SY KIONG, PETITIONER-APPELLEE,VS. MARCELINO SARMIENTO, IN HIS CAPACITY AS TREASURER OF THE CITY OF MANILA, RESPONDENT AND APPELLANT.

Petitioner is the owner of a duly licensed grocery store
located in the City of Manila and an importer of flour who sells it
either to bakeries or to retail dealers for purposes of resale,
Sometime in September 1948, the Treasurer of the City of Manila
assessed against him the sum of P566.50 which, it is claimed,
represents the alleged deficiency municipal license tax due from him on
his gross sales of flour to bakeries after deducting the sales made to
retail dealers for purposes of resale. Petitioner, Instead of honoring
the demand, filed the present action for declaratory relief.

In his answer, respondent admitted all the factual allegations of
the complaint, but contended that the sales in question are sales at
retail and in this sense are subject to the previsions of Ordinance No.
2723, as amended. As the pleadings only raised questions of law, the
case was submitted for decision after the parties had submitted their
respective memoranda. And on March 4, 1949, the court rendered judgment
upholding the content ion of the petitioner and declaring that he is
not liable to pay the tax in question. From this decision respondent
appealed.

The only issue involved In this appeal is whether the sales of
flour made by petitioner to bakeries to be manufactured Into bread are
retail or wholesale. If retail, they are subject to tax; if wholesale,
they are not.

In the case of City of Manila vs. Manila Blue Printing Co.
Court had occasion to determine when a sale of a commodity should be
considered retail or wholesale. It was there said that there are two
criteria by which this can be determined, “one is by the quantity,
whether small or large; and the other is by the nature of the buyer,
whether he is a consumer or a merchant who resells at a profit. The
Court followed the second criterion and held that it is the character
of the purchaser and not the quantity of the commodity sold that
determines if the sale is wholesale or retail. If the purchaser buys
the commodity, for his own consumption, the sale is considered retail,
irrespective of the quantity of the commodity sold. If the purchaser
buys the commodity for resale, the’ sale is deemed wholesale regardless
of the quantity of the transaction.

Now, having this criterion in mind, the next question to be
determined is, is the sale of flour to a bakery retail or wholesale? Is
a bakery who purchases flour to be manufactured into bread a consumer?
Can a sale of flour to a bakery be considered wholesale for the simple
reason that the flour after its conversion into bread is resold to the
public? The answer to these questions will depend largely upon the
consideration that may be given to the incidence touching on the
manufacture of flour into bread before it is resold to the public. This
is the main point that should be determined in order that we may have a
basis for the determination of this novel controversy.

The Ordinance under which the municipal license tax in question has been assessed does not contain any definition of what is retail gross sale. Said ordinance merely provides that the retail gross sales
of a grocery store shall be subject to a license fee to be fixed by the
City Treasurer in accordance with certain schedule therein specified,
but is silent as to what are considered “retail gross sales”. The
National Internal Revenue Code does not also furnish any lead as
regards the nature of a retail sale for purposes of taxation. It does
not give any definition nor pattern as to how a sale to a bakery or a
Manufacturer should be considered. This is a loophole that our Congress
has not foreseen.

It is true that said Code gives the definition of a “manufacturer”
and in so defining it includes every person who manufactures by any of
the processes therein specified subject only to the limitation that the
finished products shall be “for the purpose of their sale or
distribution to others and not for his own use or consumption”(Section
194[x]); but this definition in our opinion merely gives an idea of who
are the persons who should be considered manufacturers for purposes of
paying the specific tax provided for therein, and does not state when a
manufacturer should be considered a retail dealer or wholesale dealer
of the raw materials he uses in the process of manufacture. It cannot
be denied that many materials or ingredients are used in the
manufacture of a finished product and the question whether the purchase
of these materials for the purpose intended is retail or wholesale is
not clarified. We have failed to find any legal provision in this
jurisdiction that may be invoked to solve this important issue.

But we find one lead that may guide us in the case of Buenaventura vs.
Collector of Internal Revenue (50 -Phil. 875), wherein a similar
question was raised and decided. In that case this Court ruled that the
sale of fish to a hotel by a vendor in a public market during certain
period of time and for a certain value is a sale at retail and,
therefore, is subject to the retail sales tax law. And then the Court
added: “even the isolated case of those made to the Hotel de Francia
cannot be considered as transact ions for resale of fish, because it
has not been proved, nor is it probable, that said hotel, as such,
although it supplies food for payment and among it fish, cannot be said
or considered to be a reseller of fish”. The implication of this ruling
is that the sale of fish to a hotel is retail even if the same is to be
sold later in the form of food.

We believe this ruling to be in point and one of persuasive force
in the present case in the absence of any express provision of law on
the matter. The parallelism between that case and the one we are
considering is apparent. In one case, the fish is converted into food
through certain physical process, and, therefore, it suffers an
alteration in form before it is sold. In such case the fish is resold
in different form. A similar situation obtains in the case of a bakery.
The flour is converted into bread through a physical or chemical
process and later is sold to the public in the form of bread.

We have taken notice of the fact that in many states of the
American Union, sales of tangible property to manufacturers, producers
or processors, or “sales of goods which as ingredients or constituents
go into and form part of tangible personal property sold by the buyer
are not taxable” as retail transactions because they are considered
wholesale transactions upon the theory that they have to be resold even
in a different form or condition. But we have noted that if these
transactions are so treated it is not by judicial interpretation but by
express statutory provisions. As well stated by counsel for the
appellee, these transactions are considered wholesale either because
they are so declared by retail sales statutes of different American
States, by administrative rules and regulations promulgated thereunder,
or by Judicial decisions construing and applying them. If there is an
express provision of the law on the matter, there is no room for
Judicial interpretation. Our duty is to apply the law. But, as we have
already pointed out, such is not the situation obtaining in the
Philippines. Our law on the point is silent, and being silent we do not
feel Justified to extend the force and effect of American statutes to
our Jurisdiction. To do so would be to incorporate into our statutes
some legislative matter by Judicial ruling which is certainly beyond
our province to do.

The decision appealed from should be reversed, with costs against the appellee.

Paras, C.J., Feria, Pablo, Benzon, Padilla, and Jugo JJ., concur.
Tuason and Reyes, JJ., reserve their votes.