G.R. No. L-22805 - Wonder Mechanical Engineering Corp. vs. Court of Tax Appeals

Two petitions for review were filed by Wonder Mechanical Engineering Corporation (petitioner) in G.R. Nos. L-22805 and L-27858, challenging tax assessments issued by the Bureau of Internal Revenue and the corresponding decisions of the Court of Tax Appeals (CTA).
The dispute centers on the tax exemption privilege allegedly granted under Republic Act Nos. 35 and 901, covering the manufacture of machines for making various products.
The petitions arose from different assessments: one covering tax liabilities for 1953–1954 and the other for deficiencies for 1957 to June 30, 1960.

The petitioner was originally granted tax exemption under Republic Act 35 for engaging in a “new and necessary industry,” specifically for the manufacture of machines for making cigarette paper, pails, lead washers, rivets, nails, candies, chairs, etc.
This exemption expired on May 30, 1951.
On September 14, 1953, the petitioner applied for reinstatement of the exemption under Republic Act 901, with the reinstatement effective from June 20, 1953, the date RA 901 took effect.

In 1955, the respondent Commissioner of Internal Revenue initiated an investigation to determine the petitioner’s tax liability.
Revenue Examiner Alfonso B. Camillo, in his report dated September 30, 1955, found that during 1953 and 1954 the petitioner was engaged in manufacturing various articles (auto spare parts, fluorescent lamp shades, rice threshers, post clips, radio screws, washers, electric irons, kerosene stoves, etc.) in addition to performing electroplating and machine repairs.
The investigation revealed non-compliance with requirements for obtaining proper privilege tax receipts and the non-payment of sales, percentage, and fixed taxes applicable to the business.
Consequently, on November 29, 1955, the Bureau of Internal Revenue assessed a total amount of P69,699.56 (comprising sales and percentage taxes, a 25% surcharge, and various fixed taxes) against the petitioner, along with a suggestion to pay P3,300.00 as a penalty.

On August 10, 1960, a further investigation was conducted by the respondent Commissioner of Internal Revenue to ascertain additional tax liabilities.
Revenue Examiner Pedro Cabigao’s report dated December 7, 1960, stated that the petitioner had:

Manufactured and sold steel chairs without paying the 30% sales tax imposed by Section 185(c) of the Tax Code.
Accepted job orders without payment of the 3% tax in gross receipts as imposed by Section 191.
Manufactured and sold some articles subject to a 7% sales tax (under Section 106) but not covered by the exemption.
Failed to comply with various bookkeeping regulations including registration of books, proper issuance of sales invoices, and presentation of business records when required.

Based on these findings, on October 6, 1961, the Commissioner assessed a deficiency tax of P25,080.91 along with a 25% surcharge, and suggested an additional P5,020.00 as a compromise penalty.

The petitioner’s tax exemption certificate, issued by the Secretary of Finance on July 7, 1954, explicitly limited the exemption to the manufacture of machines for making cigarette paper, pails, lead washers, nails, rivets, candies, etc.
Memoranda and letters from the Executive and Finance Departments show that the exemption was granted specifically for the manufacture of machines and not for the subsequent manufacture or sale of the articles produced by those machines.
Prior to the issuance of the exemption certificate, a memorandum from the Secretary of Finance (March 3, 1949) and a letter from the Executive Secretary (May 30, 1949) further clarified that the benefits under RA 35 extended only to the business of manufacturing machines for producing certain products.

Whether the manufacture and sale of articles (such as steel chairs, jeepney parts, and other items) that are not machines for making other products fall within the ambit of the tax exemption granted under Republic Act Nos. 35 and 901.

Whether the discrepancy regarding the timing of the filing of the appeal (being filed beyond the 30-day period under Section 11 of Republic Act 1126) affects the jurisdiction of the Court of Tax Appeals in one of the cases (G.R. No. L-22805).

Whether the imposition of a compromise penalty, without the petitioner’s agreement, is valid and enforceable, given the established doctrine that such penalties require the taxpayer’s consent.