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CIR vs. Arnoldus Carpentry Shop, Inc., G.R. No. 71122, March 25, 1988 Tax Amnesty

Arnoldus Carpentry Shop was classified by tax examiners as an "other independent contractor" subject to a 3% contractor's tax on its sales, including export sales. Arnoldus protested, arguing it was a manufacturer entitled to a 7% tax exemption on export sales. The Supreme Court ruled that Arnoldus was a manufacturer based on evidence it altered raw materials through physical processes to prepare customized woodwork and furniture for customers. As a manufacturer, Arnoldus was entitled to the 7% tax exemption on its export sales rather than being subject to the 3% contractor's tax. The Court affirmed the tax exemption, finding Arnoldus fell within the clear legislative intent to exempt manufacturers.

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129 views2 pages

CIR vs. Arnoldus Carpentry Shop, Inc., G.R. No. 71122, March 25, 1988 Tax Amnesty

Arnoldus Carpentry Shop was classified by tax examiners as an "other independent contractor" subject to a 3% contractor's tax on its sales, including export sales. Arnoldus protested, arguing it was a manufacturer entitled to a 7% tax exemption on export sales. The Supreme Court ruled that Arnoldus was a manufacturer based on evidence it altered raw materials through physical processes to prepare customized woodwork and furniture for customers. As a manufacturer, Arnoldus was entitled to the 7% tax exemption on its export sales rather than being subject to the 3% contractor's tax. The Court affirmed the tax exemption, finding Arnoldus fell within the clear legislative intent to exempt manufacturers.

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CIR vs. Arnoldus Carpentry Shop, Inc., G.R. No.

71122, March 25, 1988

TAX AMNESTY

Principle of Strictissimi Juris

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ARNOLDUS CARPENTRY


SHOP, INC. and COURT OF TAX APPEALS, respondents

G.R. No. 71122; 25 March 1988

FACTS:

Arnoldus Carpentry Shop is a domestic corporation whose second purpose is the “preparing,
processing, buying, selling, exporting, importing, manufacturing, trading and dealing in cabinet
shop products, wood and metal home and office furniture, cabinets, doors, windows, etc.,
including their component parts and materials.” Thus, furniture, cabinets, and other woodwork
were sold locally and exported abroad. Examiners of the Commissioner of Internal Revenue
(CIR) conducted an investigation of the business tax liabilities of Arnoldus Carpentry.

Based on such examination, a report was made to the Commissioner classifying such as an
“other independent contractor” under Section 205 (16) [now Section 169 (9)] of the Tax Code.
The corporation renders service in the course of an independent occupation representing the
will of his employer only as to the result of his work, and not as to the means by which it is
accomplished. Hence, it is recommended that 3% contractor’s tax be imposed. A protest letter
was made maintaining that the carpentry shop is a manufacturer and thus entitled to 7% tax
exemption on export sales.

ISSUE:

Is Arnoldus Carpentry a manufacturer subject to 3% contractor’s tax?

HELD:

Yes.

If taxpayer is exempted by clear legislative intent, the rule on strict construction will not apply.
Holding that respondent is a manufacturer entitled to the percentage tax exemption on its export
sales affirmed. Conversely, therefore, if there is an express mention or if the taxpayer falls
within the purview of the exemption by clear legislative intent, then the rule on strict construction
will not apply. In the present case the respondent Tax Court did not err in classifying private
respondent as a “manufacturer.”

“Manufacturer” includes every person who by physical or chemical process alters the exterior
texture or form or inner substance of any raw material or manufactured or partially
manufactured product in such manner as to prepare it for a special use. Based on Article 1467,
what determines whether the contract is one of work or sale is whether the thing has been
manufactured especially for the customer and “upon his special order.” Thus, if the thing is
specially done at the order of another, this is a contract for a piece of work. If, on the other hand,
the thing is manufactured or procured for the general market in the ordinary course of one’s
business, it is a contract of sale.

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