VEGETABLE OIL CORPORATION, PLAINTIFF AND APPELLEE, VS. WENCESLAO TRINIDAD, COLLECTOR OF INTERNAL REVENUE OF THE PHILIPPINE ISLANDS, DEFENDANT AND APPELLANT.

OSTRAND, J.:



body {
font-family: Verdana, Geneva, Arial, helvetica, sans-serif;
font-size:80%;
background-color:#FFFFFF;
margin:0 2% 0 2%;
text-align: justify;
}
h1 {
font-family:times;
}
h2 {
background-color:#cccccc;
padding:10px 0 10px 0;
font-weight: bold;
text-align: center;
}
h3 {
font-weight: bold;
text-transform: uppercase;
text-align: center;
}
div#footer
{
font-size:9px;
}

.style1 {color: #FF0000}This action is brought to recover back merchants’ percentage taxes to the
amount of P19,975.70 levied on consignments under section 1459 of Act No. 2711
and paid by the plaintiff under protest. The pertinent portions of the section
mentioned, which went into effect on October 1, 1917, read as follows:

“All merchants not herein specifically exempted shall pay a tax of one per
centum on the gross value in money of the commodities, goods, wares, and
merchandise sold, bartered, exchanged, or consigned abroad by them, such tax to
be based on the actual selling price or value of the things in question at the
time they are disposed of or consigned, whether consisting of raw material or of
manufactured or partially manufactured products, and whether of domestic or
foreign origin. The tax upon things consigned abroad shall be refunded upon
satisfactory proof of the return thereof to the Philippine Islands unsold.

*          *          *          *          *          *          *

” ‘Merchant,’ as here used, means a person engaged in the sale, barter, or
exchange of personal property of whatever character. Except as specially
provided, the term includes manufacturers who sell articles of their own
production and commission merchants having establishments of their own for the
keeping and disposal of goods of which sales or exchanges are effected, but does
not include merchandise brokers.”

The case was submitted to the Court of First Instance upon the following
agreed statement of facts:

“The parties hereto have agreed, and do agree, that the following facts shall
be considered as having been proven in the above cause:

“(1) The plaintiff is a foreign corporation, duly licensed to transact
business in the Philippine Islands and having its principal place of business
therein in the City of Manila. Defendant is the duly appointed and acting
Collector of Internal Revenue of the Philippine Islands.

“(2) The plaintiff at all times since the 1st day of April, 1922, has been,
and is now, engaged in the purchase of copra, in the Philippine Islands, and the
shipment of such copra to its mills in the United States of America for
manufacture into vegetable oil. Plaintiff during said period has been, and is
now, engaged in no other business in the Philippine Islands. The cocoanut oil
manufactured by the plaintiff is sold in the United States.

“(3) During the period from April 1, 1922, to June 30, 1922, the plaintiff
purchased in the Philippine Islands, and shipped to its mills in the United
States of America, copra of the value of two hundred and fifty-six thousand
seven hundred and ninety-seven pesos (P256,797). The shipping documents covering
the said copra were signed by the plaintiff. The copra so shipped was converted
into vegetable oil by the plaintiff in the United States, and there sold.

“(4) Defendant, under the alleged authority of section 1459 of Act No. 2711,
demanded of plaintiff a tax of one per centum (1%) of the value of the shipments
of copra referred to in the preceding paragraph, or the sum of two thousand five
hundred and sixty-seven pesos and ninety-seven centavos (P2,567.97). Plaintiff,
on the 20th day of July, 1922, to avoid penalties and forfeitures for
non-payment, paid to defendant the sum of two thousand five hundred and
sixty-seven pesos and ninety-seven centavos (P2,567.97) under written protest,
which protest defendant overruled.

” (5) During the period from July 1, 1922, to September 30, 1922, the
plaintiff purchased in the Philippine Islands, and shipped to its mills in the
United States of America, copra of the value of one million four hundred and two
thousand, one hundred and sixty-nine pesos (P1,402,169). The shipping documents
covering the said copra were signed by the plaintiff. The copra so shipped was
con- verted into vegetable oil by the plaintiff in the United States, and there
sold.

