ANTONIO CO PO, PETITIONER, VS. COLLECTOR OF INTERNAL REVENUE, RESPONDENT.

This is a petition to review the decision of the Court of Tax Appeals in
C.T.A. case No. 313, denying petitioner’s claim for refund of the sum of
P1,782.72 alleged as illegally collected advanced sales tax on goods purchased
by him from the United States Military Bases in the Philippines at Sangley
Point, Clark Field, and Olongapo from 1954 to 1956.

Petitioner is a merchant doing business under the name and style of St.
Luke’s Trading. On several occasions during the years 1954 to 1956, petitioner
purchased through public auctions various articles from the United States
military authorities in the military bases, removed the goods therefrom and
subsequently sold the same to other third parties. On these transactions which
were treated as importations, the respondent Collector of Internal Revenue,
imposed and collected the advance sales tax in question, under the provisions of
Section 183(B) of the National Internal Revenue Code, in relation to Sections
184, 185 and 186 of the same Code.

It is the contention of the petitioner that he is not liable for the payment
of said advance sales tax because it is argued, he is not an importer, not
having engaged in the business of importation, and that there was no importation
by him inasmuch as the goods “did not come to the country from a foreign
country”, Sangley Point, Clark Field, and Olongapo not being considered as
foreign territory. Moreover, the petitioner claims that the sales to him by the
U.S. authorities in these bases were the original sales mentioned in the law
subject to the tax and, that therefore the subsequent sales by him were not
taxable. And finally the petitioner maintains that before Republic Act No. 1612
came into effect on August 24, 1956, purchasers of tax-free articles were not
considered the importers thereof, and invoked in support of his contention the
decision of the Supreme Court in the case of Collector of Internal Revenue, et
al. vs. Marcelino Viduya, et al., 103 Phil., 93.

The issue herein raised is not new. It has already been settled contrary to
the contention of petitioner, in a series of decisions of this Court in cases
involving similar factual situations, wherein it was held in effect that goods
and materials while in the army bases or installations in the Philippines are,
in contemplation of law, on foreign soil (Saura Import & Export Co. vs.
Meer, 88 Phil., 199) that one who acquires title to surplus equipment found in
U.S. Bases or installations within the Philippines by purchase, and then brings
them out of those bases or depots, is an importer; that the bringing out of such
goods and materials, after acquiring titles to such goods, is importation in the
legal sense (A. Soriano & Cia vs. Collector of Internal Revenue, 97 Phil.,
505) and that the said materials removed from these bases and depots were, for
purposes of the internal revenue taxes, purchased or received from “outside the
Philippines,” (Bisaya Land Transportation Co. Inc. vs. Collector of Internal
Revenue, G. R. No. L-12100, & L-11812, May 29, 1959).

It is true that the areas covered by the United States Military Bases are not
foreign territories both in the political and geographical sense. But because of
the special arrangements regarding their status and the resulting legal
relations and situations obtaining therein by reason of the Military Bases
Agreement with the United States, this Court has ruled, for the purposes of
Section 183 (B) of the National Internal Revenue Code, in the manner set forth
in the cases heretofore adverted to. The reason is, in synthesis, stated in the
case of Go Cheng Tee vs. Meer, 87 Phil. 18, in the following language:

“Como ya hemos dicho, el ejercito americano no estaba obligado a pagar ningun
impuesto sobre tales efectos, porque no habian sido traidos aqui para fines de
comercio sino comp objetos de abastecimiento militar. Solamente se convirtieron
en mercancias de comercio cuando el demandante los obtuvo en compra para
dedicarlos al negocio, y solamente desde entonces quedaban sujetos a impuesto.
La venta original de que habla el articulo 5 de la ley No. 503^[1] es la realizada por el demandante al
publico de Filipinas y no la venta hecha a el por el “Foreign Liquidation
Commission”. En esta transaccion el demandante compro; no vendio *
* * La venta hecha por el demandante a sus parroquianos es la venta
original y no la compra hecha por el de la “Foreign Liquidation Commission.”
(p. 24)

Hence, under this ruling, the original sale is not the sale made by the U.S.
authorities to the petitioner but the subsequent sale that the herein petitioner
makes to his customers. To hold otherwise would be to bring about the very
situation which the law intends to avoid, that is, the influx of articles free
of tax into the military bases, and the subsequent indiscriminate and unchecked
distribution and sale thereof to the general public also free of tax. It is in
this spirit that the decisions herein cited were conceived and formulated.
Besides, for the purposes of our customs and tax laws, the sale by the U.S.
authorities to the petitioner is considered but a continuation of the
importation of the goods to the Philippines. As was held in the case of Go Cheng
Tee vs. Meer, supra:

