Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
0Activity
0 of .
Results for:
No results containing your search query
P. 1
Commissioner vs Engineering

Commissioner vs Engineering

Ratings: (0)|Views: 6 |Likes:
Published by Eye Alburo

More info:

Published by: Eye Alburo on Nov 24, 2012
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as DOCX, PDF, TXT or read online from Scribd
See more
See less

11/24/2012

pdf

text

original

 
 JIBREYES1SALES
 –
CIR VS ENGINEERING CASE 3 OF 5 CASES 15 June 2012
Page | 1
Republic of the Philippines
SUPREME COURT
 ManilaFIRST DIVISION
G.R. No. L-27044 June 30, 1975THE COMMISSIONER OF INTERNAL REVENUE,
petitioner,vs.
ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX APPEALS,
respondents.
 G.R. No. L-27452 June 30, 1975ENGINEERING EQUIPMENT AND SUPPLY COMPANY,
petitioner,
 vs.THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, respondent.
 
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel H. Montalino for Commissioner of Internal Revenue, etc. Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and J.R. Balonkita for Engineering and Supply Company.
ESGUERRA,
 J.:
 
Petition for review on
certiorari
of the decision of the Court of Tax Appeals in CTA Case No. 681, datedNovember 29, 1966, assessing a compensating tax of P174,441.62 on the Engineering Equipment and SupplyCompany.As found by the Court of Tax Appeals, and as established by the evidence on record, the facts of this caseare as follows:Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an engineeringand machinery firm. As operator of an integrated engineering shop, it is engaged, among others, in the design andinstallation of central type air conditioning system, pumping plants and steel fabrications. (Vol. I pp. 12-16 T.S.N.August 23, 1960)On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenuedenouncing Engineering for tax evasion by misdeclaring its imported articles and failing to pay the correctpercentage taxes due thereon in connivance with its foreign suppliers (Exh. "2" p. 1 BIR record Vol. I). Engineeringwas likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. Acting onthese denunciations, a raid and search was conducted by a joint team of Central Bank, (CB), National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on September 27, 1956, on which occasionvoluminous records of the firm were seized and confiscated. (pp. 173-177 T.S.N.)On September 30, 1957, revenue examiners Quesada and Catudan reported and recommended to the thenCollector, now Commissioner, of Internal Revenue (hereinafter referred to as Commissioner) that Engineering beassessed for P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its importation of air
 
 JIBREYES2SALES
 –
CIR VS ENGINEERING CASE 3 OF 5 CASES 15 June 2012
Page | 2
conditioning units and parts and accessories thereof which are subject to tax under Section 185(m)
1
of the TaxCode, instead of Section 186 of the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This assessment was revised onJanuary 23, 1959, in line with the observation of the Chief, BIR Law Division, and was raised to P916,362.56representing deficiency advance sales tax and manufacturers sales tax, inclusive of the 25% and 50% surcharges.(pp. 72-80 BIR rec. Vol. I)On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering payment of theincreased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of Engineering'spenal liability for violation of the Tax Code. The firm, however, contested the tax assessment and requested that itbe furnished with the details and particulars of the Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIRrec. Vol. I) The Commissioner replied that the assessment was in accordance with law and the facts of the case.On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and during the pendency of the case the investigating revenue examiners reduced Engineering's deficiency tax liabilities from P916,362.65 toP740,587.86 (Exhs. "R" and "9" pp. 162-170, BIR rec.), based on findings after conferences had with Engineering'sAccountant and Auditor.On November 29, 1966, the Court of Tax Appeals rendered its decision, the dispositive portion of whichreads as follows:For ALL THE FOREGOING CONSIDERATIONS, the decision of respondent appealed from is herebymodified, and petitioner, as a contractor, is declared exempt from the deficiency manufacturers sales tax coveringthe period from June 1, 1948. to September 2, 1956. However, petitioner is ordered to pay respondent, or his dulyauthorized collection agent, the sum of P174,141.62 as compensating tax and 25% surcharge for the period from1953 to September 1956. With costs against petitioner.The Commissioner, not satisfied with the decision of the Court of Tax Appeals, appealed to this Court onJanuary 18, 1967, (G.R. No. L-27044). On the other hand, Engineering, on January 4, 1967, filed with the Court of Tax Appeals a motion for reconsideration of the decision abovementioned. This was denied on April 6, 1967,prompting Engineering to file also with this Court its appeal, docketed as G.R. No. L-27452.Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same parties and issues, Wehave decided to consolidate and jointly decide them.Engineering in its Petition claims that the Court of Tax Appeals committed the following errors:1.
 
