CIR V CA (GR 107135)

Facts:

Petitioner Central Vegetable Oil Manufacturing Co., Inc. ( CENVOCO ) is a manufacturer of edible and coconut/coprameal cake and such other coconut related oil subject to the miller's tax of 3%.  Petitioner also manufactures lard, detergent and laundry soap subject to the sales tax of 10%.

In 1986, petitioner purchased a specified number of containers and packaging materials for its edible oil from its suppliers and paid the sales tax due thereon.

After an investigation conducted by respondent's Revenue Examiner, Assessment Notice was issued against petitioner for deficiency miller's tax in the total amount of P1,575,514.70 

 CENVOCO requesting for reconsideration of the above deficiency miller's tax assessments, contending that the final provision of Section 168 of the Tax Code does not apply to sales tax paid on containers and packaging materials, hence, the amount paid therefor should have been credited against the miller's tax assessed against it - that since packaging materials are not used in the milling process then, the sales taxes paid thereon should be allowed as a credit against the miller's tax due because they do not fall within the scope of the prohibition.  

 Respondent wrote CENVOCO regarding its position stating that since the law specifically does not allow taxes paid on the raw materials or supplies used in the milling process as a credit against the miller's tax due, with more reason should the sales taxes paid on materials not used in the milling process be allowed as a credit against the miller's tax due.  There is no provision of law which allows such a credit-to-be made.

CENVOCO filed a petition for review with the Court of Tax Appeals, which came out with a decision in favor of CENVOCO. Appealed to the Court of Appeals, the said decision was affirmed.

Issue:

1. Whether or not a reversal of the ruling is violative of the rule on non-retroactivity of rulings of tax officials?

2. Whether or not the sales tax paid by CENVOCO when it purchased containers for its milled products can be credited against the deficiency miller's tax.

Held: 

1. NO. According to petitioner, to hold, as what the Court of Appeals did, that a reversal of the aforesaid ruling would be violative of the rule on non-retroactivity of rulings of tax officials when prejudicial to the taxpayer (Section 278 of the old Tax Code) would, in effect, create a perpetual exemption in favor of CENVOCO although there may be subsequent changes in circumstances warranting a reversal. 

In the case, well-entrenched principle that the government is never estopped from collecting taxes because of mistakes or errors on the part of its agents, but this rule admits of exceptions in the interest of justice and fairplay. Moreso is there no error in allowing the sales taxes paid by CENVOCO on the containers and packages of its milled products, to be credited against the deficiency miller's tax due thereon, for a proper application of the law.

2. NO. The sales, miller's and excise taxes paid on all other materials (except on raw materials used in the milling process), such as the sales taxes paid on containers and packaging materials of the milled products under consideration, may be credited against the miller's tax due therefor. Containers and packaging materials are certainly not raw materials.  Cans and tetrapaks are not used in the manufacture of Cenvoco's finished products which are coconut, edible oil or coprameal cake.  Such finished products are packed in cans and tetrapaks.

*Decision of the CA affirmed.