1) Luzon Stevedoring Corporation imported engine parts and equipment for repairing its tugboats and paid compensating tax under protest, arguing tugboats qualify as "cargo vessels" for tax exemption purposes.
2) Both the CIR and CTA denied the tax refund claim, finding tugboats are designed for towing, not carrying goods or passengers.
3) The Supreme Court affirmed, holding tax exemptions must be strictly construed against the taxpayer and Luzon failed to meet the requirements that exempted articles be used in coastwise or ocean cargo transport.
1) Luzon Stevedoring Corporation imported engine parts and equipment for repairing its tugboats and paid compensating tax under protest, arguing tugboats qualify as "cargo vessels" for tax exemption purposes.
2) Both the CIR and CTA denied the tax refund claim, finding tugboats are designed for towing, not carrying goods or passengers.
3) The Supreme Court affirmed, holding tax exemptions must be strictly construed against the taxpayer and Luzon failed to meet the requirements that exempted articles be used in coastwise or ocean cargo transport.
1) Luzon Stevedoring Corporation imported engine parts and equipment for repairing its tugboats and paid compensating tax under protest, arguing tugboats qualify as "cargo vessels" for tax exemption purposes.
2) Both the CIR and CTA denied the tax refund claim, finding tugboats are designed for towing, not carrying goods or passengers.
3) The Supreme Court affirmed, holding tax exemptions must be strictly construed against the taxpayer and Luzon failed to meet the requirements that exempted articles be used in coastwise or ocean cargo transport.
29 July 1988 / Paras / Interpretation and Construction of Tax Statutes
FACTS In 1961 and 1962, Luzon Stevedoring [Luzon] imported engine parts and equipment for the repair and maintenance of its tugboats. Luzon paid under protest the assessed compensating tax on its purchases.
Luzon tried to secure a tax refund, arguing that its tugboats can be interpreted to be included in the term "cargo vessels" for purposes of the tax exemptions provided for in NIRC Sec. 190 1 [Note: Not in current NIRC] as amended R.A. No. 3176. Luzon argued: The tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading of a vessel in part, constitute a single vessel. The engines, spare parts and equipment it imported and used in repair and maintenance are exempt from compensating tax.
Both the CIR and the CTA denied Luzons claim, contending otherwise: Tugboats are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly employed for towing and pulling purposes.
ISSUE WON tugboats are included in the term cargo vessels for purposes of tax exemption. NO
HOLDING Construction of laws on tax EXEMPTION: AGAINST taxpayer GR: Any claim for exemption from the tax statute should be strictly construed against the taxpayer. As the power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any reduction or diminution thereof with respect to its mode or its rate, must be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may be applied. (84 C.J.S. pp. 659-800)
IN THIS CASE: The requirements are: 1. Engines, spare parts must be used by the importer himself as a passenger and/or cargo vessel 2. The passenger and/or cargo vessel must be used in coastwise or oceangoing navigation
The Supreme Court cited the tugboat definitions used by the CTA: Strongly built, powerful steam or power vessel, used for towing and, now, also used for attendance on vessel. [Webster New International Dictionary, 2nd Ed.] Diesel or steam power vessel designed primarily for moving large ships to and from piers for towing barges and lighters in harbors, rivers and canals. [Encyclopedia International Grolier, Vol. 18, p. 256] Tug Steam vessel built for towing, synonymous with tugboat. [Bouvier's Law Dictionary]
More principles of construction Where the law speaks categorically, the need for interpretation is obviated: Simply apply the law! Even if construction and interpretation is insisted upon, there is another fundamental rule: statutes are to be construed in the light of purposes to be achieved, evils to be remedied. o In the sponsorship speech of Sen. Gil Puyat [on the amendment of Tax Code, Sec. 190], the intention was to provide incentives and inducements to bolster the shipping industry, not the business of stevedoring.
The CTA found that Luzons own evidence supports the view that it is engaged as a stevedore [work of unloading and loading of a vessel in port]. Even its trade name is indicative that its sole and principal business is stevedoring and lighterage, taxed under NIRC Sec. 191 as a contractor.
PETITION DISMISSED; CTA DECISION AFFIRMED
1 Sec. 190. Compensating tax. And Provided further, That the tax imposed in this section shall not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax or those for consignment abroad and are to form part thereof or to articles to be used by the importer himself as passenger and/or cargo vessel, whether coastwise or oceangoing, including engines and spare parts of said vessel.
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