Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19707 August 17, 1967
PHILIPPINE ACETYLENE CO., INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REENUE !"# COURT OF TA$ APPEALS, respondents.
Ponce Enrile, Siguion Reyna, Montecillo and Belo, for petitioner.
Office of the Solicitor General for respondents.
CASTRO, J.:
The petitioner is a corporation engaged in the manufacture and sale of o!gen and acet!lene gases. "uring the period from
#une $, %&'( to #une (), %&'*, it made various sales of its products to the National Po+er Corporation, an agenc! of the
Philippine ,overnment, and to the -oice of America an agenc! of the .nited /tates ,overnment. The sales to the NPC
amounted to P%0',*11.2), +hile those to the -3A amounted to P%,1*(, on account of +hich the respondent Commission of
4nternal Revenue assessed against, and demanded from, the petitioner the pa!ment of P%$,&%).1) as deficienc! sales ta
and surcharge, pursuant to the follo+ing5provisions of the National 4nternal Revenue Code6
/ec. %*1. Percentage tax on sales of other articles.7There shall be levied, assessed and collected once onl! on ever!
original sale, barter, echange, and similar transaction either for nominal or valuable considerations, intended to transfer
o+nership of, or title to, the articles not enumerated in sections one hundred and eight!5four and one hundred and eight!5
five a ta e8uivalent to seven per centum of the gross selling price or gross value in mone! of the articles so sold, bartered
echanged, or transferred, such ta to be paid b! the manufacturer or producer6 . . . .
/ec. %*(. Payment of percentage taxes.79a: In general.74t shall be the dut! of ever! person conducting business on +hich
a percentage ta is imposed under this Title, to ma;e a true and complete return of the amount of his, her, or its gross
monthl! sales, receipts or earnings, or gross value of output actuall! removed from the factor! or mill +arehouse and +ithin
t+ent! da!s after the end of each month, pa! the ta due thereon6 Proided, That an! person retiring from a business
sub<ect to the percentage ta shall notif! the nearest internal revenue officer thereof, file his return or declaration and pa! the
ta due thereon +ithin t+ent! da!s after closing his business.
4f the percentage ta on an! business is not paid +ithin the time specified above, the amount of the ta shall be increased b!
t+ent!5five per centum, the increment to be a part of the ta.
The petitioner denied liabilit! for the pa!ment of the ta on the ground that both the NPC and the -3A are eempt from
taation. 4t as;ed for a reconsideration of the assessment and, failing to secure one, appealed to the Court of Ta Appeals.
The court ruled that the ta on the sale of articles or goods in section %*1 of the Code is a ta on the manufacturer and not
on the bu!er +ith the result that the =petitioner Philippine Acet!lene Compan!, the manufacturer or producer of o!gen and
acet!lene gases sold to the National Po+er Corporation, cannot claim eemption from the pa!ment of sales ta simpl!
because its bu!er 7 the National Po+er Corporation 7 is eempt from the pa!ment of all taes.= >ith respect to the sales
made to the -3A, the court held that goods purchased b! the American ,overnment or its agencies from manufacturers or
producers are eempt from the pa!ment of the sales ta under the agreement bet+een the ,overnment of the Philippines
and that of the .nited /tates, provided the purchases are supported b! certificates of eemption, and since purchases
amounting to onl! P''*, out of a total of P%,1*(, +ere not covered b! certificates of eemption, onl! the sales in the sum of
P''* +ere sub<ect to the pa!ment of ta. Accordingl!, the assessment +as revised and the petitioner?s liabilit! +as reduced
from P%$,&%).1), as assessed b! the respondent commission, to P%$,*%$.%1.
1
The petitioner appealed to this Court. 4ts position is that it is not liable for the pa!ment of ta on the sales it made to the NPC
and the -3A because both entities are eempt from taation.
4
The NPC en<o!s ta eemption b! virtue of an act
2
of Congress +hich provides as follo+s6
/ec. $. To facilitate the pa!ment of its indebtedness, the National Po+er Corporation shall be eempt from all taes, ecept
real propert! ta, and from all duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities.
