COMMISSIONER OF INTERNAL REVENUE vs. AMERICAN RUBBER COMPANY and COURT OF TAX APPEALS
G.R. No. L19667 November 29, 1966
Facts:
1. Petitioner was engaged in producing rubber from its rubber tree plantation.
2. Its products, known in the market as Preserved Latex, Pale Crepe No. 1, Pale Crepe No. 2, Ribbed Smoked Sheets Nos. 1 and 2, Flat Bark Rubber, 2X Brown Crepe and 3X Brown Crepe, are turned out in the following manner:
a. The initial step common to the production of all the foregoing rubber products is tapping, i.e., the collection of latex (rubber juice) from rubber trees.
b. This is done by the daily cutting, early in the morning, of a spiral incision in the bark of rubber trees and placing a cup below the lower end of the incision to receive the flow of latex.
c. The collecting cup is filled after two hours.
d. The tapper then collects the latex into buckets and carries them to the collecting shed.
e. The tapper subsequently pours the latex collected into big milk cans.
f. The filled milk cans are then taken in motor vehicles to a coagulating shed, also within the premises of petitioner's plantation, where the latex is strained into coagulating tanks to remove foreign matter such as leaves and dirt.
g. After these initial steps, the processes vary in the production of the various rubber products.
3. After paying under protest, the petitioner claimed refund of the sales taxes paid by it on the ground that under section 188, paragraph b, of the Internal Revenue Code, as amended, its rubber products were agricultural products exempt from sales tax, and upon refusal of the Commissioner of Internal Revenue, brought the case on appeal to the Court of Tax Appeals
Issue:
1. Whether or not the products are agricultural products thus exempt from tax
2. Whether plaintiff is or is not entitled to recover the sales tax paid by it, but passed on to and paid by the buyers of its products
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Ruling:
1. The exemption from sales tax established in section 188 (b) of the Internal Revenue Tax Code in favor of sales of agricultural products, whether in their original form or not, made by the producer or owner of the land where produced is not taken away merely because the produce undergoes processing at the hand of said producer or owner for the purpose of working his product into a more convenient and valuable form suited to meet the demand of an expanded market; that the exemption was not designed in favor of the small agricultural producer, already exempted by the subsequent paragraphs of the same section 188, but that said exemption is not incompatible with large scale agricultural production that incidentally required resort to preservative processes designed to increase or prolong marketability of the product.
2. The sales tax is by law imposed directly, not on the thing sold, but on the act (sale) of the manufacturer, producer or importer who is exclusively made liable for its timely payment. There is no proof that the tax paid by plaintiff is the very money paid by its customers. Where the tax money paid by the plaintiff came from is really no concern of the Government, but solely a matter between the plaintiff and its customers. Anyway, once recovered, the plaintiff must hold the refund taxes in trust for the individual purchasers who advanced payment thereof, and whose names must appear in plaintiff's records.
The separate billing of the sales tax in appellant's invoices was a direct result of the respondent Commissioner's General Circular No. 440.
In other words, the separate itemization of the sales tax in the invoices was permitted to avoid the taxpayer being compelled to pay a sales tax on the tax itself. It does not seem either just or proper that a step suggested by the Internal Revenue authorities themselves to protect the taxpayer from paying a double tax should now be used to block his action to recover taxes collected without legal sanction.
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