G.R. No.

L-30232 July 29, 1988

LUZON STEVEDORING CORPORATION, petitioner-appellant, 

vs.
COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF
INTERNAL REVENUE, respondents-appellees.

Facts:
Luzon Stevedoring Corporation in 1961 and 1962, imported various engine
parts and other equipment for the repair and maintenance of its tugboats, for
which it paid, under protest, the assessed compensating tax. Unable to secure
a tax refund from the CIR, it filed a Petition for Review with the CTA.
Petitioner contends that tugboats are embraced and included in the
term cargo vessel under the tax exemption provisions of Section 190 of the
Revenue Code, as amended by Republic Act. No. 3176. Thus, in legal
contemplation, 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. Accordingly, it concludes that the engines, spare parts and
equipment imported by it and used in the repair and maintenance of its
tugboats are exempt from compensating tax.
The CTA denied the various claims for tax refund because "tugboats" are
not "Cargo vessel" as they are neither designed nor used for carrying and/or
transporting persons or goods by themselves and not within the purview of
Section 190 of the Tax Code, as amended by Republic Act No. 3176. The
Motion for Reconsideration was also denied.
Issue:
Whether or not petitioner’s tugboats can be interpreted to be included in the
term “cargo vessels” for purposes of the tax exemption provided for in
Section 190 of the National Internal Revenue Code, as amended by Republic
Act No. 3176.
Held:
No, the instant petition is without merit.
The amendatory provisions of Republic Act 3176, limits tax exemption from
the compensating tax to imported items to be used by the importer himself
as operator of passenger or cargo vessel or both, whether coastwise or
oceangoing, including engines and spare parts of said vessel.

Here, the petitioner’s "tugboats" are not "cargo vessels" because they are
mainly employed for towing and pulling purposes, not in carrying or
transporting passengers or cargoes. In fact, a tugboat is defined as a strongly
built, powerful steam or power vessel, used for towing and, now, also used
for attendance on vessel.

The Court reiterates that "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 couched in clear and unmistakable terms in
order that it may be applied." The general rule is that any claim for
exemption from the tax statute should be strictly construed against the
taxpayer.

Thus, Luzon Stevedoring Corp is not exempt from compensation tax under
Section 190, and is thus not entitled to refund.