PHILIPPINE PACKING CORPORATION vs. THE COLLECTOR OF INTERNAL REVENUE
G.R. No. L9040 December 26, 1956
Facts:
1. Appellant is a domestic corporation engaged in the growing and canning of pineapples in Mindanao for sale locally.
2. the appellant subjects the fresh fruit to the following process:
a. Pineapple fruits are harvested the plants. After they are washed, peeled and shorted, then sliced, cubed, or crushed, the raw materials are placed in cans. The residual air is removed and heavy syrup, made up from a mixture of juice and sugar, is added. The cans closed. Heat is applied to sterilize the contents, after which the cans are cooled rapidly. With respect to the canned pineapple juice, no sugar is added. Unless preserved in tin cans, fresh pineapple fruits are very perishable and will not keep longer than two days.
3. Collector Meer stated that sales in this country of the pineapple products which you produce herein are exempt from the sales tax imposed in section 186 of the NIRC, in accordance with section 188 (b) of the same code.
4. Six years later, appellant received a letter from the appellee CIR, demanding payment of P196,060.69 as fixed and percentage taxes and surcharges on its domestic sales of pineapple products since October, 1948 to September, 1953
Issue:
Whether the domestic sales of pineapples and pineapple products grown and canned by appellants are exempted from tax under Section 188 (b) of the Internal Revenue Code
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Ruling:
The very text of the law, in exempting "agricultural products — whether in their original state or not," makes it clear that the exemption is not divested merely because the products themselves have undergone processing of some kind. At what particular stage the extent of the manufacturing process extinguishes or supersedes the agricultural character of the product cannot be predetermined in advance. But such uncertainties are no obstacle to the application or refusal of the exemption in specific cases.
The facts on record in the case before us clearly indicate that canning of appellant's products is a mere incident and consequence of its large scale production of pineapples. Appellant perforce had to resort to a preserving process, for the volume of its products (170,000 tons) made it impossible to dispose of the same in the local market. The pineapples could not be sold in the open market unless properly ripened; on the other hand, once ripened, the fruit would quickly deteriorate, and become unsalable, unless the deterioration was arrested by some preservative process, which thus becomes an essential part of the production and disposition of the fruit. We believe that the legislature, in providing a tax exemption for agricultural products, "whether in their original state or not", had precisely in mind that fruit crops could not be raised and sold on a large scale without resort to some process to prevent their deterioration.
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