GENATO COMMERCIAL CORPORATION, PLAINTIFF AND APPELLANT, VS. THE INSULAR COLLECTOR OF CUSTOMS, DEFENDANT AND APPELLEE.

The question of first impression raised in
this case concerns the liability of a local merchant who imports food
supplies from a foreign country and then sells these supplies to the
United States Navy pursuant to contracts with the latter, to the
payment of the corresponding customs duties provided by the Philippine
Tariff Act of 1909. The Insular Collector of Customs and the Court of
First Instance of Manila ruled in the affirmative, and the correctness
of this view is contested by the importer on appeal.

The parties submitted the case on the following

STIPULATION OF FACTS

“1. That the plaintiff is a domestic corporation
duly organized and existing under and by virtue of the laws of the
Philippine Islands, with domicile in the City of Manila, P. I.; and
that the defendant is the Insular Collector of Customs of the
Government of the Philippine Islands.

“2. That on or about
May 21, 1931, and November 16, 1931, the plaintiff entered into and
executed with the Navy of the United States of America, contracts’ for
the supply and delivery to it in the Philippine Islands of frozen
butter of and veal for its own use and purposes.

“3. That,
pursuant to said contracts, the plaintiff Genato Commercial Company,
imported into the port of Manila, P. I., from Melbourne, Australia, and
supplied and delivered to the Navy of the United States in the
Philippine Islands, 1,000 cases containing 27,723 kilos of frozen
butter and 520 kilos of veal of the growth, product or manufacture of
Australia.

“4. That the defendant herein assessed and
collected on the said frozen butter and veal, imported and delivered by
the plaintiff to the United States Navy, pursuant to the contracts
above-mentioned, import duties amounting to P3,097.16, or P3,086.76 on
the butter and P10.40 on the veal, under the provisions of paragraphs
271 and 202, respectively, of section 8 of the Philippine Tariff Act of
1909.

“5. That the plaintiff above-named duly protested
against the assessment and collection of duty upon the said frozen
butter and veal, on the ground that commodities imported for the use
and consumption of the United States Army and Navy in the Philippine
Islands are not dutiable.

“6. That, in a decision rendered
on August 17, 1932, the defendant overruled the said protests and held
that the frozen butter and veal in question are dutiable articles, for
they are not specifically exempted from the payment of customs duties
under the Philippine Tariff Act. Copy of the defendant’s decision,
which is found in the record of this case, and of the Tariff Decision
Circular No. 1001 therein referred to, are herewith annexed and made a
part of this stipulation of facts as Exhibits A and B.

“7.
That, against said decision, the plaintiff has duly filed its protest
and given notice in writing to the Insular Collector of Customs of its
desire that the case be removed to the Court of First Instance of
Manila, in accordance with sections 1383 and 1385 of the Administrative
Code.”

The Act of Congress of August 5, 1909, commonly known as the
Philippine Tariff Act of 1909, provides that, “except as otherwise
specifically provided in this Act”, the duties therein imposed shall be
levied upon “all articles, * * * entering the jurisdiction of the
Philippine Islands, from any place or places * * *.” (Sec. 1.) The
rates of duties to be collected on fresh meat, not otherwise provided
for, gross weight, one hundred kilos, are one dollar, and on butter,
including weight of immediate containers, a kilo, are six cents. (Sees.
8, 202, 271). The articles in the free list are enumerated without
mention being made of supplies imported by the United States Government
or the United States Army and Navy. (Secs. 9, 10, 11, 12.) All articles
imported into the Islands for the purposes of the law are deemed to be
the property of the person to whom the same may be consigned. (Sec. 15.)