“(6) Defendant, under the alleged authority of section 1459 of Act No. 2711,
demanded of plaintiff a tax of one per centum (1%) of the value of the shipments
of copra referred to in the preceding paragraph, or the sum of fourteen thousand
and twenty-one pesos and sixty-nine centavos (P14,021.69). Plaintiff, on the
16th day of October, 1922, to avoid penalties and forfeitures for non-payment,
paid to defendant the sum of fourteen thousand and twenty-one pesos and
sixty-nine centavos (P14,021.69) under written protest, which protest defendant
overruled,

“(7) During the period from October 1, 1922, to December 31, 1922, the
plaintiff purchased in the Philippine Islands and shipped to its mills in the
United States of America copra of the value of three hundred and thirty-nine
thousand and four pesos (P339,004). The shipping documents covering the said
copra were signed by the plaintiff. The copra so shipped was converted into
vegetable oil by the plaintiff in the United States, and there sold.

“(8) Defendant, under the alleged authority of section 1459 of Act No. 2711,
demanded of plaintiff a tax of one per centum (1%) of the value of the shipments
of copra referred to in the preceding paragraph, or the sum of three thousand
three hundred and ninety pesos and four centavos (P3,390.04). Plaintiff, on the
18th day of January, 1923, paid to defendant the sum of three thousand three
hundred and ninety pesos and four centavos (P3,390.04) under written protest,
which protest defendant overruled.” Upon the facts so stated the court below
rendered judgment in favor of the plaintiff for the recovery of the full amount
of the tax paid and the case is now before us upon appeal by the defendant from
that judgment.

The case is not one of first impression. The questions involved have been
passed upon repeatedly by this court in various cases and, so far, the court has
been entirely consistent in its final disposal of all of them. But it often
occurs due to the idiosyncracies of the writers of the decisions in several of
these cases, dicta have crept into them which have tended to mislead the
merchants and the Bar and to lay the court open to the charge of
inconsistency.

In order to correct existing misconceptions, a brief resume of both the
legislative and the judicial history of the merchants percentage tax in question
may, perhaps, be useful.

The tax originated in section 139 of the Internal Revenue Act of 1904 (Act
No. 1189) which, in part, reads as follows:

“Except as hereinafter specifically exempted, there shall be paid by each
merchant and manufacturer a tax at the rate of one-third of one per centum on
the gross value in money of all goods, wares, and merchandise sold, bartered or
exchanged for domestic consumption in the Philippine Islands, and this tax shall
be paid whether such commodities consist of raw materials or manufactured or
partially manufactured products, and whether of domestic production or
imported.”

Section 142 of the same Act contains the following provisions :

“The following persons shall be exempted from the payment of the taxes
imposed in section one hundred and thirty-nine:

*          *          *          *          *          *          *

“(b) Exporters, on the raw material and manufactured or partially
manufactured products actually exported by them.”

By Act No. 2339, entitled “An act revising and consolidating the laws
relative to Internal Revenue,” effective July 1, 1914, it was provided:

“SEC. 40. All merchants not herein specifically exempted shall pay a tax of
one-third of one per cent on the gross value in money of the commodities, goods,
wares, and merchandise sold, bartered or exchanged by them, such tax to be based
on the actual selling price or value at which the things in question are
disposed of, whether consisting of raw material or of manufactured or partially
manufactured products, and whether of domestic or foreign origin.

“SEC. 41. In computing the tax above imposed transactions in the following
commodities shall be excluded:

“(a) Merchandise actually exported by the vendor;

“*          *          *          *          *          *          *”

Section 5 of Act No. 2432, approved December 23, 1914, amended section 40 of
Act No. 2339 by increasing the rate from one-third of 1 per cent to 1 per cent.
Section 3 of Act No. 2541, effective from January 1, 1916, amended section 41 of
Act No. 2339 by eliminating the clause “(a) Merchandise actually exported by the
vendor.”

