G.R. No. L-22337 June 14, 1969
PHILIPPINE TOBACCO FLUE-CURING AND REDRYING CORPORATION, petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent, C. NOLI ARAGON, intervenor.

FACTS

The petitioner, Philippine Tobacco Flue-Curing and Redrying Corporation (PTFRC), a domestic corporation, applied for and was granted a special barter permit (No. BT-1830) by the No-Dollar Import Office under Republic Act No. 1410 . The permit, issued by virtue of a Presidential directive, authorized PTFRC to export locally grown sun-dried Virginia leaf tobacco and, in barter, to import approximately 10 million pounds of U.S. Virginia leaf tobacco, which was otherwise banned by Central Bank regulations. The permit contained explicit conditions, including that it “cannot be transferred, assigned or negotiated” and that the imported tobacco be allocated to local cigarette factories. Pursuant to the permit, PTFRC received the imported tobacco, consigned to it. Before the tobacco was released from Customs custody, PTFRC endorsed the bills of lading in blank to various local cigarette manufacturers. These manufacturers then obtained release of the tobacco from Customs without payment of advance sales tax, based on the endorsed documents and their contracts of sale with PTFRC. The Commissioner of Internal Revenue subsequently assessed PTFRC for advance sales tax on the importation. PTFRC contested the assessment, but the Court of Tax Appeals affirmed it.

ISSUE

Whether the Philippine Tobacco Flue-Curing and Redrying Corporation (PTFRC) is liable for the payment of advance sales tax on the imported U.S. Virginia leaf tobacco, notwithstanding its endorsement of the bills of lading to local cigarette manufacturers prior to the release of the goods from Customs custody.

RULING

Yes, the petitioner is liable. The Supreme Court affirmed the decision of the Court of Tax Appeals. The Court held that PTFRC remained the importer of the tobacco for tax purposes. The barter permit was expressly granted to PTFRC and was non-transferable. The condition that the permit “cannot be transferred, assigned or negotiated” was intended to ensure PTFRC retained its character as the importer. The subsequent allocation or sale of the tobacco to local cigarette manufacturers did not shift the importer status, as this was part of the transaction contemplated by the permit. The Court rejected PTFRC’s argument that the endorsement of bills of lading made the manufacturers the importers, viewing it as a device to evade the payment of the advance sales tax. The Government, in granting the permit to overcome a Central Bank ban, did not intend to also exempt PTFRC from the tax liability ordinarily attached to importation. Therefore, PTFRC, as the permit holder and importer of record, was correctly assessed for the advance sales tax.