Misamis Oriental Association of Coco Traders, Inc

G.R. No. 108524 November 10, 1994

Mendoza, J.

Facts:

            Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members, individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental. On the other hand, respondents represent departments of the executive branch of government charged with the generation of funds and the assessment, levy and collection of taxes and other imposts.

It alleges that prior to the issuance of Revenue Memorandum Circular (RMC) 47-91 on June 11, 1991, which implemented Value Added Tax (VAT) Ruling 190-90, copra was classified as agricultural food product under Section 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution.

The petitioner contends that the Bureau of Food and Drug of the Department of Health and not the Bureau of Internal Revenue (BIR) is the competent government agency to determine the proper classification of food products. It cites the opinion of Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect that copra should be considered "food" because it is produced from coconut which is food and 80% of coconut products are edible. The respondents, on the contrary, argue that the opinion of the BIR, as the government agency charged with the implementation and interpretation of the tax laws, is entitled to great respect.

Likewise, petitioner claims that RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution because while coconut farmers and copra producers are exempt, traders and dealers are not, although both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of traders and dealers.

Thus, the present petition for prohibition and injunction seeking to nullify Revenue Memorandum Circular No. 47-91 and enjoin the collection by respondent revenue officials of the Value Added Tax (VAT) on the sale of copra by members of petitioner organization.

Issues:

1.                  Is copra an agricultural food product for purposes of the provisions of the National Internal Revenue Code (NIRC), thus exempting the petitioner from payment of the Value Added Tax (VAT)?

2.                  Whether or not the opinion of the Commissioner of Internal Revenue should be accorded respect in interpreting the provisions of the National Internal Revenue Code.

3.                  Is RMC No. 47-91 violative of the equal protection clause?

4.                  Are oil millers exempt from payment of the Value Added Tax (VAT)?

Held:

1.         In the case at bar, we find no reason for holding that respondent Commissioner erred in not considering copra as an "agricultural food product" within the meaning of Section 103(b) of the NIRC. As the Solicitor General contends, "copra per se is not food, that is, it is not intended for human consumption. Simply stated, nobody eats copra for food." That previous Commissioners considered it so, is not reason for holding that the present interpretation is wrong. The Commissioner of Internal Revenue is not bound by the ruling of his predecessors. To the contrary, the overruling of decisions is inherent in the interpretation of laws.

Under Section 103(a) of the National Internal Revenue Code, the sale of agricultural non-food products in their original state is exempt from VAT only if the sale is made by the primary producer or owner of the land from which the same are produced. The sale made by any other person or entity, like a trader or dealer, is not exempt from the tax. On the other hand, under Section 103(b) the sale of agricultural food products in their original state is exempt from VAT at all stages of production or distribution regardless of who the seller is.

The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food product under Section 103(b) of the National Internal Revenue Code.

2.         The Supreme Court ruled in the affirmative. In interpreting Section 103(a) and (b) of the National Internal Revenue Code, the Commissioner of Internal Revenue gave it a strict construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state.

Moreover, as the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his power under Section 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes."

3.         The Supreme Court ruled in the negative. There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently.

4.         It is not true that oil millers are exempt from VAT. Pursuant to Section 102 of the National Internal Revenue Code, they are subject to 10% VAT on the sale of services. Under Section 104 of the Tax Code, they are allowed to credit the input tax on the sale of copra by traders and dealers, but there is no tax credit if the sale is made directly by the copra producer as the sale is VAT exempt. In the same manner, copra traders and dealers are allowed to credit the input tax on the sale of copra by other traders and dealers, but there is no tax credit if the sale is made by the producer.

            WHEREFORE, the petition is DISMISSED.