As will be seen, up to this point the merchants’ percentage tax was a
domestic sales tax pure and simple and merchandise exported was specifically
exempted from the tax. But section 3 of Act No. 2541, by eliminating the
exemption in favor of commodities exported, placed a severe handicap upon the
local merchants engaged in selling the products of the Islands for export who,
in view of the fact that such sales are usually consummated here, were compelled
to pay the sales tax, while the foreign firms, who maintained branches ot
agencies here, could ship directly to themselves without selling and thus escape
the payment of the tax. This fact becoming obvious immediately after the passage
of Act No. 2541, the Legislature at its next session passed Act No. 2622,
effective January 1, 1916, which amended section 40 of Act No. 2339 by inserting
the word “consigned” immediately after the word “bartered” therein. This section
was ratified by Act of Congress of July 1, 1916.

The next legislation on the subject is contained in section 1614 of the
Administrative Code of 1916, effective October 1st of the same year, which
section is practically identical with section 1459 of Act No. 2711 quoted on the
first page of the present decision. The latter section (1459) was expressly
ratified and confirmed by the Congress of the United States in the Act of June
5, 1918 (40 Stat. at L., p. 594) in the following language:

“The taxes imposed by the Philippine Legislature in section fourteen hundred
and fifty-nine of the Act Numbered Twenty-seven hundred and eleven, enacted by
that body on March tenth, nineteen hundred and seventeen, are hereby legalized
and ratified, and the collection of all such taxes heretofore or hereafter is
legalized, ratified, and confirmed hereby as fully to all intents and purposes
as if the same hy prior Act of Congress specifically had been authorized and
directed.”

Apparently, through an oversight, section 1614 of the Administrative Code of
1916 was not included in the ratification.

Section 11 of Act of Congress of August 29, 1916, the so-called “Jones Law,”
prohibited the levying or collection of duties on exports from the
Philippine Islands and on the strength of this provision a large number of
actions were brought during the years 1917 and 1918 to recover back percentage
taxes paid on consignments abroad.

Of these cases, the case of Smith, Bell & Co. vs. Rafferty is typical. In
that case the plaintiff alleged that during the period from October 1, 1916 to
December 31, 1917, it paid, under protest, the sum of P413,180.05 in percentage
taxes on merchandise exported from the Philippine Islands and maintained that
all of these taxes were in reality duties on exports and collected in violation
of the Jones Law.

This court held, in substance, that the taxes levied under section 1459 of
Act No. 2711 were legal by virtue of the ratification of that section by
Congress, but that section 1614 of Act No. 2657 not having been ratified, the
collection of taxes thereunder was illegal. (Smith, Bell & Co. vs. Rafferty,
40 Phil., 691.)

The case was taken to the United States Supreme Court by writ of certiorari
and while it was there pending section 1614 of Act No. 2657 was ratified by Act
of Congress of June 5, 1920, in substantially the same language as that employed
in the ratification of section 1459 of Act No. 2711, and the United States
Supreme Court accordingly declared the collection of taxes under both sections
valid. (Rafferty vs. Smith, Bell & Co., 257 U. S., 226.)

At the January term of 1923, in the case of Murphy vs. Trinidad (44 Phil.,
649), this court was again called upon to interpret the provisions of section
1459. The facts in that case are thus stated in the decision of the court: “It
appears from the pleadings and admitted facts that the American Import Company,
of San Francisco, California, is extensively engaged in the exportation of
embroideries from the Philippine Islands for sale in the United States; and the
plaintiff, R. E. Murphy, during the period covered by the transactions now in
question, was employed by said company as its supervising agent in these
Islands, upon a commission of three per centum of the value of the labor
expended in the embroidery work. It further appears that the company has adopted
the plan of causing all its product from the Philippine Islands to be
embroidered here by native workers under the supervision of the company’s agent,
and upon material supplied by the company from the United States. For the
purpose of securing a uniform quality of work, even the thread used in the
embroidery is supplied by said company to the embroiderers, but for this a
charge is made at cost price. In his capacity as agent, the plaintiff receives
from San Francisco the goods to be embroidered, supervises the manufacture of
the embroidered product, and returns the same from time to time in a finished
state to the company in San Francisco.

