GR L 19627; (June, 1968) (Digest)
G.R. No. L-19627 June 27, 1968
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ARMANDO L. ABAD, doing business under the trade name of Republic Alcohol Distillery, and the COURT OF TAX APPEALS, respondents.
FACTS
The respondent, Armando L. Abad, doing business as Republic Alcohol Distillery, is a manufacturer and seller of denatured alcohol. On August 14, 1958, he applied to denature 33,000 gauge liters of rectified alcohol using a formula prescribed by the Bureau of Internal Revenue (BIR). A BIR denaturing committee supervised the denaturation on August 21, 1958, at his warehouse. The committee certified the alcohol as duly denatured. However, a surprise inspection on August 25, 1958, revealed that the alcohol was not completely denatured and could still be used for compounding liquors. The inspection also found that 22,580 gauge liters had been removed and sold, with only 10,480 gauge liters remaining. On September 2, 1958, the Commissioner of Internal Revenue demanded payment of P19,204.20 as specific tax on the removed alcohol plus a P10,000 compromise penalty. On September 5, 1958, the remaining alcohol was re-denatured. The Court of Tax Appeals absolved the respondent from liability, ruling that the entire denaturation process was undertaken by the BIR committee without his intervention, and it would be unjust to hold him liable for the committee’s negligence.
ISSUE
Whether the respondent, Armando L. Abad, is liable for the payment of specific tax on the alcohol removed from his warehouse, which was certified as denatured by the BIR committee but later found to be not completely denatured.
RULING
Yes. The Supreme Court reversed the decision of the Court of Tax Appeals. The respondent is liable for the specific tax. As a licensed manufacturer, he is responsible for the quality of his products and cannot escape liability by attributing fault to the BIR denaturing committee. The certification by the committee does not exempt him from paying the tax if the alcohol is later found not to have been properly denatured. The Court cited the precedent in Central Azucarera de Tarlac v. Collector of Internal Revenue, which held a manufacturer responsible despite a BIR committee’s certification. The respondent was ordered to pay P19,204.20 as specific tax, with 6% interest per annum from August 28, 1958. However, the P10,000 compromise penalty was disallowed as a compromise implies mutual agreement, and it was rejected by the taxpayer.