G.R. No. 193007 July 19, 2011RENATO V. DIAZ and AURORA MA. F.
TIMBOL vs. THE SECRETARY OF FINANCE and CIR May toll fees collected
by tollway operators be subjected to value- added tax?
The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol
(petitioners) filed this petition for declaratory relief1 assailing
the validity of the impending imposition of value-added tax (VAT)
by the Bureau of Internal Revenue (BIR) on the collections of
tollway operators.
Petitioners claim that, since the VAT would result in increased
toll fees, they have an interest as regular users of tollways in
stopping the BIR action. Additionally, Diaz claims that he
sponsored the approval of Republic Act 7716 (the 1994 Expanded VAT
Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal
Revenue Code or the NIRC) at the House of Representatives. Timbol,
on the other hand, claims that she served as Assistant Secretary of
the Department of Trade and Industry and consultant of the Toll
Regulatory Board (TRB) in the past administration.
Petitioners allege that the BIR attempted during the
administration of President Gloria Macapagal-Arroyo to impose VAT
on toll fees. The imposition was deferred, however, in view of the
consistent opposition of Diaz and other sectors to such move. But,
upon President Benigno C. Aquino IIIs assumption of office in 2010,
the BIR revived the idea and would impose the challenged tax on
toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted
the NIRC, intend to include toll fees within the meaning of "sale
of services" that are subject to VAT; that a toll fee is a "users
tax," not a sale of services; that to impose VAT on toll fees would
amount to a tax on public service; and that, since VAT was never
factored into the formula for computing toll fees, its imposition
would violate the non-impairment clause of the constitution.
On August 13, 2010 the Court issued a temporary restraining
order (TRO), enjoining the implementation of the VAT. The Court
required the government, represented by respondents Cesar V.
Purisima, Secretary of the Department of Finance, and Kim S.
Jacinto-Henares, Commissioner of Internal Revenue, to comment on
the petition within 10 days from notice.2 Later, the Court issued
another resolution treating the petition as one for prohibition.3On
August 23, 2010 the Office of the Solicitor General filed the
governments comment.4 The government avers that the NIRC imposes
VAT on all kinds of services of franchise grantees, including
tollway operations, except where the law provides otherwise; that
the Court should seek the meaning and intent of the law from the
words used in the statute; and that the imposition of VAT on
tollway operations has been the subject as early as 2003 of several
BIR rulings and circulars.5The government also argues that
petitioners have no right to invoke the non-impairment of contracts
clause since they clearly have no personal interest in existing
toll operating agreements (TOAs) between the government and tollway
operators. At any rate, the non-impairment clause cannot limit the
States sovereign taxing power which is generally read into
contracts.
Finally, the government contends that the non-inclusion of VAT
in the parametric formula for computing toll rates cannot exempt
tollway operators from VAT. In any event, it cannot be claimed that
the rights of tollway operators to a reasonable rate of return will
be impaired by the VAT since this is imposed on top of the toll
rate. Further, the imposition of VAT on toll fees would have very
minimal effect on motorists using the tollways.
In their reply6 to the governments comment, petitioners point
out that tollway operators cannot be regarded as franchise grantees
under the NIRC since they do not hold legislative franchises.
Further, the BIR intends to collect the VAT by rounding off the
toll rate and putting any excess collection in an escrow account.
But this would be illegal since only the Congress can modify VAT
rates and authorize its disbursement. Finally, BIR Revenue
Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll
companies to record an accumulated input VAT of zero balance in
their books as of August 16, 2010, contravenes Section 111 of the
NIRC which grants entities that first become liable to VAT a
transitional input tax credit of 2% on beginning inventory. For
this reason, the VAT on toll fees cannot be implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for
declaratory relief as one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal
standing to file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT
coverage by including tollway operators and tollway operations in
the terms "franchise grantees" and "sale of services" under Section
108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a)
amounts to a tax on tax and not a tax on services; b) will impair
the tollway operators right to a reasonable return of investment
under their TOAs; and c) is not administratively feasible and
cannot be implemented.
The Courts Rulings
A. On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating the
petition as one for prohibition rather than one for declaratory
relief, the characterization that petitioners Diaz and Timbol gave
their action. The government has sought reconsideration of the
Courts resolution,7 however, arguing that petitioners allegations
clearly made out a case for declaratory relief, an action over
which the Court has no original jurisdiction. The government adds,
moreover, that the petition does not meet the requirements of Rule
65 for actions for prohibition since the BIR did not exercise
judicial, quasi-judicial, or ministerial functions when it sought
to impose VAT on toll fees. Besides, petitioners Diaz and Timbol
has a plain, speedy, and adequate remedy in the ordinary course of
law against the BIR action in the form of an appeal to the
Secretary of Finance.
