G.R. No.

71122 March 25, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ARNOLDUS CARPENTRY SHOP, INC. and COURT OF TAX APPEALS, respondents.
FACTS: Private respondent is a domestic corporation. For this business venture, private respondent kept
samples or models of its woodwork on display from where its customers may refer to when placing their
orders. These furniture, cabinets and other woodwork were sold locally and exported abroad.
The examiners of the petitioner CIR conducted an investigation of the business tax liabilities of private
respondent. As a result thereof, the examiners assessed private respondent for deficiency tax. Later,
on,private respondent received a letter/notice of tax deficiency assessment inclusive of charges and interest for
the year 1977. This tax deficiency was a consequence of the 3% tax imposed on private respondent's gross
export sales which, in turn, resulted from the examiners' finding that categorized private respondent as a
contractor .
Private respondent filed, a protest with the petitioner CIR contending that the carpentry shop is a manufacturer
and therefor entitled to tax exemption on its gross export sales under Section 202 (e) of the National Internal
Revenue Code.
ISSUE: Whether or not private respondent is a manufacturer and entitled to tax exemption?
HELD: YES. . Private respondent is a "manufacturer" as defined in the Tax Code.
Sec. 187 (x) [now Sec. 157 (x)] of the Tax Code defines a manufacturer' as follows:
"Manufacturer" includes every person who by physical or chemical process alters the exterior
texture or form or inner substance of any raw material or manufactured or partially
manufactured product in such manner as to prepare it for a special use or uses to which it could
not have been in its original condition, or who by any such process alters the quality or any such
raw material or manufactured or partially manufactured product so as to reduce it to marketable
shape or prepare it for any of the uses of industry, or who by any such process combines any
such raw material or manufactured or partially manufactured products with other materials or
products of the same or different kinds and in such manner that the finished product of such
process or manufacture can be put to a special use or uses to which such raw material or
manufactured or partially manufactured products in their original condition would not have been
put, and who in addition alters such raw material or manufactured or partially manufactured
products, or combines the same to produce such finished products for the purpose of their sale
or distribution to others and not for his own use or consumption.
It is a basic rule in statutory construction that when the language of the law is clear and unequivocal,
the law must be taken to mean exactly what it says.
As the Court of Tax Appeals did not err in holding that private respondent is a "manufacturer," then private
respondent is entitled to the tax exemption under See. 202 (d) and (e) mow Sec. 167 (d) and (e)] of the Tax
Code which states:
Sec. 202. Articles not subject to percentage tax on sales. The following shall be exempt from
the percentage taxes imposed in Sections 194, 195, 196, 197, 198, 199, and 201:
xxx xxx xxx
(d) Articles shipped or exported by the manufacturer or producer, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the articles so exported.
(e) Articles sold by "registered export producers" to (1) other" registered export producers" (2)
"registered export traders' or (3) foreign tourists or travelers, which are considered as "export
sales."
Conversely therefore, if there is an express mention or if the taxpayer falls within the purview of the
exemption by clear legislative intent, then the rule on strict construction will not apply. In the present
case the respondent Tax Court did not err in classifying private respondent as a "manufacturer". Clearly, the
'latter falls with the term 'manufacturer' mentioned in Art. 202 (d) and (e) of the Tax Code. As the only question
raised by petitioner in relation to this tax exemption claim by private respondent is the classification of the latter
as a manufacturer, this Court affirms the holding of respondent Tax Court that private respondent is entitled to
the percentage tax exemption on its export sales.

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
THE COURT OF APPEALS, THE COURT OF TAX APPEALS and ATENEO DE MANILA
UNIVERSITY,respondents.
FACTS: Private respondent is a non-stock, non-profit educational institution with auxiliary units and branches
all over the Philippines. One such auxiliary unit is the Institute of Philippine Culture (IPC), which has no legal
personality separate and distinct from that of private respondent.. Occasionally, it accepts sponsorships for its
research activities from international organizations, private foundations and government agencies.
Private respondent received from petitioner CIR a demand letter, assessing private respondent for alleged
deficiency in contractor's tax and for alleged deficiency income tax, both for the fiscal year ended March 31,
1978.
Petitioner CIR contends that Private respondent ADMU "falls within the definition" of an independent contractor
and "is not one of those mentioned as excepted"; hence, it is properly a subject of the 3% contractor's tax
levied by the foregoing provision of law. Petitioner states that the "term 'independent contractor' is not
specifically defined so as to delimit the scope thereof, so much so that any person who . . . renders physical
and mental service for a fee, is now indubitably considered an independent contractor liable to 3% contractor's
tax." According to petitioner, Ateneo has the burden of proof to show its exemption from the coverage of the
law.
ISSUE:WON Ateneo de Manila University, through its auxiliary unit or branch the Institute of Philippine
Culture performing the work of an independent contractor and, thus, subject to the three percent
contractor's tax levied by then Section 205 of the National Internal Revenue Code?
HELD:NO. Petitioner Commissioner of Internal Revenue erred in applying the principles of tax exemption
without first applying the well-settled doctrine of strict interpretation in the imposition of taxes. It is obviously
both illogical and impractical to determine who are exempted without first determining who are covered by the
aforesaid provision. The Commissioner should have determined first if private respondent was covered
by Section 205, applying the rule of strict interpretation of laws imposing taxes and other burdens on
the populace, before asking Ateneo to prove its exemption therefrom. The Court takes this occasion to
reiterate the hornbook doctrine in the interpretation of tax laws that "(a) statute will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously . . . (A) tax cannot be imposed without
clear and express words for that purpose. Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to
be extended by implication."
8
Parenthetically, in answering the question of who is subject to tax statutes, it is
basic that "in case of doubt, such statutes are to be construed most strongly against the government
and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to be
imposed beyond what statutes expressly and clearly import."
9

The plain and simple answer is that private respondent is not a contractor selling its services for a fee
but an academic institution conducting these researches pursuant to its commitments to education
and, ultimately, to public service. For the institute to have tenaciously continued operating for so long
despite its accumulation of significant losses, we can only agree with both the Court of Tax Appeals and the
Court of Appeals that "education and not profit is [IPC's] motive for undertaking the research projects."
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