March 10, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING
CORPORATION and COURT OF TAX APPEALS, respondents.

AND

DEVELOPMENT

[G.R. No. 105563]

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
Regalado, J.:
SUMMARY: Atlas Con. Mining was hit with tax assessments for the following activities: mining,
leasing of vehicles, and selling steel balls. CIR disputed Atlas method of computing ad valorem
tax on minerals, asserting that Atlas incorrectly deducted smelting and refining costs from the
London price of finished copper. It protested the assessments all the way up to the SC, which
held that the ad valorem tax is a tax on removing minerals from Philippine land. The tax should
therefore be imposed on the raw mineral taken from the Earth without chemical processing. On
the issue of taxes on leasing of vehicles and sale of steel balls, SC held that such taxes are
impositions on the privilege of doing business and are therefore in the nature of excise taxes.
The test for the imposition of such taxes is the continuity or intent to continue in the pursuit of
such business. SC found that there was continuity of transactions only with respect to the lease
of vehicles, since the sale of steel balls was only on an accommodation to its competitors.
DOCTRINES
Ad valorem tax is imposed upon the privilege of extracting minerals from the earth, the
government's right to exact the said impost springing from the Regalian theory of State
ownership of its natural resources.
When there is no available quote price for a raw mineral, the price of the finished product
derived from that mineral may be used as basis for computing the price of the raw
mineral, deducting therefrom the cost of the chemical processing which led to the
finished product.
Manufacturers tax and contractors tax are taxes on the privilege of doing business in
the Philippines and are thus in the nature of excise taxes.
Where a person or corporation is engaged in a distinct business and, as a feature
thereof, in an activity merely incidental which serves no other person or business, the
incidental and restricted activity is not to be considered as intended to be separately
taxed.
Assessments are prima facie presumed correct and made in good faith. It is the taxpayer
and not the Bureau of Internal Revenue who has the duty of proving otherwise. All
presumptions are in favor of tax assessments.
Tax statutes must be reasonably constructed to carry out their purpose and intent. They
should not be construed as to permit the taxpayer to easily evade the payment of tax
NATURE: Petition for review on certiorari of a CTA decision in an assessment protest.

FACTS
ATLAS Consolidated Mining and Development Corporation is a domestic corporation
which operates a mining concession in Toledo City, Cebu. It extracts copper, nickel,
pyrite, gold, silver, and other minerals, processes them into mineral concentrate, and
exports the product to Japan and other countries for further processing.
April 9, 1980 1975 ASSESSMENT: After investigation by BIR examiners, the
Commissioner of Internal Revenue (CIR), served upon Atlas an assessment notice and
demand for payment of the amount of P12,391,070.51 representing deficiency ad
valorem percentage and fixed taxes, including increments, for the taxable year 1975
against Atlas.
Sep. 23, 1980 1976 ASSESSMENT: After another investigation by BIR examiners,
another notice of assessment was served upon Atlas, this time for the amount of
P13,531,466.80 representing the 1976 deficiency ad valorem and business taxes
with P5,000.00 compromise penalty.
RELEVANT FACTS SURROUNDING THE ASSESSMENTS
o PHYSICAL PROCESS OF PRODUCING MINERAL CONCENTRATE
1) Blasting the ore-bearing rock is blasted so it can be mined
2) Loading the ore of one-half percent copper is loaded onto trucks for
processing
3) Hauling the ore is delivered to the mill
4) Crushing the ore is crushed to peanut-sized pieces
5) Grinding using steel balls, the crushed ore is pulverized
6) Concentrating the mineral-bearing particles are obtained from the
powdered ore
o CHEMICAL PROCESS OF PRODUCING FINISHED COPPER
1) Drying The 30% copper concentrate is dried
2) Flash Furnace The dried concentrate is smelted in a furnace,
producing a 65% copper matte
3) Converter the 65% copper matte is converted into 99% copper
4) Refining
5) Fabricating
Numbers 1, 2 and 3 are collectively known as smelting.
o BIR examiners found that Atlas produced its own steel balls for grinding
the ore. At one time, it sold (or lent) steel balls to its competitors when a
shortage occurred. Although BIRs informant reported that the transaction was a
mere accommodation only and that Atlas competitors turned to other steel ball
suppliers, the CIR still assessed manufacturers tax on Atlas.
o BIR examiners also found that Atlas leased out certain properties it owns
such as an airplane, a motorboat, and a dump truck and received rental income
of P630,171.56 in 1975 and P2,450,218.62 in 1976 from said rentals. On the
basis of this finding, the CIR assessed contractors tax on Atlas.
o Atlas produces only mineral concentrate. The chemical process for
producing wire bar is done in Japan and other foreign countries where Atlas
exports its mineral concentrate products.
o To determine the amount of specific minerals in the ore, Atlas obtains samples
for testing in a laboratory. By this process, Atlas is able to estimate the amount
of gold, silver, and copper in a determinate amount of ore [Testimony of
Francisco Antonio, an Atlas employee].
o However, since there is no quoted price for copper concentrate, Atlas used the
price of manufactured copper as quoted in the London Metal Exchange minus

