RATTAN ART & DECORATIONS, INC., PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, RESPONDENTS.

Petitioner has been engaged in
the manufacture and sale of articles made of rattan including rattan round
pieces. On April 19, 1954, the Collector of Internal Revenue demanded of the
petitioner the amount of P1 ,313.75 as Deficiency sales tax on round rattan
pieces, surcharge and penalty thereon, for the period from September 4, 1951 to
January 24, 1952. The articles were sold to foreign buyers on F. O. B. terms. On
June 29, 1954, the Rattan Art & Decorations, Inc., asked for the
cancellation of the demand, claiming: that the transaction was considered by it
as an export and thus free from sales tax, title to said articles passing: only
to the buyers upon arrival in the States and after inspection. Because of the
letter asking cancellation, a re-investigation was conducted, and on
September 30,
1954, the
investigating agent found that the petitioner was not only liable for the
P1,313.75, but for P96,706.30, computed as follows:

1949 (4th quarter)	P 878.02
1950	19,436.22
1951	28,569.17
1952	35,074.54
1953	2,805.09
1954 (1st & 2nd qrt.)	1,151.78 ___________
Deficiency Tax Due	87,914.82
Compromise	8,791.48 ___________
	P 96,706.30

Based upon the report and
re-assessment made, the Deputy Collector of Internal Revenue, on
June 22,
1955,
made a demand for the payment of P87, 914.93 within 30 days from receipt of the
letter of demand, plus P8,700.00 as
penalty.

Counsel for petitioner asked for
a reconsideration and/or re-investigation, of the assessment. On
June 17,
1958, a
modified assessment was made, demanding the payment of P77.087.28, all told. The
motion for reconsideration and/or readjustment of the assessment was denied and
for failure of petitioner to pay the tax liability a Warrant of Distraint and Levy, was sued out. On August 7,
1958,
petitioner filed with the Court of Tax Appeals a Petition for Review of the
assessment of Deficiency Sales Tax, claiming the same to be erroneous and/or the
liability has already prescribed.

The respondent Collector of
Internal Revenue interposed the following Special and Affirmative Defenses, to
wit:

(1) That the total amount of
F77,087.28 representing deficiency sales tax for 1949 to 1952, 25% surcharge
thereon, fixed tax for 1952 and 1953, and penalty was assessed against
petitioner in accordance with law;
(2) That the right of the respondent to
assess and collect the tax has not yet prescribed.

After trial, the parties
submitted their memorandum, petitioner sponsoring the theory that in so far as
the tax liability for the sales of 1949 and the first two quarters of 1960, the
same has already prescribed; and that the assessment was erroneous, since the
transactions were export sales which were consummated outside of the Philippines
and therefore exempt from sales tax. Upon the other hand, respondent Collector
of Internal Revenue took the contrary view, claiming that petitioner failed to
prove the assertion of prescription and that the sales having been on an F. 0.
B. term, the same have been ruled the CTA and the Supreme Court as having been
consummated within the Philippines. Cited in support of the second
contention are several cases G. R. No. L-11710, Western Mindanao Lumber Dev. Co.
vs. Coll. of Int. Rev., June 30,1958; and others.

Because the assessment for 1950
did not appear to have been itemized by quarter, so that it could not be
determined when prescription had commenced, the CTA ordered the reopening of the
case for the reception of evidenced regarding said aspect. The order resulted in
the presentation of a Stipulation of Facts, where among the computation was
shown by the quarter. On 31, 1960, the CTA rendered judgment the pertinent of
which read:

“The issues raised in this appeal
arc (1) whether or not the sales to foreign buyers during: the period in
question are domestic sales subject to the sales tax; (2) assuming that said
sales are taxable, whether or not the right of the Government to assess the tax
on sales made from 1949 to the second quarter of 1950 has prescribed; and (3)
the legality of the imposition of the alleged penalty in the sum of P5,700.00.

“Under Section 186 of the
National Internal Revenue Code, manufacturers other than manufacturers of
articles enumerated in Section 184 and 185) are subject to the sales tax of 7%
of the gross selling price of the articles sold. The tax is imposed on sales
consummated in the Philippines. * * * A sale is deemed made or
consummated at the place where title to the article sold passes from the seller
to the buyer. * * *

“It appears that the articles
sold by petitioner to foreign buyers were shipped abroad under terms F. O. B.
Manila; that the expenses of packing and preparing the articles for shipment
were charged to the buyers; that the freight charges were paid by the buyers at
destination; that the shipments abroad were insured by the buyers; that in those
cases where the shipments insured by the petitioner, the insurance policies were
indorsed to the buyers; and that payments for said shipment a were made through
drafts or letters of credit drawn against local banks.

“From the facts stated above, it
is clear that title to the articles sold by petitioner to the foreign buyers was
transferred to the latter from the moment they were placed on board the carrying
vessels. The sales were, therefore, consummated in the
Philippines and must be treated as domestic
sales subject to the sales tax. * * * The fact that the price of the articles
were paid for in dollars or in any other foreign currency will not alter the
result. Accordingly, we are of the opinion that petitioner is subject to the
sales tax on its sales to the foreign buyers under the circumstances mentioned
above.

“It appears from the stipulation
submitted by the parties dated July 28, 1960 that petitioner filed its quarterly
return for the year 1950 within the period prescribed by Section 183-A, that is
on or before April 2, 1960 with respect to petitioner’s return for the first
quarter of that year, and on or before July 20, 1950, as regards the return fur
the second quarter of the same year.