But there are precedents for treating a petition for declaratory
relief as one for prohibition if the case has far-reaching
implications and raises questions that need to be resolved for the
public good.8 The Court has also held that a petition for
prohibition is a proper remedy to prohibit or nullify acts of
executive officials that amount to usurpation of legislative
authority.9Here, the imposition of VAT on toll fees has
far-reaching implications. Its imposition would impact, not only on
the more than half a million motorists who use the tollways
everyday, but more so on the governments effort to raise revenue
for funding various projects and for reducing budgetary
deficits.
To dismiss the petition and resolve the issues later, after the
challenged VAT has been imposed, could cause more mischief both to
the tax-paying public and the government. A belated declaration of
nullity of the BIR action would make any attempt to refund to the
motorists what they paid an administrative nightmare with no
solution. Consequently, it is not only the right, but the duty of
the Court to take cognizance of and resolve the issues that the
petition raises.
Although the petition does not strictly comply with the
requirements of Rule 65, the Court has ample power to waive such
technical requirements when the legal questions to be resolved are
of great importance to the public. The same may be said of the
requirement of locus standi which is a mere procedural
requisite.10B. On the Substantive Issues: One. The relevant law in
this case is Section 108 of the NIRC, as amended. VAT is levied,
assessed, and collected, according to Section 108, on the gross
receipts derived from the sale or exchange of services as well as
from the use or lease of properties. The third paragraph of Section
108 defines "sale or exchange of services" as follows:
The phrase sale or exchange of services means the performance of
all kinds of services in the Philippines for others for a fee,
remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real
estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors
or distributors of cinematographic films; persons engaged in
milling, processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, resthouses,
pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods
or cargoes, including persons who transport goods or cargoes for
hire and other domestic common carriers by land relative to their
transport of goods or cargoes; common carriers by air and sea
relative to their transport of passengers, goods or cargoes from
one place in the Philippines to another place in the Philippines;
sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric
utilities, telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under
Section 119 of this Code and non-life insurance companies (except
their crop insurances), including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or
not the performance thereof calls for the exercise or use of the
physical or mental faculties. (Underscoring supplied)
It is plain from the above that the law imposes VAT on "all
kinds of services" rendered in the Philippines for a fee, including
those specified in the list. The enumeration of affected services
is not exclusive.11 By qualifying "services" with the words "all
kinds," Congress has given the term "services" an all-encompassing
meaning. The listing of specific services are intended to
illustrate how pervasive and broad is the VATs reach rather than
establish concrete limits to its application. Thus, every activity
that can be imagined as a form of "service" rendered for a fee
should be deemed included unless some provision of law especially
excludes it.
Now, do tollway operators render services for a fee?
Presidential Decree (P.D.) 1112 or the Toll Operation Decree
establishes the legal basis for the services that tollway operators
render. Essentially, tollway operators construct, maintain, and
operate expressways, also called tollways, at the operators
expense. Tollways serve as alternatives to regular public highways
that meander through populated areas and branch out to local roads.
Traffic in the regular public highways is for this reason
slow-moving. In consideration for constructing tollways at their
expense, the operators are allowed to collect government-approved
fees from motorists using the tollways until such operators could
fully recover their expenses and earn reasonable returns from their
investments.
When a tollway operator takes a toll fee from a motorist, the
fee is in effect for the latters use of the tollway facilities over
which the operator enjoys private proprietary rights12 that its
contract and the law recognize. In this sense, the tollway operator
is no different from the following service providers under Section
108 who allow others to use their properties or facilities for a
fee:
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for hire
and other domestic common carriers by land relative to their
transport of goods or cargoes; and
7. Common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines.
It does not help petitioners cause that Section 108 subjects to
VAT "all kinds of services" rendered for a fee "regardless of
whether or not the performance thereof calls for the exercise or
use of the physical or mental faculties." This means that
"services" to be subject to VAT need not fall under the traditional
concept of services, the personal or professional kinds that
require the use of human knowledge and skills.
And not only do tollway operators come under the broad term "all
kinds of services," they also come under the specific class
described in Section 108 as "all other franchise grantees" who are
subject to VAT, "except those under Section 119 of this Code."
