Republic of the Philippines
G.R. No. L-30136
February 2, 1929
ASIATIC PETROLEUM COMPANY (PHILIPPINE ISLANDS), LIMITED,
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Plaintiff is a foreign corporation duly licensed to do business in the Philippine Islands, with its principal office therein at Manila. The defendant is the Collector of Internal Revenue.
Plaintiff alleges that it is engaged in the business here of importing and selling petroleum and petroleum products; that it is customary, when such products are imported, to place them in bond, and the Collector of Customs, as the agent of the defendant, from time to time upon application and payment of the internal-revenue tax provided by law, issues his permit for the withdrawal of the amount of such products upon which the tax has been paid, and the same is then at the convenience of the plaintiff placed in its supply tanks, from which deliveries are made to its customers. Allegations are then made that a certain amount of kerosene was imported on January 14, 1927, and placed in its bonded tank No. 1, at Pandacan; that on March 22, 1927, withdrawal permits therefor were obtained and the internal-revenue tax thereon was paid for all of such kerosene, except 559.0118 tons; that on March 2, 1927, plaintiff imported another amount of kerosene which was placed in its bonded tank No. 1 at Pandacan and mingled with the other kerosene in that tank; that on March 23, 1927, plaintiff procured from the Collector of Customs withdrawal permit No. 8443 for 300 tons of such kerosene, paying therefor the specific tax of P 5,609.82; that, thereafter, that amount of 300 tons was removed from the bonded tank No. 1 to its supply tank; that on March 30, 1927, plaintiff procured from the Collector of Customs withdrawal permit No. 8495, for which he paid the specific tax thereon amounting to P 4,843.33; that the last amount was not removed to plaintiff’s supply tank under its withdrawal permit, but remained in its bonded tank No. 1 until April seventh, when it was shipped to its refinery as herein after alleged; that of the 300 tons taken out of bond under permit No. 8443 and removed to plaintiff’s supply tank, 6.1717 tons only was sold or used in the Philippine Islands, the tax thereon amounting to P 114.82; that about April 1, 1927, and soon after the removal from bond of said lot of 300 tons, plaintiff discovered that it was discolored and unfit for market or use in the Philippine Islands; that at once upon such discovery, it applied to the Collector of Customs for leave to reexport all of such kerosene, which was granted, and on April 7, 1927, plaintiff shipped to its refinery in Singapore on the steamship La Crescenta 293.8583 tons remaining in the supply tank, which were withdrawn under permit No. 8443, and 259.0118 tons from its bonded tank No. 1, for which withdrawal permit No. 8495 had been issued, together with another lot of 2,279.1569 tons from its bonded tank No. 1, for which withdrawal permit was never issued, and for which no specific tax was ever levied or paid; that the total amount of kerosene so shipped was 2,832.025 tons; that of the 300 tons of discolored kerosene withdrawn permit No. 8443, 293.8583 tons were returned to plaintiff’s refinery from its supply tank, and that the defendant has erroneously and illegally collected and the plaintiff has paid the specific tax thereon of, P 5,495; that the 259.0118 tons of discolored kerosene evidenced by withdrawal permit No. 8495 were returned to plaintiff’s refinery from its bonded tank No. 1, upon which there has been erroneously collected and paid the specific tax of P 4,843.33, by reason of which there is now due and owning the plaintiff from the defendant the sum of P 10,338.33, for which demand has been made and payment refused.
It is then alleged that plaintiff secured the said withdrawal permits and paid the specific tax thereon under the belief that the kerosene in question was fit for use in the Philippine Islands, and that had known that it was discolored and unfit for use, it would not have obtained the withdrawal permits or paid the specific tax, but would have returned all of said kerosene to its refinery; that at once the discovery thereof, plaintiff made a protest and demanded the refund of the amount, for which it prays a corresponding judgment.
To the complaint the defendant filed a general demurrer upon the ground that it did not state facts sufficient to constitute a cause of action, which was overruled.