4t is contended that the immunit! thus given to the NPC +ould be impaired b! the imposition of a ta on sales made to it
because +hile the ta is paid b! the manufacturer or producer, the ta is ultimatel! shifted b! the latter to the former. The
petitioner invo;es in support of its position a %&'0 opinion of the /ecretar! of #ustice +hich ruled that the NPC is eempt
from the pa!ment of all taes =+hether direct or indirect.=
>e begin +ith an anal!sis of the nature of the percentage 9sales: ta imposed b! section %*1 of the Code. 4s it a ta on the
producer or on the purchaser@ /tatutes of the t!pe under consideration, +hich impose a ta on sales, have been described
as =actAsB +ith schiCophrenic s!mptoms,=
3
as the! apparentl! have t+o faces 7 one that of a vendor ta, the other, a vendee
ta. Dortunatel! for us the provisions of the Code thro+ some light on the problem. The Code states that the sales ta =shall
be paid b! the manufacturer or producer,=
4
+ho must =ma;e a true and complete return of the amount of his, her or its gross
monthl! sales, receipts or earnings or gross value of output actuall! removed from the factor! or mill +arehouse and +ithin
t+ent! da!s after the end of each month, pa! the ta due thereon.=
5
But it is argued that a sales ta is ultimatel! passed on to the purchaser, and that, so far as the purchaser is an entit! li;e the
NPC +hich is eempt from the pa!ment of =all taes, ecept real propert! ta,= the ta cannot be collected from sales.
Man! !ears ago, Mr. #ustice 3liver >endell Eolmes epressed dissatisfaction +ith the use of the phrase =pass the ta on.=
>riting the opinion of the ../. /upreme Court in !ash"s Products . #nited States,
6
he said6 =The phrase ?passed the ta on?
is inaccurate, as obviousl! the ta is laid and remains on the manufacturer and on him alone. The purchaser does not reall!
pa! the ta. Ee pa!s or ma! pa! the seller more for the goods because of the seller?s obligation, but that is all. . . . The price
is the sum total paid for the goods. The amount added because of the ta is paid to get the goods and for nothing else.
Therefore it is part of the price . . .=.
4t ma! indeed be that the incidence of the ta ultimatel! settles on the purchaser, but it is not for that reason alone that one
ma! validl! argue that it is a ta on the purchaser. The eemption granted to the NPC ma! be li;ened to the immunit! of the
Dederal ,overnment from state taation and ice ersa in the federal s!stem of government of the .nited /tates. 4n the
earl! case of Panhandle Oil $o. . Mississippi
7
the doctrine of intergovernment mental ta immunit! +as held as prohibiting
the imposition of a ta on sales of gasoline made to the Dederal ,overnment. /aid the /upreme court of the .nited /tates6
A charge at the prescribed. rate is made on account of ever! gallon ac8uired b! the .nited /tates. 4t is immaterial that the
seller and not the purchaser is re8uired to report and ma;e pa!ment to the state. /ale and purchase constitute a transaction
b! +hich the ta is measured and on +hich the burden rests. . . . The necessar! operation of these enactments +hen so
construed is directl! to retard, impede and burden the eertion b! the .nited /tates, of its constitutional po+ers to operate
the fleet and hospital. . . . To use the number of gallons sold the .nited /tates as a measure of the privilege ta is in
substance and legal effect to ta the sale. . . . And that is to ta the .nited /tates 7 to eact tribute on its transactions and
appl! the same to the support of the state.%&'ph(%.)*t
#ustice Eolmes did not agree. 4n a po+erful dissent <oined b! #ustices Brandeis and /tone, he said6
4f the plaintiff in error had paid the ta and added it to the price the government +ould have nothing to sa!. 4t could ta;e the
gasoline or leave it but it could not re8uire the seller to abate his charge even if it had been arbitraril! increased in the hope
of getting more from the government than could be got from the public at large. . . . 4t does not appear that the government
+ould have refused to pa! a price that included the ta if demanded, but if the government had refused it +ould not have
eonerated the seller. . . .
. . . 4 am not a+are that the President, the Members of the Congress, the #udiciar! or to come nearer to the case at hand,
the Coast ,uard or the officials of the -eterans? Eospital Ato +hich the sales +ere madeB, because the! are instrumentalities
of government and cannot function na;ed and unfed, hitherto have been held entitled to have their bills for food and clothing
cut do+n so far as their butchers and tailors have been taed on their salesF and 4 had not supposed that the butchers and
tailors could omit from their ta returns all receipts from the large class of customers to +hich 4 have referred. The 8uestion
of interference +ith ,overnment, 4 repeat, is one of reasonableness and degree and it seems to me that the interference in
this case is too remote.
But time +as not long in coming to confirm the soundness of Eolmes? position. /oon it became obvious that to test the
constitutionalit! of a statute b! determining the part! on +hich the legal incidence of the ta fell +as an unsatisfactor! +a! of
doing things. The fall of the bastion +as signalled b! Chief #ustice Eughes? statement in +ames . ,rao $onstructing $o.
