CEBU PORTLAND CEMENT COMPANY, PLAINTIFF AND APPELLEE, VS. CITY OF MANILA AND THE CITY TREASURER OF MANILA, DEFENDANTS AND APPELLANTS.

This
action was brought in the Court of First Instance of Manila by the Cebu
Portland Cement Company against the City of Manila and the City
Treasurer, seeking to recover the sum of P41,864.85, representing the
alleged liability of the said company for retailer’s tax under City
Ordinance No. 3816, plus the penalty for late payments and which were
paid under protest by the plaintiff.

The parties do not dispute the correctness of the lower court’s findings of fact, stated as follows:

“The
plaintiff is a manufacturer of Apo Portland Cement with two cement
factories outside of the City of Manila, to wit: The Naga Cement Plant,
located at Naga, Cebu and the Bacnotan Cement Plant, located at
Bacnotan, La Union. It has its principal office and & warehouse in
the City of Manila from which it distributes and disposes of its
manufactured cement to consumers. For the period from July 1, 1956 to
September 30, 1956, the plaintiff company made retail sales of cement
in the total amount of P3,805,895.60. On or about October 10, 1956,
defendant City Treasurer of Manila assessed and demanded from the
plaintiff the sum of P38,058.95 as retailer’s tax for the quarter
ending December 31, 1956, on the basis of said sales made during the
preceding quarter. On December 8, 1956, the plaintiff company paid
under protest the sum of P41,864.84, as such tax, including the 10 per
cent surcharge penalty for late payment.”

Plaintiff contested the imposition of the tax on the ground that as a
manufacturer selling its own products, it was not subject to the
dealer’s tax prescribed under the ordinance in question. Defendants, on
the other hand, contended that “although the plaintiff is a
manufacturer, since it has its factories outside Manila and maintains
and operates apart from such factories a warehouse in said city ‘from
which it distributes and disposes of its manufactured cement to
consumers’, the plaintiff is a retail dealer subject to the tax”
aforementioned to the extent of its retail sales.

The court
below rendered a decision sustaining plaintiff’s view and ordering the
refund of the amount claimed by it. Not agreeable to the judgment,
defendants interposed their appeal to the Court of Appeals, but, upon
appellants’ own motion, the case was elevated to this Court. In this
instance, the parties reiterate their respective contentions below.

There is merit in appellants’ argument that City Ordinance No. 3816 of
the City of Manila, which seeks to impose a dealer’s tax on the sale of
general merchandise, was enacted pursuant to paragraph (o) of Section
18 of Republic Act No. 409, otherwise known as the Charter of the City
of Manila, rather than under paragraph (n) thereof as mistakenly
believed by the lower court. The pertinent provisions of the said
paragraphs read, and we quote:

“Sec. 18. Legislative Powers.—The Municipal Board shall have the following legislative powers:

* * * * * * *

(n) To tax and fix the license fees on * * * manufacturers of * * * cement products * * * and construction materials.

“Manufacturers above mentioned shall not be subject to the payment of
any municipal tax or license as retail dealers of their own products *
* *.”

(o) To tax and fix the license fee on dealers in
general merchandise, including importers and indentors, except those
dealers who may be expressly subject to the payment of some other
municipal tax under the provisions of this Section.”

As it may be observed, paragraph (n) refers to the authority to impose taxes and license fees on manufacturers, while the other has reference to the authority to make similar impositions on dealers of general commodities.

The question then arises as to whether the plaintiff-appellee may be
considered a dealer within the meaning of the taxing ordinance. Neither
the charter nor City Ordinance 3816 provides much clarification on the
matter. On the other hand, authorities seem not to conflict in
excluding a manufacturer from coming within the term “dealer” for
purposes of the imposition of a dealer’s tax or license fee where it only deals on or sells its own products (see 55 C.J.S. 672-674, 702-703; 37 C.J. 224, and cases cited therein; City of Manila vs.
Bugsuk Lumber Co., 101 Phil., 859; 53 Off. Gaz., 6111). The sole
exception to this rule appears to be when the manufacturer carries on
business of selling its own products at stores or warehouses apart from
its place of manufacture (see authorities cited, supra; Atlantic Refining Co. vs. Van Valkenburg, 109 A. 208; Manila Tobacco Association, Inc. vs.
City of Manila, et al., 102 Phil., 653; 54 Off. Gaz. [38] 8613).
Construing such exception, however, this Court held that the same would
apply only where the manufacturer engages in the selling of its
products at its very stores or warehouses, but not where the
manufacturer maintains the warehouses merely for storage purposes, and
from where it makes deliveries of the goods when sold. In the words of
the Court—

“The citation does not support
appellant’s contentions. The citation says ‘One who carries on the
business of selling goods, wares and merchandise, manufactured by him
at a store or warehouse apart from his own shop, or manufactury, is a
dealer therein subject to tax * * *.’ It may be admitted that the
manufacturer becomes a dealer if he carries on the business of selling goods or his products manufactured by him at a store or warehouse apart from his own shop or manufactury. But plaintiff-appellee did not carry on the business of selling sugar at stores or at its warehouses.
It entered into the contracts of sale at its central office in Manila
and made deliveries of the sugar sold from its warehouses. It does not
appear that the plaintiff keeps stores at its warehouses and engages in
selling sugar in said stores. Neither does it appear that any one who
desires to purchase sugar from it may go to the warehouses and there
purchase sugar. All that it does was to sell the sugar it manufactures;
it does not open stores for the sale of such sugar. Plaintiff-appellee
did not, therefore, engage in the business of selling sugar.” (Central
Azucarera Don Pedro vs. City of Manila, et al., 97 Phil., 627).

In the case at bar, while it is not disputed that the appellee
maintains a warehouse in Manila apart from its factories at Naga, Cebu
and Bacnotan, La Union, as in the aforecited case of Central Azucarera
Don Pedro vs. City of Manila, supra, it does not appear,
however, that the company keeps a store at the said warehouse nor makes
its sales thereat. Upon the other hand, it seems that contracts of sale
are perfected at appellee’s central office in Manila, which thereafter
makes the deliveries of the cement sold from its warehouse.
Accordingly, we cannot consider appellee a dealer within the taxing ordinance in question.

The city’s thesis that a manufacturer must sell at the place of its
factory in order to escape being held to be a dealer does not take into
account the difference in the controlling factors that determine the
selection of production and marketing sites. Factories are established
where cheap material and labor are obtained; sales centers, on the
other hand, are sited where the demand for the finished product is
greatest. No one expects a plywood or fruit canning factory to be
established at urban centers where no raw material is accessible.
Should we expect the manufacturer to sell plywood only at the forest,
or canned fruit only at the plantation? To exact that sales be made at
the production site is to deny access to adequate markets and
discourage volume production. The law recognizes this situation when it
provides that—

“Manufacturers
…………………. shall not be subject to the payment of any
municipal tax or license as retail dealers of their own products.”
(Sec. 18 (n), R. A. 409)

With the foregoing conclusion, it becomes unnecessary for us to discuss the other questions raised in the appeal.

Wherefore, the appeal is dismissed and the judgment appealed from is hereby affirmed.

Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and Gutierrez David, JJ., concur.