For answer the defendant denies all the material allegations of the complaint, and alleges that the taxes which the plaintiff now seeks to recover were legally assessed and collected as internal-revenue taxes.
Upon such issues, the case was tried and submitted upon the following stipulation of facts:
It is hereby agreed by and between the parties in the above-entitled action:
(1) That the plaintiff is a foreign corporation duly authorized to transact business in the Philippine Islands, with its principal office therein in the City of Manila.
(2) That the defendant is, and was at all times mentioned herein, the duly qualified and acting Collector of Internal Revenue of the Philippine Islands.
(3) That the plaintiff herein, as a merchant, imported kerosene on two occasions and placed the same in its bonded tank No. 1 at Pandacan. On March 23, 1927, the plaintiff procured from the Insular Collector of Customs withdrawal permit No. 8443 for the withdrawal of 300 tons of said kerosene, paying to the said official specific taxes amounting to P 5,609.82. The said 300 tons of kerosene were removed by the plaintiff from its bonded tank to its supply tank, which is used for the storage of consumption stock not under bond. Of the 300 tons of kerosene, 6.1417 tons where either sold or used in the Philippine Islands. The rest, together with the 259.0118 tons, which will be treated hereafter, was reexported.
(4) On March 30, 1927, the plaintiff herein procured from the Insular Collector of Customs withdrawal permit No. 8495 for the withdrawal of 259.0118 tons of kerosene, paying to the said official specific taxes amounting to P 4,843.33. The said 259.0118 tons of kerosene were not removed to plaintiff’s supply tank under said withdrawal permit, but remained in its bonded tank until it was reexported. The said tax of P 4,843.33 was paid on March 30, 1927.
(5) The reexportation of the kerosene involved in this case, together with other quantities of similar kerosene, was decided upon and finally carried out by the plaintiff, for the reason that the same had been found, after said withdrawal permits were obtained, to be discolored and unfit for marketing in the Philippine Islands.
(6) That on April 1, 1927, the plaintiff wrote to the Insular Collector of Customs as follows:
THE ASIATIC PETROLEUM COMPANY
(PHILIPPINE ISLANDS), LIMITED
1st April, 1927
THE INSULAR COLLECTOR OF CUSTOMS
REEXPORTATION OF DISCOLORED KEROSENE
We beg to inform you that we have 2,835.1667 tons of discolored kerosene in our tanks, which we respectfully request permission to return to Singapore by the steamship La Crescenta, which is due to arrive here about the 4th of April, as owing to discoloration it is unfit for marketing. Of the above quantity 2,279.1549 tons are in our tank No. 1, which has not been withdrawn from bond and was imported from Balikpapan and arrived on the steamship Perlak on the 2d March, 1927 – bond No. 5289, entry No. 9092, ship’s reg. 176. The balance of the above quantity we wish to reexport is made up as follows:
(1) Two hundred fifty-nine and one hundred eighteen ten thousandths tons was withdrawn from bond on the 30th of March, 1927, on which duties and taxes were paid, but this amount remains intact in our bonded tank No. 1.
(2) Three hundred tons was withdrawn from bond on the 23rd March, 1927, on which duties and taxes were paid on that date. This amount is now in our tank No. 3, which is not under bond, but none of this kerosene has been used.
The 559.0118 tons of kerosene on which duties and taxes have been paid was imported from Balikpapan and arrived on the steamship Usedom on the 14th January, 1927 – bond No. 5220, entry No. 2451-XH, ship’s reg No. 44.
Under the circumstances, we should be glad of favorable consideration of our application and, when liquidation of the entries on which we have already paid duties and taxes are made, we shall be glad to receive refunds for the amount shipped out.
For the Asiatic Petroleum Co. (P. I.), Ltd.:
(Sgd.) “H. C. WHITTAL”
(7) That leave was duly granted to reexport the kerosene referred to in the letter of April 1st, said kerosene was reexported on April 7, 1927. That customs duties had been paid upon all of said kerosene. That no specific tax was levied or paid upon the said 2,279.1549 tons referred to in said letter.
