G.R. No.

L-7731             September 29, 1958

CENTRAL AZUCARERA DON PEDRO, plaintiff-appellee,

Jose Ma. Recto for appellee.

PADILLA, J.:

On 30 May 1951, the Central Azucarera Don Pedro, hereafter named Sugar Central, imported from
Calcutta, India, 325 bales of Hessian (Fiji) cloth measuring 325,000 yards, made into 304,525 bags,
for which it purchased from the Chartered Bank of India, Australia & China, the agent of the Central
Bank, and remitted to Calcutta, India, foreign exchange in the sum of $196,625, United States
currency. All the bags containing centrifugal sugar produced or manufactured by the Sugar Central
were exported to the United States for its account and for the account of its planters. In July 1951,
the Sugar Central imported from the same country 200 bales of the same kind of cloth measuring
199,199 yards, made into 187,400 bags, for which it purchased from the same agent bank of the
Central Bank and remitted to Calcutta, India, foreign exchange in the sum of $119,099.42, United
States currency. Of 187,400 bags 155,852 bags containing centrifugal sugar produced or
manufactured by the Sugar Central were exported to the United States for its account and for that of
its planters. The Central Bank assessed and the Sugar Central paid 17% special excise tax on the
foreign exchange it purchased amounting to P61,353.89 on the first importation and to P40,797.50
on the second. On 23 April 1952 the latter asked the former to refund the sum of P67,353.89. This
was denied as well as a petition for reconsideration of the denial. In view thereof, the Sugar Central
did not file a formal petition for the refund of the sum of P33,929.42, the excise tax on 155,852 bags
containing the centrifugal sugar that, as stated above, were exported to the United States. Instead it
brought suit in the Court of First Instance of Manila to recover from or to compel the Central Bank to
refund to it the sums it paid as excise tax on the two importations of Hessian (Fiji) cloth.

The foregoing are substantially the fact agreed upon by the parties in a stipulation submitted to the
Court. Upon such stipulation the Court rendered judgment denying the defendants motion to dismiss
and —

. . . ordering defendant The Central Bank of the Philippines to refund to plaintiff Central
Azucarera Don Pedro the sum of sixty-seven thousand three hundred fifty three pesos and
eighty nine centavos (P67,353.89) on its first cause of action, and the sum of thirty-three
thousand nine hundred twenty-nine pesos and forty two centavos (P33,929.42) on its second
cause of action.

The defendant has appealed.

At the time of the importation of the Hessian (Fiji) cloth in question, section 3, Republic Act No.
601,1 was the law in force. It provided:

The tax collected on foreign exchange used for the payment of the cost, transportation
and/or other charges incident to importation into the Philippines of articles or containers used
by the importer himself in the manufacture or preparation of local products for consignment
or export abroad shall likewise be refunded upon satisfactory proof under said rules and
regulations that said imported articles or containers were actually used in the manufacture or
 preparation of such local products, forming part thereof, and that said local products have
been actually exported.

Under the aforequoted provision of law, a manufacturer seeking a refund of the 17% special excise
"tax collected on foreign exchange used for the payment of the cost, transportation and/or other
charges incident to transportation into the Philippines of articles or containers used by the importer in
the manufacture or preparation of local products for consignment or export abroad" must show (1)
that the articles or containers were imported into the Philippines by the importer-manufacturer; (2)
that the articles or containers were used by the importer in the manufacture or preparation of local
products; (3) that the local products manufactured or prepared must have been actually consigned
or exported abroad; (4) that the imported articles or containers actually used by the importer-
manufacturer form part of the manufactured products; (5) that the foreign exchange purchased, upon
which the special excise tax was assessed and paid by the importer-manufacturer, was to defray the
cost, transportation and/or other charges incident to importation into the Philippines of the articles or
containers used; and (6) that the importer-manufacturer had actually paid the 17% special excise tax
assessed or imposed.

Whether the provisions of Republic Act No. 601, the law in force at the time of the importations made
by the Sugar Central, was enacted to raise revenue, as contended by the appellant, or to conserve
or protect our dollar reserve, or both, as held by the trial court, the intent of the Congress or the
purpose of the law is not determinative of the issue involved in the case, if the law itself makes an
exception to the general rule imposing the special excise tax. Hence the question to determine is
whether under the provisions of section 3, Republic Act No. 601, the Hessian (Fiji) cloth, upon which
a special excise tax was assessed and imposed, when converted into bags to contain centrifugal
sugar exported to the United States, comes under the exception to the general intent and purpose of
the law. If the imported Hessian (Fiji) cloths in question were not containers because cutting and
sewing were to be done to convert them into bags, then the same could be deemed as articles used
by the importer in the manufacture or preparation of the centrifugal sugar to be exported abroad, as
long as said articles "formed part" of the centrifugal sugar which was actually exported. Even if the
imported Hessian (Fiji) cloths were not used by the importer in the manufacture of the centrifugal
sugar, yet it was used in the preparation of such sugar for consignment or export abroad. The term
"forming thereof" does not mean that the imported article should be merged into the local product by
mechanical process, or physically or materially mixed, or chemically combined, so as to lose its
identity. It means that the reported article is needed to accomplish the export abroad the product
locally manufactured. Until bottoms are built or space or room is provided in ocean-going ships to
carry in bulk the sugar to be exported, the bags of whatever fiber used to contain the centrifugal
sugar forms part the centrifugal sugar locally manufactured to be consigned or shipped abroad.

On the failure of the appellee to exhaust administrative remedies to secure the refund of the special
excise tax on the second importation sought to be recovered, we are of the same opinion as the trial
court that it would have been an idle ceremony to make a demand on the administrative officer and
after denial thereof to appeal to the Monetary Board of the Central Bank after the refund of the first
excise tax had been denied.

We also agree with the trial court that, being a corporation2 that may sue and be sued,3 the Central
Bank is the proper party defendant pursuant to section 5 of Republic Act No. 601, which provides
that ". . . The refund of taxes pursuant to sections two and three of this Act shall be made by the
Central Bank of the Philippines. . . . .

The judgment appealed from is affirmed, without pronouncement as to costs.