G.R. No. 110 - People vs Yacat

The dispute involves the Collector of Internal Revenue (petitioner) and respondent Hon. Eulogio Rodriguez, Jr., among others.
In 1955, respondent imported a 1955 Chevrolet Bel Air 4-door Sedan Model 2403 from the United States for personal use.
The automobile, brought unboxed into the Philippines as unaccompanied baggage, was purchased from the Foreign Distributors Division of the General Motors Corporation as evidenced by Invoice No. 5-9267, dated February 21, 1955.

Automobile core items (including chassis, body, and other accessories) – Price not completely detailed, but aggregated with other items.
A push button auto radio and antenna valued at $88.05.
Other entries such as directional signal components, eye glass, brakes, extra tires, kilometer speedometer, power steering, and power glide transmission details.

The total invoice amount came to $2,083.00, designating the push button radio and antenna as one among various items making up the total cost.

The petitioner computed the compensating tax by treating the entire landed cost—inclusive of the auto radio and antenna—as the cost of the vehicle.
Additional charges were added to the base cost:

Under Section 190 of the National Internal Revenue Code, the compensating tax was imposed at 50% of the landed cost, amounting to P5,160.92.

Respondent contended that the push button radio and antenna should be excluded from the taxable base of the vehicle.
It was argued that these items should be taxed separately at a different rate (7%) rather than included in the computation where a 50% tax was applied pursuant to Sections 184(a) and 185(a) of the Tax Code.
Respondent filed a claim for a refund of P1,072.68, representing the excess tax allegedly paid due to the inclusion of the radio and antenna.
After the petitioner's denial of both the refund claim and a subsequent request for reconsideration, respondent elevated the matter to the Court of Tax Appeals.

The imposition of the compensating tax is governed by Section 190 of the National Internal Revenue Code.
Sections 184(a) and 185(a) of the Tax Code provide that a sale of an automobile includes the chassis, body, and “parts and accessories” usually equipped with the vehicle.
The central legal query arose as to the meaning of "parts and accessories," which the Tax Code does not expressly define, prompting reference to U.S. jurisprudence for interpretative guidance.

"Part" as an article designed for use as, or to replace, a specific component of a vehicle, and not ordinarily sold for general use (as seen in cases like Universal Battery Co. vs. U.S. and Marvel Products Co. vs. U.S.).
"Accessory" as an article designed to be used in conjunction with the vehicle for added utility or ornamentation.

These interpretations underpinned the respondent’s argument that the push button radio and antenna, being purpose-designed for the vehicle, should be deemed as component parts rather than detachable accessories.

Whether the push button auto radio and antenna should be classified as “parts and accessories” of the automobile under Sections 184(a) and 185(a) of the Tax Code.
Whether including the cost of the radio and antenna in the taxable base for the computation of the compensating tax was lawful, or if such items should be taxed separately at a lower rate.
Whether the valuation and tax computation executed by the petitioner effectively misrepresented the true landed cost of the automobile by including components not ordinarily subject to the higher tax rate.