(8) That on April 12, 1927, the plaintiff addressed the following letter to the Insular Collector of Customs which was received by this official on April 13, 1927:
12th April, 1927
THE ASIATIC PETROLEUM COMPANY (PHILIPPINE ISLANDS) LIMITED, Manila
THE INSULAR COLLECTOR OF CUSTOMS
REEXPORTATION OF DISCOLORED KEROSENE
Per steamship La Crescenta
With reference to the reexportation of 2,832.025 tons of discolored kerosene by the above steamer, which sailed from here on the 7th instant, we respectfully beg to apply for refund of internal revenue taxes amounting to P 10,338.33 on 552.8701 tons of the above which was withdrawn for consumption and then found unfit for marketing. This amount is made up as follows:
552.8701 tons – 561,716 ks. – 689,222 liters at P 0.015 liter, P 10,338.33.
Specific gravity, .815.
1 kilo – 1.22699386 liters.
Bond No. 5220.
Entry No. 2451-HG & XH. (Withdrawals.)
I. R. Statements Nos. 991 and 1075.
The kerosene on which we are applying for refund of internal revenue taxes arrived here per steamship Usedom Reg. No. 44, 15th January, 1927.
Trusting that the above will meet with your favorable consideration and approval.
For the Asiatic Petroleum Co. (P. I.), Ltd.:
(Sgd.) “H. C. WHITTAL”
(9) That the Collector of Internal Revenue has failed and refused to allow the claim of the plaintiff for the refund of the taxes mentioned in paragraphs 3 and 4, less the sum of P 114.82 corresponding to the 6.1417 tons of the kerosene in question which had been sold or used in the Philippine Islands, or P 10,338.33.
The lower court rendered judgment for the plaintiff for the full amount of its claim, without interest or costs, to which the defendant duly excepted and upon appeal assigns the following errors:
I. The lower court erred in not finding that the specific tax on the 300 tons of kerosene in question accrued upon its importation and become payable upon its transfer from the bonded tank to the supply tank of the plaintiff.
II. The lower court erred in not finding that the specific tax on the other 259.0118 tons of kerosene in question became legally due and collectible because of the fact that the plaintiff procured customs withdrawal permit No. 8495 for the withdrawal of said 259.0118 tons of kerosene from its bonded tank.
III. The lower court erred in not finding that even granting that the taxes in question were illegally collected, the plaintiff cannot recover them because they were not paid under protest in accordance with law. In other words, the payment was voluntary.
IV. The lower court erred in not finding that, even granting that the plaintiff protested the payment of said taxes, such protest was made outside of the time prescribed by law which, therefore, bars the plaintiff from recovering.
V. The lower court erred in not finding that the mistake of the fact which plaintiff alleged led it to pay the taxes in question was entirely due to its own negligence, and is, moreover, not such a mistake of fact as would entitle the plaintiff to a refund.
VI. The lower court erred in ordering the defendant-appellant to return to the plaintiff-appellee the sum of P 10,338.33 in question and in not granting a new trial.
The question presented by assignment of error Nos. 1, 2 and 5 are both novel and interesting, and involved the legal construction to be placed upon sections 1478 and 1480 of the Administration Code, which are as follows:
SEC. 1478. Articles subject to specific tax. – Specific internal-revenue taxes apply to things manufactured or produced in the Philippine Islands for domestic sale or consumption and to things imported from the United States or foreign countries, but not to any thing produced or manufactured here which shall be removed for exportation and is actually exported without returning to the Islands, whether so exported to its original state or as an ingredient or part of any manufactured article or product.
In case of importations the internal-revenue tax shall be in addition to the customs duties, if any.
No specific tax shall be collected on the any articles sold and delivered directly to the United States Army or Navy for actual use or issue by the Army or Navy, or on any article sold to the Bureau of Coast and Geodetic Survey, purchased with funds furnished by the Government of the United States, and any taxes which have been paid on articles so sold and delivered for such use or issue shall be refunded upon such sale and delivery.