8
that =These cases Areferring to Panhandle and 4ndian Motorc!cle Co. v. .nited /tates, $*( ../. '2) 9%&(%:B have been
distinguished and must be deemed to be limited to their particular facts.=
4n %&0%, -la.ama . /ing 0 Boo1er
9
held that the constitutional immunit! of the .nited /tates from state taation +as not
infringed b! the imposition of a state sales ta +ith +hich the seller +as chargeable but +hich he +as re8uired to collect
from the bu!er, in respect of materials purchased b! a contractor +ith the .nited /tates on a cost5plus basis for use in
carr!ing out its contract, despite the fact that the economic burden of the ta +as borne b! the .nited /tates.
The asserted right of the one to be free of taation b! the other does not spell immunit! from pa!ing the added costs,
attributable to the taation of those +ho furnish supplies to the ,overnment and +ho have been granted no ta immunit!. /o
far as a different vie+ has prevailed, see Panhandle 3il Co. v. Mississippi and ,raves v. Teas Co., supra, +e thin; it no
longer tenable.
Durther inroads into the doctrine of Panhandle +ere made in %&0( +hen the ../. /upreme Court held that immunit! from
state regulation in the performance of governmental functions b! Dederal officers and agencies did not etend to those +ho
merel! contracted to furnish supplies or render services to the government even though as a result of an increase in the
price of such supplies or services attributable to the state regulation, its ultimate effect ma! be to impose an additional
economic burden on the ,overnment.
10
But if a complete turnabout from the rule announced in Panhandle +as !et to be made, it +as so made in %&'$ in Esso
Standard Oil . Eans%% +hich held that a contractor is not eempt from the pa!ment of a state privilege ta on the business
of storing gasoline simpl! because the Dederal ,overnment +ith +hich it has a contract for the storage of gasoline is
immune from state taation.
This ta +as imposed because Esso stored gasoline. 4t is not . . . based on the +orth of the government propert!. 4nstead,
the amount collected is graduated in accordance +ith the eercise of Esso?s privilege to engage in such operationsF so it is
not =on= the federal propert!. . . . Dederal o+nership of the fuel +ill not immuniCe such a private contractor from the ta on
storage. 4t ma! generall!, as it did here, burden the .nited /tates financiall!. But since #ames vs. "ravo Contracting Co.,
()$ ../. %(0, %'%, *$ G. ed. %'', %12, '* /. Ct. $)*, %%0 AGR (%*, this has been no fatal fla+. . . .
12
>e have determined the current status of the doctrine of intergovernmental ta immunit! in the .nited /tates, b! sho+ing
the drift of the decisions follo+ing announcement of the original rule, to point up the that fact that even in those cases +here
eemption from ta +as sought on the ground of state immunit!, the attempt has not met +ith success.
As Thomas Reed Po+ell noted in %&0' in revie+ing the development of the doctrine6
/ince the ,rao case settled that it does not matter that the economic burden of the gross receipts ta ma! be shifted to the
,overnment, it could hardl! matter that the shift comes about b! eplicit agreement covering taes rather than b! being
absorbed in a higher contract price b! bidders for a contract. The situation differed from that in the Panhandle and similar
cases in that the! involved but t+o parties +hereas here the transaction +as tripartite. These cases are condemned in so far
as the! rested on the economic ground of the ultimate incidence of the burden being on the ,overnment, but this
condemnation still leaves open the 8uestion +hether either the state or the .nited /tates +hen acting in governmental
matters ma! be made legall! liable to the other for a ta imposed on it as vendee.
The carefull! chosen language of the Chief #ustice ;eeps these cases from foreclosing the issue. . . . Het at the time it +ould
have been a rash man +ho +ould find in this a dictum that a sales ta clearl! on the ,overnment as purchaser is invalid or a
dictum that Congress ma! immuniCe its contractors.
13
4f a claim of eemption from sales ta based on state immunit! cannot command assent, much less can a claim resting on
statutor! grant.
4t ma! indeed be that the economic burden of the ta finall! falls on the purchaserF +hen it does the ta becomes a part of
the price +hich the purchaser must pa!. 4t does not matter that an additional amount is billed as ta to the purchaser. The
method of listing the price and the ta separatel! and defining taable gross receipts as the amount received less the
amount of the ta added, merel! avoids pa!ment b! the seller of a ta on the amount of the ta. The effect is still the same,
namel!, that the purchaser does not pa! the ta. Ee pa!s or ma! pa! the seller more for the goods because of the seller?s
obligation, but that is all and the amount added because of the ta is paid to get the goods and for nothing else.
14
But the ta burden ma! not even be shifted to the purchaser at all. A decision to absorb the burden of the ta is largel! a
matter of economics.
