Muñoz & Co. vs. Hord

The phrase "goods sold for domestic consumption in the Philippine Islands" in section 139 of Act No. 1189 means goods sold, bartered, or exchanged for use, commercial or otherwise, in the Philippine Islands; the fact that the goods are intended for ultimate export, or are actually exported, does not exempt the seller from the merchant's tax unless the seller is himself the exporter. A person who purchases goods on commission for others and ships them, receiving compensation therefor, is a "merchant" within the meaning of section 140 of the same Act.

Muñoz & Co. was a Manila-based merchant and commission agent engaged in the sale of agricultural products and the purchase of merchandise for provincial correspondents. John S. Hord was the Collector of Internal Revenue. Act No. 1189, the Internal Revenue Law, imposed a tax on merchants and manufacturers under sections 139 and 140, with exemptions under section 142. The dispute concerned the proper construction of the phrase "for domestic consumption" in section 139 and the definition of "merchant" in section 140.

Muñoz & Co. was a Manila-based merchant and commission agent. During the first and second quarters of 1905, various provincial dealers in agricultural products consigned to the company hemp, copra, and other agricultural products grown and produced in the Islands, to be sold for export and on commission to persons engaged in the business of exporting such products. Acting under and in pursuance of this employment, the company sold produce of the total value of P155,409 to various exporters, who actually exported the same to places without the Philippine Islands.

During the same period, the company, as agent for certain correspondents in the provinces from whom it received consignments of agricultural products on commission, purchased goods, wares, and merchandise to the total value of P7,917, which were shipped to the parties for whom they had been purchased. A so-called commission was charged on each shipment, which the company claimed was added merely to reimburse it for the loss of time and the trouble involved in the transaction.

Thereafter, the company, on demand of the Collector of Internal Revenue, paid under protest, as internal-revenue taxes, an amount equal to one-third of 1 per centum of the total amount, first, of the value of the agricultural products sold by the company on commission and exported beyond the Islands by the purchasers, and, second, of the total value of the purchases of merchandise for shipment by the company to its provincial correspondents.

The trial court was of opinion that there was no authority in law for the collection of these sums of money by the Collector of Internal Revenue, and gave judgment in favor of the company for the amounts collected and the costs of the action instituted for their recovery.

• Domestic Consumption: Muñoz contended that goods sold for exportation out of the Islands are not "goods sold for domestic consumption in the Philippine Islands" in the sense used in section 139 of the law, and that since the products in question were sold for export, as evidenced by the signed certificates secured from the purchasers, and were in fact exported, the imposition of the tax was not warranted or authorized.
• Strict Construction: Muñoz insisted that a tax cannot be imposed without clear and express words for that purpose, citing U.S. vs. 36 Barrels of High Wines and U.S. vs. Watts.
• Effect of Amendment: Muñoz stressed that the section in question had been amended, since the date of the transactions, by striking out the words "for domestic consumption," and contended that the construction placed upon the section by the Collector before the amendment is precisely the same as that which must be given to the language of the section as amended.
• Redundancy: Muñoz suggested that the fact that subsection (b) of section 142 specifically exempts exporters from the payment of the tax renders the use of the phrase "for domestic consumption," in the sense given to it by the Collector, wholly superfluous and unnecessary.
• Double Taxation: Muñoz contended that the imposition of the tax in question was an imposition of the tax upon two different persons for one and the same sale, or a double imposition of the tax on one person for and on account of the same transaction.

• Occupation Taxes: Hord argued that the taxes imposed under sections 139 and 140 of Act No. 1189 are occupation taxes and are not imposed upon goods, wares, and merchandise per se, sold, bartered, or exchanged.
• Domestic Consumption: Hord argued that all goods, wares, and merchandise sold by any person in the Philippine Islands on his own account or on commission for another to any other person in the Philippine Islands, whether such other person be an exporter or not, and whether such goods so sold be or be not subsequently exported by the purchaser, is a sale of such goods for domestic consumption within the meaning of section 139, and every such person making such sale is a merchant within the terms of section 140.
• Commission Purchases as Sales: Hord argued that the alleged purchases by Muñoz on commission for growers and producers of hemp and other products were in effect sales to such purchasers.

• Domestic Consumption: Whether goods sold by a commission merchant to exporters for ultimate export are "sold for domestic consumption" under section 139 of Act No. 1189, such that the merchant's tax may be imposed.
• Commission Merchant: Whether a person who purchases merchandise for others and ships the same to them, charging a specific amount for the service, is a "merchant" under section 140 of Act No. 1189, subject to the tax.
• Double Taxation: Whether the imposition of the tax constitutes double taxation.

