G.R. No. L-18354




Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-18354 December 29, 1962 CHENG BAN YEK CO., INC., petitioner, vs. AUDITOR GENERAL, respondent. Rafael Dingsalan for petitioner. Office of the Solicitor General for respondent. BAUTISTA ANGELO, J.: Cheng Ban Yek co., Inc., a domestic corporation, is the owner and operator of the International Oil Factory engaged in the manufacture of vegetable lard out of locally produced coconut oil. During the years 1953-1955, it imported to Manila cottonseed and fish oils for use in the manufacture of lard, and upon arrival of the shipment the Central Bank of the Philippines, thru that the importation was not subject to the 17% special excise tax under the provisions of Republic Act 601, as amended. Apparently, this exemption was granted in view of an opinion rendered by the legal counsel of the Central Bank holding that hydrogenated cottonseed oil is included in the term stabilizer used in the Act. As a consequence, the Central Bank approved the application for exemption filed by the company and even refunded the taxes which had already been collected, but paid under protest, in the amount of P113,219.25. However, in two letters dated March 6, 1958 sent to the International Oil Factory, the auditor of the Central Bank demanded the payment of the total amount of P185,884.09 representing the 17% special excise tax allegedly due the government on the aforesaid importation by hydrogenated cottonseed and fish oils, of which the sum of P113,219.25 representing the taxes paid by the company under protest, which was later refunded, is included, while the balance of P72,664.84 represents the tax which according to the auditor should have been paid by the company but which the Office of Exchange Tax Administration had already found not to be due in view of the opinion of its legal counsel. In view of the refusal of the company to comply with the demand, the auditor of the Central Bank, who disagreed with the opinion of the legal counsel, referred the matter to the Auditor General for a definite ruling on "whether or not hydrogenated cottonseed oil (stearine) used in the manufacture or preparation of lard (shortenings) may be considered as 'stabilizer' under Section 2 of Republic Act No. 601." This latter official, however, before giving his own opinion, endorsed the letter of the Central Bank auditor to the Secretary of Finance for comment who, in an endorsement dated June 29, 1960, stated that, in the light of the facts obtaining, the importation in question which is used mainly as component in the manufacture of vegetable lard may not be considered as falling under the category of stabilizer contemplated in Republic Act No. 601, as amended, and so the foreign exchange used in connection therewith is subject to the special excise tax. And in reaching this conclusion, the Secretary took in account the fundamental principle in taxation that exemption provisos in tax laws must be strictly construed and not unduly enlarged or extended. The Auditor General, in his indorsement of February 15, 1960, after consolidating the different opinions given by the successive Heads of the National institute of Science and Technology, together with that of the Chairman of the National Science Development Board, who cited the opinion of the Acting Deputy Commissioner of the former office, gave the following opinion: "It appearing from this last opinion of the National Institute of Science and Technology that hydrogenated seed oil (stearine) imported by claimants may not be considered as falling under the category of 'stabilizer' contemplated in Republic Act No. 601, as amended. Accordingly, the foreign exchange used in importing such hydrogenated cotton seed oil is subject to the special excise tax." Acting upon this view, the Central Bank again demanded from the company the payment of the amount of P185,884.90 representing the 17% special excise tax due on its importation of hydrogenated cottonseed oil with the warning that, if not paid, it will deny the clearance requested. Whereupon, the company filed the instant petition for review by way of appeal from the decision of the Auditor General. The main issue to be determined is whether or not the hydrogenated cottonseed oil in question when added to coconut oil in the making or preparation of vegetable lard plays the role of a component or ingredient, or merely of a stabilizer, as contemplated in Republic Act 601, as amended. If it constitutes a component or ingredient then the foreign exchange used in its importation is subject to the special excise tax, but if it is used as a stabilizer it may come under the exemption enumerated in the law. On this question three divergent opinions were given by three successive Heads of the National Institute of Technology. Dr. A.S. Arguelles held that 13% of cottonseed to be considered as purely stabilizer, and in order that stearine can be considered as an stabilizer the amount to be added to the coconut oil for the manufacture of vegetable lard should not be more than 2%; Commissioner Joaquin Maranon maintained that hydrogenated cottonseed oil, or stearine, may serve as a component of ingredient as well as stabilizer but without giving any qualification as to the amount to be used to produce the desired effect; while Acting Commissioner Canuto Manuel gave the opinion that 2% cottonseed oil will not affect the stability of vegetable lard. Because of this divergence of opinion, the Auditor General referred the three opinions of these three scientists to the Chairman of the National Science Development Board for clarification and definite ruling, and said Chairman, in any reply to the inquiry, cited the following opinion of the Acting Deputy Commissioner Flaviano M. Yenko of the National Institute of Science and Technology:lawphil.net 1. In the manufacture of vegetable lard hydrogenated cottonseed oil is added to coconut oil so as to produce a mixture with high plasticity giving the oil the characteristic structure of a plastic solid. The amount of hydrogenated cottonseed oil usually added ranges from 10 to 15%. In other words, the hydrogenated cottonseed oil becomes a component part of the plastic mixture. 2. A stabilizer is defined as a retarding agent or a substance that counteracts the effect of vigorous accelerator and preserves a chemical equilibrium. It is employed to render the product more stable by preventing the occurrence of undesirable changes in the product. For vegetable oils, stabilizers are added in very small amounts, usually less than 2%, e.g., the addition of an antioxidant to prevent rancidity. Although hydrogenated cottonseed oil when added to coconut oil in sufficient quantities may change the physical state of the oil by rendering it semi-solid, hydrogenated cotton seed oil does not affect the chemical stability of the oil to which it is added. Hence in the manufacture of vegetable lard, hydrogenated cottonseed oil serves as a component and not as a stabilizer. And on the basis of the opinion above-quoted, which was endorsed by the Chairman of the National Science Development Board, the Auditor General made the following conclusion: It appearing from this last opinion of the National Institute of Science and Technology that hydrogenated seed oil (stearine) is used as a component in the manufacture of vegetable lard, but not as stabilizer, this Office concurs in the opinion of that Office and of the Secretary of Finance that the hydrogenated seed oil (stearine) imported by claimants may not be considered as falling under the category of 'stabilizer' contemplated in Republic Act No. 601, as amended. Accordingly, the foreign exchange used in importing such hydrogenated cottonseed oil is subject to the special excise tax. Considering that the term stabilizer is used in the law under consideration in its technical sense and as such reliance must be placed on the meaning attached to it by technical or scientific men, and considering further that the opinion of the Auditor General is predicated upon the opinion expressed by the Chairman of the National Science Development Board which is the highest scientific institution in the Philippines, we have no other alternative than to conclude that the importation in question when used in the manufacture of vegetable lard out of the locally produced coconut oil is deemed to be a component or ingredient and not merely a stabilizer that may come under the exemption of the law. WHEREFORE, petition is dismissed. the decision of the Auditor General is hereby affirmed. Costs against appellant. Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. The Lawphil Project - Arellano Law Foundation