Wonder Mechanical Engineering Corp. v CTA

Facts:

Wonder Corp. was engaged in the business of manufacturing auto spare parts, lamp shades, rice threshers and other articles. It was also engaged in the business of electroplating and repair of machines. However, it did not pay sales tax on the sale of articles and the percentage tax on its electroplating and repair business.

Commissioner of Internal Revenue caused the investigation of Wonder Corp. for the purpose of ascertaining its tax liability. Revenue Examiner Pedro Cabigao reported that Corp. manufactured and sold other articles subject to 7% sales tax but not covered by the Corp’s tax exemption privilege. The Corp. was assessed with a deficiency percentage tax of P25, 080. and a 25% surcharge.

Wonder Corp. contends that it was a given a Certificate of Tax  Exemption with respect to the manufacture of machines for making cigarette paper, pails, lead washer, nails… (those which are determined as new and necessary by RA 901).

Issue:

Whether or not the manufacture and sale of steel chairs, jeep parts… which are not machines for making other products are tax exempt under RA 901.

Held:

No. Wonder Corp. was granted the tax exemption in the manufacture and sale of machines but not manufacture and sale of the articles produced by the machines. Such was the intention of the State for new and necessary industries as an incentive to greater and adequate production of products made scarce by World War II. Tax exemptions are highly disfavored in law and those who claim them must be able to justify his claim and must be clearly expressed in the law. Tax exemptions cannot be established by implication.

In the case, Wonder Corp. was granted tax exemption in the manufacture of cigarette paper, pails, lead washers, nails…  as explicitly stated in the Certificate of Tax Exemption. The manufacture of steel chairs, jeep parts and other articles not constituting machines for making certain products does not fall under RA 901.