A. SORIANO Y CIA., PETITIONER AND APPELLANT, VS. COLLECTOR OP INTERNAL REVENUE, RESPONDENT AND APPELLEE.

This is a petition for review of the decision of the Board of Tax Appeals
affirming the decision of the respondent-appellee Collector of Internal Revenue
holding the petitioner A. Soriano y Cia. liable for the payment of P47,002.52 as
sales tax and surcharge (as required by Sec. 182 of the National Internal
Revenue Code, as amended) on its gross sales to the United Africa Co., Ltd, of
57 tractors acquired from the Foreign Liquidation Commission.

It appears that in the year 1947, petitioner was engaged in the business of
selling surplus goods acquired from the Foreign Liquidation Commission pursuant
tovan agreement with the United States Government whereby petitioner undertook
to rehabilitate the Veterans Administration Building (formerly Heacock Building)
for and in consideration of over a million pesos worth of surplus goods. Part of
the surplus goods consisted of tractors which were then in the various U. S.
military bases or depots in the Philippines. The petitioner had yards known as
“Sta. Mesa Yard” and “Pieco Yard” located in Manila, where some of the surplus
goods were stored, and those which were defective reconditioned.

In January, 1947, the United Africa Co., Ltd. sent its representative, Hugh
Watson Gibson, to the Philippines to look into the availability of tractors for
sale in the Philippines. Gibson learned of petitioner’s business and contracted
to buy tractors from the latter, to be delivered f.a.s. (free alongside ship),
Manila, in good working condition and capable of running off lighters under
their own power. A tractor expert, Mr. Tex Taylor, was employed by the foreign
company to select, inspect and test the tractors before delivery.

Tex Taylor went to the different military bases, took the serial numbers of
the tractors which he wanted, and I gave the list thereof to the petitioner, who
then secured from the Foreign Liquidation Commission the purchase invoices and
other documents for the immediate release of the tractors. The tractors were
then removed by petitioner to its Pieco Yard, where they were tested by Tex
Taylor. Those found to be in good condition were approved by Taylor, wherefore
petitioner presented to him the sales invoices for his signature, stamping his
approval thereon. Twenty-four of the tractors were found defective and so were
brought to petitioner’s Sta. Mesa Yard for reconditioning. Upon approval of each
invoice, the same was presented by petitioner to the Philippine Refining
Company, Inc., an affiliate of the foreign buyer, for payment of the purchase
price. The Philippine Refining Co. would in turn notify the National City Bank
of New York and the Hongkong and Shanghai Banking Corporation, Manila, where the
United Africa Co. had dollar deposits, to make payment of petitioner’s invoices.
The tractors were delivered by petitioner to the pier in Manila by means of
barges as soon as notice was received from the representative of its foreign
buyer that a carrying vessel was ready. On June 24 and August 26, 1947, the
Philippine Refining Co., Inc. shipped the 57 tractors acquired from petitioner
from the port of Manila to United Africa Co., Ltd. at Dares Salaem, East Africa.
The total value of the tractors was P757,000. However, due to certain defects of
some of them upon reaching Africa, the sum of P4,959.19 was reimbursed by
petitioner to its foreign buyer by credit memo.

The question at issue is whether or not petitioner is liable for the payment
of percentage or sales tax on its gross sales of the 57 tractors in question to
the United Africa Co., Ltd. under the provisions of Sec. 186 of the National
Internal Revenue Code.

“Section 186, Percentage tax on sales of other articles.—There is
levied, assessed, and collected once only on every original sale,
barter, exchange, and similar transaction intended to transfer ownership of, or
title to, the articles not enumerated in sections 184 and 185, a tax
equivalent to five per centum of the gross selling price or gross value in
money of the articles so sold, bartered, exchanged, or transferred, such tax
to be paid by the manufacturer, producer, or importer; * * *.” (Italics
supplied)

Under the above provisions, petitioner’s liability would thus depend on
first, whether or not it was an importer of the 57 tractors in question, and
second, whether it made an original sale thereof in the Philippines.

The theory of the Bureau of Internal Revenue, affirmed by the defunct Board
of Tax Appeals, is that petitioner imported the tractors from the army bases;
that they were subsequently sold to its foreign buyer within the Philippines;
and that title passed upon delivery to the carrier f.a.s. Manila.

In the cases of Go Chen Tee vs, Meer,^[1] L-2825 (July 7, 1950) and Saura Import and
Export Co. vs. Meer,^[2] L-2927
(February 26, 1951), this Court has already held that one who acquires title to
surplus equipment found in U. S. army bases or installations within the
Philippines by purchase, and then brings them out of those bases or depots, is
an importer, and sales made by him of such surplus goods to the general public
are taxable under sections 185 and 186 of the Tax Code.

