Rattan Art & Decorations, Inc. v. Collector of Internal Revenue
REITERATIONFacts
The Antecedents: Petitioner, Rattan Art & Decorations, Inc., engaged in manufacturing and selling rattan articles, including round rattan pieces, sold these articles to foreign buyers on F.O.B. terms. The Collector of Internal Revenue (CIR) demanded deficiency sales tax, surcharge, and penalty for the period September 4, 1951, to January 24, 1952. Petitioner sought cancellation, asserting the transactions were export sales, with title passing only upon arrival and inspection in the United States. Procedural History: A reinvestigation by the CIR resulted in a revised assessment of P96,706.30. Subsequently, a demand for P87,914.93 plus penalty was issued. Petitioner's motion for reconsideration led to a modified assessment of P77,087.28. Upon failure to pay, a Warrant of Distraint and Levy was issued. Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA), claiming the assessment was erroneous and the liability had prescribed. The Petition: The CIR asserted that the assessment was lawful and the right to collect had not prescribed. The CTA, after trial, ordered a reopening for evidence on the prescription issue for 1950 sales. A stipulation of facts was presented. The CTA rendered judgment, finding sales under F.O.B. Manila terms to be domestic sales consummated in the Philippines, thus subject to sales tax. It ruled that the assessment for 1949 and the first quarter of 1950 had prescribed, but not for the second quarter of 1950. The CTA modified the assessment to P68,582.23. Petitioner's motion for reconsideration, invoking the retroactive effect of Republic Act 894 (which exempted shipments abroad), was denied. The instant appeal followed.
Issue(s)
Whether sales of rattan articles to foreign buyers on F.O.B. terms are domestic sales subject to sales tax. Whether the right of the Government to assess deficiency sales tax for sales made from 1949 to the second quarter of 1950 had prescribed. Whether Republic Act 894 should be given retroactive effect to exempt petitioner from sales tax liability for transactions prior to its enactment.
Ruling
The Supreme Court affirmed the decision of the Court of Tax Appeals, with modification. Petitioner was ordered to pay P68,582.23. The Court ruled that sales on F.O.B. terms are consummated in the Philippines, making them domestic sales subject to sales tax. The assessment for 1949 and the first quarter of 1950 was deemed prescribed, but not for the second quarter of 1950. Republic Act 894 was held not to have retroactive effect in this case.
Ratio Decidendi
On Whether sales of rattan articles to foreign buyers on F.O.B. terms are domestic sales subject to sales tax: The Court held that sales made on F.O.B. terms are considered consummated in the Philippines. This is because title to the articles passes from the seller to the buyer at the moment the goods are placed on board the carrying vessels. The Court noted that expenses for packing, preparation, freight charges, and insurance were borne by the buyers, indicating that the seller's rights and responsibilities ended upon shipment. The fact that payment was made in dollars or through drafts drawn against local banks did not alter the situs of the sale. Therefore, these were domestic sales subject to sales tax under Section 196 of the National Internal Revenue Code. On Whether the right of the Government to assess deficiency sales tax for sales made from 1949 to the second quarter of 1950 had prescribed: The Court found that the assessment was made on June 22, 1955. Based on the stipulation of facts, the return for the first quarter of 1950 was filed on or before April 20, 1950, and for the second quarter of 1950, on or before July 20, 1950. Under the five-year prescriptive period, the assessment for 1949 and the first quarter of 1950 had indeed prescribed by June 22, 1955. However, for the second quarter of 1950, the five-year period had not yet expired when the assessment was made, making the assessment for that period valid. On Whether Republic Act 894 should be given retroactive effect to exempt petitioner from sales tax liability for transactions prior to its enactment: The Court ruled that Republic Act 894, which exempted shipments abroad from sales tax effective June 20, 1953, could not be given retroactive effect to cover transactions prior to its enactment. Tax exemptions are strictly construed, and the government had already acquired a vested right in the taxes due from petitioner before the exempting statute came into effect. The Court reiterated its previous rulings that transactions prior to the effectivity of Republic Act 894 cannot be given retroactive effect, citing Misamis Lumber Co., Inc. v. The Coll. of Int. Rev.
Main Doctrine
Sales made on F.O.B. terms are considered consummated in the Philippines, making them domestic sales subject to sales tax, unless a contrary intent is clearly proven. Furthermore, tax exemptions are strictly construed, and new exempting statutes are generally not given retroactive effect if they prejudice vested rights of the government.