SEC. 1480. Payment of specific tax on imported articles. – Internal-revenue taxes on imported articles shall be paid by the owner or importer to the customs offices, conformably with regulations of the Bureau of Internal Revenue and before the release of the such articles from the customhouse.
The defendant contends that the tax on the 300 tons of kerosene now in dispute accrued upon the importation of the kerosene in question, and that it became due and payable upon its transfer from the bonded to the supply tank of the plaintiff. That it then became a part of the mass of the property of the state, and that its subsequent disposition is immaterial to this decision, citing the case of Asiatic Petroleum Co. vs. Rafferty (38 Phil. 475-479), in which this court said:
The theory of the law, with reference to the internal-revenue tax upon such merchandise, seems to be that the tax is not due and payable until it is about to be put into the commerce or trade of the country.
And admits that the kerosene in question was not only “about to be put into the commerce or trade of the country,” but that it was actually put into the commerce and trade of the country by its removal from plaintiff’s bonded tank No. 1 to its supply tank, and defendant then says:
But even granting, for the sake of argument, that the tax on said kerosene was not legally due, the same cannot be recovered, for the reason that no protest accompanied its payment, as will be shown later.
He also says that while it is true that the 259.0118 tons were not actually put into the commerce and trade of the country, because they were not removed to plaintiff’s supply tank, yet the fact that the plaintiff procured customs withdrawal permit No. 8495 for the kerosene conclusively shows that it was about to be removed therefrom, and that for such reason, the tax thereon became legally due and collectible, again citing the case of Asiatic Petroleum Co. vs. Rafferty, where it is said:
While the law permits the producer of taxable merchandise to delay the payment of the internal-revenue tax until “immediately before removal of the same from the place of production,” the duly authorized and promulgated regulation of the defendant himself permits the importer of taxable merchandise to deposit the same in the bonded warehouse and to delay the payment of the internal-revenue tax until the same is about to be removed therefrom.
From which he contends that “the moment a withdrawal permit is obtained, the tax becomes due and collectible.”
The plaintiff contends that from the use of the words “for domestic sale or consumption” in section 1478, it is apparent that it was the intention of the Legislature that the tax should be collected only upon those things “which are sold or consumed locally,” citing section 1460, which says:
In computing the tax above imposed transactions in the following commodities shall be excluded:
(a) Things subjected to a specific tax.
(b) Agricultural products when sold by the producer or owner of the land where grown, or by any other person other than a merchant or commission merchant, whether in their original state, or not.
It then points out that the merchant’s sales tax is not collectible upon things subject to a specific tax, and that the specific tax is collected before sale, and the merchant’s sales tax after sale. That the one is on quantity or measure, and the other on value, and appellee then says:
But aside from these differences, they are intended for the same purpose, that is, a tax on “things for domestic sales or consumption,” otherwise why should the Legislature have exempted those things covered by the specific tax from the provisions of the law covering tax on sales? It is essentially the same tax but collected in a different manner and at a different time. The reason for this in all probability, is that on certain commodities it was deemed more expedient to collect the tax before sale than after sale.
And also cites the Rafferty case in which this court says:
The theory of the law, with reference to the internal-revenue tax upon such merchandise, seems to be that the tax is not due and payable until it is about to be put into the commerce or trade of the country. The condition of the market at a particular time, or the situation in business generally, might cause the producer to withhold his merchandise and not allow it to be removed from the place of production for months, or even years; could he, under the above quoted provision of the law, be required to pay the internal revenue taxes until he saw fit to place his product upon the market?
