Case Digest: Manila Electric Company vs. Tabios

MANILA ELECTRIC COMPANY vs. BENJAMIN TABIOS

G.R. No. L-9987; L-23847 22 October 1975

FACTS:

In 1962, MERALCO imported and received from abroad copper wires, transformers, and insulators for use in the operation of its business, for which it paid the Collector of Customs, Php62,335.00 as compensating tax.  A claim for refund of said amount was presented by Meralco and was later appealed to the CTA by filing a petition for review.  The same situation happened in 1963 where it paid a compensating tax of Php6,587.00.  On both instances, the Court of Tax Appeals decided against Meralco.

The CIR relied upon Section 190 of the NIRC (CA No. 466 as amended) in deciding against the petitioner, and that just like Panay Electric Co., and Manila Gas Corp., it is not exempt from paying compensating tax under said law. CIR even pointed out that the purpose of the compensating tax is to “place casual importers, who are not merchants on equal footing with established merchants who pay sale tax on articles imported by them.”

On the other hand, Meralco bases its claim for exemption on paragraph 9 of its franchise, which states that although it is liable to pay taxes on its real estate, poles, wires, transformers and insulators are not part of said taxable property. Meralco further states that while paragraph 9 does not specifically mention the compensating tax, it is broad and sweeping enough to include compensating tax.

ISSUE: 

Is Meralco exempt from payment of a compensating tax on poles, wires, transformers, and insulators imported by it for use in the operation of its electric light, heat and power system?

RULING:

NO. Tax exemptions are strictly construed against the taxpayer, the same being highly disfavoured and may almost be said to be “odious to the law.” The right of taxation will not beheld to have been surrendered unless the intention to surrender is manifested by words too plain to be mistaken.

Moreover, the SC stated that it cannot overlook the finding of the tax court that Meralco’s franchise is a municipal one, not a legal franchise. Paragraph 9 of said franchise is also not “plain and unambiguous” as the petitioner claims it to be. What the provision exempts is the payment of property tax, which is reaffirmed on the last clause of the same.  A compensating tax is not a property tax but is an excise tax (one imposed on the performance of an act). In this case, it is not the act of importation that is taxed under Section 190 of NIRC, rather it is the use of imported goods not subjected to sales tax, because the compensating tax was expressly designed as a substitute to make up or compensate for the avenue lost to the government through the avoidance of sales taxes by means of direct purchases abroad.