“In respect to the transactions thus conducted by the plaintiff for the
American Import Company of San Francisco during the period of five years from
July 1, 1916, to July 1, 1921, the said plaintiff made returns to the Collector
of Internal Revenue, for the purposes of taxation under section 1459 of the
Administrative Code, showing taxable transactions to the value of P339,544.59,
consisting, first, of P36.691.94 the value of thread and damaged materials sold
by the plaintiff in the Islands; and, secondly, of P302,852.65, the value of the
labor expended upon the embroidery work prior to September of the year 1919.
Upon these returns he was taxed accordingly and paid the tax without
protest.

“From the foregoing it will be seen that in the returns upon which the
plaintiff was thus taxed, no account was taken of the value of the goods used in
the making of the embroideries, and after September, 1919, no account was taken
even of the value of the embroidery work.

“It appears, however, that during the aforesaid period of five years the
plaintiff caused to be embroidered cloth belonging to the American Import
Company of a total value of P597,248.31, upon which there was expended labor of
a total value of P931,823.30, all of which was returned to the American Import
Company from time to time during the said period at its office in San Francisco,
California. The freight and cartage on said shipments amounted to P670.42; and
the plaintiff earned as his commission during the same time the sum of
P28,785.04.

“In view of the facts stated in the preceding paragraph, the Collector of
Internal Revenue, evidently assuming that the plaintiff had previously been
underassessed, demanded payment of the tax of one per centum on the difference
between the gross amount of P1,595,219.01 and the amount upon which the
plaintiff had already been taxed (P339,544.59), that is to say, upon the amount
of P1,255,674.41, thus claiming additional tax to the amount of P12,556.74,
together with the statutory penalty of twenty-five per centum for delinquency,
as prescribed in section 1458 of the Administrative Code, and a fine of P200,
making in all the sum of P15,895.93. This amount the plaintiff paid under
protest, and now sues to recover the same, under the authority granted in
section 1579 of the Administrative Code.”

In discussing the law of the case the court, speaking through Mr. Justice
Street, said:

“At the inception of the discussion we should note the fact that in the
section referred to a tax of one per centum is imposed upon the gross value of
goods sold, bartered, exchanged, or consigned abroad. The expression ‘consigned
abroad,’ as here used, means approximately the same as ‘exported;’ and under the
organic law here in force the Philippine Legislature has no power, without the
express approval of Congress, to make a law imposing a tax on exports. But the
provision now in question has been three times ratified by different Acts of the
Congress of the United States, that is to say, first, as it originally stood in
Act No. 2541, as amended by Act No. 2622 of the Philippine Legislature ;
secondly, as it now stands in section 1459 of the Administrative Code of 1917;
and, thirdly and lastly, as it stood in section 1614 in the Administrative Code
of 1916 (Acts of Congress of July 1, 1916; of June 4, 1918; and of June 5;
1920). There can therefore be no question as to the validity of said provision
as it has stood at all times upon our statute books since its first enactment;
and we may say that the Congressional Act of ratification of June 5, 1920, was
passed by Congress after this court had decided the case of Smith, Bell &
Co. vs. Rafferty (40 Phil., 691), and said decision was reversed by the Supreme
Court of the United States, in so far as relates to the efficacy of section 1614
of the Administrative Code of 1916, solely because of said ratification by
Congress pending the appeal.

“And now, upon the point of liability for the tax that has been collected, we
note the contention in the appellant’s brief that the plaintiff Murphy himself
is not a ‘merchant.’ This contention is undoubtedly correct if the plaintiff is
considered without relation to the master that stands behind him. Individually
the plaintiff is no merchant. But he is the agent and representative in the
Philippine Islands of the American Import Company of San Francisco; and that the
latter is a merchant in the sense intended in section 1459 of the Administrative
Code is obvious. “The term ‘merchant’ is there defined as a person engaged in
the sale, barter, or exchange of personal property of whatever character, and it
is declared that the term includes manufacturers who sell articles of their own
production. The American Import Company fulfills every requirement of this
definition because it is engaged in the manufacture of Philippine embroideries
and exports the finished product for sale in the United States. The fact that
the production and export of these embroideries is effected through the agency
of the plaintiff Murphy and that the operations of the Company in these islands
are conducted in his name in no wise alters the case. Nor is the further
circumstance here material that the consignor, or shipper of the goods from
these Islands is Murphy and the consignee in the United States is the American
Import Company. Where a consignment of goods is otherwise taxable, the tax
should be assessed and collected regardless of the personality of the consignor
or consignee. A shipment of goods abroad is no less taxable under this section,
though consigned to the order of the shipper himself.