That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the30% compensating tax on its importations of equipment and ordinary articles used in the central type airconditioning systems it designed, fabricated, constructed and installed in the buildings and premises of itscustomers, rather than to the compensating tax of only 7%;2.
 
That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company guilty of fraudin effecting the said importations on the basis of incomplete quotations from the contents of allegedphotostat copies of documents seized illegally from Engineering Equipment and Supply Company whichshould not have been admitted in evidence;3.
 
That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the25% surcharge prescribed in Section 190 of the Tax Code;4.
 
That the Court of Tax Appeals erred in holding the assessment as not having prescribed;5.
 
That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable for thesum of P174,141.62 as 30% compensating tax and 25% surcharge instead of completely absolving it fromthe deficiency assessment of the Commissioner.1.
 
The Commissioner on the other hand claims that the Court of Tax Appeals erred:
 
 JIBREYES3SALES
 –
CIR VS ENGINEERING CASE 3 OF 5 CASES 15 June 2012
Page | 3
1.
 
In holding that the respondent company is a contractor and not a manufacturer.2.
 
In holding respondent company liable to the 3% contractor's tax imposed by Section 191 of the Tax Codeinstead of the 30% sales tax prescribed in Section 185(m) in relation to Section 194(x) both of the sameCode;3.
 
In holding that the respondent company is subject only to the 30% compensating tax under Section 190 of the Tax Code and not to the 30% advance sales tax imposed by section 183 (b), in relation to section185(m) both of the same Code, on its importations of parts and accessories of air conditioning units;4.
 
In not holding the company liable to the 50% fraud surcharge under Section 183 of the Tax Code on itsimportations of parts and accessories of air conditioning units, notwithstanding the finding of said courtthat the respondent company fraudulently misdeclared the said importations;5.
 
In holding the respondent company liable for P174,141.62 as compensating tax and 25% surcharge insteadof P740,587.86 as deficiency advance sales tax, deficiency manufacturers tax and 25% and 50% surchargefor the period from June 1, 1948 to December 31, 1956.The main issue revolves on the question of whether or not Engineering is a manufacturer of airconditioning units under Section 185(m),
supra
, in relation to Sections 183(b) and 194 of the Code, or a contractorunder Section 191 of the same Code.The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units andparts or accessories thereof and, therefore, it is subject to the 30% advance sales tax prescribed by Section 185(m) of the Tax Code, in relation to Section 194 of the same, which defines a manufacturer as follows:Section 194.
 — 
Words and Phrases Defined.
 — 
In applying the provisions of this Title, words and phrasesshall be taken in the sense and extension indicated below:xxx xxx xxx(x) "Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form orinner substance of any raw material or manufactured or partially manufactured products in such manner as toprepare it for a special use or uses to which it could not have been put in its original condition, or who by any suchprocess alters the quality of any such material or manufactured or partially manufactured product so as to reduce itto marketable shape, or prepare it for any of the uses of industry, or who by any such process combines any suchraw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of manufacture can be put to special useor uses to which such raw material or manufactured or partially manufactured products in their original conditioncould not have been put, and who in addition alters such raw material or manufactured or partially manufacturedproducts, or combines the same to produce such finished products for the purpose of their sale or distribution toothers and not for his own use or consumption.In answer to the above contention, Engineering claims that it is not a manufacturer and setter of air-conditioning units and spare parts or accessories thereof subject to tax under Section 185(m) of the Tax Code, but acontractor engaged in the design, supply and installation of the central type of air-conditioning system subject to the3% tax imposed by Section 191 of the same Code, which is essentially a tax on the sale of services or labor of acontractor rather than on the sale of articles subject to the tax referred to in Sections 184, 185 and 186 of the Code.The arguments of both the Engineering and the Commissioner call for a clarification of the term contractoras well as the distinction between a contract of sale and contract for furnishing services, labor and materials. Thedistinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thingtransferred is one not in existence and which never would have existed but for the order of the party desiring toacquire it, or a thing which would have existed and has been the subject of sale to some other persons even if theorder had not been given.
2
If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->