal Revenue or his representative shall first be notified of such removal on a form prescribed for the purpose.
"SEC. 245. Time and manner of payment of royalties or ad valorem taxes. — The royalties or ad valorem taxes, as the case may be, shall be due and payable upon removal of the mineral products from the locality where mined. However, the output of the mine may be removed from such locality without the prepayment of such royalties or ad valorem taxes if the lessee, owner or operator shall file a bond in the form and amount and with such sureties the payment of such royalties or ad valorem taxes, . . .
"SEC. 246. Definitions of the terms ‘gross output’, ‘minerals’ and ‘mineral products’ — Disposition of royalties and ad valorem taxes. — The term ‘gross output’ shall be interpreted as the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity without any deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses: Provided, however, . . . The word ‘minerals’ shall mean all inorganic substances found in nature whether in solid, liquid, gaseous, or any intermediate state. The term ‘mineral products’ shall mean things produced by the lessee, concessionaire or owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such lessee, concessionaire, or owner of mineral lands. Ten per centum of the royalties and ad valorem taxes herein provided shall accrue to the municipality and ten per centum to the province where the mines are situated, and eighty per centum to the National Treasury." (Emphasis supplied.)
Herein petitioner contends that the collectible ad valorem tax should be based on the actual market value of the quarried minerals that were used in the production of cement; whereas, respondent Commissioner of Internal Revenue maintains that, as the cement produced by petitioner consists of 80% minerals, the same is a mineral product pursuant to the definition given in Section 246 of the Tax Code, and the ad valorem tax should be based on its selling price.
It is noteworthy that under Section 242 of the same Code, with respect to leased mineral lands, the lessee shall pay to the government, not only rentals for the use of the land, but also royalty, on the minerals extracted therefrom. These imposts are levied "for the privilege of exploring, developing mining, extracting and disposing of the minerals" from said land. With respect to mineral lands not under lease. Section 243 governs, and imposes ad valorem tax on the actual market value of the gross output of the minerals or mineral products extracted therefrom. Both sections 242 and 243 are under Title VI of the Tax Code which refers to Mining Taxes. As under Section 242, the rentals and royalties collectible from the lessees and concessionaires of the leased lands are for the privilege of mining and extracting minerals therefrom, so it may be said that the ad valorem tax imposed by Section 243 upon those extracting minerals and mineral products from lands not under lease, is also for the same purpose, i.e., the privilege of mining and extracting minerals from said lands. In other words, ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government’s right to exact the said impost springing from the Regalian theory of State ownership of its natural resources.
There can be no question that quarried minerals have their own market value. The dispute here arose, however, from the construction given to the term mineral products, which was defined in Section 246 of the Tax Code, as "things produced by the lessee, concessionaire, or owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such lessee, concessionaire or owner of mineral lands." Respondent argues that since the portland cement produced by petitioner 2 consists of 8% minerals quarried from its mines, such cement falls within the definition of a mineral product and the imposable ad valorem tax should be based on its selling price which is its actual market value.
This line of argument suffers from two infirmities: First, while cement is composed of 80% minerals, it is not merely an admixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite process — the crushing of minerals, grinding, mixing, calcining, cooling, adding of retarder or raw gypsum. In short, before cement reaches its saleable form, the minerals had already undergone a chemical change through manufacturing process. This could not have been the state of "mineral products" that the law contemplates for purposes of imposing the ad valorem tax. It must be remembered that, as aforestated, this tax is imposed on the privilege of extracting or severing the minerals from the mines. To our minds, therefore, the inclusion of the term mineral products is intended to comprehend cases where the mined or quarried elements may not be usable in its original state without application of simple treatments, such as washing, or cutting them into sizes, which process does not necessarily involve the change or transformation of the raw materials into a composite, distinct product. Secondly, respondent cannot use the selling price of the product in this case as gauge of its actual market value. The cement here is manufactured by petitioner itself out of materials quarried from its mines. While the selling price of cement may reflect the actual market value of cement, said selling price cannot be taken as the market value also of the minerals composing the cement. And it was not the cement that was mined, only the minerals composing the finished product.
Anent respondent’s contention, however, that the taxes collected and paid two years before the filing of the action in the Court of Tax Appeals are barred by prescription, the same must be sustained. By specific provision of Section 308 of the Internal Revenue Code, action for recovery of tax payments erroneously or illegally collected must be filed within 2 years from such payments. As the action in this case was instituted only on October 16, 1959, over payments made prior to October 15, 1957 are no longer refundable.
WHEREFORE, the decision of the Court of Tax Appeals under review is hereby modified, by holding petitioner entitled to the refund of the corresponding overpayments of ad valorem taxes made after October 15, 1957. No costs. So ordered.
Bengzon, C.J., Bautista Angelo, Reyes, J.B.L., Paredes, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
Concepcion and Dizon, JJ., took no part.
There is no controversy as to the fact that for the period of from April 16, 1957 to July 20, 1959, for the cement it produced and sold, petitioner was assessed and paid ad valorem taxes in the total sum of P502,975.28; that its demand for refund of alleged overpayment having been denied, petitioner filed on October 15, 1959, a corresponding petition in the Court of Tax Appeals against the respondent Commissioner of Internal Revenue; and that after due hearing, the Court of Tax Appeals rendered a decision on June 21, 1961, declaring the collection of the ad valorem tax based on the selling price of cement to have been made in accordance with Section 243 in relation to Section 246 of the National Internal Revenue Code.