Petitioner insists, however, that it did not import the 57 tractors in
question for the Foreign Liquidation Commission because title to the same passed
to its foreign buyer while the goods were still at the foreign bases, and that
they passed Philippine territory merely in transit to pier, Manila, where they
were delivered f.a.s.; hence its sale of the tractors was not domestic and
therefore not liable for the payment of sales tax.

Petitioner’s theory is not supported by the records. It admits that delivery
of the tractors ‘was made by it to the carrier f.a.s. Manila (letter to
Secretary of Finance of August 18, 1950, I Records, p. 192; also letter of
October 17, 1949, p. 132). The rule is that where the contract is to deliver
goods f.a.s, the property passes on delivery at the wharf or the dock (II
Williston on Sales, pp. 120-121; 46 Am. Jur. 608-609). Otherwise stated,
delivery to the carrier is delivery to the buyer, (Behn, Meyer & Co., Ltd.
vs. Yangco, 38 Phil., 602; 46 Am. Jur. 605). True that this rule yields
to evidence of a contrary intent between the parties, but there is here no proof
to show that petitioner and its foreign buyer intended otherwise, that, is, that
delivery and the passing of title to its buyer should take place right in the
army bases where the tractors were located. On the contrary, petitioner itself
has admitted that Tex Taylor (who is no alleged to have accepted delivery of the
tractors in behalf of the United Africa Co., Ltd.) has no power or authority
whatever to do so.

In its letter to the Collector of Internal Revenue on July 16, 1949 (Records,
Vol. I, p. 119), petitioner stated:

“(2) Prices and terms having been agreed upon, Mr. Gibson secured the
services of a tractor expert from United States thru United Africa Co. offices
in New York. Tractor expert Mr. Tex Taylor came over to the Philippines to
inspect and ‘accept’ the tractors.

“We wish to state here that the so-called acceptance by Mr. Taylor of these
tractors was simply an acceptance as to condition and did not constitute an
acceptance of delivery. The tractors in question were U. S. Army and Navy
Surplus equipment. They were second hand and needed reconditioning. Mr. Tex
Taylor saw to it that they were properly reconditioned. Neither Mr. Gibson nor
Mr. Taylor had authority to accept delivery of these tractors”.

And in a subsequent letter addressed to the Secretary of Finance on October
17, 1949 (Records, p. 131), petitioner further stated:

“(b) Mr. Tex Taylor, who is alleged to have inspected and accepted
in the Philippines the tractors subject of this sale was a mere technician,
employee of the United Africa Co. with specific and limited functions consisting
of examining and approving the condition of the tractors for purchase and could
not have been considered the general and legal representative of our purchaser
for he had no authority to enter into any sort of business transaction in the
Philippines.”

These letters show that Tex Taylor had no authority to accept delivery of the
tractors for, the buyer United Africa Co., Ltd., his duty being merely to
inspect and approve their condition. The designation by Taylor of the tractors
he selected at the bases, therefore, was merely a preliminary step for their
removal from the bases to petitioner’s service and storage yards in Manila,
where Taylor actually inspected and tested them, and those found defective (23
tractors) were brought to the Sta. Mesa Yard where they were reconditioned
(t.s.n. pp. 14-15). Then petitioner made delivery of the tractors at the pier in
Manila whenever there was an available boat for transportation to Africa, and it
was so informed by the representatives of the United Africa Co. Hence, it was
only at Manila that the goods were delivered, and title passed to the buyer; and
from their removal from the bases until their delivery at shipside, title to the
tractors was in the seller.

Other undisputed facts in the record also force the conclusion that title to
the tractors in question passed to petitioner’s buyer not at the bases, but only
at pier, Manila. First, it was petitioner who paid for the delivery charges from
the different bases to the pier/ pursuant to the tax in “fob” or “f.a.s.” sales
that “the seller pays all charges and is subject to risk until the goods are
placed alongside the ‘vessel’ (Williston, supra). Second, the tractors
were described in petitioner’s invoices (Vol. I, Records, pp. 65-70) as bearing
certain numbers followed by the phrase “Our Unit Sta. Mesa” or “Our Unit Pieco”,
showing that the tractors were first brought to petitioner’s yards and numbered
accordingly, in the same way that all goods found and stored in these yards were
numbered, and it was only after they had passed petitioner’s yards that they
were delivered to the buyer. Third, two of petitioner’s invoices (Records, I,
pp. 70-71) state that the tractors were inspected and accepted at Pieco Yard
and/or Sta. Mesa Yard, which disproves petitioner’s contention that Tex Taylor
tested and approved of them right in the bases. Fourth, petitioner’s own witness
Epimaco Gonzales admitted that it was only at Pieco Yard that Taylor inspected
and tested the tractors (t.s.n. 9-10).