the cost of the chemical process to estimate the value of the copper
concentrate it produces.
Atlas protested the assessments. Upon denial, it elevated the case to the CTA. The two
assessment protests were consolidated.
May 31, 1991 CTA decision
o Atlas was absolved from paying deficiency ad valorem taxes on copper and
silver for 1975 (P11,276,540.79) and 1976 (P12,882,760.80)
o Atlas was held liable for 25% surcharge for late payment of the ad valorem
tax and late filing of notice of removal of silver, gold and pyrite extracted
during certain periods, and for alleged deficiency manufacturer's sales tax
and contractor's tax
o In particular, Atlas was ordered to pay:
25% surcharge on silver extracted during the period November 1, 1974 to
December 31, 1975 - P297,900.39
25% surcharge on silver extracted for the taxable year 1976 P161,027.53
25% surcharge on gold extracted during the period November 1, 1974 to
December 31, 1975 - P315,027.30
25% surcharge on gold during the taxable year 1976 - P260,180.55
25% surcharge on pyrite extracted during the period November 1, 1974 to
December 31, 1975 - P53,585.30
25% surcharge on pyrite extracted during the taxable year 1976 P53,283.69
Deficiency manufacturer's sales tax and surcharge during the taxable
year 1975; plus 14% interest from January 21, 1976 until fully paid as
provided under Section 183 of P.D. No. 69. - P316,117.53
Deficiency contractor's tax and surcharge on the lease of personal
property during the taxable year 1975; plus 14% interest from January 21,
1976 until fully paid as provided under Section 183 of P.D. 69. P23,631.44
Deficiency contractor's tax and surcharge on the lease of personal
property during the taxable year 1976; plus 14% interest from April 21,
1976 until fully paid as provided under Section 183 of P.D. No. 69. P91,883.75
Costs of suit
TOTAL: P1,572,637.48, excluding interest
CIR (with respect to the ad valorem tax) and Atlas (with respect to the surcharges etc.)
both appealed to the CA.
February 12, 1992 CA decision on the CIRs appeal upheld the CTA and absolved
Atlas of liability for ad valorem tax. The CIR appealed to the SC.
May 22, 1992 CA decision on Atlas appeal modified the CTA judgment and reduced
Atlas tax liability by removing the following items:
o 25% surcharge on silver extracted during the period November 1, 1974 to
December 31, 1975 - P297,900.39
o 25% surcharge on gold extracted during the period November 1, 1974 to
December 31, 1975 - P315,027.30
o 25% surcharge on pyrite extracted during the period November 1, 1974 to
December 31, 1975 - P53,585.30

Atlas tax liability was thus reduced to P906,124.49. Believing that it is not liable
to pay any tax at all for the years 1975 and 1976, Atlas appealed to the SC.
The SC ordered the consolidation of the two appeals.
o