Numerous authorities are cited by both parties. Appellant relies on Panhandle Oil Co. vs.
Knox ([1928], 277 U. S., 218), by a five to four vote, holding that a
state tax on sales to instrumentalities of the United States was void;
Asiatic Petroleum Co. vs. U. S. ([1928], 65 C. Cls., 100),
holding, although admittedly not necessary to a decision, that the
Philippine Tariff Act of 1909 did not require the United States to pay
duty on oil owned by it and imported into the Philippine Islands for
use in the military or naval establishments; District of Columbia vs.
American Oil Co. ([1930], 39 Fed. 2d. S., 510), holding that the seller
of gasoline imported into the District of Columbia pursuant to contract
with the Secretary of Treasury for use by various executive departments
and governmental agencies, was not liable for the tax imposed on motor
vehicle fuels sold within the District of Columbia; Standard Oil Co. of
New York vs. Posadas ([1931], 55 Phil., 715), holding that
sales made in the Philippines to the United States Army and the United
States Navy are made to instrumentalities of the United States
Government, and therefore, are not subject to tax by the Philippine
Government; Opinion of the Attorney-General of the United States of
June 8, 1912 (29 Ops. Atty. Gen. U. S., 442), holding that goods
imported into the Philippine Islands for the use of the Army of the
United States are not subject to the stamp tax imposed by section 284
of Act No. 355 of the Philippine Commission as amended: and the ruling
of the Comptroller-General of the United States of November 2, 1929,
holding that the past practice of the accounting officers in allowing
claims for amount of customs duties imposed by the Philippine
Government on goods or merchandise imported into the Philippine Islands
by the United States Government for its own use or any of its
instrumentalities, including the Navy, must be discontinued pending a
decision by the Supreme Court of the United States sustaining the
legality of such charges or further legislation by the Congress with
respect thereto.

Appellee relies on the opinion of Solicitor-General Wm. H. Taft of
February 9, 1892 (20 Ops. Atty. Gen. U. S., 314), stressing the
omission in the Tariff Act of a provision that all articles imported
for the use of the Government should come in free, and holding dutiable
coal imported for the use of the United States marshal’s office at
Sitka, Alaska, followed in opinion of Attorney-General Wickersham of
February 4, 1911 (28 Ops. Atty. Gen. U. S., 599), and expressing the
view that torpedoes imported from Europe for the United States Navy are
dutiable; decision of the Comptroller of the United States Treasury of
November 8,1912, holding that the effect of the omission in the 1909
statute was to authorize the Philippine Government to impose certain
customs duties on supplies imported into the Philippine Islands by the
United States for its own use; memorandum of the War Department of
March 8, 1915, expressing the opinion that the construction which had
been given the tariff statute in practice appears to be the correct
one, and also of the Bureau of Insular Affairs of the War Department of
February 10, 1915, setting forth the reasons for subjecting supplies of
the United States Army to duty; opinion of the Judge Advocate-General
of the United States Army of January 10, 1928, holding that the
Government of the United States authorized the imposition of customs
duties on Government property imported into the Philippine Islands for
its own use; and Tariff Decision Circular No. 1001 of February 8, 1932,
in which the Insular Collector of Customs held liquid fuel imported
from Borneo into the Philippine Islands and delivered to the United
States Army liable to duty. It can also be added that “While property
purchased by the United States and imported for its use formerly was
specially exempted from duty, the omission of this provision from
recent tariff acts has had the effect of making articles for the United
States subject to the same customs treatment as merchandise in
general.” (17 C. J., 599; Treas. Dec, 18213.)

An examination of these cases and opinions discloses that, while
the views expressed are entitled to respectful consideration, no case
or opinion is exactly controlling. There is no question here involving
the applicability of a local statute to sales to the United States or
the United States Navy. There is no question here involving articles
consigned to the United States or the United States Navy or articles
owned by the United States or by the United States Navy and imported
into the Philippine Islands for use in the naval establishment. We do
not need to decide if goods imported by the United States Navy into the
Philippines for its own use and purposes are dutiable. It is, however,
worthy of observation that the United States Navy paid customs duties
up to January, 1923, and the United States Army up to the close of the
year 1929. It is further to be noted that the United States Navy has
not joined the protest entered by the importer. What we have to decide
is, if goods imported into the Philippine Islands by a merchant and
delivered to the United States Navy are dutiable under an Act of
Congress.

As a basis for an opinion, certain principles can be accepted as
beyond dispute. For instance, the United States is not subject to its
own taxing statute, unless it so appears from the law itself, either
expressly or by implication. The United States Navy is an
instrumentality of the United States’ Government. Without congressional
consent, no Federal agency or instrumentality can be taxed by the
Government of the Philippine Islands. It is not every minor and
indirect taxation of agencies of the Federal Government which protects
them from taxation, but only such taxation as interferes with or
impairs their efficiency in performing the functions by which they
serve the Government.

