Co v. Collector of Internal Revenue
REITERATIONFacts
The Antecedents: Celestino Co & Company, operating under the trade name "Oriental Sash Factory," paid percentage taxes of 7% on its gross receipts from 1946 to 1951, consistent with Section 186 of the National Revenue Code concerning the sale of manufactured articles. In 1952, the company began claiming liability only for the 3% contractor's tax under Section 191 of the same Code. Procedural History: The Bureau of Internal Revenue rejected the company's claim. The matter was elevated to the Court of Tax Appeals (CTA), which also ruled against the company. The CTA found that the company's claim of manufacturing only upon special order was not credible, given its registration as a "Factory" and its stationery advertising itself as a "Manufacturer of all kinds of doors, windows, sashes, furniture, etc.". The CTA also noted that the volume of sales indicated production beyond special orders and that even if articles were made to order, it did not qualify them as contractors under Section 191, which enumerates specific construction-related activities. The Petition: The company appealed the CTA decision, arguing that because it manufactured sash, windows, and doors only for special customers upon their specific orders and not for the general market, its transactions constituted a contract for a piece of work or a sale of services, thus falling under Section 191, not Section 186 (or 185 as erroneously cited in the brief).
Issue(s)
Whether the petitioner is a manufacturer subject to the 7% percentage tax under Section 186 of the NIRC or a contractor subject to the 3% tax under Section 191 of the NIRC.
Ruling
The Supreme Court affirmed the decision of the Court of Tax Appeals, holding that Celestino Co & Company is liable for the 7% percentage tax on sales of manufactured articles under Section 186 of the National Internal Revenue Code.
Ratio Decidendi
On Issue 1: The Supreme Court held that Celestino Co & Company is a manufacturer and not a contractor. The Court emphasized that the company 'habitually makes' sash, windows, and doors, as evidenced by its own stationery, advertisements, and the use of the trade name 'Oriental Sash Factory.' It rejected the argument that the company serves special customers only, noting that any builder could order the same goods and the factory was mechanically equipped to mass-produce them. Applying Article 1467 of the Civil Code, the Court ruled that a contract for the delivery of an article which a vendor manufactures in the ordinary course of business for the general market is a contract of sale, regardless of whether the item is in stock at the time of the order. The Court clarified that a transaction only becomes a 'piece of work' if it requires extraordinary equipment or involves services not generally performed by the factory, which was not the case here. Since the items produced utilized materials and forms (sash, mouldings, panels) habitually manufactured by the company, the transactions were correctly taxed as sales of manufactured articles under Section 186 of the NIRC.
Main Doctrine
A business that manufactures articles, even if made upon special order and according to customer specifications, is subject to the percentage tax on sales of manufactured articles under Section 186 of the National Internal Revenue Code, not the contractor's tax under Section 191, if the articles are habitually made or the components are ordinarily manufactured by the business.