GR 3037; (March, 1907) (Digest)
G.R. No. 3037
INCHAUSTI & CO., Plaintiffs-Appellants, vs. JOHN S. HORD, Defendant-Appellee.
FACTS:
1. Payment Under Protest: Inchausti & Co. paid ₱15,243.30 under protest to the Provincial Treasurer of Iloilo on March 15, 1905, following a demand for internal revenue taxes on 215 liters of distilled spirits and 50,746 liters of manufactured liquors removed from their Iloilo warehouse for domestic consumption.
2. Origins of the Goods: The goods were manufactured at Inchausti & Co.’s Tanduay Distillery in Manila before August 1, 1904 (the effective date of Act No. 1189, the Internal Revenue Law of 1904) and were stored in their Iloilo branch warehouse by that date.
3. Legal Dispute: The plaintiffs argued the goods were not subject to tax since they were no longer “in the hands of the manufacturer” (i.e., the distillery in Manila) but were held by their Iloilo branch for wholesale trade. The government contended the Iloilo warehouse was effectively part of the manufacturer’s holdings.
ISSUE:
Whether distilled spirits and liquors manufactured and removed from the distillery before August 1, 1904, but stored in a branch office warehouse for sale, are subject to taxation under Section 35 of the Internal Revenue Law of 1904 as “still in the hands of the manufacturer.”
RULING:
The Supreme Court reversed the lower court’s dismissal and ruled in favor of Inchausti & Co., holding:
1. Strict Construction of Tax Laws: Revenue laws must be interpreted strictly, and the phrase “in the hands of the manufacturer” in Section 35 refers only to goods held at the distillery or bonded warehouse, not branch offices engaged purely in sales.
2. No Legal Identity Between Branches: The Iloilo branch was a separate entity for commercial purposes, not an extension of the Manila distillery. The goods were no longer in the manufacturer’s possession for tax purposes once transferred to the Iloilo warehouse.
3. Legislative Intent: The law aimed to tax future production, not goods already removed from the distillery before its effectivity. The U.S. precedent cited by the government (which included “agents”) was distinguishable, as the Philippine law omitted such language.
Disposition: The appealed judgment was reversed, and the complaint was reinstated, absolving Inchausti & Co. from tax liability. No costs awarded.
Concurring Justices: Torres, Mapa, Willard, and Tracey.