Wednesday, March 07, 2012

Thirty-First Infantry Post Exchange vs. Posadas [G.R. No. 33403, September 4, 1930]

Facts: Thirty-first Infantry Post Exchange is an agency within the United States Army, under the control of the officers of the Army. The defendant, Juan Posadas, jr., is the duly qualified and acting Collector of Internal Revenue of the Philippine islands, with office and residence in the City of Manila, P. I. The said plaintiff Exchange is designed for the accommodation, convenience, and assistance of the personnel of the Army. All of the goods sold to and purchased by the said plaintiff Exchange are intended for resale to and are in fact resold, as they have been in the past, to the officers, soldiers and the civilian employees of the Army, and their families. The goods sold to and purchased by the said plaintiff Exchange have consisted and do consist largely of sundry articles for personal use, such as soaps, shaving materials, and other toilet articles, and other goods generally found in a well-stocked general store. Such purchases and resales, though fully authorized by law and the Army Regulations, are not specifically required by statutory enactment. The net proceeds derived from all such resales do not accrue to the general funds of the United States, that is, they are not deposited in the Treasury of the United States, but are used for the betterment of the condition of the enlisted personnel of the Army, to the end that thereby the morale and efficiency of the armed forces of the United States may be improved and increased.

In the course of its duly authorized business transactions, the said plaintiff Exchange, under the direction of the said plaintiff David L. Hardee, as Exchange Officer, and his predecessors in that office, has, during the period of several years last past, made many purchases of various and divers commodities, goods, wares, and merchandise from various and divers merchants in the Philippine Islands.

Following many and divers of the aforesaid purchases by the said plaintiff Exchange, the defendant, Juan Posadas, Jr., Collector of Internal Revenue of the Philippine Islands, and his predecessors in that office, persists in demanding and collecting such taxes and at the said rates on the sales of commodities, goods, wares, and merchandise which are being effected by merchants in the Philippine Islands to the plaintiff Exchange.

Issue: Whether or not 31st Infantry Post Exchange is exempt from taxation for merchants who make sales to the Post Exchange

Held: NO. What is known as the sales tax is in force in the Philippines. A percentage tax of 1 1/2 per centum is collected on merchants' sales. Philippine law as thus enacted and expressly confirmed by the Congress, makes particular mention of the persons exempt from this tax, without, however, including in the enumeration commercial transactions with Army Post Exchanges. On the other hand, our general law provides express exemptions from the other taxes for the United States and its agencies. Taxes have been collected from merchants who make sales to Army Post Exchanges since 1904. (Act No. 1189, sec. 139.) Similar taxes are paid by those who sell merchandise to the Philippine Government through the Bureau of Supply, and we likewise assume, by those who do business with the United States Army and Navy in the Philippines. Only in the case at bar has formal legal protest been made.

While "post exchanges" and "ship's stores" are institutions within the Army and Navy of the United States, and are recognized by Acts of Congress, and are under the control of the Army and Navy, and are organized for the convenience and assistance of the soldiers and sailors, we are not inclined to believe that goods sold to the soldiers and sailors of the Army and Navy, even though they be sold through said exchanges by the intervention of officers of the Army and Navy, are goods sold directly to the United States Army or Navy for actual use or issue by the Army or Navy. They are goods sold for the use and benefit of the post exchanges, etc., and not for the actual use or issue by the Army or Navy.

The laws to be applied are, in effect, Acts of the Congress of the United States, and so form a part of Philippine Organic Law. (Mitsui Bussan Kaisha vs. Manila E. R. R. & L. Co. [1919], 39 Phil., 624.) We do not wish to be guilty of overstating the proper principle, but it would seem that since no law of the Congress forbids the taxation of merchants who deal with Army Post Exchanges, and since the Congress has legalized the applicable law, and in doing so has granted no immunity from taxation to merchants who deal with Army Post Exchanges, the Congress has permitted such transactions with Army Post Exchanges, on the assumption that Post Exchanges are agencies of the United States, to be taxed by the Philippine Government. It must be understood, however, that the waiver must be clear, and that every well grounded doubt should be resolved in favor of the exemption.

Only those agencies through which the Federal Government immediately and directly exercises its sovereign powers are immune from the taxing power of the states. The reason upon which the rule rests must be the guiding principle to control its operation. The limitations upon the taxing power of the state must receive a practical construction which does not seriously impair the taxing power of the Government imposing the tax. The effect of the tax upon the functions of the Government and the nature of the governmental agency determine finally the extent of the exemption

Placing some emphasis on the point of long acquiescence in the imposition of the sales tax on vendors of merchandise to Army Post Exchanges; on the point that the Congress of the United States has virtually sanctioned such a sales tax by confirming Philippine revenue laws without reservation; and on the point that a kind of cooperative store in the Army is akin to a private business enterprise which is not withdrawn from taxation, we desire with more emphasis to indicate the lack of standing of the plaintiffs to contest the tax. On still broader grounds, we would consider the effects of the sales tax upon the United States Army, and the nature of an Army Post Exchange. The tax laid upon Philippine merchants who sell to Army Post Exchanges does not interfere with the supremacy of the United States Government, or with the operations of its instrumentality, the United States Army, to such an extent or in such a manner as to render the tax illegal. The tax does not deprive the Army of the power to serve the Government as it was intended to serve it, or hinder the efficient exercise of its power.

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