Taganito Mining Corporation vs. Commissioner of Internal Revenue CTA Case No. 4702 April 28, 1995

Taganito Mining Corporation vs. Commissioner of Internal Revenue

CTA Case No. 4702

April 28, 1995

Facts: Taganito Mining Corporation (TMC) is a domestic corporation expressly granted a permit by the government via an operating contract to explore, develop and utilize mineral deposits found in a specified portion of a mineral reservation area located in Surigao del Norte and owned by the government. In exchange, TMC is obliged to pay royalty to the government over and above other taxes.

From July to December 1989, TMC removed, shipped and sold substantial quantities of Beneficiated Nickel Silicate ore and chromite ore and paid excise taxes in the amount of Php6,277,993.65 in compliance with Sec.151(3) of the Tax Code. The 5% excise tax was based on the amount and weight shown in the provisional invoice issued by TMC. The metallic minerals are then shipped abroad to Japanese buyers where the minerals were analyzed allegedly by independent surveyors upon unloading at its port of destination. Analysis abroad would oftentimes reveal a different value for the metallic minerals from that indicated in the temporary/provisional invoice submitted by TMC.

Variance is in the “market values” in the provisional invoice and that indicated in the final calculation sheet presented by the buyers. Variances occur in the weight of the shipment or the price of the metallic minerals per kg and sometimes in their metallic content resulting in discrepancies in the total selling price. It is always the price indicated in the final invoice that is determinative of the amount that the buyers will eventually pay TMC. TMC had no quarrel with the price they would receive from the clients for the metallic minerals sold but claims that there has been overpayment of excise taxes already paid to the government declaring that the 5% excise tax were based on the amount indicated in the provisional invoice, and if the excise tax would be based on the final invoice, they would be paying less.

Contentions of TMC:

1) TMC is entitled to a refund because the actual market value that should be made the basis of the taxes is the amount specified in the independent surveyor abroad; (2) The government in receiving the royalties due it from amount indicated in the final invoice

Commissioner’s defense: (1) claim for refund is subject pending administrative investigation; (2) tax was collected in accordance with law; (3) burden of proof is upon the taxpayer to establish the right to refund; (4) mere allegations of refundability do not ipso facto merit refund claimed; (5) claims for refund of taxes are construed strictly against claimant, it being in the nature of an exemption; (6) TMC’s right to claim for refund is already barred after failing to file it within the 2 year prescriptive period, which should be counted from the time specified by law for payment and not on the date of actual payment;

ISSUES:

1.      W/N TMC is entitled to refund

NO. Tax refund partake of the nature of an exemption, and as such, tax exemption cannot be allowed unless granted in the most explicit and categorical language. Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it.

2.  W/N the actual market value that should be used should be the market value after the assessment abroad was conducted

NO.

Sec. 151(3) of the Tax Code : on all metallic minerals, a tax of five percent (5%) based on the actual market value of the gross output thereof at the time of removal, in the case of those locally extracted or produced: or the value used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in case of importation.

The law refers to the actual market value of the minerals at the time these minerals were moved away from the position it occupied, i.e. Philippine valuation and analysis because it is in this country where these minerals were extracted, removed and eventually shipped abroad. To reckon the actual market value at the time of removal is also consistent with the essence of an excise tax. It is a charge upon the privilege of severing or extracting minerals from the earth, and is due and payable upon removal of the mineral products from its bed or mines (Republic Cement vs. Comm, 23 SCRA 967).

The law is clear. It does not speak of actual market value at the time the mineral products are unloaded at the country of destination neither does it speak of the selling price as the basis of the excise tax. The law even requires payment of excise taxes upon the removal of the mineral product or quarry resources from the locality where mined or upon removal from customs custody in the case of importations (Sec. 151 © of the Tax Code). It would then necessitate an analysis of these metallic minerals upon its removal to be able to accomplish the payment of excise taxes as required by law. Furthermore, it would be impossible for one to comply with the date prescribed by law for payment of excise taxes if one has to wait for the final analysis to be done in the country where it is to be shipped and certainly impractical.

This set-up established by the petitioner is contrary to the principle of administrative feasibility which is one of the basic principles of a sound tax system. Tax laws should be capable of convenient, just and effective administration which is why it fixes a standard or a uniform tax base upon which taxes should be paid. In the case of excise taxes on mineral and mineral products, the basis provided by law is the actual market value of these minerals at the time of removal.

3.           W/N the action has prescribed

As to prescription:

Petitioner’s contention: Respondent can no longer raise the issue of prescription because she did not aver that defense; petitioner said that their claim for refund was filed on time.

Ruling: NO. The court finds that the petition for review was filed within the period provided by law. Petitioner paid the excise taxes on a quarterly basis, the last and final payment being on January 19, 1990. The claim for refund was filed on September 11, 1990 and the petition for review was received by this Court on January 17, 1992.

The SC has ruled that if a tax is paid on installments or only in part, the period is counted from the date of the last or final payment until the whole or entire tax liability is fully paid. Period should be counted from full payment because it is only then that one can determine if there was overpayment.

Other discussion:

Petitioner’s contention: Petitioner argues that excise taxes should be based on the amount indicated in the final invoice because the government in receiving royalties acknowledges this amount as its basis.

Ruling: NO. Excise tax is different from royalties. Excise tax is a tax on the privilege of extracting minerals from the earth while royalty as the term is used and understood in mining and oil operations means a share in the product or profit paid to the owner of the property (Words and Phrases, vol.37A, p.605). Royalty paid to the government is rightfully based on the amount indicated in the final invoice because it is the amount which will be received by the seller from the buyer as consideration for the sale of mineral products.

***Petitioner’s claim for refund in the amount of P362,628.82 is hereby denied with costs against petitioner.