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 on 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 Engineerings 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 course of an independent occupation representing
the will of his employer only as to the 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 were 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, they should pay the whole amount not the one suggested
by the commissioner.