A. General Principles
CONCEPT, NATURE AND CHARACTERISTICS OF TAXATION AND TAXES
CIR v. Cebu Portland Cement Co.
• The Court of Tax Appeals ordered the Commission of Internal Revenue (CIR) to refund to Cebu Portland Cement Co. about P350k+, w/c represented overpayments of ad valorem taxes on cement produced and sold by it. • CIR opposed the ruling, claiming that it had a right to apply the overpayment to another tax liability of Cebu Portland – sales tax on a manufactured product (the cement). CIR said that cement is a manufactured and NOT a mineral product and therefore NOT exempt from sales taxes. (mineral = exempt; manufactured = not exempt) • On the other hand, Cebu Portland said that it is exempt from sales tax under the Tax Code because cement is a mineral product and NOT a manufactured product. • Court of Tax Appeals held that the alleged sales tax liability of Cebu Portland was still being questioned and therefore could not be set-off against the refund. • A petition for review was filed by CIR.
• I: W/n CIR must refund the overpayment of the ad valorem tax • R: NO. CIR has the right to apply the overpayment to Cebu Portland’s sales tax deficiency. • The sales tax was properly imposed upon the company for the reason that cement has always been considered a manufactured product and NOT a mineral product. (CIR v Republic Cement) o Cement was never considered a mineral product w/in the meaning of the Tax Code, despite it being composed of 80% mineral, because cement is a PRODUCT of the manufacturing process. o Reliance cannot be made on Cebu Portland v CIR saying that cement = mineral because this case has been overruled. • The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as “the lifeblood of the government.” • If the payment of taxes could be postponed by simply questioning their validity, the government would be paralyzed. • Thus, the Tax Code provides that no court shall have authority to grant an injunction or restrain the collection of taxes, except when in the opinion of the Court of Tax Appeals, the collection by the BIR or the Bureau of Customs may jeopardize the interest of the Government and/or the taxpayer. o In such a case, the Court, at any stage of the proceeding may suspend the collection and require the taxpayer to either: 1. deposit the amount claimed OR
2. file a surety bond for not more than double the amount with the Court. • The exception does not apply in this case. In fact, there is all the more reason to enforce the rule given that even after crediting of the refund against the tax deficiency, a balance of more than P4 million was still due from the company. • To require the Commissioner to actually refund to the company the amount of the judgment debt, which he will later have the right to distrain for payment of its sales tax liability is an idle ritual.
Commissioner of Internal Revenue v. Algue
• The Phil. Sugar Estate Development Company (PSEDC) appointed Algue, Inc., a family corporation, as its agent, authorizing it to sell its land, factories, and oil manufacturing process. • Pursuant to this authority, five members of the family corporation formed the Vegetable Oil Investment Corp. and induced other persons to invest in it. • The newly formed corporation then purchased the PSEDC properties. For this sale, PSEDC gave Algue, Inc. a commission of P125,000. • From this amount, Algue Inc. paid the five family members P75,000 as promotional fees. • Algue, Inc. declared this P75,000 as a deduction from its income tax as a legitimate business expense. • The CIR questioned the deduction, claiming that it was not an ordinary, reasonable, or necessary expense and was merely an attempt to evade payment of taxes. • I: W/n the P75,000 is tax-deductible as...
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