“* * * pero la importacion no termin6 con la entrega al demandante por la
“Foreign Liquidation Commission” de dichos efectos sino hasta cuando se hubiese
pagado el impuesto correspondiente. * * * Mientras estaban bajo el control del
ejercito y para uso militar, los efectos no debian pagar ningun impuesto al
Gobierno Filipino. Pero inmediatamente despues de transferidos al demandante
para fines comerciales, desde ese momento nacio el derecho del gobierno de
gravar sobre ellos el impuesto correspondiente, y mientras no lo pague el
demandante no termina la importacion. Por eso el demandante que negocio con
ellos es el importador bajo los terminos precisos de la ley.” (p.
22)

Applying this ruling to the case at bar, the importation therefore, continues
and is not completed until the petitioner pays the taxes due on the articles.
For that long, therefore, in contemplation of law the petitioner is the
importer.

However, it is argued by the petitioner that before the amendment of Section
183 (B) of the National Internal Revenue Act by Republic Act 1612, incorporating
therein the provision

“In the case of tax-free articles brought or imported into the Philippines by
persons, entities or agencies exempt from tax which are subsequently sold,
transferred, or exchanged in the Philippines to non-exempt private persons or
entities, the purchasers shall be considered the importers thereof. The tax due
on such articles shall constitute a lien on the article itself superior to all
other charges or liens, irrespective of the possessor thereof.” (Sec. 5,
Republic Act No. 1612)

the purchasers of tax-free articles brought into the Philippines by persons
or agencies exempt from tax were not considered the importers of said tax-free
articles. He then concludes that, having purchased the tax-free articles before
Republic Act No. 1612 took effect on August 24, 1956, his purchases were not
taxable as he was not then the importer thereof.

This contention is incorrect because the Saura and Soriano cases
(supra) were decided in 1951 and 1955 respectively, long before the
enactment of Republic Act 1612. In fact the amendment merely adopted an existing
ruling of the Bureau of Internal Revenue, which is in line with the decisions of
this Court, that purchasers of articles brought or imported tax-free into the
Philippines, shall be subject to the payment of advance sales tax. This clearly
appears in the explanatory note to House Bill No. 5809 now Republic Act 1612,
which enumerates the features of the proposed amendments, among which is the

* * * * * * *

“4. Incorporation into the provision of Section 183 (B) the existing
ruling of the Bureau of Internal Revenue considering as the importers,
purchasers of articles brought w imported tax-free into the Philippines, and
establishing a lien for the tax on such articles irrespective of the
possessors thereof. This provision will merely place said purchasers in the
same footing as those purchasing similar articles from taxable persons,
entities, or agencies.” (Congressional Record, House of Representatives, page
2946, May 17, 1956) (Italics supplied).

The case of Collector of Internal Revenue vs. Viduya, 103 Phil., 93 invoked
by petitioner is not a point. That case concerns the purchase by Viduya, who was
not a merchant, of an automobile apparently for his own use, from a member of
the staff of the American Embassy in Manila who brought the car from the United
States also for his personal use here. The issue there involved relates to the
payment by end-users of compensating tax under Section 190 of the Tax Code. The
advance sales tax is levied upon merchants, importers and manufacturers who
resell, barter or exchange the articles purchased or imported or who use them in
the manufacture or preparation of articles subject to specific tax or those for
consignment abroad. The end-users do not pay the advance sales tax; the
merchants, importers and manufacturers do not pay the compensating tax. The
compensating tax is not an import tax.^[2]
Obviously, a ruling on the question of the payment of compensating tax, as the
one in the Viduya case, can not have application to a case involving the payment
of advance sales tax, as is the issue in the present case.

The appealed judgment of the Court of Appeals being in accordance with law,
the same is hereby affirmed with costs against the appellant. So ordered.

Bengzon, C. J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.
B. L., Paredes, Dizon, Regala, and Makalintal, JJ., concur.

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[1] The same as Section 184 of the National Internal
Revenue Code.

[2] International Business Machine Corporation vs.
Collector of Internal Revenue, 98 Phil., 595.