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Philippine Acetylene Co Inc v CIR and CTA Re: Indirect Taxes Ponente: CASTRO, J.

: DOCTRINE: The tax imposed on the manufacturer or producer is not a tax on the purchaser. QUICK FACTS: Philippine Acetylene Co made various sales to the NPC and to VOA which the CIR assessed a deficiency sales tax that Philippine Acetylene denied liability for payment on the ground that both the NPC and VOA are exempt from taxation. FACTS: Philippine Acetylene Co Inc is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. During the period from June 2, 1953 to June 30, 1958, it made various sales of its products to the National Power Corporation, an agency of the Philippine Government, and to the Voice of America an agency of the United States Government. The sales to the NPC amounted to P145,866.70, while those to the VOA amounted to P1,683, on account of which the Commission of Internal Revenue assessed against, and demanded from Philippine Acetylene Co Inc the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to Sec. 186 and Sec 183 of the NIRC which involves the payment of percentage taxes. Sec. 186. Percentage tax on sales of other articles.There shall be levied, assessed and collected once only on every original sale, , intended to transfer ownership of, or title to, a tax equivalent to seven per centum of the gross selling price or gross value in money of the articles so sold, bartered exchanged, or transferred, such tax to be paid by the manufacturer or producer: . . . . Philippine Acetylenes contention: It has no liability for the payment of the tax on the ground that both NPC and VOA are exempt from taxation. NPC enjoys a tax exemption by virtue of an act of Congress and the immunity would be impaired by the imposition of a tax on sales made to it because while the tax is paid by the manufacturer or producer, the tax is ultimately shifted by the latter to the former. It invokes in support of its position a 1954 opinion of the Sec of Justice which ruled that NPC is exempt from payment of all taxes "whether direct or indirect." CIRs Contention: Denied Philippine Acetylenes reconsideration of the assessment. Philippine Acetylene is liable for the tax on sales to both NPC and VOA, pursuant to the NIRC. CTA: Denied. The tax on the sale of articles or goods in section 186 of the Code is a tax on the manufacturer and not on the buyer with the result that Philippine Acetylene, the manufacturer or producer of oxygen and acetylene gases sold to NPC, cannot claim exemption from the payment of sales tax simply because its buyer the NPC is exempt from the payment of all

taxes. With respect to the sales made to the VOA, the goods purchased by the American Government or its agencies from manufacturers or producers are exempt from the payment of the sales tax under the agreement between the Government of the Philippines and that of the United States, provided the purchases are supported by certificates of exemption, and since purchases amounting to only P558, out of a total of P1,683, were not covered by certificates of exemption, only the sales in the sum of P558 were subject to the payment of tax. Accordingly, the assessment was revised and the liability was reduced from P12,910.60, as assessed by the commission, to P12,812.16. Sales to NPC P145,866.70 Sales to VOA P 558.00 Total sales subject to tax P146,424.70 7% sales tax due thereon P 10,249.73 Add 25% surcharge P 2,562.41 Total amount due and collectible P 12,812.16 ISSUE: WON Philippine Acetylene is exempt from paying tax on sales it made to NPC and VOA because both are exempt from taxation. DECISION: No, Philippine Acetylene is not exempt. Decision of CTA is modified by ordering Philippine Acetylene to pay the CIR the amount of P12,910.60 as sales tax and surcharge. HELD: The tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly its levy on the sales made to tax-exempt entities like the NPC is permissible. The sales to the VOA are subject to the payment of percentage taxes under section 186 of the Code. Only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in a word, only sales to the quartermaster, are exempt under article V from taxation. Sales of goods to any other party even if it be an agency of the United States, such as the VOA, or even to the quartermaster but for a different purpose, are not free from the payment of the tax. Philippine Acetylene is thus liable for P12,910.60 Sales to NPC P145,866.70 Sales to VOA P 1,683.00 Total sales subject to tax P147,549.70 7% sales tax due thereon P 10,328.48 Add: 25% surcharge P 2,582.12 Total amount due and collectible P 12,910.60 It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is

paid to get the goods and for nothing else. (Philippine Acetylene Co. vs. Blaquera, GR L-13728, 1962). But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics1. Then it can no longer be contended that a sales tax is a tax on the purchaser.
Footnote: 1"In the long run a sales tax is probably shifted to the consumer, but during the period when supply is being adjusted to changes in demand, it must be in part absorbed. In practice the businessman will treat the levy as an added cost of operation and distribute it over his sales as he would any other cost, increasing by more than the amount of the tax prices of goods demand for which will be least affected and leaving other prices unchanged." 47 Harv. Ld. Rev. 860, 869 (1934).