CELESTINO Co & COMPANY,
petitioner,vs.COLLECTOR OF
INTEENALREVENUE,respondent.
MANUFACTURER;FILING
ORDERS ACCORDING TO
SPECIPICATIONS DOES NOT
ALTER CHARACTER
ESTABLISHMENT.A factory which
habitually makes sash, windows and
doors,andsellsthegoodstothepublic
is a manufacturer. The fact that the
windowsanddoorsaremadebyitonly
whencustomersplacetheirordersand
accordingtosuchformorcombination.
assuitthefancyofthepurchasersdoes
not alter the nature of the
establishment.
PETITIONforreviewbycertiorariofa
decision of the Court of Tax
Appeals.
Thefactsarestatedintheopinionof
theCourt.
Solicitor General Ambrosio
Podilla,First Assistant Solicitor
General Gmllermo E.
TorresandSolicitor Federico V.
Sianforrespondent.
BENGZON,J.:
AppealfromadecisionoftheCourtof
TaxAppeals.
CelestinoCo&Companyisaduly
registeredgeneralcopartnershipdoing
business under the trade name of
"OrientalSashFaetory".From1946to
1951itpaidpercentagetaxesof7per
centonthegrossreceiptsofitssash,
door and window factory, in
accordance with section one hundred
eightysix of the National Revenue
Code imposing taxes on sales of
manufactured articles. However in
1952itbegantoclaimliabilityonlyto
thecontractor's3percenttax(instead
of7percent)undersection191ofthe
same Code; and having failed to
OF
convince the Bureau of Internal
Revenue,itbroughtthemattertothe
Court of Tax Appeals, where it also
failed.SaidtheCourt:
"Tosupporthiscontentionthathisclient
is an ordinary contractor * * * counsel
presented***duplicatecopiesofletters,
sketchesofdoorsandwindowsandprice
quotations supposedly sent by the
manageroftheOrientalSashFactoryto
four customers who allegedly made
specialordersfordoorsandwindowsfrom
the said factory. The conclusion that
counsel would like us to deduce from
these few exhibits is that the Oriental
SashFactorydoesnotmanufactureready
made doors, sash and windows for the
public but only upon special order of its
select eustomers, * * * I cannot believe
thatpetitionercompanywouldtake,asin
fact it has taken, all the trouble and
expense of registering a special trade
name for its sash business and then
orders company stationery carrying the
bold print'Oriental Sash
Factory(CelestinoGo&Company,Prop.)
926 Raon St. Quiapo, Manila, Tel. No.
33076,Manufacturers of all kinds of
doors, windows, sashes, furnitures, etc.
usedseasondriedandkilndriedlumber,
ofthebestqualityworkmanship'solelyfor
the purpose of supplying the needs for
doors,windowsandsashofitsspecialand
limited customers. One will note that
petitioner has chosen for its tradename
and has offered itself to the public as a
'Factory', which means it is out to do
business,initschosenlinesonabigscale.
As a general rule, sash factories receive
orders for doors and windows of special
design only in particular cases but the
bulkoftheirsalesisderivedfromready
made doors and windows of standard
sizesfortheaveragehome.Moreover,as
shown from the investigation of
petitioner'sbooksofaccounts,duringthe
periodfromJanuary1,1952toSeptember
30,1952,itsoldsash,doorsandwindows
worth F188,754.69. I find it difficult to
believethatthisamountwhichrunstosix
figureswasderivedbypetitionerentirely
fromitsfewcustomerswhomadespecial
ordersfortheseitems.
"Even if we were to believe petitioner's
claim that it does not manufacture
ready^madesash,doorsandwindowsfor
thepublicandthatitmakesthesearticles
onlyuponspecialorderofitscustomers,
thatdoesnotmakeitacontractorwithin
thepurviewofsection191oftheNational
IntemalRevemieCode.Therearenoless
thanfiftyoccupationsenumeratedinthe
aforesaidsectionoftheNationalInternal
Revenue Code subject to percentage tax
andafterreadingcarefullyeachandevery
one of them, we cannot find one under
which the business enterprise of
petitioner could appropriately fall. It
would require a stretch of the law and
much effort to make the business of
manufacturing sash, doors and windows
uponspecialorderofcustomersfallunder
thecategoryof'road,building,navigation,
artesian well, water works and other
construction work contractors; filling
contractors'asenumeratedinthesection
being invoked by petitioner's counsel.
Con^truction work contractors are those
whoalterorrepairbuildings,structures,
streets,highways,sewers,streetrailways,
railroads^ logging roads, electric, steam
or water plants telegraph and telephone
plants and lines, electric lines or power
lines,andincludesanyotherworkforthe
construction, altering or repairing for
which machinery driven by mechanical
power is used. (Paytonvs.City of
Anadardo64P.2d878,880,179Okl.68).
"Havingthuseliminatedthefeasibility
oftaxingpetitionerasacontractorunder
section 191 of the National Internal
RevenueCode,thisleavesustodecidethe
remainingissuewhetherornotpetitioner
couldbetaxedwithlesserstrainandmore
accuracy as seller of its manufactured
articles undfer section 186 of the same
code, as the respondent Collector of
Internal Revenue has in fact been doing
since the Oriental Sash Factory was
establishedin1946.
"Thepercentagetaximposedinsection
191ofourTaxCodeisgenerallyataxon
thesalesofservices,incontradictionwith
thetaximposedinsection186ofthesame
Codewhichisataxontheoriginalsales
ofarticlesbythemanufacturer,producer
or importer. (Formilleza's Commentaries
and Jurisprudence on the National
Internal Reventie Code, Vol II, p. 744).
The fact that the articles sold are
marmfactured by the seller does not
exchangethecontractfromthepurviewof
section 186 of the National Intemal
RevenueCodeasasaleofarticles."