15
Then it can no longer be contended that a sales ta is a ta on the purchaser.
>e therefore hold that the ta imposed b! section %*1 of the National 4nternal Revenue Code is a ta on the manufacturer or
producer and not a ta on the purchaser ecept probabl! in a ver! remote and inconse8uential sense. Accordingl! its lev!
on the sales made to ta5eempt entities li;e the NPC is permissible.
44
This conclusion should dispose of the same issue +ith respect to sales made to the -3A, ecept that a claim is here made
that the eemption of such sales from taation rests on stronger grounds. Even the Court of Ta Appeals appears to share
this vie+ as is evident from the follo+ing portion of its decision6
>ith regard to petitioner?s sales to the -oice of America, it appears that the petitioner and the respondent are in agreement
that the -oice of America is an agenc! of the .nited /tates ,overnment and as such, all goods purchased locall! b! it
directl! from manufacturers or producers are eempt from the pa!ment of the sales ta under the provisions of the
agreement bet+een the ,overnment of the Philippines and the ,overnment of the .nited /tates, 9/ee Common+ealth Act
No. 2((: provided such purchases are supported b! seriall! numbered Certificates of Ta Eemption issued b! the vendee5
agenc!, as re8uired b! ,eneral Circular No. -50%, dated 3ctober %1, %&02. . . .
The circular referred to reads6
,oods purchased locall! b! ../. civilian agencies directl! from manufacturers, producers or importers shall be eempt from
the sales ta.
4t +as issued purportedl! to implement the Agreement bet+een the Republic of the Philippines and the .nited /tates of
America Concerning Militar! Bases,
16
but +e find nothing in the language of the Agreement to +arrant the general
eemption granted b! that circular.
The pertinent provisions of the Agreement read6
ART4CGE -. 7 Exemption from $ustoms and Other ,uties
No import, ecise, consumption or other ta, dut! or impost shall be charged on material, e8uipment, supplies or goods,
including food stores and clothing, for eclusive use in the construction, maintenance, operation or defense of the bases,
consigned to, or destined for, the .nited /tates authorities and certified b! them to be for such purposes.
ART4CGE I-444.7Sales and Serices 2ithin the Bases
%. 4t is mutuall! agreed that the .nited /tates /hall have the right to establish on bases, free of all licensesF feesF sales,
ecise or other taes, or impostsF ,overnment agencies, including concessions, such as sales commissaries and post
echanges, messes and social clubs, for the eclusive use of the .nited /tates militar! forces and authoriCed civilian
personnel and their families. The merchandise or services sold or dispensed b! such agencies shall be free of all taes,
duties and inspection b! the Philippine authorities. . . .
Thus onl! sales made =for eclusive use in the construction, maintenance, operation or defense of the bases,= in a +ord,
onl! sales to the 8uartermaster, are eempt under article - from taation. /ales of goods to an! other part! even if it be an
agenc! of the .nited /tates, such as the -3A, or even to the 8uartermaster but for a different purpose, are not free from the
pa!ment of the ta.
3n the other hand, article I-444 eempts from the pa!ment of the ta sales made +ithin the base .y 9not sales to:
commissaries and the li;e in recognition of the principle that a sales ta is a ta on the seller and not on the purchaser.
4t is a familiar learning in the American la+ of taation that ta eemption must be strictl! construed and that the eemption
+ill not be held to be conferred unless the terms under +hich it is granted clearl! and distinctl! sho+ that such +as the
intention of the parties.
17
Eence, in so far as the circular of the Bureau of 4nternal Revenue +ould give the ta eemptions in
the Agreement an epansive construction it is void.
>e hold, therefore, that sales to the -3A are sub<ect to the pa!ment of percentage taes under section %*1 of the Code.
The petitioner is thus liable for P%$,&%).1), computed as follo+s6
/ales to
NPC
P%0',*11.2)
/ales to
-3A
P %,1*(.))
Total sales
sub<ect to
ta
P%02,'0&.2)
2J sales
ta due
thereon
P %),($*.0*
Add6 $'J
surcharge
P $,'*$.%$
Total
amount
due and
collectible
P %$,&%).1)
Accordingl!, the decision a 3uo is modified b! ordering the petitioner to pa! to the respondent Commission the amount of
P%$,&%).1) as sales ta and surcharge, +ith costs against the petitioner.
Reyes, +.B.!., Ma4alintal, Beng1on, +.P., 5aldiar, Sanche1, -ngeles and 6ernando, ++., concur.
$oncepcion, $.+., and ,i1on, +., too4 no