“*          *          *          *          *          *          *

“From any point of view the tax which was collected in this case was due to
the Philippine Government from the American Import Company of San Francisco; and
the circumstance that it has been collected nominally from the plaintiff Murphy
should mislead no one. He has acted throughout as agent, and it is to be
assumed, in the absence of proof to the contrary, that the money which went into
the public coffers belonged to his principal. Besides, as consignor of the
exported product, the plaintiff was apparently the person directly responsible
to the Collector for the taxes due on the several consignments.'”

The court decided the case in favor of the defendant and held that the tax
was lawfully collected. The close analogy between that case and the one at bar
will be readily observed; the distinctions sought to be drawn between the two
cases have, as far as we can see, no bearing whatever upon the legal principles
involved. They are distinctions without differences.

During the July term of 1923, cases R. G. Nos. 20101 and 20400, El Dorado Oil
Works vs. Collector of Internal Revenue,^[1]
came before this court. In these cases the plaintiff also sought to recover back
percentage taxes paid under protest on “consignments abroad,” under section
1459. The court held that the taxes were improperly imposed and rendered
judgment in favor of the plaintiff.

The opinion of the court was prepared by Mr. Justice Johns, who dissented in
the Murphy case, and states the essential facte in the following language:

“* * * It will be noted that the plaintiff is a foreign corporation organized
under the laws of the State of California, with its principal office and place
of business in the City of San Francisco, where it is engaged in the manufacture
and sale of cocoanut oil and its by products. Although it is duly licensed to
transact business in the Philippine Islands, it has a resident purchasing agent
only here. That under the terms and conditions by which the agent made all of
the purchases in question, the copra was sold to the plaintiff, a foreign
corporation f. o. b. ship, Manila Bay. That the merchants from whom it was
purchased signed and executed all bills of lading for its shipment, and directed
the shipment of the copra to the plaintiff at San Francisco, and that upon
presenting the bills of lading thus prepared and signed, the merchants were
then, and not before, paid for the copra by the resident purchasing agent. On
all such copra the percentage tax of 1 per cent, payable under section 1459, was
paid by the respective owners’ and sellers prior to the date of the demand which
was made by the defendant upon the resident purchasing agent for the tax in
question.”

Upon these facts no fault can be found with the disposal made of the case and
if the writer of the decision had rested there, no possible misunderstanding
could have arisen. The issues are clean-cut and clear: The plaintiff’s local
agent purchased the copra; the sales taxes were duly paid by the vendors, who
also made out and signed the bills of lading and placed the copra aboard the
ship. The vendors’ thus became the consignors; the plaintiff’s agent did nothing
but to pay for the copra after it was consigned. Clearly, in such circumstances,
the plaintiff was not the consignor and could not be required to pay the
consignment tax. But, unfortunately, the subsequent pages of the decision
contain dicta which tend to cloud the issues and to lead the Bar to believe that
the case is on a parity with the one now before us, which belief, as will be
readily seen, is without substantial foundation. Indeed, aside from the fact
that in both cases the taxes in dispute were collected on consignments, there is
no essential resemblance between the two.

In the present case it is not disputed that the plaintiff corporation was the
consignor of the merchandise, but it is strenuously argued that inasmuch as it
is not “engaged in the sale, barter, or exchange of personal property” in the
Philippine Islands, it is not a merchant within the statutory definition of the
term and therefore cannot be required to pay the consignment tax. Just upon what
ground this assumption rests is not quite clear; so far no adequate explanation
has been vouchsafed us. The statute itself does not provide that the sale,
barter, or exchange must take place in the Philippine Islands in order
to make a person engaged in such business a merchant.

But, presumably, the idea is the result of a misconception of the nature of
the tax on consignments, confusing it with the tax on sales. 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 world between a
consignment and a sale. As stated by counsel for the appellee, the tax on
consignments is “a privilege tax pure and simple;” it is a tax on the business
of consigning commodities abroad from these Islands. The definition of the word
“merchant” as a person who is engaged in the sale, barter, or exchange of
personal property is merely descriptive of the persons who are required to pay
the tax and does not mean that, in order to exact from them the payment of the
consignment tax, the Government must also be in position to impose taxes on
their sales, barter, or exchange.

