CIR v American Rubber.docx

Commissioner of Internal Revenue, vs. American Rubber Company G.R. No. L-1966

November !9, 1966

Facts: Under section 188, paragraph b, of the Internal Revenue Code, as amended, the rubber

products of American Rubber Company were agricultural products exempt from sales tax. owever, CIR contends that all of plaintiff!s products should be deemed manufactured articles, on the strength of section 1"# $n% of the Revenue Code defining a &manufacturer& as every person who by physical or chemical process alters the exterior texture or form or inner substances of any raw material or manufactured or partially manufactured product in such manner as to prepare it for a special use or uses to which it could not have been put to in its original condition, or who . . . alters the 'uality of any such raw material . . . as to reduce it to mar(etable shape . . . . )urthermore, CIR contends that the company is not entitled to recover the sales tax that had been separately billed to its customers, and paid b y the Company.

Issue$s%* 1. +- the rubber products products are exempted exempted from taxes taxes /. +- Company Company is not entitled entitled to recover recover the sales tax tax paid by it from 0anuary 0anuary,, 1" to August August /, 1"2, because during that period the plaintiff had separately invoiced and billed the corresponding sales tax to the buyers of its products. (Concept of Shifting) eld* 1. 3es 3es the rubber products products are are exempte exempted d from from taxes. taxes. Republic Act -o. 141/ restricted the exemption of agricultural products &in their original form& only. +hile Republic Act 184 became effective and restored the exemption to agricultural products &whether in their original form or not5 6nly the sales on August /#, 1"4 $approval of Republic Act 141/% to 0une / /, 1"2 $when RA 184 became effective% shall be taxable. /. 7he company is entitled to recover the sales tax. 7he sales tax is 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 time payment. 7here is no proof that the tax paid by American Rubber is the very money paid by its customers. +here the tax money paid by the American Rubber came from is really no concern of the overnment. 6nce recovered, the Company must hold the refund taxes in trust for the individual purchasers who adva advanc nced ed paym paymen entt ther thereo eof, f, and and whos whose e names names must must appea appearr in the the Compa Company ny9s 9s reco record rds. s. It would need to tend to cause illegal taxation: for the individual customers to whom the tax is ultimately shifted will ordinarily not care to sue for its recovery, in view of the small amount paid by each and the high cost of litigation for the reclaiming of an illegal tax. Insofar, therefore, as it favors

the imposition, collection and retention of illegal taxes, and encourages a multiplicity of suits, the tax court9s ruling under appeal violates morals and public policy.