A. Soriano y Cia. vs. Collector of Internal Revenue

A seller who acquires surplus goods from U.S. military bases in the Philippines and sells them to a foreign buyer on an f.a.s. Manila basis is liable for sales tax under Section 186 of the NIRC as an importer making an original sale, because title passes to the buyer upon delivery at the Manila pier, making the transaction a domestic sale consummated within Philippine jurisdiction.

A. Soriano y Cia. was engaged in the business of selling surplus goods acquired from the Foreign Liquidation Commission pursuant to an agreement with the United States Government, under which petitioner undertook to rehabilitate the Veterans Administration Building in exchange for over a million pesos worth of surplus goods. The surplus goods, including tractors stored at various U.S. military bases or depots in the Philippines, were reconditioned at petitioner's "Sta. Mesa Yard" and "Pieco Yard" in Manila. The National Internal Revenue Code, through Section 186, levied a percentage tax on the original sale of articles not enumerated in Sections 184 and 185, payable by the manufacturer, producer, or importer. Prior jurisprudence had established that one who acquires title to surplus equipment in U.S. army bases and removes them from those bases is an importer, whose subsequent sales are taxable under Sections 185 and 186.

In 1947, A. Soriano y Cia. was engaged in the business of selling surplus goods acquired from the Foreign Liquidation Commission under an agreement with the United States Government, whereby petitioner undertook to rehabilitate the Veterans Administration Building in consideration of over a million pesos worth of surplus goods. Among these goods were tractors located at various U.S. military bases or depots in the Philippines. Petitioner maintained two yards in Manila—the "Sta. Mesa Yard" and the "Pieco Yard"—where surplus goods were stored and defective items reconditioned.

In January 1947, United Africa Co., Ltd. sent its representative, Hugh Watson Gibson, to the Philippines to explore the availability of tractors for sale. Gibson contracted to buy tractors from petitioner, to be delivered f.a.s. (free alongside ship) Manila, in good working condition and capable of running off lighters under their own power. United Africa Co. employed a tractor expert, Tex Taylor, to select, inspect, and test the tractors before delivery. Taylor visited the different military bases, took the serial numbers of the tractors he selected, and gave the list to petitioner, which then secured purchase invoices and release documents from the Foreign Liquidation Commission. The tractors were removed to petitioner's Pieco Yard, where Taylor inspected and tested them; those found in good condition were approved, and petitioner presented sales invoices for Taylor's signature. Twenty-four tractors found defective were brought to the Sta. Mesa Yard for reconditioning. Upon approval of each invoice, petitioner presented it to the Philippine Refining Company, Inc.—an affiliate of the foreign buyer—for payment. The Philippine Refining Co. would then notify the National City Bank of New York and the Hongkong and Shanghai Banking Corporation, Manila, where United Africa Co. maintained dollar deposits, to effect payment of petitioner's invoices.

The tractors were delivered by petitioner to the pier in Manila by barge whenever notice was received from the foreign buyer's representative that a carrying vessel was ready. On June 24 and August 26, 1947, the Philippine Refining Co. shipped the 57 tractors from the port of Manila to United Africa Co. at Dares Salaam, East Africa. The total value was ₱757,000, though petitioner later reimbursed ₱4,959.19 by credit memo due to defects discovered upon arrival in Africa. Petitioner admitted in correspondence with the Collector of Internal Revenue and the Secretary of Finance that delivery was made f.a.s. Manila, and that Tex Taylor had no authority to accept delivery of the tractors on behalf of United Africa Co., his function being limited to inspecting and approving their condition. Petitioner paid the delivery charges from the bases to the pier, and its invoices described the tractors as "Our Unit Sta. Mesa" or "Our Unit Pieco," indicating they were first brought to petitioner's yards before delivery to the buyer.

• No Importation; Title Passed at the Bases: Petitioner insisted that it did not import the 57 tractors because title passed to its foreign buyer while the goods were still at the U.S. military bases, and that the tractors merely passed Philippine territory in transit to the pier in Manila where they were delivered f.a.s.; hence, the sale was not domestic and not liable for sales tax.
• No Taxable Situs; Goods in Transit: Petitioner argued that the goods did not acquire a taxable situs in the Philippines because they merely passed through Philippine territory in transit and were not intended for local use but for exportation to a foreign country.
• Repeal of Consignment Tax Implies Exemption of Exports: Petitioner urged that the repeal of the consignment or "export tax" under Section 187 of the NIRC by Republic Act No. 41 demonstrated legislative intent to exempt all exports from tax, and that taxing one who sells goods intended for export would nullify that intent.

• Sales Tax vs. Consignment Tax: Respondent, through the Solicitor General, countered that the consignment tax formerly imposed by Section 187 is distinct from the sales tax under Section 186, which had not been repealed, and that the distinction between the two was already recognized in prior jurisprudence.
• Legislative Policy Limited to Local Products: Respondent argued that the legislative policy to encourage exports applied only to the exportation of locally produced or manufactured products, not every kind of exportation, and that the sale of surplus tractors to foreign buyers—depriving Filipino farmers of their use—did not fall within that policy.