Petitioner argues that the goods in question did not acquire a taxable situs
in the Philippines because they merely passed Philippine territory in
transit and that they were not intended for local use but for exportation
to a foreign country. We find this argument irrelevant, since the tax in dispute
is one on transaction (sales) and not a tax on the property sold. The sale of
the tractors was consummated in the Philippines, for title was transferred to
the foreign buyer at the pier in Manila; hence, the situs of the sale is
Philippines and it is taxable in this country.

Finally, petitioner urges that the repeal of the consignment or “export tax”
under Sec. 187 of the Internal Revenue Code shows the intention of the
legislature to exempt all exports from tax.

It should not be forgotten that the consignment tax formerly imposed on
exports by section 187 of the Tax Code (now repealed by R. A. 41) is different
from the sales tax imposed by Art. 186, which has not been repealed. The
distinction between the two kinds of tax was pointed out by this Court in the
case of Vegetable Oil Corp. vs. Trinidad, 45 Phil., 834-835, where we
held:

“That the consignment tax is not a sales tax is, however, too obvious for
argument, the fact that it is provided for in the same section as the sales tax
does not necessarily make it so. There is all the difference in the word between
a consignment and a sale. As stated by counsel for the appellee, the tax on
consignment Is a privilege tax pure and simple; it is a tax on the business of
consigning commodities abroad from these glands. * * * If the tax were one on
sales we Would readily agree that the sales, in order to be taxable in the
Philippines must be consummated there.”

When the above case decided, the sales tax and the consignment tax were both
provided for in section 1459 of the Administrative Code. Later, obviously to
avoid confusion, the legislature separated the two taxes, the sales tax having
been provided under sections 184, 185 and 186 of the Internal Revenue Code,
while the consignment tax was,’ placed under Sec. 187. The latter section was
subsequently repealed by Republic Act No. 41, so that the consignment tax on
exports no longer exists, while the sales tax remains.

Petitioner contends that to tax one who sells goods intended for export would
be to nullify the legislative intent behind the repeal of the tax on
consignments abroad, which is to encourage exports. The argument is fallacious.
The law subjects to the payment of the sales tax not the buyer who intends to
exports what he buys, but the seller, because such sale is domestic and
therefore liable for the payment of sales tax in this country.

“Domestic and foreign sale distinguished.—The sales tax liability of
a person consigning his timber abroad depends upon where the title to the timber
consigned passes from the seller to the buyer. If the title to the timber
consigned abroad passes to the buyer within the jurisdiction of the Philippines,
the transaction is domestic and is subject to the sales tax; otherwise, the
transaction will be considered a foreign sale and is exempt from the sales tax
prescribed in section 186 of the Tax Code.” (Formilleza, Commentaries on the N.
I. R. C, Vol. II, pp. 729-730)

As for the legislative policy to exempt consignments abroad from tax in order
to encourage exports, the Solicitor General has pointed out that it is only the
exportation of locally produced or manufactured products, and not every kind of
exportation, that Congress wanted to encourage and promote. Hence, section 189
of the Code exempts from percentage tax cocbnut oil and by-products of copra
produced or manufactured in the Philippines; section 190, idem, exempts
from compensating tax imported articled to be used in the manufacture or
preparation of articles in this country for consignments abroad; section 3 of R.
A. 601 exempts from the foreign exchange tax amounts used for the payment of
transportation charges on articles or containers imported into the Philippines
intended for use in the manufacture or preparation of local products for
consignment abroad; and R. A. 822 exempts from the processing tax imposed by
Sec. 189 of the Code dessicated coconut manufactured in this country’if removed
for exportation. Clearly enough, the exportation of the tractors in question
does not come under the declared policy of the legislature to encourage
exportation of products locally manufactured and produced. On the other hand, as
correctly observed by the Solicitor General, our country needed then, and still
needs now, tractors for the development of our own agriculture, so that the sale
of of such tractors to foreign buyers for a profit, thereby depriving our own
countrymen of their use in the development of our own agriculture and increase
of our production, hardly justifies the tax exemption that petitioner
claims.

Wherefore, the decision appealed from is affirmed, with costs against
petitioner. So ordered.

Bengzon, Acting C. J., Padilla, Montemayor, Reyes, A., Jugo, Bautista
Angelo, Labrador and Concepcion, JJ., concur.

Judgment affirmed.

^[1] 87 Phil., 18.

^[2] 88 Phil., 199.