GR L 18649; (February, 1965) (Digest)
G.R. No. L-18649 February 27, 1965
CEBU PORTLAND CEMENT COMPANY, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
FACTS
Petitioner Cebu Portland Cement Company (CEPOC) sought a refund from the Commissioner of Internal Revenue for the sum of P476,208.50, representing alleged overpayments of ad valorem taxes for the period from January 1, 1957 to June 30, 1959. The taxes were assessed and collected based on the selling price of the cement produced and sold by petitioner. Petitioner contended that the ad valorem tax should have been based on the actual market value of the limestone and shale it quarried and used in producing the cement, not on the finished cement’s selling price. The Commissioner denied the claim, and the Court of Tax Appeals upheld the assessment, declaring the collection was in accordance with Sections 243 and 246 of the National Internal Revenue Code. Petitioner filed this petition for review.
ISSUE
Whether the ad valorem tax on minerals extracted from lands not covered by lease should be based on the actual market value of the quarried minerals (limestone and shale) or on the selling price of the finished product (cement) into which the minerals are manufactured.
RULING
The Supreme Court ruled in favor of the petitioner in principle, holding that the ad valorem tax should be based on the actual market value of the quarried minerals, not on the selling price of the manufactured cement. The Court modified the decision of the Court of Tax Appeals.
The Court explained that the ad valorem tax under Section 243 of the Tax Code is a tax on the privilege of severing or extracting minerals from the earth, based on the Regalian doctrine. The term “mineral products” in Section 246 refers to things produced where at least 80% are minerals extracted by the producer. However, the Court found that portland cement, though composed of 80% minerals, is not the “mineral product” contemplated by the law for imposing the ad valorem tax. Cement is the result of a manufacturing process involving chemical changes to the raw minerals (crushing, grinding, mixing, calcining, etc.), transforming them into a distinct, finished product. The law intended “mineral products” to cover cases where mined elements undergo simple treatments (e.g., washing, cutting) that do not transform the raw materials into a composite, distinct product. Furthermore, the selling price of cement reflects the market value of the finished product, not the market value of the raw minerals quarried.
However, the Court sustained the respondent’s contention that claims for refund of taxes paid more than two years before the filing of the action (October 15, 1959) are barred by prescription under Section 306 of the Internal Revenue Code. Therefore, only overpayments made after October 15, 1957, are refundable. The decision of the Court of Tax Appeals was modified accordingly.