G.R. No. L-35266. January 21, 1991.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LIANGA BAY LOGGING CO., INC. and the COURT OF TAX APPEALS, respondents.

FACTS

Respondent Lianga Bay Logging Co., Inc. (Lianga) is a forest concessionaire operating a sawmill within its concession. For the period from April 1956 to December 1961, Lianga paid regular forest charges totaling P336,462.40. The payments were based on monthly reports prepared by forest officers permanently assigned to its concession, who scaled the logs and computed the charges. In 1963, the Commissioner of Internal Revenue demanded from Lianga a 25% surcharge on the total paid, alleging Lianga removed forest products without the required auxiliary invoices, using only “commercial scale tables.” The Commissioner also demanded a P300 compromise penalty.
Lianga contested the assessment before the Court of Tax Appeals (CTA), arguing that as the operator of a Class C sawmill—a classification where forest officers are permanently stationed to scale logs—it was governed by specific regulatory provisions that did not require auxiliary invoices. Instead, it was required to maintain other records like the Daily Trimmer Tally and Sawmill Invoice. The CTA reversed the Commissioner’s decision, absolving Lianga from liability.

ISSUE

Whether Lianga Bay Logging Co., Inc. is liable for the 25% surcharge for allegedly removing forest products without auxiliary invoices and for the P300 compromise penalty.

RULING

The Supreme Court denied the petition and affirmed the CTA decision. The legal logic centers on the proper classification of Lianga’s operations and the corresponding invoicing requirements under Department of Finance Regulations No. 85. The Commissioner erroneously applied Section 11 of the Regulations, which mandates auxiliary invoices for holders of ordinary licenses. The Court, agreeing with the CTA, found that separate provisions govern sawmill operators who are also concessionaires.
Lianga operated a Class C sawmill, defined as one operated by a forestry license holder with forest officers permanently stationed for scaling, and for which a bond is filed to guarantee payment of charges. For such mills, the Regulations explicitly substitute the auxiliary invoice requirement with other records, specifically the Log Scale Record, Daily Trimmer Tally, and Sawmill Invoice. Payment of forest charges is then made monthly based on these documents. The forest officers’ reports, which were the basis for Lianga’s original payments and the Commissioner’s own surcharge computation, constitute compliance with these commercial invoicing requirements.
Furthermore, Section 267 of the Tax Code imposes a surcharge for removal “without invoice,” but the term “invoice” is not limited to auxiliary invoices. Regulations No. 85 themselves clarify that the surcharge applies to products transported “without official invoice, or commercial invoice, as the case requires.” Since Lianga, as a Class C operator, used the prescribed commercial invoices, no violation occurred. The P300 compromise penalty was also correctly disallowed, as its imposition without the taxpayer’s conformity is illegal.