GR L 14466; (January, 1920) (Digest)
G.R. No. L-14466; January 26, 1920
SMITH, BELL & CO. (LTD.), plaintiff-appellant, vs. JAMES J. RAFFERTY, as Collector of Internal Revenue for the Philippine Islands, defendant-appellant.
FACTS:
The Collector of Internal Revenue collected from Smith, Bell & Co. a one percent (1%) tax on merchandise, the produce of the Philippine Islands, which the company had sold and exported abroad during two periods: (1) from October 1, 1916, to September 30, 1917, under Section 1614 of Act No. 2657 (the Administrative Code of 1916); and (2) from October 1, 1917, to December 31, 1917, under Section 1459 of Act No. 2711 (the Administrative Code of 1917). The total tax collected amounted to P413,180.05. Smith, Bell & Co. paid under protest and sued for recovery, arguing the tax was an illegal export duty. The trial court held the tax was an unlawful export duty but allowed recovery only for the taxes collected under Act No. 2657 (P306,716.43), ruling that the taxes under Act No. 2711 were ratified by an Act of Congress on June 4, 1918. Both parties appealed.
ISSUE:
1. Whether the one percent tax on goods sold for export, imposed by Section 1614 of Act No. 2657 and Section 1459 of Act No. 2711, is a valid tax or an unconstitutional export duty.
2. Whether the Act of Congress of June 4, 1918, ratified and validated the tax collections under both laws.
RULING:
1. The tax is an illegal export duty. The Supreme Court ruled that the one percent tax imposed on the gross value of merchandise sold for export is essentially a tax on exports. Section 11 of the Jones Law (Philippine Autonomy Act of 1916) expressly prohibits the Philippine Legislature from levying an export tax. Following U.S. Supreme Court precedent (Crew Levick Co. vs. Pennsylvania), a state tax measured by gross receipts from exports is a regulation of foreign commerce and an impost on exports, which is prohibited. Therefore, the tax collections under both Act No. 2657 (for the period October 1, 1916, to September 30, 1917) and Act No. 2711 (for the period October 1, 1917, to December 31, 1917) were illegal as they violated the Jones Law.
2. Congressional ratification was effective only for taxes under Act No. 2711. The Act of Congress of June 4, 1918, specifically legalized and ratified “the taxes imposed by the Philippine Legislature in section 1459 of the Act numbered 2711.” It did not mention or ratify the taxes under Section 1614 of Act No. 2657. Consequently, while the collections under Act No. 2711 (second period) were validated by Congress, those under Act No. 2657 (first period) remained illegal and must be refunded.
DISPOSITIVE PORTION:
The Supreme Court modified the trial court’s judgment. Smith, Bell & Co. was entitled to recover only the taxes collected under Act No. 2657 (P306,716.43), plus legal interest from the date of the filing of the complaint. The taxes collected under Act No. 2711 were deemed ratified and not recoverable. No costs were awarded against the government.