G.R. No. L-2624 - Macondry and Co., Inc. vs. El Administrador de Rentas Internas

The case involves Macondray & Co., Inc. (plaintiff/appellant) versus the Administrator of Internal Revenue (defendant/appellee) arising from an appeal against a decision of the Manila First Instance Court which had dismissed the plaintiff’s demand.
The dispute centers on the proper computation of sales tax under Section 186 of the National Internal Revenue Code and whether certain charges collected by the plaintiff are part of the "gross selling price."

During the first and second quarters of 1946, the plaintiff collected “port charges” amounting to approximately P87,075.60 from its customers, which were separately itemized and billed.
The corresponding sales, tax on the costs, insurance, and freight charges were duly paid by the plaintiff to the defendant.

On August 16, 1946, the defendant issued a letter demanding payment of additional sales tax based on the assertion that the port charges were part of the purchase price.

The demand included an assessment of 3½% additional tax on the collected port charges, a 25% surcharge, and a P50 compromise fee, totaling P3,859.58.
The letter clarified that, according to the applicable provisions of the Internal Revenue Code, the “gross selling price” includes all amounts paid by the purchaser, incorporating port charges and similar incidental expenses.

On January 29, 1947, the defendant reissued the demand letter with a correction concerning the port charges (confirming the amount as P87,075.60) and reiterated that under current interpretations and relevant case law, these charges were deemed to be part of the selling price.

On September 2, 1946, the plaintiff responded denying that port charges should be treated as part of the sale price:

The plaintiff argued that its contracts were based on a C.I.F. Manila arrangement, where the price is understood to include cost, insurance, and freight only, excluding port charges which were merely expenses incurred for the convenience of customers.
It maintained that port charges were reimbursed by customers and were not part of the selling price, contending that if buyers had collected the goods directly from the piers, no such additional tax would be imposed.

The plaintiff reiterated its view in its subsequent communications, emphasizing that charging port fees did not alter the fundamental nature of a sale nor should they be taxed as part of the sale price.

Faced with the administrative demand, the plaintiff eventually paid the amount (under receipt No. J-37042 on March 22, 1947) to avoid further complications.
In May 1947, the plaintiff pursued a separate legal action seeking the devolution (refund) of the tax paid, contesting the inclusion of port charges in the gross selling price.

The factual controversy further revolves around the nature of “port charges” which, in this case, refer to fees collected in connection with documentary stamps attached to bills of lading and transportation expenses from the pier to the seller’s premises.
The case involves a discussion on the customary practices in transactions under C.I.F. contracts and how these practices align with the statutory definition of “gross selling price” under the National Internal Revenue Code.
Comparative judicial reasoning from other cases (such as Gee Coal Company and State vs. Menefee Motor Co.) was considered, highlighting how various components of the sale (including freight and port expenses) contribute to the final price subject to tax.

Whether the port charges collected separately by Macondray & Co., Inc. from its customers constitute a part of the gross selling price and are therefore subject to the additional percentage sales tax imposed under Section 186 of the National Internal Revenue Code.

Whether the statutory and case law definitions of “gross selling price” necessitate the inclusion of all incidental expenses such as port charges, despite being separately itemized on the invoices.
How the term “price” is interpreted in the context of C.I.F. Manila contracts, which traditionally exclude certain charges like port fees, yet may be reconsidered under a broader understanding of the selling price.

The issue of reconciling the administrative interpretation of port charges as part of the selling price with the plaintiff’s argument that under the C.I.F. arrangement such charges are not intended to be included.
The potential implications on the tax base and fair imposition of sales tax if such charges were otherwise excluded by retailers in similar transactions.