G.R. No. L-10431; July 31, 1962
COLLECTOR OF INTERNAL REVENUE, petitioner, vs. LA TONDEÑA INC., and THE COURT OF TAX APPEALS, respondents.

FACTS

La Tondeña, Inc., a licensed rectifier, manufactured alcoholic products using alcohol purchased from sugar centrals. This alcohol was removed under bond without prepayment of specific tax, with the Bureau of Internal Revenue’s (BIR) permission. In its manufacturing process, particularly for Manila Rum, La Tondeña subjected low-test crude alcohol to further rectification, incurring inevitable losses through evaporation. Historically, the BIR allowed a loss allowance not exceeding 7%. On May 8, 1954, the Collector of Internal Revenue demanded payment of specific taxes totaling P154,663.10 on alcohol lost through evaporation from June 1950 to February 1954. La Tondeña protested and pursued an administrative appeal before the BIR’s Conference Staff. While this appeal was pending, the Collector demanded a cash deposit and surety bond per Finance Department Order. After the denial of its motions for reconsideration of this requirement, La Tondeña filed a petition for review with the Court of Tax Appeals (CTA) on March 18, 1955.

ISSUE

The primary issues were: (1) Whether La Tondeña was liable for specific tax on alcohol lost during re-rectification for the period from January 1, 1951, to February 27, 1954; and (2) Whether the CTA acquired jurisdiction over the case, considering the timeliness of the petition for review.

RULING

The Supreme Court affirmed the CTA’s decision. On the substantive tax issue, the Court held La Tondeña was not liable for the specific tax on the lost alcohol for the period starting January 1, 1951. The legal basis for the Collector’s assessment was Section 133 of the National Internal Revenue Code, which prior to 1951 provided that the tax attached to distilled spirits “as soon as it is in existence as such.” However, Republic Act No. 592 , effective January 1, 1951, amended Section 133 by deleting this crucial clause. The Court ruled this deletion manifested a legislative intent to tax only finished products removed from the place of production, not substances like the crude alcohol lost during an intermediate manufacturing process at the rectifier’s plant. Consequently, the tax assessment for the post-1950 period was invalid.
On the jurisdictional issue, the Court ruled the CTA correctly assumed jurisdiction. The period to appeal to the CTA was suspended when La Tondeña availed itself of the administrative remedy before the BIR’s Conference Staff—a remedy prescribed by the Collector himself. The final appealable decision of the Collector was the denial of reconsideration received by La Tondeña on March 16, 1955. La Tondeña filed its petition with the CTA on March 18, 1955, well within the statutory period. The Court rejected the petitioner’s argument that the appeal was late, emphasizing that the government should not be presumed to have created an administrative appeal process merely to trap taxpayers into missing judicial appeal deadlines.