If the tax were one on sales, we would readily agree that the sales, in order
to be taxable in the Philippine Islands, must be consummated there; the
Philippine Government cannot, of course, collect privilege taxes on sales taking
place in foreign countries no matter whether the vendor is a Philippine merchant
or whether he is a foreign one. Neither can the Government impose such taxes on
consignments from one foreign port to another. But, with the approval of
Congress, it may legally levy taxes on consignments from Philippine ports. That
is what has been done in the present instance. It has imposed the tax on local
transactions; it does not seek to tax transactions carried out abroad. But when
a foreign merchant, as the word “merchant” is defined in our statutes, comes to
our shores and enters into transactions upon which a tax is laid, the Government
can, and does, place him on an equality with domestic merchants and requires him
to pay the same privilege taxes.

As we have seen, section 1459 provides that “All merchants not herein
especifically exempted shall pay a tax of one per centum on the gross value
in money of the commodities, goods, wares, and merchandise * * * consigned
abroad by them.” (Italics are ours.) It defines the word “merchant” as a person
who is engaged in the sale, barter, or exchange of personal property, but does
not say that he must be so engaged in the Philippine Islands in order to be
considered a merchant. As far as may be gathered from the plain language of the
statute, he may do his selling, bartering or exchanging wherever he pleases, but
if he consigns merchandise abroad from the Philippine Islands he must pay the
tax on his consignments. Had it been the intention of the Legislature to require
only the local merchant to pay the tax, the definition of the word “merchant” in
section 1459 would have read: ” ‘Merchant’ as here used means a person engaged
in the sale, barter or exchange of personal property of whatever character in
the Philippine Islands.” But it does not so read.

It is not disputed that the Legislature has the power to define the class of
persons who must pay certain local taxes; in fact, the appellee’s argument rests
precisely on such a statutory definition. Neither can it be questioned that the
Government may impose taxes on local business transacted by foreigners. In the
absence of words of limitation or exemption in the statute, why must we then
assume that, in defining the word “merchants,” the class of persons required to
pay consignment taxes, the definition applies only to domestic and not to
foreign merchants?

Perhaps it will be argued that a statutory definition is only of local
application and is of no legal effect beyond the boundaries of the country in
which the statute is enacted. That is true, but has nothing to do with the
present case. We are not here applying the definition in relation to the
collection of a foreign tax; we are considering it in connection with the tax on
a local transaction.

To hold that only persons who engage in sales, barter or exchange in the
Philippine Islands are to pay the tax on consignments would place the local
merchants at a serious disadvantage in competition with the foreign merchants,
and would defeat the very evident purpose of the tax. The language of the
statute is perfectly clear and places the burden of the tax on all merchants
alike. Are we then justified in exempting some of the merchants by reading
non-existent provisions into the statute which would defeat its unmistakable
intent and seriously handicap the local merchants, in some cases, perhaps,
driving them out of business? We submit that to do so would violate every canon
of statutory construction and would clearly amount to unwarranted judicial
legislation.

It is also contended that merely shipping merchandise out of the country does
not constitute consigning abroad. In answer to this, it is sufficient to call
attention to the fact that in the Spanish text of section 1459 the term
“consigned abroad” is rendered “enviado al extranjero” (sent or shipped
abroad) and that under the provisions of Act No. 2717 of the Philippine
Legislature the Spanish text prevails in the interpretation of Act No. 2711.

There is, however, no real conflict between the Spanish and the English
versions. While formerly the verb “consign” may have had a more restricted
signification, it is now, in shipping and commercial circles, used as the
equivalent of the verb “ship” or “send.” That this is the sense in which it is
used in the section under discussion is quite obvious.

It has been suggested that the tax applies only to a consignment or shipment
of merchandise destined for sale and that as it in this case appears that only
the oil extracted from the copra and not the copra itself was to be sold, the
tax on the consignment was unlawfully imposed.

