CELESTINO CO & COMPANY, petitioner

VS.
COLLECTOR OF INTERNAL REVENUE, respondent
G.R. No. L-8506
August 31, 1956

FACTS:
Celestino Co and Company is the owner of the Oriental Sash Factory. Since the time it was established on
1946, the company has been paying percentage taxes of 7% on its gross receipts in accordance with Section
186 of the National Internal Revenue Code. However, since 1952, the company started paying 3%
contractor’s tax in accordance with Section 191 of the same Code. Celestino claims that his company is not
engaged in a manufacturing industry under Section 186, but is a contractor within the purview of Section
191. He insists that his company does not manufacture ready-made sash, door, and window available for
the general public, but only upon the special orders of their customers. Having failed to convince the Bureau
of Internal Revenue, the petitioner brought the matter to the Court of Tax Appeals where the case got
dismissed. The decision of the Court of Tax Appeals held that the petitioner used it for its trade name and
offered itself to the public as a factory.
ISSUES:
Whether or not the petitioner is engaged in a manufacturing company and be taxed under Section 186 of
the National Internal Revenue Code
RULINGS:
Yes. Under Section 191 of the National Internal Revenue Code, the percentage tax is imposed on the sale
of services, in contradiction with the tax imposed in Section 186 of the same Code which is a tax on the
sales of goods manufactures, produced or imported. The company habitually makes sash, windows, and
doors as it had been represented to the public. The fact that the windows and doors are made only when
customer place their orders does not alter the nature of the establishment for the obvious reason that they
accept special orders other than making ready-made products. The factory does nothing more than sell the
goods that it mass produces or habitually makes.
Under Article 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 contract for a piece of work.

Celestino Co and Company practically sold materials ordinarily manufacture by it, although in such a form
or combination as suited in the fancy of a purchaser. Such new form does not divest the Oriental Sash
Factory of its character as manufacturer. The factory accepts a job that requires the use of extraordinary or
additional equipment, or involves services not general performed by it – thereby contracts for a piece of
work within the meaning of Article 1467. However, orders exhibited were not shown to be special. In fact,
they were merely orders for work – nothing is shown to call them special requiring extraordinary service
for the factory.

DECISION:
Anyway, supposing for the moment that the transactions were not sales, they were neither lease of services
nor contract jobs by a contractor. But as the doors and windows had been admittedly "manufactured" by
the Oriental Sash Factory, such transactions could be, and should be taxed as "transfers" thereof under
section 186 of the National Revenue Code.