G.R. No. L-25965 June 30, 1975
AMERICAN RUBBER COMPANY (Now American Rubber Corporation), petitioner, vs. THE COLLECTOR OF INTERNAL REVENUE (Now the Commissioner of Internal Revenue) and the COURT OF TAX APPEALS, respondents.

FACTS

Petitioner American Rubber Company (ARCO), a domestic corporation, was engaged in producing and selling logs and lumber. It sourced logs from its own forest concession and from a portion of the University of the Philippines (UP) Land Grant operated by Sta. Clara Lumber Co., Inc. (SCLCO) under a timber license. The arrangement with SCLCO was governed by a “Letter Agreement” allowing ARCO to cut timber in a specified area. ARCO processed the logs into lumber at its sawmill. The sales of this lumber were conducted through SCLCO, which acted as an agent, entering into contracts with buyers, issuing sales invoices, handling shipments, and collecting payments. SCLCO deducted a 5% commission and other expenses before remitting the net proceeds to ARCO. Separately, ARCO directly sold apitong logs to General Enterprises, Inc., as evidenced by a purchase voucher and invoice, for export to Japan.

ISSUE

The primary issue is whether ARCO is liable for deficiency sales tax on its lumber and log sales during 1950-1953, specifically concerning sales facilitated by SCLCO and the direct export sale to General Enterprises, Inc.

RULING

The Supreme Court affirmed the Court of Tax Appeals’ decision, holding ARCO liable for the deficiency sales tax. Regarding sales through SCLCO, the Court ruled that SCLCO acted merely as a commission agent or broker for ARCO. The legal relationship was one of agency, not a sale from ARCO to SCLCO. The lumber remained the property of ARCO until sold to the ultimate buyers, as indicated in sales contracts stating it was “the timber of American Rubber Company.” SCLCO’s role was to find buyers and facilitate the transaction for a commission. Consequently, ARCO was the actual seller for tax purposes, and the gross selling price received from the final buyers constituted its taxable gross receipts, not the net amount remitted after commissions and expenses. The 5% commission paid to SCLCO was not a deductible cost from the gross selling price under the tax code. For the direct sale to General Enterprises, Inc., the Court found it was a local sale completed in the Philippines, as the purchase voucher and invoice showed a domestic transaction where title passed locally before export. Therefore, it was subject to sales tax. The Court rejected ARCO’s claim of being a tax-exempt forest concessionaire, clarifying that such exemption applied only to forest charges, not to sales tax on the subsequent sale of processed lumber.