G.R. No. L-11891 and L-11913; April 29, 1959
COLLECTOR OF INTERNAL REVENUE, petitioner, vs. ETERNIT CORPORATION, respondent.

ETERNIT CORPORATION, petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent.

FACTS

The Eternit Corporation, engaged in the manufacture of asbestos cement products like corrugated roofing sheets, was granted tax exemption as an essential and necessary industry under Republic Acts Nos. 35 and 901, extended until December 31, 1958. From January 1951 to June 1955, Eternit Corporation received gross receipts totaling P1,021,600.44 from mixed sales and installation, itemized as: P772,244.88 for asbestos products, P98,970.63 for accessories, P149,044.63 for labor, and P1,340.30 for delivery charges. The Collector of Internal Revenue assessed a 3% contractor’s tax on the entire gross receipts. Eternit Corporation appealed to the Court of Tax Appeals, claiming the entire amount was tax-exempt. The Court of Tax Appeals held that the selling price of the asbestos products (P772,244.88) and accessories (P98,970.63) were exempt, but the labor cost for installation (P149,044.63) was subject to the 3% contractor’s tax, resulting in an assessment of P5,639.17. Both parties appealed this decision.

ISSUE

Whether the gross receipts from the labor cost of installing the asbestos roofing sheets (P149,044.63) are exempt from the 3% contractor’s tax under Eternit Corporation’s tax exemption grant as an essential and necessary industry.

RULING

No. The Supreme Court affirmed the decision of the Court of Tax Appeals. The tax exemption granted to Eternit Corporation under Republic Act No. 901 covers the manufacture and sale of its asbestos products, including the selling price and delivery. However, the act of installing these products is distinct and separate from the manufacturing process. The law granting the exemption does not expressly include installation work. Applying the rule of strict interpretation for tax exemption statutes, the sums received specifically for installation labor (P149,044.63) are not included in the general exemption and are therefore subject to the 3% contractor’s tax under Section 191 of the National Internal Revenue Code. The Court rejected the Collector’s argument to tax the entire gross receipts, as that would frustrate the exemption on the sales, and also rejected Eternit’s claim for a blanket exemption on installation, as that activity constitutes a separate contracting service.