G.R. No. L-19707 August 17, 1967
PHILIPPINE ACETYLENE CO., INC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

FACTS

The petitioner, Philippine Acetylene Co., Inc., a corporation engaged in manufacturing and selling oxygen and acetylene gases, made sales to two entities: the National Power Corporation (NPC), an agency of the Philippine Government, and the Voice of America (VOA), an agency of the United States Government. The sales to NPC amounted to P145,866.70, and to VOA amounted to P1,683.00, during the period from June 2, 1953 to June 30, 1958. The Commissioner of Internal Revenue assessed a deficiency sales tax and surcharge totaling P12,910.60 against the petitioner under Sections 186 and 183 of the National Internal Revenue Code. The petitioner denied liability, claiming both NPC and VOA were exempt from taxation. After failing to secure a reconsideration, the petitioner appealed to the Court of Tax Appeals. The Court of Tax Appeals ruled that the sales tax under Section 186 is a tax on the manufacturer, not the buyer, so the petitioner could not claim exemption simply because NPC was tax-exempt. Regarding VOA sales, the court held that purchases by the U.S. Government were exempt under a Philippine-U.S. agreement only if supported by certificates of exemption; since only P558.00 worth of sales had such certificates, the remaining P558.00 (out of P1,683.00) was taxable. The court revised the assessment to P12,812.16. The petitioner appealed to the Supreme Court, maintaining it was not liable for tax on sales to NPC and VOA due to their tax exemptions.

ISSUE

Whether the petitioner, as the manufacturer, is liable for the payment of the percentage (sales) tax under Section 186 of the National Internal Revenue Code on its sales to the National Power Corporation and the Voice of America, notwithstanding the tax-exempt status of these entities.

RULING

The Supreme Court ruled that the petitioner is liable for the sales tax. The tax imposed by Section 186 is a tax on the manufacturer or producer, not on the purchaser. The legal incidence of the tax falls on the manufacturer, who is statutorily required to pay it. The fact that the economic burden may be shifted to the buyer through the price does not convert it into a tax on the buyer. The tax exemption granted to NPC under its charter (exempting it from “all taxes, except real property tax”) does not extend to indirect taxes like the sales tax levied on its suppliers. The exemption is personal to NPC and cannot be invoked by the petitioner. Regarding sales to VOA, the Court found that the tax exemption under the Philippine-U.S. Agreement requires the presentation of a certificate of exemption. Since the petitioner failed to present such certificates for the sales, it cannot claim the exemption. The Supreme Court modified the decision of the Court of Tax Appeals and reinstated the original assessment of P12,910.60 as sales tax and surcharge, to be paid by the petitioner.