Celestino Co & Company vs. Collector of Internal Revenue, 99 Phil. 841 (1956)
### Facts:
**From 1946 to 1951**:
– Celestino Co & Company, operating under the trade name “Oriental Sash Factory,” paid a percentage tax of 7% on the gross receipts from its sash, door, and window factory based on Section 186 of the National Revenue Code. This section imposes taxes on the sales of manufactured goods.
**In 1952**:
– The company claimed it should only pay a contractor’s tax of 3% under Section 191 of the same code, asserting that it was primarily engaged in manufacturing custom orders rather than standard goods.
– The Bureau of Internal Revenue rejected this claim.
**Procedural Posture**:
– Celestino Co & Company appealed to the Court of Tax Appeals, which ruled against it, stating that it was correctly taxed under Section 186.
– The company then brought the matter to the Supreme Court of the Philippines.
### Issues:
1. Whether Celestino Co & Company’s operations classify it as a manufacturer subject to the tax under Section 186, or as a contractor subject to the tax under Section 191.
2. Whether the company’s activities of manufacturing sash, doors, and windows on special orders for customers change its tax obligations.
### Court’s Decision:
**On Issue 1**:
– The Supreme Court affirmed the decision of the Court of Tax Appeals, ruling that Celestino Co & Company is correctly classified as a manufacturer.
– The company habitually produced sash, windows, and doors, which fits the definition under Section 186 for taxation purposes despite the claim that it operates on special orders.
**On Issue 2**:
– The Court pointed out that even if the items were made per customer’s specification, materials used were those regularly manufactured or readily available to the company.
– This did not transform the operation into a contractor’s role but maintained its status as a manufacturer.
– The designation “Factory” in the company’s trade name and its general advertising to the public corroborated their manufacturing role.
The decision cited that the habitual and large-scale nature of their business did not align with the special, limited scope typically associated with a contractor as defined under Section 191.
### Doctrine:
– Regular manufacturing operations, even if fulfilling custom orders, are subject to the tax imposed on manufactured goods.
– Section 186 of the National Revenue Code applies to entities engaged in habitual manufacturing for the market despite the specificity of individual orders.
– Special orders using the manufacturer’s existing or ready materials remain categorized under manufacturing sales, not construction or contracting services.
### Class Notes:
**Key Elements/ Concepts**:
1. **Sales of Manufactured Goods (Section 186)**:
– Tax imposed on habitual manufacturing and market sales.
– Applies to businesses declaring themselves as factories, indicating scale and public sales.
2. **Contractor’s Tax (Section 191)**:
– Tax applies to construction or repair work contractors, not manufacturers.
– Limited to specific projects requiring significant unique services not commonly provided by the business.
**Relevant Statutes**:
– **National Revenue Code, Section 186**: Imposes percentage tax on the gross receipts from sales of manufactured articles.
– **National Revenue Code, Section 191**: Imposes a tax on various contractor services, not applicable to habitual manufacturing.
### Historical Background:
– The case centers on the post-World War II Philippine economy when many businesses were rebuilding and clarifying tax obligations with the Bureau of Internal Revenue.
– The legal environment sought clarity on which businesses were manufacturers versus contractors due to differing tax implications.
– Celestino Co & Company v. Collector of Internal Revenue epitomizes the importance of defining business operations concerning tax liability, reflecting efforts to ensure fair and accurate tax collection during a key period of economic recovery and growth in the Philippines.
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