CELESTINO CO vs. CIR, G.R.

No L-8506, August 31, 1956

FACTS:
Celestino Co doing business under the name of “Oriental Sash Factory”. From
1956-1951 it paid percentage tax of 7% (National Revenue Code sec. 186) on
the gross receipts of its sash, door, and window factory. However on 1952 it
began to claim liability only to contractor’s 3% tax (Instead of 7%) under sec.
191.
Celestino claims that they do not manufacture ready-made doors, sash, and
windows for the public. He claims that they only do Special Orders for
customers, thus, contending they are not manufacturers; hence it is a
contractor within the purview of section 191 of the NIRC. This argument did
not convince the BIR and the Court of Tax Appeals.
CTA said that their tradename gives an impression they do engage in
manufacturing and their records suggest that their huge earnings (P188,
754.69) cannot be from special orders from their few customers, but because
it was from ready made products. They also offered themselves as a “factory”
to the public.
ISSUE: Whether or not Celestino Co is a manufacturer and should therefore
be taxed on its sale of its manufactured products.
HELD: YES
The percentage tax imposed in section 191 of our Tax Code is generally a tax
on the sales of services, in contradiction with the tax imposed in section 186
of the same Code which is a tax on the original sales of articles by the
manufacturer, producer or importer. The fact that the articles sold are
manufactured by the seller does not exchange the contract from the purview
of section 186 of the National Internal Revenue Code as a sale of articles.
Additionally, the business enterprise of Celestino does not fall under the
enumeration providing for the list of contractors in the NIRC. It would require
a stretch of the law and much effort to make the business of manufacturing
sash, doors and windows upon special order of customers fall under the
category of road, building, navigation, artesian well, water works and other
construction work for contractors.