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29 July 1988 / Paras / Interpretation and Construction of Tax Statutes

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
[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.

WON tugboats are included in the term cargo vessels for purposes of tax exemption. NO

Construction of laws on tax EXEMPTION: AGAINST taxpayer
GR: Any claim for exemption from the tax statute should be strictly construed against the
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
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.


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.