We find nothing in the law justifying this conclusion. A shipment is a
shipment no matter what its purpose may be and the only requisite for the
collection of the tax upon it is that the consignor or shipper must be a
merchant. It would, indeed, be unreasonable to require the tax collector to
postpone the collection of the tax on a shipment until he could ascertain what
had ultimately been done with the goods’ shipped.

For the reasons stated, the judgment appealed from is hereby reversed and the
defendant is absolved from the complaint, without costs. So ordered.

Araullo, C. J., Street, Avanceña, and Romualdez, JJ.,
concur.

MALCOLM, J., dissents.

---

^[1] Page 1, ante.

---

DISSENTING

JOHN, J.:

The majority opinion is well reasoned and well written, but it is not
fundamentally sound. It quotes very freely portions of the body of the majority
opinion in Murphy vs. Trinidad.

It is very apparent that there is a marked difference between the facts of
the two cases. In the Murphy-Trinidad case, the syllabus says:

“1. INTERNAL REVENUE; MERCHANTS’ TAX; EMBROIDERY MATERIAL SENT FROM
ABROAD.—The merchants’ tax imposed by section 1459 of the Administrative Code
must be paid by a person who sends material to the Philippine Islands to be
embroidered under the supervision of its local agent by whom the finished
product is returned to the owner. The person so sending material to be
embroidered and returned is engaged in the business of manufacture in these
Islands and is a manufacturing merchant within the meaning of the Internal
Revenue Law.”

And in analyzing section 1459 of the Administrative Code in question, the
opinion says:

“The term ‘merchant’ is there defined as a person engaged in the sale,
barter, or exchange of personal property of whatever character, and it is
declared that the term includes manufacturers who sell articles of their own
production. The American Import Company fulfils every requirement of this
definition because it is engaged in the manufacture of Philippine embroideries
and exports the finished product for sale in the United States.”

There is no claim or pretense that the plaintiff directly or indirectly ever
manufactured anything in the Philippine Islands, or that it is a manufacturer
within the Philippine Islands, as the word is defined in section 1459 of the
Administrative Code.

It is stipulated that:

“(2) The plaintiff at all times since the 1st day of April, 1922, has been,
and is now, engaged, in the purchase of copra, in the Philippine Islands, and
the shipment of such copra to its mills in the United States of America for
manufacture into vegetable oil. Plaintiff during said period has been, and is
now, engaged in no other business in the Philippine Islands. The cocoauut oil
manufactured by the plaintiff is sold in the United States.”

The opinion in the Murphy-Trinidad case is expressly founded upon the fact
that the American Import Company, whom the plaintiff represented, was a
manufacturer within the meaning of section 1459 of the Administrative Code, and
that because it was a manufacturer, the plaintiff was liable for the payment of
the tax.

The majority opinion cites and quotes with approval a portion of the opinion
of this court in R. G. No. 20101, El Dorado Oil Works vs. Collector of Internal
Revenue, and says that the portion quoted is good law upon the facts therein
stated, and then says:

‘The subsequent pages of the decision contain dicta which tend to cloud the
issues and to lead “the Bar to believe that the case is on a parity with the one
now before us.”

Suffice it to say that all of the material facts in the El Dorado Oil Works
case were fully and fairly discussed in open court, voted and decided before the
opinion was written. When written the opinion was first presented to the writer
of the opinion in the Murphy case for his signature and approval, and that after
giving the case his usual careful consideration, he signed the opinion as
written, and it was then presented to the other members of the court, and that
in turn it was signed by all of them who were then present. During the
discussion, the legal distinction between the El Dorado Oil Works case and the
Murphy case was clearly pointed out and well understood, and for such reason the
opinion in the El Dorado Oil Works case, as it was written, was unanimously
approved by the court. No member of the court, who signed the opinion, was
misled or deceived by anything that was said in the opinion.

There is no claim or pretense that the plaintiff here is a manufacturer in
the Philippine Islands within the meaning of section 1459 of the Administrative
Code. The only question involved is whether or not it is a merchant within the
meaning of that section. If it is a merchant within the meaning of that section,
it is liable for the tax. If it is not a merchant, it is not liable, an
important fact which is ignored and overlooked in the majority opinion.