The solution of the question of whether the Government of the
Philippine Islands, acting pursuant to authority conferred by an Act of
Congress, may exact a tax on importations intended for use by the
United States Navy depends upon the interpretation of the Tariff Act of
1909. The inquiry should be directed toward the determination of the
intention of the Congress.

The Philippine Tariff Act of March 3, 1905, enacted by the United
States Congress, expressly included in its free list supplies imported
by the United States Government for its use or that of its subordinate
branches. The Tariff Act of 1909 contains no such provision. Moreover,
the Congressional record discloses that action to exclude governmental
supplies from the free list of the Act was taken deliberately. The
omission in the Philippine Tariff Act of 1909 of a provision similar to
that found in the Philippine Tariff Act of 1905 providing for the
admission free of duty of supplies imported by the United States
Government or a subordinate branch, is good evidence of the purpose of
the Congress not to exclude from the operation of the existing Tariff
Act articles imported by the United States Government for the use of
the United States Navy. But as we have been careful to explain, we are
not compelled to go that far. Some doubt might have existed of the
rights of the local importer under the former Tariff Act because the
exemption was in favor of the United States Government and its branches
only, but that doubt is removed when even the exemption of the
government was eliminated.

In other words, an intention is not disclosed of excluding from the
payment of duties provided by the Tariff Act of 1909, articles imported
into these Islands from foreign countries and then delivered by the
importer to a branch of the Federal Government in the Philippine
Islands. The butter and veal involved in the present case still
belonged to the plaintiff, a domestic corporation, at the time of the
importation into the Philippine Islands. The butter and veal imported
by the local merchant, if sold to the public, would be subject to the
payment of customs duties. The mere fact that a private person does
business with an instrumentality of the Federal Government does not
clothe him with immunity from taxation.

The reasons which induced the Congress to eliminate from the Tariff
Act of 1909 the provision to be found in a prior Tariff Act providing
for the free admission of government supplies into the Philippine
Islands, are illuminating. It was felt that placing government supplies
on the free list resulted in an injustice to local merchants in the
Philippine Islands. They could not compete on the same terms with the
importer who might be exempt from the payment of duty by the provisions
of the law. To put the local merchant on an equal footing with the
foreign merchant and to divert purchases to the United States or the
Philippines were the chief objects in eliminating from the Tariff Act
of 1909 the free entry provision. These reasons are not left in doubt,
for they are summarized in the opinion of the Chief of the Bureau of
Insular Affairs of the War Department hereinbefore mentioned, who
because of his position must have been fully informed on the matter.

To give a concrete example of these purposes. Take beef and the
desire to encourage the cattle industry of the Islands. The United
States Navy calls for bids on fresh meat. The local cattle raiser and
the importer compete. The disadvantage is with the former even though
not liable to the payment of the sales tax if the importer can bring in
foreign beef free of duty. The Congress wanted to afford protection to
Philippine and American industries, and it is for us to encourage this
policy.

The Bureau of Customs in the construction of the Tariff Act of 1909
has, for a period of over twenty years, consistently held that all
articles imported into the Philippine Islands are dutiable except those
specifically mentioned in the Tariff Act as exempt from the payment of
duty, and that as there is no provision in the Tariff Act specifically
exempting goods imported from foreign countries for the use of the
United States Army and Navy, such goods are dutiable. A contemporaneous
construction of a statute without change of that construction by
legislative or judicial decision is generally the best construction.

To effectuate the intention of the Congress of the United States
Congress as disclosed by the language of the Philippine Tariff Act of
1909 and by the deliberate omission of a provision including
governmental supplies in the free list, to make possible the carrying
out of the objects of the Tariff Act, and to harmonize judicial
construction with long continued executive practice, are the
determining factors which motivate our decision. We join the Insular
Collector of Customs and the Court of First Instance of Manila in their
stand, and find the appellant, a local merchant who imported food
supplies from a foreign country and then sold these supplies to the
United States Navy pursuant to contracts with the latter, liable to the
payment of the corresponding customs duties provided by the Philippine
Tariff Act of 1909. Accordingly, the judgment will be affirmed, the
appellant to pay the costs1 of this instance.

Villa-Real, Abad Sartfos, Hud, Imperial, Butte, Goddard. and Diaz, JJ., concur.