CELESTINO CO & COMPANY VS.

COLLECTOR OF INTERNAL REVENUE

No. L-8506 August 31, 1956 Bengzon, J.
Sales vs. Contract for Piece of Work Created by Celina T.
Petitioners Respondents
Celestino Co & Company Collector of Internal Revenue
Recit Ready Summary
Celestino Co & Company claims that they had to pay only 3% tax as contractor instead of the
previous 7% on gross receipts of their business, Oriental Sash Factory. They also claim that they
are an ordinary contractor making doors, sash, and windows only upon special order. They claim
that the Company should be taxed based on the sales of services (Sec. 191;National Revenue
Code) as opposed to tax based on the original sales of articles by the manufacturer (Sec. 186;
National Revenue Code). The issue is whether the Company is considered as a contractor (to be
taxed under Sec 191) or whether it should be taxed based on the original sales of articles by the
manufacturer (Sec 186). The Court ruled that the company should be taxed under Sec. 186 of the
National Revenue Code because Celestino Co & Company habitually makes sash, windows, and
doors. The fact that windows and doors are made by order does not change the nature of the
establishment. It is obvious that the company only accepted the orders as called for the employment
of such materials as it ordinarily manufactured or was in a position habitually to manufacture. The
Oriental Sash Factory sells the goods that it mass-produces or habitually makes or cuts and
combines them in such forms as its customers may desire. The Company does not merely sell its
services to an individual because it also sells the materials. It sold materials ordinarily manufactured
by it, although in such form or combination as the customer wants. Such form does not divest the
Oriental Sash Factory of its character as manufacturer. If an individual orders a certain kind of door,
it does not take the transaction out of the category of sales because it could stock the sash,
mouldings, and panels it used to make the door. When the Factory accepts a job that requires the
use of extraordinary or additional equipment, or involves services not generally performed by it – it
contracts for a piece of work. However, the orders exhibited in this case, were not shown to be
special. Therefore the Company should be taxed under Section 186 of the National Revenue Code.
Facts of the Case
In 1952, Celestino Co & Company began to claim that they had to pay only 3 per cent tax as
contractor, instead of the previous percentage tax of 7 per cent on the gross receipts of its business
“Oriental Sash Factory”. As a general rule, sash factories receive orders for doors and windows of
special design only in particular cases but the bulk of their sales is derived from ready-made doors
and windows. Celestino Co & Company claims that they are an ordinary contractor (engaged in a
contract for a piece of work) and that they make doors, sash, and windows only upon special order.
They claim that the Company should be taxed based on the sales of services (Sec. 191 of the
National Revenue Code) as opposed to tax based on the original sales of articles by the
manufacturer (Sec. 186 of the same code).

Issues Ruling
1. W/N Celestino Co & Company is a contractor within the purview of Sec 191 of No
National Revenue Code - (contract for a piece of work)

2. W/N Celestino Co & Company could be taxed as seller of its manufactured articles Yes
under Sec. 186 of National Revenue Code - (sales of articles)

Rationale/Analysis/Legal Basis
1. Celestino Co & Company chose “Oriental Sash Factory” for its trade name. The use of the word
“Factory” connotes a big scale business. The company also sold sash, doors, and windows
worth Php188,754 from Jan to Sept of 1952. It is difficult to believe that the company derived
this amount from a few special orders from its customers. The company does not fall under any
of the occupations (more than 50) enumerated in Sec. 191 of the National Revenue Code. The
company does not fall under construction work contractors as enumerated in the section
because construction work contractors are those who alter or repair buildings, structures,
 streets, etc.

2. The fact that the articles sold are manufactured by the company does not exchange the contract
from the purview of Sec. 186 of the National Revenue Code as a sale of articles. Note that
Celestino Co & Company habitually makes sash, windows, and doors. The fact that windows
and doors are made by order does not change the nature of the establishment. It is obvious that
the company only accepted the orders as called for the employment of such materials
(mouldings, frames, panels) as it ordinarily manufactured or was in a position habitually to
manufacture. It is not true that it serves special customers only or confines its services to them
alone. Anyone may purchase doors from Oriental Sash Factory as long as he pays the price. It
can easily duplicate or even mass-produce the same doors. The Oriental Sash Factory sells the
goods that it mass-produces or habitually makes or cuts and combines them in such forms as its
customers may desire.

It is wrong for Celestino to invoke Article 1467 of the New Civil Code which says that: “xxx if the
goods are to be manufactured specially for the customer and upon his special order, and not for
the general market, it is contract for a piece of work.” The Company does not merely sell its
services to an individual because it also sells the materials. It sold materials ordinarily
manufactured by it, although in such form or combination as the customer wants. Such form
does not divest the Oriental Sash Factory of its character as manufacturer. If an individual
orders a certain kind of door, it does not take the transaction out of the category of sales
because it could stock the sash, mouldings, and panels it used to make the door.

When the Factory accepts a job that requires the use of extraordinary or additional equipment,
or involves services not generally performed by it – it contracts for a piece of work. However,
the orders exhibited in this case, were not shown to be special. They were merely orders for
work- nothing is shown to call them special requiring extraordinary service of the factory. The
doors and windows had been admittedly “manufactured” by Oriental Sash Factory, and therefore
should be taxed under Section 186 of the National Revenue Code.
Disposition
The appealed decision is consequently affirmed. So ordered.

Separate Opinions
N/A