Therewasastrongdissent;butupon
careful consideration of the whole
matter we are inclined to accept tha
above statement of the facts and the
law. The important ^thing to
remember is that Celestino Co &
Companyhabitually makessash,
windows and doors, as it has
represented in its stationery and
advertisements to the public. That it
"manufactures"thesameispractically
admittedbyappellantitself.Thefact
thatwindowsanddoorsaremadebyit
only when customers place their
orders,doesnotalterthenatureofthe
establishment,foritisobviousthatit
onlyaeceptedsuchordersascalledfor
the employment of such materials
moulding, frames, panelsas it
ordinarily manufactured or was in a
positionhabituallytomanufacture.
Perhaps the following paragraph
represents in brief the appellant's
positioninthisCourt:
"Since the petitioner, by clear proof of
facts not disputed by the respondent,
manufactures sash, windows and doors
onlyfor'specialcustomersandupontheir
specialordersandinaccordancewiththe
desired specifications of the persons
orderingthesameandnotforthegeneral
market: since the doors ordered by Don
ToribioTeodoro&Sons,Inc.,forinstance,
are not in existence and which never
wouldhaveexistedbutfortheorderofthe
party desiring it; and since petitioner's
contractualrelationwithhiscustomersis
that of acontract fora pieceof work or becomesanemployeeorservantofthe
sincepetitionerisengagedinthesaleof
services, it follows that the petitioner
shouldbetaxedundersection191ofthe
TaxCodeandNOTundersection185of
thesameCode."(Appellant'sbrief,p.11
12).
But the argument rests on a false
foundation. Any builder or
homeowner, with sufficient money,
may order windows or doors of the
kind manufacturedbythisappellant.
Thereforeitisnottruethatitserves
special customersonlyor confines its
services to them alone. And anyone
who,sees,andlikes,thedoorsordered
by Don Toribio Teodoro & Sons Inc.
maypurchasefromappellantdoorsof
the same kind, provided he pays the
price. Surely, the appellant will not
refuse, for it can easily duplicate or
evenmassproducethesamedoorsit
ismechanicallyequippedtodoso.
That the doors andwindows must
meetdesiredspeci.ficationsisneither
herenorthere.Ifthesespecifications
do not happen to be of the kind
habituallymanufaeturedbyappellant
specialformsofsash,mouldingsor
panelsitwouldnotaccepttheorder
andnosaleismade.Iftheydo,the
transactionwouldbenodifferentfrom
a purchasers of manufactured goods
heldisstockforsale;theyarebought
because they meet the specifications
desi^edbythepurchaser.
No body will say that when a
sawmill cuts lumber in accordance
with the peculiar specifications of a
customersizesnotpreviouslyheldin
stockforsaletothepublicitthreby
customer, not the seller of lumber.
1
Thesameconsiderationappliestothis
sashmanufaeturer.
The Oriental Sash Factory does
nothingmorethansellthegoodsthat
itmassproducesorhabituallymakes;
sash, panels, mouldings, frames,
cutting them to such sizes^ and
combining them in such forms as its
customersmaydesire.
Ontheotherhand,petitioner'sidea
of being a contractor doing
construction jobs is untenable.
Nobodjrwouldregardthedoingoftwo
window panels as eonstruction work
incommonparlance.2
Appellant invokes Article 1467 of
the New Civil Code to bolster its
contention that in filing orders for
windows and doors according to
specifications, it did not sell, but
merelycontractedforparticularpieces
ofworkor"merelysolditsservices".
Saidarticlereadsasfollows:
"A contract for the delivery at a certain
priceofanarticlewhichthevendorinthe
ordinary course of his business
manufacturesorprocuresforthegeneraj
market,whetherthesameisonhandat
thetimeornot,isacontractofsale,butif
the goods are to be manufactured
specially for the customer and upon hi*
special order, and not for the general
market,itiscontractforapieceofwork."
It is at onee apparent that the
OrientalSashFactoiydidnotmerely
sellitsservicestoDonToribioTeodoro
&Co.(Totakeoneinstanee)because
italsosoldthematerials.Thetruthof
the matter is that it sold materials
ordiilarilymanufacturedbyit^sash,
panels,mouldingstoTeodoro&Co.,
althoughinsuchformorcombinatiori
assuitedthefancyofthepurchaser.
Such new form does not divest the
OrientalSashFactoryofitscharacter
asmanufacturer.Neitherdoesittake
thetransactionoutofthecategoryof
salesunderArticle1467abovequoted,
because although the Factory does
not, in the ordinary course of its
business, manufacture and keep on
stockdoors of the kwuisold to
Teodoro,/ it could stock and/or
probably had in stock the sash,
mouldingsandpanelsitusedtherefor
(someofthematleast).
In our opinion when this Factory
acceptsajobthatrequirestheuseof
extraordinary or additional
equipment, or involves services not
generally performedbyitit thereby
contracts for apiece of work
ftllingspecialorders within the
meaning of Article 1467. The orders
hereinexhibitedwerenotshowntobe
special. They were merely orders for
worknothing is shown to call
themspecmlrequiring extraordinary
serviceofthefactory.
Thethoughtoccurstousthatif,as
allegedall the work of appellant is
only to fill orders previously inade,
such orders should not be
calledspecialwork, butregularwork.
Would a factory do business
performingonlyspecial,extraordinary
orpreculiarmerchandise?
Anyway,supposingforthemoment
that the transactions were not sales,
theywereneitherleaseofservicesnor
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.
The appealed decision is
consequentlyaffirmed.Soordered.
Pars, C.
J.,Padilla,Montemayor,Bautista
Angelo,Con~ cepcion,Reyes, J. B.
L.,andFelix,JJ.,concur.
Decisionaffirmed.