The statute in question reads:

“All merchants not herein specifically exempted shall pay a tax of one per
centum on the gross value in money of the commodities, goods, wares, and
merchandise sold, bartered, exchanged, or consigned abroad by them, such tax to
be based on the actual selling price or value of the things in question at the
time they are disposed of or consigned, whether consisting of raw material or of
manufactured or partially manufactured products, and whether of domestic or
foreign origin. The tax upon things consigned abroad shall be refunded upon
satisfactory proof of the return thereof to the Philippine Islands unsold.”

In other words, a person who is a merchant is liable for the tax in question,
and a person who is not a merchant within the meaning of the section is not
liable for the tax. The statute having specified that merchants only are liable
for the tax, it must follow that a person who is not a merchant is not liable
for the tax. The statute then says that: ” ‘Merchant,’ as here used, means a
person engaged in the sale, barter, or exchange of personal property of whatever
character.”

There is no claim or pretense that the plaintiff ever sold, bartered or
exchanged personal property of any kind within the Philippine Islands. The
statute then says that the word

” ‘Merchant’ * * * includes manufacturers who sell articles of their own
production and commission merchants having establishments of their own for the
keeping and disposal of goods of which sales or exchanges are effected, but does
not include merchandise brokers.”

There is no claim or pretense that the plaintiff ever sold any articles of
its own production within the Philippine Islands, or that it is a commission
merchant within the Philippine Islands. But the majority opinion says that it is
a merchant and a manufacturer in the United States, and because it buys copra
within the Philippine Islands and consigns it to itself, it follows that it is
and has been a merchant within the Philippine Islands.

The statute having defined the meaning of the word “merchant,’ this court has
no legal right to enlarge upon the definition or give to it any other or
different meaning than the statute itself gives. Yet, that is what the majority
opinion does. It would have been a very easy matter for the Legislature, in
defining the word “merchant,” to have said that any person who buys copra or
tobacco or hemp in the Philippine Islands to be consigned abroad is a merchant
within the meaning of the act. The Legislature did not say that, but in legal
effect that is what the majority opinion has said.

A statute ought not to be construed for or against the interests of resident
merchants or anyone else.

The majority opinion says:

“To hold that only persons who engage in sales, barter or exchange in the
Philippine Islands are to pay the tax on consignments would place the local
merchants at a serious disadvantage in competition with the foreign merchants,
and would defeat the very evident purpose of the tax.”

In other words, the plain, ordinary language of the statute should be given
an unnatural and strained construction to protect the interests of resident
merchants. If the Legislature had intended that the word “merchant” to mean what
the majority opinion says it does, it would have said, merchant, as here used,
means a person engaged in the sale, barter, or exchange of personal property of
whatever character, or one who purchases personal property within the Philippine
Islands for consignment abroad.

Through judicial legislation, the majority opinion has supplied the missing
definition of the word “merchant.” That is a very dangerous thing for a court to
do. It overlooks the fact that a merchant, as the word is defined by the act,
and a merchant only, is liable for the sales tax on “merchandise sold, bartered,
exchanged or consigned abroad by them,” and that if you are not a merchant
within the meaning of the act, you are not liable for the sales tax, and that
the act defines the word “merchant” as “a person engaged in the sale, barter, or
exchange of personal property,” no matter what the purpose may be, whether it is
for local consumption or consignment abroad. There is no claim or pretense that
the plaintiff ever sold, bartered, or exchanged any personal property of any
kind within the Philippine Islands. It is admitted that the only thing which it
ever did was to purchase copra for consignment abroad. How can you make a
person, even though he be a merchant, liable for the payment of the tax for the
purchase of property under a statute, which makes a merchant only, who is
“engaged in the sale, barter or exchange of personal property,” liable for the
payment of the tax? Yet, the majority opinion makes a purchaser of property
liable for a sales tax under a statute which provides that a merchant “engaged
in the sale, barter or exchange of personal property is liable for the tax.” It
is a clear case of judicial legislation. The remedy should have been in the
Legislature and not in the court.

I vigorously dissent.

Johnson, J., dissenting:

I agree with the argument and conclusions of Mr. Justice Johns.