The decision in the Rafferty case was founded upon the following material facts: Plaintiff there, with the approval of the defendant, entered the oils in bond, for storage in Internal Revenue Bonded Warehouse No. 59, in the City of Manila, and furnished the bond for the payment of all taxes that might accrue on the oils, and the defendant issued a permit for the discharge of the oils from the ship into the bonded warehouse. During the removal of the oils from the ship to the bonded warehouse 2,485 cases of gasoline and 500 cases of kerosene were totally destroyed by fire and never reached the bonded warehouse. The defendant required the plaintiff to make applications for withdrawal from the bonded warehouse of the oils which had been destroyed and to pay a specific tax of P 3,033.20, which was paid under protest. Upon those facts, the court held that the plaintiff was entitled to have its money refunded.
The decision in the Rafferty case was well written and is legally sound, and although the facts are somewhat different, the underlying fundamental law laid down in that case by inference at least tends to support plaintiff’s contention in this case.
The very purpose and intent of the plaintiff herein removing the kerosene in question from the bonded warehouse to its supply tank was to place it on the market; otherwise, it would not have removed it or paid the tax, and the removal was made on the assumption that the kerosene was in a fit and suitable condition to sell to plaintiff’s customers. At once upon the discovery that it was not, plaintiff called attention of that fact to the Collector of Customs and asked for and obtained a permit from him to ship the discolored kerosene out of the Philippine Islands to its plant in Singapore, to have it there refined and made suitable for the market. In the very nature of things, plaintiff would not want to sell the discolored kerosene in the Philippine Islands and could not do so without a substantial injury to its business reputation. It was for such reason that upon making the discovery, plaintiff applied for and obtained the permits and went to a large amount of trouble and expense in removing the kerosene from the Philippine Islands to its Singapore plant.
The real purpose and intent of the law in question is to require the payment of the specific tax on things imported from foreign countries for the purpose of domestic sale or consumption in the Philippine Islands. It is very apparent that the discolored kerosene in question was never imported by the plaintiff for domestic sale or consumption in the Philippine Islands; otherwise, it never would have gone to the trouble and heavy expense of removing it from the Islands to its Singapore plant for the purpose of having it refined and made suitable for the market. It never was the purpose or intent of the plaintiff to ship to the Philippine Islands discolored kerosene to be there sold and distributed to its customers, as there is no evidence that the plaintiff was ever engaged in the sale or distribution of colored kerosene. That is to say, it was the purpose and intent of the plaintiff to import into the Philippine Islands kerosene which was fit and suitable for sale on the market, and that it never was its intention to import discolored kerosene. That when it discovered that it had done so, it at once applied for and obtained a permit from the Government to reship it to its Singapore plant for refining purposes, which involved much trouble and a heavy expense, from all of which it is very apparent that the plaintiff never imported into the Philippine Islands discolored kerosene for domestic sale or consumption. If that it had been its purpose and intent, it never would have applied for and obtained a permit for its removal, and would never have reshipped the kerosene to its refining plant in Singapore, so as to have it refined and put in a fit and suitable condition for sale.
The defendant contends that the plaintiff should have made its discovery before it paid the tax, and that having paid the tax before the discovery, it is now estopped to claim or assert that the kerosene was not imported for domestic sale or consumption. That is not tenable. There is no evidence that, in the ordinary course of business, the plaintiff could have made the discovery before it paid the tax or that it was negligent in making the discovery. In the very nature of things, plaintiff could not make the discovery until after the oil in question was removed from the bonded tank to its supply tank, and when it was removed, the discovery was made. How then could the plaintiff be charged with negligence?
The next result of defendant’s contention would be to collect a double specific tax on the quantity of kerosene in question. The discolored oil on which the tax was paid was removed with the consent of the government, and in the very nature of things, the plaintiff would have to again import that same amount of kerosene, and to do so, it would have to pay the same amount of specific tax as a condition precedent to its consumption or domestic sale in the Philippine Islands. In legal effect that would amount to the payment of two specific taxes on that amount of oil.
We attach importance to the language in the third paragraph of section 1478, not cited in either brief, which provides that no specific tax shall be collected on any articles sold and delivered directly to the United States Army, etc., and any taxes “which have been paid on articles so sold and delivered for such use or issue shall be refunded upon such sale and delivery.”