ISSUES (HELD)
1) W/N Atlas is liable for deficiency ad valorem tax on copper and silver for 1975 and 1976 (NO)
2) W/N Atlas is liable for 25% surcharge for late filing of notice of removal/late payment of the ad
valorem tax on silver, gold and pyrite extracted during the taxable year 1976 (YES)
3) W/N Atlas is liable for manufacturer's sales tax and surcharge during the taxable year 1975,
plus interest, on grinding steel balls borrowed by its competitor (NO)
4) W/N Atlas is liable for payment of the contractor's tax and surcharge on the alleged lease of
personal property during the taxable years 1975 and 1976 plus interest (YES)
RATIO
1) Atlas is not liable for deficiency ad valorem tax on copper and silver because CIRs
basis for the computation of the tax is incorrect.
CIR: Under Sec. 246 of the Tax Code, the only allowable deduction for ad valorem tax
on minerals is actual cost of freight and insurance under C.I.F. terms, thus Atlas
computation is incorrect.
Atlas: There being no price quotation for copper concentrate in local or foreign
commodity markets, the price quoted in the London Metal Exchange must suffice.
SC: Since the ad valorem tax on minerals is imposed on the value of the
unprocessed mineral product as it is; and there being no quotation for such
product with respect to copper, the London Metal Exchange price will suffice as a
basis.
o NATURE OF AD VALOREM TAX ON MINERALS
Tax Code, Sec. 243: Ad valorem taxes on output of mineral lands not
covered by lease. - There is hereby imposed on the actual market
value of the annual gross output of the minerals or mineral products
extracted or produced from all mineral lands not covered by lease,
an ad valorem tax in the amount of two per centum of the value of the
output, except gold which shall pay one and one-half per centum.
Tax Code, Sec. 246: x x x The term 'gross output' shall be interpreted
as the actual market value of minerals or mineral products, or of
bullion from each mine or mineral lands operated as a separate entity
without any deduction from mining, milling, refining, transporting,
handling, marketing, or any other expenses x x x
Cebu Portland Cement v. CIR: "x x x ad valorem tax is a tax not on the
minerals, but upon the privilege of severing or extracting the same
from the earth, the government's right to exact the said impost
springing from the Regalian theory of State ownership of its natural
resources. Therefore, ad valorem tax is not imposable on the end
product which is cement, but on the individual components of cement,
e.g., silica, gypsum, lime, shale, etc.
The proper basis, therefore, for the computation of the ad valorem tax is
the actual market value of the minerals at the time of their removal or
extraction from the Earths surface, before it undergoes any process
which will alter its chemical state.
If the market value chosen for the reckoning is the value of the
manufactured or finished product, as in the case at bar, then all expenses

of processing or manufacturing should be deducted in order to

approximate as closely as is humanly possible the actual market value of
the raw mineral at the mine site.
CASE AT BAR: It has been shown that Atlas produces only copper
concentrate, the production of which does not involve any chemical
processes. The manufacture of the finished product the copper wire bar
happens in Japan. Atlas is therefore justified in deducting the costs of
smelting and refining from the London quoted value of the copper wire
bar in arriving at an estimate of the price of the copper concentrate it
produces.
This is precisely the finding of the CTA in a previous case also involving
Atlas, which was decided in 1981: Since the mineral or mineral product
removed from its bed or mine at Toledo City by [Atlas] is copper
concentrate as admitted by [the CIR], not copper wire bar, the actual
market value of such copper concentrate in its condition at the time of
such removal without any deduction from mining, milling, refining,
transporting, handling, marketing, or any other expenses should be the
basis of the 2% ad valorem tax.
In that same case, it was held: (*everything which has been previously
said in a nutshell*)
1. The mineral or mineral product of [Atlas] the extraction or
severance from the soil of which the ad valorem tax is directed is
copper concentrate.
2. The ad valorem tax is computed on the basis of the actual
market value of the copper concentrate in its condition at the time
of removal from the earth and before it is substantially changed by
chemical or manufacturing process without any deduction from
mining, milling, refining, transporting, handling, marketing, or any
other expenses. However, since the copper concentrate is sold
abroad by [Atlas] under C.I.F. terms, the actual cost of ocean
freight and insurance is deductible.
3. There being no market price quotation of copper concentrate
locally or in the commodity exchanges or markets of the world, the
London Metal Exchange price quotation of copper wire bar, which
is used by [Atlas] as reference to determine the selling price of
copper concentrate, may likewise be employed in this case as
reference point in ascertaining the actual market value of copper
concentrate for ad valorem tax purposes. By deducting from the
London Metal Exchange price quotation of copper wire bar all
charges and costs incurred after the copper concentrate has
been shipped from Toledo City to the time the same has been
manufactured into wire bar, namely, smelting, electrolytic
refining and fabricating, the remainder represents to a
reasonable degree the actual market value of the copper
concentrate in its condition at the time of extraction or
removal from its bed in Toledo City for the purposes of the ad
valorem tax.
There is no merit to the CIRs contention that said ruling is not binding on
the BIR. The decisions of collegiate courts such as the CTA, while not
constitutive of jurisprudence, is persuasive and may even be binding,

