Cir v Engineering Equipment and Supply Company

CIR V ENGINEERING EQUIPMENT AND SUPPLY COMPANY FACTS: Engineering Equipment & Supply (EES) was engaged in the business of designing and installing central air-conditioning systems. It was assessed by the Commissioner of Internal Revenue for 30% advanced sales tax, among other penalties pursuant to an anonymous complaint filed before the BIR. EES vehemently objected and argued that they are contractors and not manufacturers and should be liable only for the 3% tax o n sales of services or pieces of work. The commissioner demanded upon Engineering the payment of the assessed tax and suggested that Engineering pay P10k as compromise for Engineering’s penal liability for violation of the Tax Code. ISSUE: W/N EES is a contractor for a piece of work thus only liable for 3% tax HELD: Contractor – a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. True test of contractor – he renders service in the t he course of an independent occupation representing the will of his employer only as to t he result of his work, and not as to the means by which it is accomplished. The SC found that EES was not a manufacturer of air-conditioning units. While it imported such items, they were not for sale to the general public and were used as mere components for the design of the centralized air-conditioning system, the designs and specifications of w/c are different for every client. Various technical factors must be considered and it can be argued that no two plants are the same; all are engineered separately and distinctly. Each project requires careful planning and meticulous layout. Such central air-conditioning systems and their designs would not have existed wer e it not for the special order of the party desiring to acquire it. EES is thus not liable for the sales tax. In comparison with Celestino case: Engineering advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers, Contractors while Oriental used “Oriental Sash Factory”. It also paid the contractors tax on all the contracts for design and construction of central system unlike Oriental who did not pay contractors tax. Engineering did not have ready-made air conditioning units for sale unlike oriental whose bulk of their sale came from ready-made doors and windows As for their liability for violation of Tax Code, the y should pay the whole amount not the one suggested by the commissioner.