• Importer Status: Whether petitioner was an importer of the 57 tractors within the meaning of Section 186 of the NIRC.
• Domestic Sale; Passage of Title: Whether the sale of the tractors to United Africa Co. was a domestic sale consummated in the Philippines, such that it was subject to sales tax under Section 186.
• Taxable Situs of Goods in Transit: Whether goods destined for export but delivered f.a.s. Manila acquired a taxable situs in the Philippines.
• Effect of Repeal of Consignment Tax: Whether the repeal of the consignment tax under Section 187 exempted the transaction from sales tax under Section 186.

• Importer Status: Yes. One who acquires title to surplus equipment at U.S. military bases in the Philippines and removes them from those bases is an importer under Section 186, pursuant to prior rulings in Go Chen Tee vs. Meer and Saura Import and Export Co. vs. Meer.
• Domestic Sale; Passage of Title: Yes. Under the f.a.s. contract, title passed to the buyer upon delivery at the Manila pier, making the sale domestic and taxable under Section 186 of the NIRC.
• Taxable Situs of Goods in Transit: Irrelevant. The sales tax is a tax on the transaction, not on the property sold; since the sale was consummated in the Philippines, the situs of the sale is Philippine and taxable regardless of the goods' transit status.
• Effect of Repeal of Consignment Tax: No. The consignment tax under Section 187 and the sales tax under Section 186 are distinct impositions; the repeal of the former did not exempt transactions from the latter.

• Importer Status: The Court applied its prior holdings in Go Chen Tee vs. Meer (L-2825, July 7, 1950) and Saura Import and Export Co. vs. Meer (L-2927, February 26, 1951), which established that one who acquires title to surplus equipment found in U.S. army bases within the Philippines by purchase and then brings them out of those bases is an importer. Sales made by such person of surplus goods to the general public are taxable under Sections 185 and 186 of the Tax Code. Petitioner's acquisition of the tractors from the Foreign Liquidation Commission at the military bases and their subsequent removal to its Manila yards squarely placed it within the definition of an importer.

• Domestic Sale; Passage of Title: The Court applied the rule that where the contract is to deliver goods f.a.s., property passes on delivery at the wharf or dock (Williston on Sales, pp. 120–121; 46 Am. Jur. 608–609), and delivery to the carrier is delivery to the buyer (Behn, Meyer & Co., Ltd. vs. Yangco, 38 Phil. 602). While this rule yields to evidence of contrary intent, no proof showed that petitioner and its foreign buyer intended delivery and passage of title to occur at the army bases. Petitioner itself admitted that Tex Taylor—who selected and inspected the tractors—had no authority to accept delivery on behalf of United Africa Co., his function being limited to examining and approving the tractors' condition. Four undisputed facts reinforced this conclusion: (1) petitioner paid delivery charges from the bases to the pier, consistent with the seller's obligations under f.o.b. or f.a.s. sales; (2) the tractors were described in petitioner's invoices as "Our Unit Sta. Mesa" or "Our Unit Pieco," showing they were first brought to petitioner's yards; (3) two invoices stated the tractors were inspected and accepted at Pieco Yard and/or Sta. Mesa Yard, disproving the claim that Taylor tested them at the bases; and (4) petitioner's own witness admitted that Taylor inspected and tested the tractors only at Pieco Yard. Title thus remained in petitioner from removal from the bases until delivery at shipside in Manila, where it passed to the buyer.

• Taxable Situs of Goods in Transit: The Court found petitioner's argument on taxable situs irrelevant because the tax in dispute is one on the transaction (the sale), not on the property sold. The sale was consummated in the Philippines—title was transferred to the foreign buyer at the pier in Manila—hence the situs of the sale is the Philippines and the transaction is taxable in this country regardless of the goods' ultimate destination.

• Effect of Repeal of Consignment Tax: The Court distinguished the consignment tax (formerly Section 187, repealed by Republic Act No. 41) from the sales tax (Section 186, not repealed), relying on Vegetable Oil Corp. vs. Trinidad (45 Phil. 834–835), which held that the consignment tax is a privilege tax on the business of consigning commodities abroad, not a sales tax. The legislature had separated the two taxes into different sections of the Code to avoid confusion. The repeal of Section 187 eliminated only the consignment tax on exports, while the sales tax remained. The legislative policy to encourage exports, as reflected in Sections 189 and 190, R.A. No. 601, and R.A. No. 822, was directed only at the exportation of locally produced or manufactured products—not every kind of exportation. The sale of surplus tractors to foreign buyers did not fall within that policy; moreover, the country needed tractors for agricultural development, so selling them abroad for profit hardly justified the tax exemption petitioner claimed.

