G.R. No. L-23272 November 26, 1970
JOSE F. ZAMORA (Golden Taxicab), petitioner, vs. THE COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL REVENUE, respondents.

FACTS

Petitioner Jose F. Zamora, owner and operator of Golden Taxicab, imported fifteen (15) units of Ford Consul Sedan in completely knocked down (CKD) parts in February 1958 for the use of his company. The importation was released upon payment of a 7% compensating tax based on the gross selling price or value of the parts and the filing of a bond to guarantee payment of any deficiency tax. Subsequently, the respondent Commissioner of Internal Revenue notified petitioner that the applicable rate was 50% and requested settlement of the deficiency tax. After denial of reconsideration, petitioner appealed to the Court of Tax Appeals. During the appeal, on February 15, 1961, respondent assessed and demanded from petitioner the payment of P23,103.85 as deficiency compensating tax, computed at 50% of the value. The Court of Tax Appeals upheld the assessment. Petitioner’s motion for reconsideration was denied, prompting this petition for review.

ISSUE

Whether the rate of compensating tax applicable to the importation of completely knocked down (CKD) automobile parts by petitioner is 50% under Section 184(a) of the National Internal Revenue Code or 7% under Section 186 of the same Code.

RULING

The applicable rate is 50% under Section 184(a). The Supreme Court affirmed the decision of the Court of Tax Appeals. The Court held that the reduced 7% tax rate under Section 186, as referenced in the proviso of Section 184(a), applies only to “parts and accessories of automobiles imported as replacements or as completely knocked down parts for the assembly of automobiles.” This qualification is consistent with Section 186, which specifies the tax is to be “paid by the manufacturer or producer.” The proviso was not intended for the end-user or consumer. The Court found that petitioner imported the CKD parts for use in his taxicab operation, not for the manufacture or assembly of automobiles for sale. Therefore, he was not entitled to the 7% rate. The Court also noted that the government’s intent in limiting the 7% rate to manufacturers or assemblers was to encourage local industry, increase job opportunities, and reduce dollar reserve drain. Petitioner’s reliance on a previous Bureau of Internal Revenue circular and past similar importations being taxed at 7% was unavailing, as errors by public officers cannot estop the government from acting in accordance with law.