GR 20101; (May, 1923) (Digest)

G.R. No. 20101; July 12, 1923
EL DORADO OIL WORKS, plaintiff-appellee, vs. THE COLLECTOR OF INTERNAL REVENUE OF THE PHILIPPINE ISLANDS, defendant-appellant.

FACTS

El Dorado Oil Works, a California corporation manufacturing and selling coconut oil in San Francisco, maintained a resident purchasing agent in the Philippines. In 1921, through this agent, it purchased copra from local merchants under terms where the merchants sold the copra f.o.b. ship in Manila Bay. The merchants prepared and signed the bills of lading consigning the copra to the plaintiff in San Francisco and were paid upon presentation of these documents. The merchants had already paid the 1% merchant’s tax under Section 1459 of the Administrative Code of 1917 on these sales. Subsequently, the Collector of Internal Revenue assessed and collected from El Dorado Oil Works an additional 1% tax, plus a 25% surcharge, on the same copra purchases, claiming the tax was due from the plaintiff as the consignor exporting the goods. The plaintiff paid under protest and sued for a refund.

ISSUE

Whether El Dorado Oil Works, as a foreign purchaser of copra for export, is liable for the merchant’s tax under Section 1459 of the Administrative Code of 1917.

RULING

No. The Supreme Court affirmed the lower court’s judgment ordering a refund, but eliminated the award of costs and interest. The Court held that upon the agreed facts, the plaintiff was not engaged in selling, bartering, exchanging, or consigning goods abroad within the meaning of Section 1459. The plaintiff merely purchased copra through its agent; the local sellers were the consignors who shipped the goods. To tax the plaintiff under these circumstances would be to impose a tax on the purchase for export, which, in legal effect, would be a tax on exports. The transaction was a step in exportation, and following the principle in A.G. Spalding & Bros. vs. Edwards, such a transaction is not subject to tax. The plaintiff, as a manufacturer in the United States, did not fall under the definition of a “merchant” subject to the tax within the Philippine Islands.