GR L 14930; (September, 1960) (Digest)
G.R. No. L-14930; September 30, 1960
MARLI PLYWOOD AND VENEER CORPORATION, petitioner, vs. JOSE ARAÑAS, as Collector of Internal Revenue, and THE COURT OF TAX APPEALS, respondents.
FACTS
Petitioner Marli Plywood and Veneer Corporation, holder of a certificate of exemption as a new and necessary industry for its plywood manufacturing business, sought a refund of P4,774.58 paid as compensating tax on its importation of a “Yanmar” marine diesel engine and an air compressor. The tax-exemption certificate issued by the Secretary of Finance explicitly exempted, among other taxes, “The compensating tax on machinery and equipment to be used exclusively in the new and necessary industry.” The imported machinery was installed in the petitioner’s boat “Marli II,” which was used exclusively to transport its manufactured plywood from its factory in Bayanan, Negros Oriental (a location not a port of call) to Cebu or Manila, and to bring back fuels and stocks for the factory on return trips. The petitioner contended that the marketing of its finished products was essential to its plywood manufacturing industry and thus the machinery should be covered by the exemption.
ISSUE
Whether the imported marine diesel engine and air compressor, used for the transportation of finished products and raw materials, are exempt from the compensating tax under the petitioner’s certificate of exemption for a new and necessary industry.
RULING
No. The Supreme Court affirmed the decision of the Court of Tax Appeals denying the refund. The Court held that the tax exemption, which must be interpreted strictly, applies only to machinery and equipment “to be used exclusively in the new and necessary industry” itself, not merely in connection with it. The exempt industry is the manufacture of plywood, which is fully accomplished with the production of the finished articles. The transportation activity, while convenient and economical for the petitioner, is not indispensable to, and does not form a part of, the plywood manufacturing business. The operation of transportation commenced only in 1956, whereas the petitioner had been in the manufacturing business since 1953, demonstrating that the manufacturing could operate without owning transportation facilities. For the exemption to apply, the imported machinery must be directly necessary to the operation of the industry itself, not merely incidental to it. Therefore, the compensating tax was properly levied.