It will be noted that this paragraph, which is a part of section 1478, uses the words “sold and delivered,” and provides for a refund on all of such articles “so sold and delivered.”
The defendant also relies on section 1579 of the Administrative Code, which provides:
When the validity of any tax is questioned, or its amount disputed, or other question raised as to liability therefor, the person against whom or against whose property the same is sought to be enforced shall pay the tax under instant protest, or upon protest within ten days, and shall thereupon request the decision of the Collector of Internal Revenue…
But in the instant case, when the plaintiff paid the tax, there was no occasion to question the validity of the tax or the amount of it, for the simple reason that its validity never arose until after the discovery of the discolored kerosene, and in the final analysis the tax was paid under a mistake of fact and not of law, between which there is a very marked difference in the authorities.
Proceedings of this kind are more or less of an equitable nature and are to be decided upon and are governed by rules of equity. Tested by that rule, why should the plaintiff be required to pay two specific taxes on the same amount of kerosene, of and for which, in the very nature of things, there was not and could not be but one domestic sale or consumption?
It appears from the stipulation of facts that withdrawal permit No. 8443 was issued on March 23, 1927; that permit No. 8495 was issued on March 30, 1927; and that on April 1, 1927, the plaintiff wrote a letter to the Insular Collector of Customs in which, among other things, it is said:
Under the circumstances, we shall be glad of favorable consideration of our application and, when liquidation of the entries on which we have already paid duties and taxes are made, we shall be glad to receive refunds for the amount shipped out.
It is conceded that this letter was written within the ten-day limit, but the defendant contends that it was not a protest within the meaning of section 1579 above quoted. If the question involved here were one of law and not a mistake of fact, there would be much force in that contention. But even so plaintiff in that letter specifically says that when the proper liquidations on the entries on which we have already paid duties and taxes, “we shall be glad to receive funds for the amount shipped out.” In the ordinary course of business, that language should be construed to mean that the plaintiff, even then, claimed and asserted that it was entitled to a refund of its money. This letter was followed by another of April 12, 1927, in which specific application was made “for refund of internal revenue taxes amounting to P 10,338.33.” The defendant says: “This letter may be considered a protest because it is sufficiently clear and specific.” The letter of April 1st was also clear and specific, except as to the amount in pesos and the number of tons on which the refund was requested. But that was the mere question of mathematics and computation, all the data for which was in the possession and knowledge of the defendant.
In its final analysis, the letter of April first should be construed as a polite and courteous demand and request for the refund of the tax in question, to be paid at such time as the correct amount was ascertained and determined.
The case of Shevango Furnace Co. vs. Fairfield Township (78 Atl., 937), is not in point under the facts in this case. There, it appeared that the vice-president of the company wrote a letter after the payment of the tax, showing that at the time the company did not intend to contest the amount of the tax on certain grounds which were afterwards urged, and it was held that the tax there was not paid by a mistake of fact. Here the condition is just the reverse. Upon making the discovery, the plaintiff promptly notified the defendant that when the amount of the refund was ascertained, “we shall be glad to receive refunds for the amount shipped out.”
The case of Wright vs. Blakeslee, (101 U. S., 174; 25 Law. ed., 1048), lays down the rule that under the internal revenue laws, it is not necessary that the protest be reduced to writing. A verbal protest is sufficient to give notice that the legality of the demand is disputed.
If the letter of April 1st was not intended as a demand and a request for the refund of money, why was that portion of the letter ever written? The mere fact that it was couched in polite courteous language ought not to be construed against the plaintiff. To deny the plaintiff’s right of discovery, upon the undisputed facts, would be to compel it to pay a double tax upon the amount of kerosene in question, which equity and good conscience will not permit.
The learned and well written opinion of the trial court is affirmed, without costs. So ordered.
Johnson, Street, Malcolm, Villamor, Ostrand, Romualdez and Villa-Real, JJ., concur.
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