“* * * * * * *”

“The evidence shows that the
assessment was made on June 22,
1955,
more than five years after the return was filed for the first quarter of 1950.
Accordingly, the deficiency sales tax for the year 1949 and the first quarter of
1950 had already prescribed when the assessment was made on June 22,
1955.
With respect to the deficiency sales tax for the second quarter of 1950, since
the last day for filing the return was July 20,
1950, the
five-year period within which to assess said deficiency tax had not yet
terminated when the assessment was made.

“* * * * * * *”

“For tub Foregoing
Considerations, the decision appealed from is hereby modified and petitioner is
ordered to pay to the Government the sum of P68,582.23, computed as
follows:

Deficiency sales tax for 1950	P13,573.71
Deficiency sales tax, 1951	18,928.38
Deficiency sales tax, 1952	22,928.89
	____________
Total	P 54,800.98
25% surcharge	13,700.25
	____________
Total deficiency tax & surcharge	P 68,501.23
Fixed tax, 1952	6.00
Fixed tax, 1953	75.00
	____________
Total amount due	P 68,582.23

A motion for reconsideration of
the above judgment Presented. In said motion, counsel for petitioner invoked,
for the first time, the amendment of Section 186 of Internal Revenue Code by
Republic Act No. 894, where in it was provided that effective June 20,
1953,
shipments by manufacturers or producers, irrespective of shipping arrangements
affecting the place of transfer of to the articles shipped, were exempted from
sales tax. Under petitioner’s contention, the deficiency sales taxes prior to
the passage of the law (Act 894) should be condoned, by giving said law
retroactive effect. The CTA denied the motion for reconsideration on
November 5,
1960,
thus the instant appeal.

In its brief, petitioner pointed
three (3) errors allegedly committed by the lower court, to
wit:

(1) In not holding that by virtue
of Central Bank’s Rules and Regulations the herein sales having been dollar
transactions were, therefore, foreign sale transactions;
(2) In not holding
that the herein transactions, made by and between the Rattan Art &
Decorations, Inc., and foreign buyers were foreign sales, consummated outside
Philippine territory and hence not subject to the domestic sales tax; and

(3) In not holding Republic Act No. 894 as having retroactive
effect.

Anent the first error, the
petitioner had failed to prove that the transactions in question were in fact
foreign sales. While it is true that the sale was paid in dollars, this alone
did not make it a foreign sale and exempted from the payment of the sales tax.
The compliance with Central Bank Rules and Regulations was only necessary for
the purposes of controlling the use of foreign exchange. At any rate, this Court
in a number of cases, where tax liability was sought to be exempted, under the
same defenses, ruled that they did not involve foreign sales (Bislig Lumber Co., Inc. vs. Coll. of Int. Rev., 110 Phi!.,
746 and cases cited therein).

This Court cannot also share the
view taken by the petitioner, to the effect that the transactions in question
were consummated outside of the territory of the
Philippines and should not be subjected to
domestic sales tax. It has not been denied that the sale of
the goods were on F. O. B. terms; that the expenses of packing preparing
the articles for shipment were charged to the buyers; that the freight charges
were paid by the buyers at destination; that the shipments were insured by the
buyers. Under these circumstances, there is no mistaking the fact that when the
petitioner has placed the goods aboard the ship, all its rights ended there and
the sole authority for the disposition of the shipped merchandise rested upon
the foreign buyers. Title was transferred at that very moment. Petitioner,
however, argues that although goods are shipped F. 0. B., the intent of the
parties regarding the disposition of the goods shall control. We may concede the
merit of said argument, but in the case at bar, petitioner has failed to show a
contrary intent was contemplated.

While it is true that payment
were made after the boat had left Philippine waters, the delay did not change
the fact that the transactions were consummated in the
Philippines. It will be noted that the delay
was merely caused by the preparation of the papers fur submission to the banks
against whom the letters of credit had been drawn. Even on the supposition that
the contracts in the involved transactions were perfected in the
United
States, as claimed by the petitioner,
still it does not follow that the passing of title should also be in the
United
States. Transfer of title to the vendee
may be made by actual or constructive delivery (Art. 1477, NCC). The delivery of
the goods on board the carrying vessels partake of the nature of actual
delivery, since from that time, the foreign buyers assumed the risk of loss of
the goods and paid the insurance premiums covering them.

The third and last error deals
with the contention that Republic Act No. 894, which exempted the transactions
at bar from liability for sales tax, should be given retroactive effect and
extend to petitioner the benefits thereof. It must be recalled, however, that
this is a tax case, and one who seeks exemption from payment thereof, should
justify the exemption with the clearest legislative grant. During the period
when petitioner was made liable for the taxes question, Republic Act No. 894 was
not in existence. While it is true that a law creating new rights may be given
retroactive effect, the same can only be made possible if the new right does not
prejudice or impair any vested right. The government had already acquired such
right in the taxes due from petitioner, when the exempting statute came to life.
Moreover, this Court has ruled that transactions before the effectivity of Republic Act 894,
cannot be given retroactive effect (Misamis Lumber
Co., Inc, vs. The Coll. of Int. Rev., 102 Phil. 116).

IN VIEW OF ALL THE
FOREGOING, the
decision appealed from should be, as it is hereby affirmed, in all
respects.

Bengzon, C. J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P. and Zaldivar, JJ., concur.