EN BANC
[G.R. No. L-18649. December 29, 1967.]
CEBU PORTLAND CEMENT COMPANY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
The Government Corporate Counsel for Petitioner.
Solicitor General for Respondent.
Rogelio M. Jalandoni as Amicus Curiae.
SYLLABUS
1. TAXATION; AD VALOREM TAXES; COLLECTIBLE TAX ON CEMENT; TAX TO BE BASED ON THE ACTUAL MARKET VALUE OF THE QUARRIED MINERALS USED IN ITS PRODUCTION. — While cement is a mineral product, it is no longer in the state or condition contemplated by the law; hence the market value of the cement could not be the basis for computing the ad valorem tax, since the ad valorem is a severance tax, i.e., a charge upon the privilege of severing or extracting minerals from the earth, and is due and payable upon removal of the mineral product from its bed or mine. So that the tax is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before its being substantially changed by chemical or manufacturing (as distinguished from purely physical) processing. Whatever mention was made in the main decision of such process undergone by the component minerals of cement, was made solely and exclusively to emphasize the change in the condition of the minerals, from the primitive state contemplated by the taxing statute.
R E S O L U T I O N
REYES, J.B.L., J.:
Petitioner-appellant Commissioner of Internal Revenue has sought reconsideration of our main decision in the above entitled case, claiming that this Court has misconstrued the issues involved in this case, and that instead of resolving what is the market value upon which should be based the ad valorem tax imposed by section 246 of the Internal Revenue Code, as said section was amended by Republic Act 1299, in force since June 16, 1955, this Court decided the case "on an issue that was not raised by them" by ruling "that cement is not a mineral product but a manufactured product, and as such it is not subject to the ad valorem tax" (Motion for Reconsideration, p. 6). The appellant Commissioner therefore prays that this Court declare:chanrob1es virtual 1aw library
(1) That cement is a mineral product subject to 1-1/2% ad valorem tax based on its selling price; or
(2) In the alternative that the sales of cement by appellee Cebu Portland Cement Company are subject to sales tax of 7%.
The reconsideration must be denied. The appellant Commissioner of Internal Revenue has plainly misconstrued the language and import of our main decision. We there stated the issue to be as follows:jgc:chanrobles.com.ph
"Herein petitioner 1 contends that the collectible ad valorem tax should be based on the actual market value of the quarried minerals that were used in the production of cement; whereas, respondent Commissioner of Internal Revenue maintains that, as the cement produced by petitioner consists of minerals, the same is a mineral product pursuant to the definition given in Section 246 of the Tax Code and the ad valorem tax should be based on its selling price."cralaw virtua1aw library
And we sustained the position of the cement company, i.e. that the ad valorem tax in question should be based on the actual market value of the quarried minerals used in producing cement, reasoning that cement (as distinguished from the original minerals used to produce it) is the result of a process, and that the same "could not have been the state of mineral products contemplated by the law" for the purpose of imposing the ad valorem tax. The necessary corollary of this pronouncement is that the law intended to impose the ad valorem tax upon the market value of the component mineral products in their original state before processing into cement. For it can not be overlooked that the law does not impose a tax on cement qua cement, but on mineral products, at least 80% of which must be minerals extracted by the lessee, concessionaire or owner of mineral lands. Both parties concede that cement is made up of 80% or more of minerals thus extracted.