• Domestic Consumption: Yes. Goods sold to exporters for ultimate export are "sold for domestic consumption" under section 139 of Act No. 1189, the phrase meaning use, commercial or otherwise, in the Philippine Islands; the seller is subject to the merchant's tax unless he is himself the exporter.
• Commission Merchant: Yes. A person who purchases goods on commission for provincial correspondents and ships them, receiving compensation therefor, is a "merchant" under section 140 of Act No. 1189, and the transactions constitute sales subject to the tax.
• Double Taxation: No. Each successive sale of the same merchandise gives rise to a separate tax; the fact that the same item is sold several times does not constitute double taxation.

• Domestic Consumption: Section 139 of Act No. 1189 imposes a tax on merchants and manufacturers at the rate of one-third of one per centum on the gross value of all goods, wares, and merchandise sold, bartered, or exchanged for domestic consumption in the Philippine Islands. The issue is the meaning of "goods sold for domestic consumption." Revenue laws are not, like penal laws, to be construed strictly in favor of the individual and against the State; they are remedial in character, enacted for the promotion of the public welfare, and should be given a construction that carries out the manifest intention of the legislator. The limitation was intended to avoid infringing Congress's reserved right to impose import and export duties, but that reason has no application where no tax is laid on the commodities as exports or on persons who actually export them. Under Coe vs. Errol, goods intended for export remain part of the general mass of property subject to taxation in the usual way until they have been shipped or committed to a common carrier for transportation. The phrase may be regarded as equivalent to "use, commercial or otherwise," so that no sale other than one actually involving export is excepted. The fact that the vendor or purchaser intends ultimate export, or that the goods are actually exported, does not affect the domestic nature of the commercial transactions prior to the ultimate sale. The executive branch, through the Secretary of Finance and Justice, had construed the phrase as used "in the large, general sense of being used for the purpose of commerce in the Philippine Islands," and this contemporaneous construction is entitled to respect. The amendment striking out "for domestic consumption" does not justify the inference Muñoz attempts to establish, because the record contains correspondence of the Secretary of Finance and Justice explaining that the construction at the time of enactment was precisely that adopted by the Collector, and that if the language was not sufficiently plain, it should be made so by amendment. Redundant words are not infrequently found in legislative enactments, and a possible interpretation that tends to defeat the whole purpose of the law is to be rejected when the words may fairly be treated as mere repetition.

• Commission Merchant: The second branch presents no difficulty. Muñoz was acting as a commission merchant when it bought and shipped goods to its patrons and received compensation therefor. These transactions constituted sales of the goods by the company to its correspondents in the provinces, and the so-called commission represented the profits upon the goods sold. The relations of the parties were those of buyer and seller, and the fact that the vendor did not keep the goods sold in stock did not make it any less a merchant. The real question is whether there was a sale or exchange of the goods shipped in response to the orders of the provincial correspondents. The company purchased on its own account and acquired perfect title; the vendor looked exclusively to the company for payment, and the correspondents had no control over the goods until shipment. The transfer of ownership can only be satisfactorily explained on the theory that the transaction was a sale, barter, or exchange subject to the tax.

• Double Taxation: No merit in the contention of double taxation. Under the law, when the same item of merchandise is sold several times, each successive seller is subject to the tax, the amount of which varies with the selling price; if an article is sold twice, two taxes have properly accrued; if five times, five taxes. The intention of the law is that commission merchants who receive compensation for their services shall pay a tax as well as the manufacturer or wholesaler.

• Liberal Construction of Revenue Laws — Revenue laws are not, like penal laws, to be construed strictly in favor of the individual and against the State; they are remedial in character, enacted for the promotion of the public welfare, and should be given a construction that carries out the manifest intention of the legislator. The Court applied this principle to uphold the Collector's interpretation of section 139 of Act No. 1189.
• Contemporaneous and Uniform Executive Construction — Where a statute is ambiguous, the construction placed upon it by the executive officers charged with its execution is given great weight and, if necessary to resolve the doubt, should be respected and adopted. The Court relied on the uniform construction of the Secretary of Finance and Justice and the Collector of Internal Revenue.
• Meaning of "Domestic Consumption" — The phrase "goods sold for domestic consumption in the Philippine Islands" in section 139 of Act No. 1189 means goods sold, bartered, or exchanged for use, commercial or otherwise, in the Philippine Islands. The fact that the goods are intended for ultimate export, or are actually exported, does not exempt the seller from the tax unless the seller is himself the exporter.
• Commission Merchant as Merchant — A person who purchases goods on commission for others and ships them, receiving compensation therefor, is a "merchant" within the meaning of section 140 of Act No. 1189, and the transactions constitute sales subject to the tax.
• No Double Taxation in Successive Sales — Each sale in a chain of commercial transactions gives rise to a separate tax; the fact that the same item is sold several times does not constitute double taxation.

