Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-8506 August 31, 1956
CELESTINO CO & COMPAN, petitioner,
vs.
COLLECTOR O! INTERNAL RE"ENUE, respondent.
Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General
Guillermo E. Torres and Solicitor Federico V. Sian for respondent.
#ENG$ON, J.%
Appeal from a decision of the Court of Tax Appeals.
Celestino Co Compan! is a dul! re"istered "eneral copartnership doin" business
under the trade name of #$riental %ash &actor!#. &rom '()* to '(+' it paid percenta"e
taxes of , per cent on the "ross receipts of its sash, door and -indo- factor!, in
accordance -ith section one hundred ei"ht!.six of the National Revenue Code
imposin" taxes on sale of manufactured articles. /o-ever in '(+0 it be"an to claim
liabilit! onl! to the contractor1s 2 per cent tax 3instead of , per cent4 under section '('
of the same Code5 and havin" failed to convince the Bureau of 6nternal Revenue, it
brou"ht the matter to the Court of Tax Appeals, -here it also failed. %aid the Court7
To support his contention that his client is an ordinar! contractor . . . counsel
presented . . . duplicate copies of letters, s8etches of doors and -indo-s and price
9uotations supposedl! sent b! the mana"er of the $riental %ash &actor! to four
customers -ho alle"edl! made special orders to doors and -indo- from the said
factor!. The conclusion that counsel -ould li8e us to deduce from these fe- exhibits is
that the $riental %ash &actor! does not manufacture read!.made doors, sash and
-indo-s for the public but onl! upon special order of its select customers. . . . 6 cannot
believe that petitioner compan! -ould ta8e, as in fact it has ta8en, all the trouble and
expense of re"isterin" a special trade name for its sash business and then orders
compan! stationer! carr!in" the bold print "Oriental Sash Factory 3Celestino Co
Compan!, Prop.4 (0* Raon %t. :uiapo, Manila, Tel. No. 22;,*, anufacturers of all
!inds of doors, "indo"s, sashes, furniture, etc. used season#dried and !iln#dried
lumber, of the best $uality "or!manships" solel! for the purpose of suppl!in" the needs
for doors, -indo-s and sash of its special and limited customers. $ne ill note that
petitioner has chosen for its tradename and has offered itself to the public as a
#&actor!#, -hich means it is out to do business, in its chosen lines on a bi" scale. As a
"eneral rule, sash factories receive orders for doors and -indo-s of special desi"n
onl! in particular cases but the bul8 of their sales is derived from a read!.made doors
and -indo-s of standard si<es for the avera"e home. Moreover, as sho-n from the
investi"ation of petitioner1s boo8 of accounts, durin" the period from =anuar! ', '(+0 to
%eptember 2;, '(+0, it sold sash, doors and -indo-s -orth P'>>,,+).*(. 6 find it
difficult to believe that this amount -hich runs to six fi"ures -as derived b! petitioner
entirel! from its fe- customers -ho made special orders for these items.
Even if -e -ere to believe petitioner1s claim that it does not manufacture read!.made
sash, doors and -indo-s for the public and that it ma8es these articles onl! special
order of its customers, that does not ma8e it a contractor -ithin the purvie- of section
'(' of the national 6nternal Revenue Code. there are no less than fift! occupations
enumerated in the aforesaid section of the national 6nternal Revenue Code sub?ect to
percenta"e tax and after readin" carefull! each and ever! one of them, -e cannot find
under -hich the business of manufacturin" sash, doors and -indo-s upon special
order of customers fall under the cate"or! of #road, buildin", navi"ation, artesian -ell,
-ater -or8ers and other construction -or8 contractors# are those -ho alter or repair
buildin"s, structures, streets, hi"h-a!s, se-ers, street rail-a!s railroads lo""in" roads,
electric lines or po-er lines, and includes an! other -or8 for the construction, alterin"
or repairin" for -hich machiner! driven b! mechanical po-er is used. 3Pa!ton vs. Cit!
of Anadardo *) P. 0d >,>, >>;, ',( $8l. *>4.
/avin" thus eliminated the feasibilit! off taxin" petitioner as a contractor under '(' of
the national 6nternal Revenue Code, this leaves us to decide the remainin" issue
-hether or not petitioner could be taxed -ith lesser strain and more accurac! as seller
of its manufactured articles under section '>* of the same code, as the respondent
Collector of 6nternal Revenue has in fact been doin" the $riental %ash &actor! -as
established in '()*.
The percenta"e tax imposed in section '(' of our Tax Code is "enerall! a tax on the
sales of services, in contradiction -ith the tax imposed in section '>* of the same Code
-hich is a tax on the ori"inal sales of articles b! the manufacturer, producer or importer.
3&ormille<a1s Commentaries and =urisprudence on the National 6nternal Revenue
Code, @ol. 66, p. ,))4. The fact that the articles sold are manufactured b! the seller does
not exchan"e the contract from the purvie- of section '>* of the National 6nternal
Revenue Code as a sale of articles.
There -as a stron" dissent5 but upon careful consideration of the -hole matter are
inclines to accept the above statement of the facts and the la-. The important thin" to
remember is that Celestino Co Compan! habitually ma!es sash, -indo-s and doors,
as it has represented in its stationer! and advertisements to the public. That it
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#manufactures# the same is practicall! admitted b! appellant itself. The fact that
-indo-s and doors are made b! it onl! -hen customers place their orders, does not
alter the nature of the establishment, for it is obvious that it onl! accepted such orders
as called for the emplo!ment of such material.mouldin", frames, panels.as it ordinaril!
manufactured or -as in a position habituall! to manufacture.
