Anscor Container Corp. v. Court of Tax Appeals

FIRST DIVISION [CA-G.R. SP No. 38052. August 31, 1998.] ANSCOR CONTAINER CORPORATION , petitioner , vs . COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N BUENA , J p : This is a Petition for Review of the decision promulgated on April 24, 1995 of the Court of Tax Appeals sustaining the validity of the deficiency sales tax made by the Commissioner of Internal Revenue but cancelled the assessment for deficiency final tax on dividends in C.T.A. Case No. 4467 entitled "Anscor Container Corporation, petitioner, versus Commissioner of Internal Revenue, respondent." The antecedent facts of the case are as follows: Petitioner Anscor Container Corporation ( Anscor , for brevity) manufactures steel drums and other steel containers in the ordinary course of its business and provides all the materials necessary for their fabrication. In such business dealings the petitioner paid the sales tax. Anscor entered into transactions with Pilipinas Shell Petroleum Corporation ( Shell , for brevity) and Marinduque Mining and Industrial Corporation (Marinduque Mining, for short) whereby the steel drums were manufactured in accordance with the specifications given by these companies. The raw materials were provided by the companies aforementioned. Petitioner only paid contractor's tax on these transactions since Shell and Marinduque Mining provided the raw materials. Only the labor for processing was provided by the petitioner. The Bureau of Internal Revenue assessed petitioner Anscor Container Corporation ( Anscor , for brevity) deficiency sales tax in the amount of P1,541,073.95, including surcharge and interest and deficiency final tax on dividends of P39,722.30, also inclusive of surcharge and interest. Not satisfied with the assessment thus rendered, petitioner questioned the validity of the same with the Court of Tax Appeals (CTA, for short) in a Petition for Review. On April 24, 1995, the Court of Tax Appeals rendered its decision, the dispositive portion of which is as follows: "WHEREFORE, in view of all the foregoing, respondent's assessment for deficiency final tax on dividends in the amount of P39,772.30 (sic) is hereby cancelled for lack of merit. "However, petitioner is hereby ordered to pay the respondent the amount of P1,541,073.95 as deficiency sales tax for 1984, plus 25% surcharge, and 20% interest thereon from May 23, 1988 until fully paid pursuant to sections 248 and 249 of the Tax Code as re-numbered and re-arranged by Executive Order No. 273, which took effect on January 1, 1988. "SO ORDERED." (Annex "A"; CA Rollo, p. 84). Both Anscor and the Commissioner of Internal Revenue filed their respective Motions for Reconsideration: the former questioned the upholding of the validity of the assessment for deficiency sales tax while the latter questioned the cancellation of the assessment for deficiency final tax on dividends. The CTA issued a resolution on July 7, 1995 denying the above motions, to wit: "Accordingly, the Motion for Reconsideration filed by the respondent and the Motion for Partial Reconsideration filed by the petitioner are hereby denied for lack of merit. "SO ORDERED." (Annex "B"; Ibid ., p. 86). Hence, this petition. On August 29, 1995, this Court issued a resolution requiring the respondents to comment on the petition and giving petitioner the option to file a reply thereto. On October 10, 1995, a comment was filed by the respondents. The petitioner opted not to file a reply. The only issue to be resolved in the petition for review is: WHETHER OR NOT THE PETITIONER ACTED AS A CONTRACTOR IN THE SUBJECT TRANSACTIONS WITH PILIPINAS SHELL AND MMIC SO THAT IT WAS LIABLE ONLY FOR CONTRACTOR'S TAX, OR IF IT IS LIABLE FOR SALES TAX. The petition is untenable and so We find that the petitioner is liable for sales tax. Petitioner staunchly argues that it is a contractor with regards to the Shell and Marinduque Mining transactions and relies upon Article 1467 of the New Civil Code to support this. "Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work." llcd Petitioner Anscor contends that since the raw materials and the specifications for the steel drums were provided by Shell and Marinduque Mining and that the only thing it provided was the labor for the processing or fabrication of the drums then it should only be considered a contractor. We are not swayed. Atty. Rodolfo Padilla, a witness for the petitioner, testified in open court that the main line of petitioner's business is the manufacturing of drums (C.T.A. decision, p. 7; CA Rollo, p. 77). The mere fact that only the labor was provided by petitioner Anscor in the questioned transactions is of no moment. Petitioner's acceptance of the orders from Shell and Marinduque Mining does not alter the nature of the establishment for it ordinarily manufactures steel drums or was in a position habitually to manufacture them. Article 1467 is very explicit: if an object is ordered in the ordinary course of business the resulting transaction is one of sale . The work which petitioner was asked to do could not be called special work, but regular work for petitioner Anscor Container Corporation habitually manufactures drums. In the case of Celestino Co & Co . vs . Collector of Internal Revenue , 99 Phil . 