• F.A.S. Delivery Rule and Passage of Title — Where the contract is to deliver goods f.a.s. (free alongside ship), title passes to the buyer upon delivery at the wharf or dock; delivery to the carrier is delivery to the buyer. This rule yields to evidence of contrary intent between the parties, but absent such proof, title passes at the point of f.a.s. delivery. Applied here to hold that title to the tractors passed at the Manila pier, not at the military bases, making the sale domestic.

• Sales Tax as Tax on Transaction, Not on Property — The sales tax under Section 186 of the NIRC is a tax on the transaction (the sale), not on the property sold. The taxable situs of the sale is where the sale is consummated—i.e., where title passes. Applied here to reject the argument that goods in transit to export did not acquire a taxable situs in the Philippines.

• Distinction Between Sales Tax and Consignment Tax — The consignment tax (formerly Section 187, NIRC) is a privilege tax on the business of consigning commodities abroad, distinct from the sales tax (Section 186), which is a tax on domestic sales. The repeal of the consignment tax does not exempt domestic sales from the sales tax. Applied here to reject the argument that the repeal of Section 187 exempted all exports from taxation.

• Importer of Surplus Goods from U.S. Military Bases — One who acquires title to surplus equipment found in U.S. army bases or installations within the Philippines by purchase and then brings them out of those bases is an importer for purposes of Sections 185 and 186 of the NIRC. Sales made by such person to the general public are taxable as original sales by an importer.

• "The sale of the tractors was consummated in the Philippines, for title was transferred to the foreign buyer at the pier in Manila; hence, the situs of the sale is Philippines and it is taxable in this country." — This passage articulates the ratio decidendi on the taxable situs issue, establishing that the sales tax is a tax on the transaction and that the situs of the sale is where title passes.

• "That the consignment tax is not a sales tax is, however, too obvious for argument, the fact that it is provided for in the same section as the sales tax does not necessarily make it so. There is all the difference in the word between a consignment and a sale." — This quotation, drawn from Vegetable Oil Corp. vs. Trinidad and relied upon by the Court, defines the canonical distinction between the consignment tax and the sales tax, a distinction central to rejecting petitioner's exemption argument.

• "The law subjects to the payment of the sales tax not to the buyer who intends to export what he buys, but the seller, because such sale is domestic and therefore liable for the payment of sales tax in this country." — This passage clarifies that the incidence of the sales tax falls on the seller in a domestic sale, regardless of the buyer's intent to export, directly refuting petitioner's policy argument.

• Go Chen Tee vs. Meer, 87 Phil. 18 (L-2825, July 7, 1950) — Controlling precedent followed. Established that one who acquires title to surplus equipment at U.S. army bases in the Philippines and removes them is an importer, whose sales are taxable under Sections 185 and 186 of the NIRC. Directly applied to hold that petitioner was an importer.

• Saura Import and Export Co. vs. Meer, 88 Phil. 199 (L-2927, February 26, 1951) — Controlling precedent followed. Same holding as Go Chen Tee, reinforcing the rule that purchasers of surplus goods from U.S. military bases who remove them are importers subject to sales tax.

• Behn, Meyer & Co., Ltd. vs. Yangco, 38 Phil. 602 — Followed for the proposition that delivery to the carrier is delivery to the buyer, supporting the conclusion that title passed at the Manila pier under the f.a.s. contract.

• Vegetable Oil Corp. vs. Trinidad, 45 Phil. 834 — Followed for the distinction between the consignment tax and the sales tax, holding that the consignment tax is a privilege tax on the business of consigning commodities abroad, not a sales tax. Central to rejecting petitioner's argument based on the repeal of Section 187.

• Section 186, National Internal Revenue Code — Levies a percentage tax of five per centum on the gross selling price on every original sale, barter, exchange, or similar transaction intended to transfer ownership of articles not enumerated in Sections 184 and 185, payable by the manufacturer, producer, or importer. Applied to hold petitioner liable as an importer making an original domestic sale of the tractors.

• Section 187, National Internal Revenue Code (repealed by Republic Act No. 41) — Formerly imposed a consignment tax on exports. Distinguished from the sales tax under Section 186; its repeal did not exempt domestic sales from the sales tax.

• Sections 189 and 190, National Internal Revenue Code — Exempt from percentage tax certain locally produced or manufactured products (e.g., coconut oil, copra by-products) and imported articles used in manufacturing for consignment abroad. Cited to show that the legislative policy to encourage exports was limited to locally produced or manufactured products, not surplus military goods.

• Republic Act No. 41 — Repealed the consignment tax under Section 187 of the NIRC. Cited to distinguish the repealed consignment tax from the still-effective sales tax under Section 186.

• Republic Act No. 601, Section 3 — Exempts from foreign exchange tax amounts used for payment of transportation charges on articles imported for use in manufacturing local products for consignment abroad. Cited as further evidence of the limited scope of the export-encouragement policy.

• Republic Act No. 822 — Exempts desiccated coconut manufactured in the Philippines from the processing tax under Section 189 if removed for exportation. Cited as further evidence of the limited scope of the export-encouragement policy.

Bengzon, Acting C.J., Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concurred.