GR L 10195; (November, 1958) (Digest)
G.R. No. L-10195; November 29, 1958
BELMAN COMPAÑIA INCORPORADA, plaintiff-appellee, vs. CENTRAL BANK OF THE PHILIPPINES, defendant-appellant.
FACTS
On September 21, 1950, plaintiff-appellee Belman Compañia Incorporada applied for and was granted a letter of credit by the Philippine National Bank (PNB) for US$4,300 to pay for onion skin paper from Getz Bros. & Co. in San Francisco, California. The draft under this letter of credit was payable on or before October 19, 1950. The PNB’s correspondent bank in the U.S., Crocker First National Bank, paid the amount to the payee. On April 26, 1951, the plaintiff paid its account to the PNB in Manila. The defendant-appellant Central Bank, pursuant to Republic Act No. 601 (as amended), assessed and collected a 17% special excise tax on the peso equivalent of the foreign exchange sold, amounting to P1,474.70, which the plaintiff paid under protest. The plaintiff contended the tax was illegal because the letter of credit was approved before the effectivity of R.A. No. 601 on March 28, 1951. After the Central Bank refused a written demand for refund, the plaintiff filed a complaint seeking a declaration of the tax’s illegality and a refund.
ISSUE
Whether the 17% special excise tax under Republic Act No. 601 was properly levied on the foreign exchange transaction, considering the date the letter of credit was approved (September 21, 1950) preceded the law’s effectivity (March 28, 1951).
RULING
The Supreme Court affirmed the trial court’s judgment ordering the Central Bank to refund the tax. The Court ruled that the consummation of the contract for the sale of foreign exchange, for purposes of determining tax liability, occurs not upon the approval of the letter of credit nor upon the debtor’s payment to the local bank, but upon the actual payment of the foreign currency to the creditor abroad by the bank’s agent or correspondent. Since the draft under the letter of credit was payable on or before October 19, 1950, it was presumed that the US$4,300 was paid by the correspondent bank in San Francisco on or before that date. This payment date, which was prior to March 28, 1951, meant the transaction was not subject to the excise tax imposed by R.A. No. 601 . Therefore, the assessment and collection of the 17% tax were illegal.