Philippine Acetylene Co.

vs CIR

Facts: Philippine Acetylene is engaged in the manufacture of oxygen and

acetylene tanks. Petitioner sold tanks to National Power Corporation and Voice
of America. CIR then demanded that petitioner pay deficiency sales tax from
the transaction, 7% of gross sales tax based on Sec. 186 and 183 of the NIRC.

Petitioner denied liability claiming that both NPC and VOA are exempt
from taxation. The CTA ruled that the tax on the sale of articles or goods in
section 186 of the Code is a tax on the manufacturer and not on the buyer thus
petitioner cannot claim exemption simply because the buyer is exempt from
taxes. The CTA however ruled that the sales to VOA are not subject to taxation.

Issue:

1. Whether a sales tax is imposed on the manufacturer or the purchaser

making petitioner exempt or not in the payment of such
2. Whether the sale to VOA is exempt from taxes
3. Contrasting the ruling with CIR vs Pilipinas Shell Corp.

Held:

1. The Code states that the sales tax "shall be paid by the manufacturer or
producer,"who must "make a true and complete return of the amount of
his, her or its gross monthly sales, receipts or earnings or gross value of
output actually removed from the factory or mill warehouse and within
twenty days after the end of each month, pay the tax due thereon."
It may indeed be that the economic burden of the tax finally falls
on the purchaser; when it does the tax becomes a part of the price which
the purchaser must pay. It does not matter that an additional amount is
billed as tax to the purchaser. The method of listing the price and the tax
separately and defining taxable gross receipts as the amount received
less the amount of the tax added, merely avoids payment by the seller
of a tax on the amount of the tax. The effect is still the same, namely,
that the purchaser does not pay the tax. He pays or may pay the seller
more for the goods because of the seller's obligation, but that is all and
the amount added because of the tax is paid to get the goods and for
nothing else. But the tax burden may not even be shifted to the
purchaser at all. A decision to absorb the burden of the tax is largely a
matter of economics. Then it can no longer be contended that a sales
tax is a tax on the purchaser.
We therefore hold that the tax imposed by section 186 of the
National Internal Revenue Code is a tax on the manufacturer or producer
 and not a tax on the purchaser except probably in a very remote and
inconsequential sense. Accordingly its levy on the sales made to tax-
exempt entities like the NPC is permissible.

2. According to the agreement between the Republic and the United

States :

No import, excise, consumption or other tax, duty or impost shall

be charged on material, equipment, supplies or goods, including
food stores and clothing, for exclusive use in the construction,
maintenance, operation or defense of the bases, consigned to, or
destined for, the United States authorities and certified by them to
be for such purposes.

Thus only sales made "for exclusive use in the construction,

maintenance, operation or defense of the bases," in a word, only sales to the
quartermaster, are exempt under article V from taxation. Sales of goods to any
other party even if it be an agency of the United States, such as the VOA, or
even to the quartermaster but for a different purpose, are not free from the
payment of the tax.

3. The CIR vs Pilipinas Shell Corporation deals with excise taxes which are
those applied to goods manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition and to things
imported. On Philippine Acetylene, we held that a tax exemption being
enjoyed by the buyer cannot be the basis of a claim for tax exemption by
the manufacturer or seller of the goods for any tax due to it as the
manufacturer or seller.

Excise tax on aviation fuel used for international flights is practically nil
as most countries are signatories to the 1944 Chicago Convention on
International Aviation. The NIRC and earlier amendments to the Tax Code
represent our Governments compliance with the Chicago Convention. Under
the basic international law principle of pacta sunt servanda, we have the duty
to fulfill our treaty obligations in good faith. This entails harmonization of
national legislation with treaty provisions. In this case, the NIRC embodies our
compliance with our undertakings under the Chicago Convention and various
bilateral air service agreements not to impose excise tax on aviation fuel
purchased by international carriers from domestic manufacturers or suppliers.
 Unlike the Philippine acetylene case such is merely an agreement
between the Government and the United States while Pilipinas Shell deals with
international treaty obligations.