The Court did not, and could not, rule that cement is a manufactured product subject to sales tax, for the reason that such liability had never been litigated by the parties. What it did declare is that, while cement is a mineral product, it is no longer in the state or condition contemplated by the law; hence the market value of the cement could not be the basis for computing the ad valorem tax, since the ad valorem tax is a severance tax, i. e., a charge upon the privilege of severing or extracting minerals from the earth, (Dec. p. 4) and is due and payable upon removal of the mineral product from its bed or mine (Tax Code s. 245). So that the tax is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before its being substantially changed by chemical or manufacturing (as distinguished from purely physical) processing. Whatever mention was made in the decision of such process undergone by the component minerals of cement, was made solely and exclusively to emphasize the change in the condition of the minerals, from the primitive state contemplated by the taxing statute. This is clear from the text of the decision (pp. 4-5) where we stated:jgc:chanrobles.com.ph
"This (respondent’s) line of argument suffers from two infirmities. First, while cement is composed of 80% minerals, it is not merely an admixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite process — the crushing of minerals, grinding, mixing calcining, cooling, adding of retarder or raw gypsum. In short, before cement reaches its salable form, the minerals had already undergone a chemical change through manufacturing process. This could not have been the state of mineral products that the law contemplates for purposes of the ad valorem tax." (Emphasis supplied.)
WHEREFORE, all motions for reconsideration are denied. So ordered.
Concepcion, C.J., Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles, and Fernando, JJ., concur.
Makalintal and Dizon, JJ., did not take part.
(1) That cement is a mineral product subject to 1-1/2% ad valorem tax based on its selling price; or
(2) In the alternative that the sales of cement by appellee Cebu Portland Cement Company are subject to sales tax of 7%.
The reconsideration must be denied. The appellant Commissioner of Internal Revenue has plainly misconstrued the language and import of our main decision. We there stated the issue to be as follows:jgc:chanrobles.com.ph
"Herein petitioner 1 contends that the collectible ad valorem tax should be based on the actual market value of the quarried minerals that were used in the production of cement; whereas, respondent Commissioner of Internal Revenue maintains that, as the cement produced by petitioner consists of minerals, the same is a mineral product pursuant to the definition given in Section 246 of the Tax Code and the ad valorem tax should be based on its selling price."cralaw virtua1aw library
And we sustained the position of the cement company, i.e. that the ad valorem tax in question should be based on the actual market value of the quarried minerals used in producing cement, reasoning that cement (as distinguished from the original minerals used to produce it) is the result of a process, and that the same "could not have been the state of mineral products contemplated by the law" for the purpose of imposing the ad valorem tax. The necessary corollary of this pronouncement is that the law intended to impose the ad valorem tax upon the market value of the component mineral products in their original state before processing into cement. For it can not be overlooked that the law does not impose a tax on cement qua cement, but on mineral products, at least 80% of which must be minerals extracted by the lessee, concessionaire or owner of mineral lands. Both parties concede that cement is made up of 80% or more of minerals thus extracted.
The Court did not, and could not, rule that cement is a manufactured product subject to sales tax, for the reason that such liability had never been litigated by the parties. What it did declare is that, while cement is a mineral product, it is no longer in the state or condition contemplated by the law; hence the market value of the cement could not be the basis for computing the ad valorem tax, since the ad valorem tax is a severance tax, i. e., a charge upon the privilege of severing or extracting minerals from the earth, (Dec. p. 4) and is due and payable upon removal of the mineral product from its bed or mine (Tax Code s. 245). So that the tax is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before its being substantially changed by chemical or manufacturing (as distinguished from purely physical) processing. Whatever mention was made in the decision of such process undergone by the component minerals of cement, was made solely and exclusively to emphasize the change in the condition of the minerals, from the primitive state contemplated by the taxing statute. This is clear from the text of the decision (pp. 4-5) where we stated:jgc:chanrobles.com.ph
"This (respondent’s) line of argument suffers from two infirmities. First, while cement is composed of 80% minerals, it is not merely an admixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite process — the crushing of minerals, grinding, mixing calcining, cooling, adding of retarder or raw gypsum. In short, before cement reaches its salable form, the minerals had already undergone a chemical change through manufacturing process. This could not have been the state of mineral products that the law contemplates for purposes of the ad valorem tax." (Emphasis supplied.)
WHEREFORE, all motions for reconsideration are denied. So ordered.
Concepcion, C.J., Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles, and Fernando, JJ., concur.
Makalintal and Dizon, JJ., did not take part.
Endnotes:
1. Evidently referring to the original petitioner Cebu Portland Cement Co.
