UNION GARMENT CO., INC., PETITIONER, VS. COURT OF TAX APPEALS AND COLLECTOR OF INTERNAL REVENUE, RESPONDENTS.

This is a petition for the review of a decision of the Court of Tax Appeals
dismissing a petition for the refund of the sum of P4,114.38 collected and paid
under protest by petitioner as percentage tax under Section 191 of the National
Internal Revenue Code, including surcharge and compromise penalty.

The petitioner is engaged in the business of tailoring with office and
factory at 1660 Felix Huertas, Sta. Cruz, Manila. In the year 1953 petitioner,
after public bidding, entered into a contract with the Armed forces of the
Philippines (AFP) under which petitioner was granted the exclusive privilege and
right to sew or tailor pants, drawers, shirts and similar apparel for it, in
accordance with specifications supplied by the AFP. The AFP furnished the cloths
for manufacture into apparel while petitioner only furnished the labor and the
services needed in the sewing and tailoring.

The petitioner claims it is exempted from the tax assessed against it under
section 191 of the Tax Code. On the other hand, the respondents maintain that
petitioner is not exempt. The court below ruled on this issue in the following
manner—

“The pretension of the petitioner that its transactions with the AFP are
purchases and therefore are exempted from the payment of taxes in pursuance of
Paragraph II, page 632, Republic Act No. 816 is untenable. These transactions
involved tailoring by the petitioner of pants, drawers, shirts and similar
apparel out of clothing materials furnished by the AFP. They are more in the
nature of lease of work by contract or for a fixed price (see Art. 1713, Civil
Code of the Philippines) for the former supplied the labor in the manufacture or
tailoring thereof. They are not purchases within the contemplation of Paragraph
II, page 632, Republic Act No. 816. The term “purchases”, as used in the
aforesaid statute, is a common term. And in the absence of a legislative intent
to the contrary, a common term in a statute is presumed to have been used in its
common sense (Sutherland Statutory Constraction, Vol. 2, pp. 434-437). In the
case at bar, we find nothing in Republic Act No. 816 which indicates that the
term “purchases” found therein waa used to convey a meaning other than its
ordinary import.

 * * * * * * *

“Upon the rationale that petitioner’s transactions with the AFP are not
purchases of articles made by the latter, and that the same are more in the
nature of lease of work by contract or for a fixed price, we hold that the
petitioner is liable for the payment of the percentage tax prescribed in Section
191 of the National Internal Revenue Code.”

Hence this petition for review.

It is claimed on the appeal that the legislative intent of Rep. Act No. 816,
which extends exemption to all purchases made by the AFP, should be interpreted
liberally, and the law on the matter, namely, Rep. Act No. 816, reflected in
Section 188 of the National Internal Revenue Code as amended, section 2 of Rep.
Act No. 601 as amended, and, paragraph (9) of page 788 of Rep. Act No. 906
(Appropriation Law). It is argued that in consonance with the policies and the
above provisions of the law,”contraet for a piece of work should not be
distinguished from a contract of sale” and therefore the phrase “all purchases
made by” applies to commodities and services without distinction whether the
contract is for a piece of work or not.

We find no merit in this argument. The exception contained in the tax
statutes must be strictly construed against the one claiming the exemption. It
must be remembered that the cloth was furnished petitioner appellant so all that
he invested in the contract with the AFP was the service rendered in sewing the
materials into garments. The petitioner appellant therefore, sold nothing but
the services rendered by it. Services can not mean materials and fall under the
provisions imposing a tax on sums or amounts received for the lease or services,
in accordance with the following provision of the Tax Code—

“Sec. 191. Percentage tax on road, building, artesian well, waterworks, and
other construction work contractors, proprietors or operators of dockyards, and
others.— * * * and tailor shops * * * shall pay a tax equivalent to
three percentum of their gross receipts.

* * * * * * *

For the foregoing considerations, the decision sought to be reviewed is
hereby affirmed, with costs against petitioner appellant.

Bengzon, C. J., Padilla, Bautista Angelo, Concepcion, Reyes, J. B. L.,
Barrera, Paredes, Dizon, and De Leon, JJ., concur.