Perhaps the follo-in" para"raph represents in brief the appellant1s position in this
Court7
%ince the petitioner, b! clear proof of facts not disputed b! the respondent,
manufacturers sash, -indo-s and doors onl! for special customers and upon their
special orders and in accordance -ith the desired specifications of the persons
orderin" the same and not for the "eneral mar8et7 since the doors ordered b! Aon
Toribio Teodoro %ons, 6nc., for instance, are not in existence and -hich never -ould
have existed but for the order of the part! desirin" it5 and since petitioner1s contractual
relation -ith his customers is that of a contract for a piece of -or8 or since petitioner is
en"a"ed in the sale of services, it follo-s that the petitioner should be taxed under
section '(' of the Tax Code and N$T under section '>+ of the same Code.#
3Appellant1s brief, p. ''.'04.
But the ar"ument rests on a false foundation. An! builder or homeo-ner, -ith sufficient
mone!, ma! order -indo-s or doors of the 8ind manufactured b! this appellant.
Therefore it is not true that it serves special customers only or confines its services to
them alone. And an!one -ho sees, and li8es, the doors ordered b! Aon Toribio
Teodoro %ons 6nc. ma! purchase from appellant doors of the same 8ind, provided he
pa!s the price. %urel!, the appellant -ill not refuse, for it can easil! duplicate or even
mass.produce the same doors.it is mechanicall! e9uipped to do so.
That the doors and -indo-s must meet desired specifications is neither here nor there.
6f these specifications do not happen to be of the 8ind habituall! manufactured b!
appellant B special forms for sash, mouldin"s of panels B it -ould not accept the
order B and no sale is made. 6f the! do, the transaction -ould be no different from a
purchasers of manufactured "oods held is stoc8 for sale5 the! are bou"ht because the!
meet the specifications desired b! the purchaser.
Nobod! -ill sa! that -hen a sa-mill cuts lumber in accordance -ith the peculiar
specifications of a customer.si<es not previousl! held in stoc8 for sale to the public.it
thereb! becomes an emplo!ee or servant of the customer,
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not the seller of lumber.
The same consideration applies to this sash manufacturer.
The $riental %ash &actor! does nothin" more than sell the "oods that it mass.
produces or habituall! ma8es5 sash, panels, mouldin"s, frames, cuttin" them to such
si<es and combinin" them in such forms as its customers ma! desire.
$n the other hand, petitioner1s idea of bein" a contractor doin" construction ?obs is
untenable. Nobod! -ould re"ard the doin" of t-o -indo- panels a construction -or8 in
common parlance.
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Appellant invo8es Article ')*, of the Ne- Civil Code to bolster its contention that in
filin" orders for -indo-s and doors accordin" to specifications, it did not sell, but
merel! contracted for particular pieces of -or8 or #merel! sold its services#.
%aid article reads as follo-s7
A contract for the deliver! at a certain price of an article -hich the vendor in
the ordinar! course of his business manufactures or procures for the "eneral
mar8et, -hether the same is on hand at the time or not, is a contract of sale,
but if the "oods are to be manufactured speciall! for the customer and upon
his special order, and not for the "eneral mar8et, it is contract for a piece of
-or8.
6t is at once apparent that the $riental %ash &actor! did not merel! sell its ser%ices to
Aon Toribio Teodoro Co. 3To ta8e one instance4 because it also sold the materials.
The truth of the matter is that it sold materials ordinaril! manufactured b! it B sash,
panels, mouldin"s B to Teodoro Co., althou"h in such form or combination as suited
the fanc! of the purchaser. %uch ne- form does not divest the $riental %ash &actor! of
its character as manufacturer. Neither does it ta8e the transaction out of the cate"or! of
sales under Article ')*, above 9uoted, because althou"h the &actor! does not, in the
ordinar! course of its business, manufacture and 8eep on stoc8 doors of the !ind sold
to Teodoro, it could stoc8 andCor probabl! had in stoc8 the sash, mouldin"s and panels
it used therefor 3some of them at least4.
6n our opinion -hen this &actor! accepts a ?ob that re9uires the use of extraordinar! or
additional e9uipment, or involves services not "enerall! performed b! it.it thereb!
contracts for a piece of "or! B filin" special orders -ithin the meanin" of Article ')*,.
The orders herein exhibited -ere not sho-n to be special. The! -ere merel! orders for
-or8 B nothin" is sho-n to call them special re9uirin" extraordinar! service of the
factor!.
The thou"ht occurs to us that if, as alle"ed.all the -or8 of appellant is onl! to fill orders
previousl! made, such orders should not be called special -or8, but re"ular -or8.
Dould a factor! do business performin" onl! special, extraordinar! or peculiar
merchandiseE
An!-a!, supposin" for the moment that the transactions -ere not sales, the! -ere
neither lease of services nor contract ?obs b! a contractor. But as the doors and
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-indo-s had been admittedl! #manufactured# b! the $riental %ash &actor!, such
transactions could be, and should be taxed as #transfers# thereof under section '>* of
the National Revenue Code.
The appealed decision is conse9uentl! affirmed. %o ordered.
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