GR L 15227; (October, 1920) (Digest)
G.R. No. L-15227, October 26, 1920
“LA GERMINAL,” plaintiff-appellee, vs. A. B. POWELL, as Acting Collector of Internal Revenue, defendant-appellant.
FACTS:
The plaintiff, “La Germinal,” is a manufacturer of cigars and cigarettes. It established branch stores separate from its factory, where it sold its products either at wholesale or retail. When removing cigars and cigarettes from the factory to these branch stores, the plaintiff paid the internal revenue duty based on the regular factory price (the price at which it sold to the general trade) and debited the stores with this price plus the duty. The defendant, the Acting Collector of Internal Revenue, assessed and collected additional internal revenue tax based on the higher selling prices at the branch stores. The plaintiff contested this, arguing the tax should be based only on the factory price. The lower court ruled in favor of the plaintiff, ordering a refund of the amount collected based on the store prices.
ISSUE:
Whether the internal revenue duty on cigars and cigarettes manufactured by the plaintiff should be computed based on the regular factory price at the time of removal from the factory, or based on the subsequent selling price at the plaintiff’s own branch stores.
RULING:
The Supreme Court AFFIRMED the lower court’s decision, holding that the internal revenue duty should be based on the regular factory price. The Court reasoned that:
1. Nothing in the law prohibits a manufacturer from also being a vendor of its products at establishments outside the factory.
2. When the manufacturer acts as a merchant, it must pay the regular merchant’s tax on its sales, but the internal revenue tax should have been fully satisfied upon removal from the factory based on the factory price.
3. The Legislature did not intend to impose an additional internal revenue tax burden on a manufacturer-vendor based on its retail sales, on top of the regular merchant’s tax, as this would be inequitable compared to other vendors.
4. The government’s purpose is to protect and encourage business, not to hamper it by imposing a discriminatory tax that would place a manufacturer operating its own stores at a competitive disadvantage.
Therefore, the defendant was ordered to refund the sum collected based on the branch store selling prices.