The National Internal Revenue Code, as amended, 1 provides:jgc:chanrobles.com.ph
"SEC. 243. Ad valorem taxes on output of mineral lands not covered by lease. — There shall be assessed and collected on the actual market value of the annual gross output of the minerals or mineral products extracted or produced from all mineral lands, not covered by lease, an ad valorem tax payable to the Collector of Internal Revenue, in the amount of one and one-half per centum of the value of said output.
"Before the mineral products are removed from the mines, the Collector of Internal Revenue or his representative shall first be notified of such removal on a form prescribed for the purpose.
"SEC. 245. Time and manner of payment of royalties or ad valorem taxes. — The royalties or ad valorem taxes, as the case may be, shall be due and payable upon removal of the mineral products from the locality where mined. However, the output of the mine may be removed from such locality without the prepayment of such royalties or ad valorem taxes if the lessee, owner or operator shall file a bond in the form and amount and with such sureties the payment of such royalties or ad valorem taxes, . . .
"SEC. 246. Definitions of the terms ‘gross output’, ‘minerals’ and ‘mineral products’ — Disposition of royalties and ad valorem taxes. — The term ‘gross output’ shall be interpreted as the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity without any deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses: Provided, however, . . . The word ‘minerals’ shall mean all inorganic substances found in nature whether in solid, liquid, gaseous, or any intermediate state. The term ‘mineral products’ shall mean things produced by the lessee, concessionaire or owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such lessee, concessionaire, or owner of mineral lands. Ten per centum of the royalties and ad valorem taxes herein provided shall accrue to the municipality and ten per centum to the province where the mines are situated, and eighty per centum to the National Treasury." (Emphasis supplied.)
Herein petitioner contends that the collectible ad valorem tax should be based on the actual market value of the quarried minerals that were used in the production of cement; whereas, respondent Commissioner of Internal Revenue maintains that, as the cement produced by petitioner consists of 80% minerals, the same is a mineral product pursuant to the definition given in Section 246 of the Tax Code, and the ad valorem tax should be based on its selling price.
It is noteworthy that under Section 242 of the same Code, with respect to leased mineral lands, the lessee shall pay to the government, not only rentals for the use of the land, but also royalty, on the minerals extracted therefrom. These imposts are levied "for the privilege of exploring, developing mining, extracting and disposing of the minerals" from said land. With respect to mineral lands not under lease. Section 243 governs, and imposes ad valorem tax on the actual market value of the gross output of the minerals or mineral products extracted therefrom. Both sections 242 and 243 are under Title VI of the Tax Code which refers to Mining Taxes. As under Section 242, the rentals and royalties collectible from the lessees and concessionaires of the leased lands are for the privilege of mining and extracting minerals therefrom, so it may be said that the ad valorem tax imposed by Section 243 upon those extracting minerals and mineral products from lands not under lease, is also for the same purpose, i.e., the privilege of mining and extracting minerals from said lands. In other words, ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government’s right to exact the said impost springing from the Regalian theory of State ownership of its natural resources.
There can be no question that quarried minerals have their own market value. The dispute here arose, however, from the construction given to the term mineral products, which was defined in Section 246 of the Tax Code, as "things produced by the lessee, concessionaire, or owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such lessee, concessionaire or owner of mineral lands." Respondent argues that since the portland cement produced by petitioner 2 consists of 8% minerals quarried from its mines, such cement falls within the definition of a mineral product and the imposable ad valorem tax should be based on its selling price which is its actual market value.
This line of argument suffers from two infirmities: First, while cement is composed of 80% minerals, it is not merely an admixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite process — the crushing of minerals, grinding, mixing, calcining, cooling, adding of retarder or raw gypsum. In short, before cement reaches its saleable form, the minerals had already undergone a chemical change through manufacturing process. This could not have been the state of "mineral products" that the law contemplates for purposes of imposing the ad valorem tax. It must be remembered that, as aforestated, this tax is imposed on the privilege of extracting or severing the minerals from the mines. To our minds, therefore, the inclusion of the term mineral products is intended to comprehend cases where the mined or quarried elements may not be usable in its original state without application of simple treatments, such as washing, or cutting them into sizes, which process does not necessarily involve the change or transformation of the raw materials into a composite, distinct product. Secondly, respondent cannot use the selling price of the product in this case as gauge of its actual market value. The cement here is manufactured by petitioner itself out of materials quarried from its mines. While the selling price of cement may reflect the actual market value of cement, said selling price cannot be taken as the market value also of the minerals composing the cement. And it was not the cement that was mined, only the minerals composing the finished product.
Anent respondent’s contention, however, that the taxes collected and paid two years before the filing of the action in the Court of Tax Appeals are barred by prescription, the same must be sustained. By specific provision of Section 308 of the Internal Revenue Code, action for recovery of tax payments erroneously or illegally collected must be filed within 2 years from such payments. As the action in this case was instituted only on October 16, 1959, over payments made prior to October 15, 1957 are no longer refundable.
WHEREFORE, the decision of the Court of Tax Appeals under review is hereby modified, by holding petitioner entitled to the refund of the corresponding overpayments of ad valorem taxes made after October 15, 1957. No costs. So ordered.
Bengzon, C.J., Bautista Angelo, Reyes, J.B.L., Paredes, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
Concepcion and Dizon, JJ., took no part.
Endnotes:
1. As amended by Republic Acts 909, 834, 1299, 1510.
2. which is government-controlled corporation.