especially when the SC adopts their findings and elevates them to the
status of judicial doctrine.
2) Atlas is liable for surcharge on the ad valorem tax on gold, silver, and pyrite because these
were paid belatedly even if Atlas had the means to immediately ascertain the amount of mineral
that they were able to extract.
Tax Code, Sec. 245: Ad valorem tax becomes due upon the removal of the mineral
products from the locality where mined. A 25% surcharge will be imposed if tax is not
paid after 20 days from the end of the quarter when the minerals were removed.
Atlas: It is not liable to pay the 25% surcharge because the amount of gold and silver
extracted from the copper concentrate can only be ascertained in Japan during the
chemical processing of the concentrate, while the pyrite cannot be determined until after
the separation of the concentrate from the tailings is finished. The pyrite was never
removed from the mine site as it was delivered to its sister fertilizer manufacturing
company which is located in the same compound as the mine site.
SC: Untenable because the testimony [see facts] of Antonio clearly establishes that Atlas
has the means of estimating the amount of gold and silver being removed from the mine.
Atlas even paid the ad valorem tax on the pyrite it sent to its sister company, so it is
estopped from questioning the surcharge.
3) Atlas is not liable for manufacturers tax on the steel balls because it is not engaged in the
business of selling steel balls.
Tax Code, Sec.186 imposes a manufacturers tax on the original sale or paid transfer of
ownership of certain products.
Sec. 186 falls under Title V on Privilege Taxes on Business and Occupation. These
taxes are imposed upon the privilege of engaging in a business and are
essentially excise taxes (Matic).
To be held liable for tax on the privilege of engaging in a business, one must be
engaged in such business. Being engaged in a certain business has been held to mean
that there is an intent to continue on in such business. It implies continuity of action; or at
least, an intent of continuity (if there is only one transaction). It also requires the intention
of making a profit out of said business.
CASE AT BAR: The findings of the BIR Investigating Team [see facts above] supports
Atlas assertion that it was not engaged in the business of manufacturing steel balls. The
sale of Atlas-made steel balls to competitors was strictly for accommodation purposes
only.
Standard-Vacuum Oil Co. vs. M.D. Antigua: Where a person or corporation is engaged
in a distinct business and, as a feature thereof, in an activity merely incidental which
serves no other person or business, the incidental and restricted activity is not to be
considered as intended to be separately taxed.
4) Atlas is liable for contractors tax on the rental income it derived from leasing its airplane,
dump truck, and motorboat.
Tax Code, Sec. 191, 7, imposes a contractors tax on leases of personal property.
Sec. 191 falls under the same title as the manufacturers tax. It is also a tax on the
privilege of engaging in business the business of renting out personal property.
Applying the similar engagement test, Atlas is liable for contractors tax, as it has been
shown to be engaged in the business of renting out its transportation assets.
Atlas book of accounts shows a series of several distinct payments for the use of its
plane, dump truck and motor boat. It even reported a substantial amount of rental
income [see above]. These are all evidence of Atlas intent to continuously carry out the
rental of its transport assets for profit.

Atlas assertion that it was not making any profit from such rentals is not supported by
any evidence.
SC: Assessments are prima facie presumed correct and made in good faith. x x x It is
the taxpayer and not the Bureau of Internal Revenue who has the duty of proving
otherwise. It is an elementary rule that in the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed. All presumptions are
in favor of tax assessments. x x x Failure to present proof of error in the assessment will
justify judicial affirmance of said assessment.
CONSTRUCTION OF TAX STATUTES: Tax statutes must be reasonably constructed to
carry out their purpose and intent. They should not be construed as to permit the
taxpayer to easily evade the payment of tax.

DISPOSITION: Judgment in the CIRs appeal is affirmed. Judgment in Atlas appeal is affirmed
with modification the manufacturers tax assessment being reversed.