841 . "A factory which habitually makes sash, windows and doors, and sells the goods to the public is a manufacturer. The fact that the windows and doors are made by it only when customers place their orders and according to such form or combination as suit the fancy of the purchasers does not alter the nature of the establishment." In another case, it was held that: "Petitioner wants to impress upon this Court that under Article 1467 , the true test of whether or not the contract is a piece of work (and thus classifying private respondent as a contractor) or a contract of sale (which would classify private respondent as a manufacturer) is the mere existence of the product at the time of the perfection of the contract such that if the thing already exists, the contract is of sale, if not, it is work. "This is not the test followed in this jurisdiction. As can be clearly seen from the wordings of Art . 1467 , what determines whether the contract is one of work or of sale is whether the thing has been ' manufactured specially for the customer and upon his special order .' Thus, if the thing is specially done at the order of another, this is a contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the general market in the ordinary course of one's business, it is a contract of sale. "Jurisprudence has followed this criterion. As held in Commissioner of Internal Revenue v . Engineering Equipment and Supply Co . (L-27044 and L-27452 , June 30 , 1975 , 64 SCRA 590 , 597) , "the distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it , or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given." (Emphasis supplied). And in a BIR ruling, which as per Sec . 326 (now Sec . 277) of the Tax Court , the Commissioner has the power to make and which, as per settled jurisprudence is entitled to the greatest weight as an administrative view [ National Federation of Sugar Workers (NFSW) v . Ovejera , G . R . No . 59743 , May 31 , 1982 , 114 SCRA 354 , 391 ; Sierra Madre Trust v . Hon . Sec . of Agriculture and Natural Resources , Nos . L-32370 and L-32767 , April 20 , 1983 , 121 SCRA 384 ; Espaol v . Chairman and Members of the Board of Administrators , Phil . Veterans Administration , L-44616 , June 29 , 1985 , 137 SCRA 314 ], "one who has ready for the sale to the general public finished furniture is a manufacturer, and the mere fact that he did not have on hand a particular piece or pieces of furniture ordered does not make him a contractor only " ( BIR Ruling No . 537 , series of 1960 ). Likewise, "xxx xxx xxx "When the vendor enters into a contract for the delivery of an article which in the ordinary course of his business he manufacturers or procures for the general market at a price certain ( Art . 1458 ) such contract is one of sale even if at the time of contracting he may not have such article on hand . Such articles fall within the meaning of "future goods" mentioned in Art . 1462 , par . 1 . [5 Padilla , Civil Law ; Civil Code Annotated 139 (1974)] . ". . ." ( Commissioner of Internal Revenue vs . Arnoldus Carpentry Shop , Inc ., 159 SCRA 199 , 206-207 ). The court a quo correctly ruled that petitioner is a manufacturer and not a mere contractor of services on the basis of the journal entries of the said corporation. Its manufacturing sales far outweigh its contract sales; i . e ., 94% of its total taxable sales came from its manufacturing sales while only 6% was from its contract sales. dctai Olivia Lao, the witness for the respondent, testified that petitioner charged customers who are similarly situated as Shell and Marinduque Mining, i . e ., clients in the chemical industry and mining industry, with sales tax and not contractor's tax (C.T.A. decision, p. 6; CA Rollo, p. 76). Verily, the respondent court, confronted with the factual circumstances of this case, was guided by and applied the widely-accepted rule in taxation that all objects of taxation , similarly situated , are to be taxed alike . The Supreme Court has time and again reminded litigants that the interpretation by officers of laws which are entrusted to their administration is entitled to great respect ( Sierra Madre Trust vs . Hon . Secretary of Agriculture , et al ., 121 SCRA 384 ), and have in their favor a presumption of legality ( Espaol vs . Chairman , PVA , 137 SCRA 319 ). Finally, We are in full accord, as We are persuaded to adhere, to the time-honored principle that findings of administrative officials and agencies who have acquired expertise because their jurisdiction is confined to specific matters are generally accorded not only respect but at times even finality if such findings are supported by substantial evidence ( Latchme Motoomull vs . Dela Paz , 187 SCRA 743 ), as in this case. cdll WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. SO ORDERED. Mabutas, Jr . and Aquino, JJ . , concur.