G.R. No. L-8506; August 31, 1956
CELESTINO CO & COMPANY, petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent.

FACTS

Celestino Co & Company, a duly registered general copartnership operating under the trade name “Oriental Sash Factory,” paid a 7% percentage tax on gross receipts from its sash, door, and window factory from 1946 to 1951, pursuant to Section 186 of the National Revenue Code (tax on sale of manufactured articles). In 1952, it began claiming it was liable only for the 3% contractor’s tax under Section 191 of the same Code. The Bureau of Internal Revenue rejected this claim, and the Court of Tax Appeals upheld the Bureau’s position. The petitioner argued that it manufactured sash, doors, and windows only upon special orders from customers and not for the general market, thus qualifying as a contractor selling services rather than a manufacturer selling articles. Evidence included letters, sketches, and price quotations sent to customers. However, the Court noted the petitioner’s trade name, stationery, and advertisements represented it as a “Factory” manufacturing various items for public business on a large scale, with substantial sales figures (P188,754.69 from January to September 1952) suggesting it was not limited to special orders.

ISSUE

Whether the petitioner, Oriental Sash Factory, is subject to the 7% tax under Section 186 of the National Revenue Code (tax on sale of manufactured articles) or the 3% contractor’s tax under Section 191 (tax on sales of services).

RULING

The Supreme Court affirmed the decision of the Court of Tax Appeals, holding that the petitioner is subject to the 7% tax under Section 186 as a manufacturer selling articles, not as a contractor under Section 191. The Court reasoned that:
1. The petitioner habitually manufactured sash, doors, and windows, as evidenced by its trade name, advertisements, and business scale, even if made to order. The transactions constituted sales of manufactured goods, not contracts for services.
2. The petitioner’s business did not fall under the category of “contractor” in Section 191, which pertains to construction work like roads, buildings, or alterations using mechanical power, not the manufacture of windows and doors.
3. Under Article 1467 of the New Civil Code, a contract is one of sale if the vendor manufactures articles for the general market, even if made to order. The petitioner’s use of materials it ordinarily manufactured (e.g., sash, panels, mouldings) indicated sales, not “special orders” requiring extraordinary services.
4. Even if the transactions were not sales, they involved the transfer of manufactured articles taxable under Section 186, not lease of services or contractor’s work.
The Court emphasized that the petitioner’s operations were geared toward mass production or habitual manufacturing, and orders did not alter its fundamental character as a manufacturer.