• "Revenue laws are not, like penal laws, to be construed strictly in favor of the individual and against the State. They are rather to be regarded as remedial in their character, enacted for the promotion of the public welfare, and as such to be given, where possible, a construction which will tend to carry out the manifest intention of the legislator in placing them upon the statute book." — This passage states the Court's foundational canon of construction for revenue statutes, which controlled the entire analysis of section 139 of Act No. 1189.
• "In this sense no sale, barter, or exchange of goods, other than a transaction which actually involves their export from the Philippine Islands can be regarded as excepted from the operation of the provisions of section 139 of the Act; and the fact that either the vendor or purchaser or both, intend the goods for ultimate export, or that the goods are actually and ultimately exported, in no wise affects the 'domestic' nature of commercial transactions in such goods in the Philippine Islands prior to the ultimate sale, barter, or exchange, by virtue of which the goods are actually exported." — This is the ratio decidendi on the domestic consumption issue, defining the scope of the exception and rejecting the exporter's intent as a basis for exemption.
• "In case of ambiguity in a statute, contemporaneous and uniform executive construction is regarded as decisive." — Quoted from Brown vs. U.S., this passage articulates the canon of contemporaneous executive construction that the Court applied to resolve any remaining doubt on the meaning of "domestic consumption."
• "The relations of the parties to the contract were those of buyer and seller, and the mere fact that the vendor did not keep the goods sold in stock did not make it any the less a merchant in relation to these transactions, than if the goods had been stored in its warehouses at the time when the orders were received." — This passage is the ratio decidendi on the commission merchant issue, establishing that a mail-order or commission business constitutes merchant activity subject to the tax.

• Coe vs. Errol, 116 U.S. 525 — Cited for the rule that goods intended for export remain part of the general mass of property of the State, subject to taxation in the usual way, until they have been shipped or committed to a common carrier for transportation out of the State.
• Brown vs. U.S., 113 U.S. 568 — Cited for the rule that in case of ambiguity in a statute, contemporaneous and uniform executive construction is regarded as decisive.
• St. Paul, Minneapolis, etc., Railway Co. vs. Phelps, 137 U.S. 528 — Cited for the rule that where the language of a series of statutes is dubious, the construction put upon them by the Executive Department charged with their execution has great and general controlling force.
• U.S. vs. Hill, 120 U.S. 169 — Cited for the rule that the construction given to a statute by those charged with its execution will be given great weight if the true construction is doubtful.
• Cliquot's Champagne, 3 Wall. 114 — Cited for the rule that revenue laws are to be construed liberally to carry out the legislative purpose.
• U.S. vs. Hodson, 10 Wall. 406 — Cited for the rule that implied provisions are as much a part of a statute as express provisions, applicable to revenue laws.
• U.S. vs. 36 Barrels of High Wines — Cited by the appellee for the rule that internal revenue laws should be construed reasonably and fairly so as not to be a trap to deceive the innocent and well-intentioned.
• U.S. vs. Watts, Fed. Cas. 16653 — Cited by the appellee for the rule that internal revenue laws cannot be construed to extend their meaning beyond the clear import of the words used.

• Section 139, Act No. 1189 — Imposes a tax of one-third of one per centum on the gross value of all goods, wares, and merchandise sold, bartered, or exchanged for domestic consumption in the Philippine Islands by each merchant and manufacturer. The Court construed the phrase "for domestic consumption" to mean use in commerce in the Philippines, regardless of ultimate export.
• Section 140, Act No. 1189 — Defines a "merchant" as every person who, on his own account or on commission for another, is engaged in the sale, barter, or exchange of foreign or domestic goods, wares, or merchandise for domestic consumption. The Court held that Muñoz fell within this definition.
• Section 142, Act No. 1189 — Exempts agriculturists on products of their own production and exporters on raw materials and manufactured or partially manufactured products actually exported by them. The Court held that the exemption did not apply to Muñoz, which was not itself the exporter.

Arellano, C.J., Torres, Mapa, and Tracey, JJ.

• Justice Johnson and Justice Willard — Dissented. The decision text does not set forth the reasoning of the dissent.