ACTING COMMISSIONER OF CUSTOMS, petitioner, vs. MANILA ELECTRIC COMPANY and COURT OF TAX APPEALS, respondents; G.R. No. L-23623 June 30, 1977

TOPIC: Article 10. In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail.

RATIONALE:

- Exemption from taxation must be justified by words too clear to be misread.

- Exemption from taxation is not favored and is never presumed so that if granted it must be strictly construed against the taxpayer.

FACTS:

1. Manila Electric Co. claims that it is exempt from the special import tax not only by virtue of Section 6 of Republic Act No. 1394, which exempts from said tax equipment and spare parts for use in industries, but also under Paragraph 9, Part Two, of its franchise, which expressly exempts is insulators from all taxes of whatever kind and nature.

2. However, Acting Commissioner of Customs in its assailed decision then made reference to the franchise of private respondent Manila Electric Co.: "Par. 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including poles, wires, transformers, and insulators), machinery and personal property as other persons are or may be hereafter required by law to pay.

3. In consideration of Part Two of the franchise herein granted, to wit, the right to build and maintain in the City of Manila and its suburbs a plant for the conveying and furnishing of electric current for light, heat, and power, and to charge for the same, the grantee shall pay to the City of Manila two and one-half per centum of the gross earnings received from the business under this franchise in the city and its suburbs: ... and shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted." 

4. It noted that the above "exempts it from all taxes of whatever nature, and by whatever authority, with respect to its insulators in consideration for the payment of the percentage tax on its gross earnings." 

ISSUE: Whether or not the respondent is liable for the payment of the special import tax under RA 1394.

RULING:

NO, respondent is not liable for the payment of the special import tax under RA 1394.

Court of Tax Appeals held that:

"Insulating oils are mineral oils of high di-electrics strength and high flash point employed in circuit breakers, switches, transformers and other electric apparatus. An oil with a flash point of 285 º F and fire point of 310 º F is considered safe. A clean, well- refined oil will have a minimum dielectric of 22,00 volts, but the presence of a slow as 0.01% water will reduce the di-electric strength drastically. The insulating oils, therefore, cannot be stored for long periods because of the danger of absorbing moisture. Impurities such as acids or alkalies also detract from the strength of the oil. Since insulating oils are used for cooling as well as for insulating, the viscosity should be low enough for free circulation, and they should not gum. (Materials Handbook by George J. Brady, 8th Edition 1956, pp. 421-423.)

There is no question that insulating oils of the type imported by petitioner are 'used for cooling as well as for insulating,' and when used in oil circuit breakers, they are 'required to maintain insulation between the contacts inside the tank and the tank itself.' ... The decision appealed from not being in accordance with law, the same is hereby reversed. Respondent is ordered to refund to petitioner the sum of P995.00 within thirty days from the date this decision becomes final, without pronouncement as to costs.

In the case at bar that is what the respondent did, it is clear according to Sec. 6 of RA 1394 and Par. 9, Part Two, of its franchise, that insulators are exempt from all taxes whatever kind of nature and that insulating oil comes within the term insulator therefore respondent is not liable for the payment of the special import tax under RA 1394. 

Exemption from taxation must be justified by words too clear to be misread. The law frowns on exemption from taxation, hence, an exempting provision should be construed strictissimi juris.

However, no other conclusion is possible in view of the well-settled principle that this Court is bound by the finding of facts of the Court of Tax Appeals, only questions of law being open to it for determination. As stated in another decision, 'only errors of law, and not rulings on the weight of evidence, are reviewable by this Court.' The facts then as above ascertained cannot be disturbed. In our latest decision, there is a categorical assertion that where the question is one of fact, it is no longer reviewable.

SC decision: The petition for review is dismissed. No costs. CTA decision affirmed.