G.R. No. 107135 February 23, 1999.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE COURT OF APPEALS, CENTRAL VEGETABLE MANUFACTURING CO., INC., and THE COURT OF TAX APPEALS, respondents.

FACTS

Central Vegetable Oil Manufacturing Co., Inc. (CENVOCO) is a manufacturer of edible oil, coconut/copra meal cake, lard, detergent, and laundry soap. For the year 1986, CENVOCO purchased containers and packaging materials for its edible oil and paid the corresponding sales tax on these purchases. The Bureau of Internal Revenue (BIR) later issued an assessment against CENVOCO for deficiency miller’s tax. CENVOCO requested reconsideration, contending that the sales tax it paid on the containers and packaging materials should be credited against the assessed miller’s tax. The BIR denied the request, asserting that the law does not allow such a credit. CENVOCO then filed a petition for review with the Court of Tax Appeals (CTA), which ruled in its favor, holding that CENVOCO was not liable for the deficiency miller’s tax. The Court of Appeals affirmed the CTA decision in toto. The Commissioner of Internal Revenue elevated the case to the Supreme Court via a Petition for Review on Certiorari.

ISSUE

Whether or not the sales tax paid by CENVOCO when it purchased containers and packaging materials for its milled products can be credited against the deficiency miller’s tax due thereon.

RULING

The Supreme Court ruled in the affirmative, affirming the decisions of the Court of Appeals and the Court of Tax Appeals. The Court held that the sales tax paid on the containers and packaging materials could be credited against the miller’s tax due. The resolution hinged on the proper application of the final proviso of Section 168 of the National Internal Revenue Code, which disallows credit for taxes paid on “raw materials or supplies used in the milling process” against the miller’s tax. The Court agreed with the lower courts that containers and packaging materials are not “raw materials or supplies used in the milling process.” Raw materials are those from which the final product is made and become a homogenous part thereof, which containers do not. The containers are not fed into the milling machinery nor intended for conversion into the finished product. The Court applied the principle that tax statutes are construed strictly against the government, and tax burdens are not to be imposed beyond what the statute clearly imports. Furthermore, the Court deferred to the expertise of the Court of Tax Appeals, finding no abuse of discretion. The petition was dismissed.