Haystack: Butuan Sawmill vs. Court of Tax Appeals (GR L-20601, 28 February 1966)

Butuan Sawmill vs. Court of Tax Appeals (GR L-20601, 28 February 1966)
En Banc, Reyes JBL (J): 10 concur

Facts: During the period from 31 January 1951 to 8 June 1953, the Butuan Sawmill Inc. sold logs to Japanese firms at prices FOB Vessel Magallanes, Agusan (in some cases FOB Vessel, Nasipit also in Agusan). The FOB prices included costs of loading wharfage stevedoring and other costs in the Philippines. The quality, quantity and measurement specifications of the logs were certified by the Bureau of Forestry. That the freight was paid by the Japanese buyers, and the payments of the logs were effected by means of irrevocable letters of credit in favor of Butuan Sawmill and payable through the Philippine National Bank (PNB) or any other bank named by it. Upon investigation by the Bureau of Internal Revenue (BIR), it was ascertained that no sales tax return was filed by Butuan Sawmill and neither did it pay the corresponding tax on the sales. On the basis of agent Antonio Mole’s report dated 17 September 1957, the Commissioner of Internal Revenue on 27 August 1958, determined against Butuan Sawmill the sum of P40,004.01 representing sales tax, surcharge and compromise penalty of its sales [tax, surcharge and compromise penalty of its sales] of logs from January 1951 to June 1953 pursuant to section 183, 186 and 209 of the National Internal Revenue Code (NIRC). In consequence of a reinvestigation, the Commissioner, on 6 November 1958, amended the amount of the previous assessment to P38,917.74.

Subsequent requests for reconsideration of the amended assessment having been denied, Butuan Sawmill filed a petition for review on 7 November 1960. The Court of Tax Appeals upheld the upheld the legality and correctness of the amended assessment of the sales tax and surcharge. The imposition of the compromise penalty was, however, eliminated therefrom for want of agreement between the taxpayer and the Collector (now Commissioner) of Internal Revenue. A motion to reconsider said decision having been denied, Butuan Sawmill interposed an appeal before the Supreme Court.

The Supreme Court affirmed the decision appealed from, with costs against Butuan Sawmill.

1. Export sales had been consummated in the Philippines and were subject to sales tax therein; Taligaman Lumber Co. vs. Collector of Internal Revenue
Similar to the case of Taligaman Lumber Co. vs. Collector of Internal Revenue where “it was admitted that the agreed price was ‘F.O.B. Agusan’, thus indicating, although prima facie, that the parties intended the title to pass to the buyer upon delivery of the log in Agusan, on board the vessels that took the goods to Japan. Moreover, said prima facie proof was bolstered up by the following circumstances, namely: (1) Irrevocable letters of credit were opened by the Japanese buyers in favor of the petitioners. (2) Payment of freight charges of every shipment by the Japanese buyers. (3) The Japanese buyers chartered the ships that carried the logs they purchased from the Philippines to Japan. (4) The Japanese buyers insured the shipment of logs and collected the insurance coverage in case of loss in transit. (5) The petitioner collected the purchase price of every shipment of logs by surrendering the covering letter of credit, bill of lading, which was indorsed in blank, tally sheet, invoice and export entry, to the corresponding bank in Manila of the Japanese agent bank with whom the Japanese buyers opened letters of credit. (6) In case of natural defects in logs shipped to the buyers discovered in Japan instead of returning such defective logs, accepted them, but were granted a corresponding credit based on the contract price. (7) The logs purchased by the Japanese buyers were measured by a representative of the Director of Forestry and such measurement was final, thereby making the Government of the Philippines a sort of agent of the Japanese buyers,” and upon the authority of Bislig Bay Lumber Co., Inc. vs. Collector Internal Revenue, (G.R. No. L-13186 January 28, 1961) Misamis Lumber Co., Inc. vs. Collector of Internal Revenue (56 Off. Gaz. 517) and Western Mindanao Lumber Development Co., Inc. vs. Court of Tax Appeals, et al. (G.R. No. L-11710, June 30, 1958), it is clear that said export sales had been consummated in the Philippines and were accordingly, subject to sales tax therein.”

2. Paragraph 2, Article 1503 of the Civil Code of the Philippines
That the specification in the bill of lading to the effect that the goods are deliverable to the order of the seller or his agent does not necessarily negate the passing of title to the goods upon delivery to the carrier is clear from the second part of paragraph 2 of article 1503 of the Civil Code of the Philippines. Said provision provides that “Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the sellers’ property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligation under the contract.”

3. Only questions of law may be raised in petitions to review decisions of the CTA
It has been “a settled rule that in petitions to review decisions of the Court of Tax Appeals, only questions of law may be raised and may be passed upon by this Court.”

4. Income tax return cannot be considered as return for compensating tax for purpose of computing prescription under Section 331 of the Tax Code
An income tax return cannot be considered as a return for compensating tax for purposes of computing the period of prescription under Section 331 of the Tax Code, and that the taxpayer must file a return for the particular tax required by law in order to avail himself of the benefits of Section 331 of the Tax Code; otherwise, if he does not file a return, an assessment may be made within the time stated in Section 332(a) of the same Code (Bisaya Land Transportation Co., Inc. vs. Collector of Internal Revenue & Collector of Internal Revenue vs. Bisaya Land Transportation Co., Inc. G.R. Nos. L-12100 & L-11812. May 29, 1959).

5. 10 year prescription for failure to file return for disputed sales
As Butuan Sawmill failed to file a return for the disputed sales corresponding to the year 1951, 1952 and 1953, and this omission was discovered only on September 17, 1957, and that under Section 332(a) of the Tax Code assessment thereof may be made within ten (10) years from and after the discovery of the omission to file the return, the assessment and collection of the sales tax in question has not yet prescribed.