Tollway operators are franchise grantees and they do not belong
to exceptions (the low-income radio and/or television broadcasting
companies with gross annual incomes of less than P10 million and
gas and water utilities) that Section 11913 spares from the payment
of VAT. The word "franchise" broadly covers government grants of a
special right to do an act or series of acts of public
concern.14Petitioners of course contend that tollway operators
cannot be considered "franchise grantees" under Section 108 since
they do not hold legislative franchises. But nothing in Section 108
indicates that the "franchise grantees" it speaks of are those who
hold legislative franchises. Petitioners give no reason, and the
Court cannot surmise any, for making a distinction between
franchises granted by Congress and franchises granted by some other
government agency. The latter, properly constituted, may grant
franchises. Indeed, franchises conferred or granted by local
authorities, as agents of the state, constitute as much a
legislative franchise as though the grant had been made by Congress
itself.15 The term "franchise" has been broadly construed as
referring, not only to authorizations that Congress directly issues
in the form of a special law, but also to those granted by
administrative agencies to which the power to grant franchises has
been delegated by Congress.16Tollway operators are, owing to the
nature and object of their business, "franchise grantees." The
construction, operation, and maintenance of toll facilities on
public improvements are activities of public consequence that
necessarily require a special grant of authority from the state.
Indeed, Congress granted special franchise for the operation of
tollways to the Philippine National Construction Company, the
former tollway concessionaire for the North and South Luzon
Expressways. Apart from Congress, tollway franchises may also be
granted by the TRB, pursuant to the exercise of its delegated
powers under P.D. 1112.17 The franchise in this case is evidenced
by a "Toll Operation Certificate."18Petitioners contend that the
public nature of the services rendered by tollway operators
excludes such services from the term "sale of services" under
Section 108 of the Code. But, again, nothing in Section 108
supports this contention. The reverse is true. In specifically
including by way of example electric utilities, telephone,
telegraph, and broadcasting companies in its list of VAT-covered
businesses, Section 108 opens other companies rendering public
service for a fee to the imposition of VAT. Businesses of a public
nature such as public utilities and the collection of tolls or
charges for its use or service is a franchise.19Nor can petitioners
cite as binding on the Court statements made by certain lawmakers
in the course of congressional deliberations of the would-be law.
As the Court said in South African Airways v. Commissioner of
Internal Revenue,20 "statements made by individual members of
Congress in the consideration of a bill do not necessarily reflect
the sense of that body and are, consequently, not controlling in
the interpretation of law." The congressional will is ultimately
determined by the language of the law that the lawmakers voted on.
Consequently, the meaning and intention of the law must first be
sought "in the words of the statute itself, read and considered in
their natural, ordinary, commonly accepted and most obvious
significations, according to good and approved usage and without
resorting to forced or subtle construction."
Two. Petitioners argue that a toll fee is a "users tax" and to
impose VAT on toll fees is tantamount to taxing a tax.21 Actually,
petitioners base this argument on the following discussion in
Manila International Airport Authority (MIAA) v. Court of
Appeals:22No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like "roads, canals,
rivers, torrents, ports and bridges constructed by the State," are
owned by the State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a "port"
constructed by the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties of public dominion
and thus owned by the State or the Republic of the Philippines.
x x x The operation by the government of a tollway does not
change the character of the road as one for public use. Someone
must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those
among the public who actually use the road through the toll fees
they pay upon using the road. The tollway system is even a more
efficient and equitable manner of taxing the public for the
maintenance of public roads.The charging of fees to the public does
not determine the character of the property whether it is for
public dominion or not. Article 420 of the Civil Code defines
property of public dominion as "one intended for public use." Even
if the government collects toll fees, the road is still "intended
for public use" if anyone can use the road under the same terms and
conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not
affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the
landing fees MIAA charges to airlines, constitute the bulk of the
income that maintains the operations of MIAA. The collection of
such fees does not change the character of MIAA as an airport for
public use. Such fees are often termed users tax. This means taxing
those among the public who actually use a public facility instead
of taxing all the public including those who never use the
particular public facility. A users tax is more equitable a
principle of taxation mandated in the 1987 Constitution."23
(Underscoring supplied)
Petitioners assume that what the Court said above, equating
terminal fees to a "users tax" must also pertain to tollway fees.
But the main issue in the MIAA case was whether or not Paraaque
City could sell airport lands and buildings under MIAA
administration at public auction to satisfy unpaid real estate
taxes. Since local governments have no power to tax the national
government, the Court held that the City could not proceed with the
auction sale. MIAA forms part of the national government although
not integrated in the department framework."24 Thus, its airport
lands and buildings are properties of public dominion beyond the
commerce of man under Article 420(1)25 of the Civil Code and could
not be sold at public auction.
As can be seen, the discussion in the MIAA case on toll roads
and toll fees was made, not to establish a rule that tollway fees
are users tax, but to make the point that airport lands and
buildings are properties of public dominion and that the collection
of terminal fees for their use does not make them private
properties. Tollway fees are not taxes. Indeed, they are not
assessed and collected by the BIR and do not go to the general
coffers of the government.
It would of course be another matter if Congress enacts a law
imposing a users tax, collectible from motorists, for the
construction and maintenance of certain roadways. The tax in such a
case goes directly to the government for the replenishment of
resources it spends for the roadways. This is not the case here.
What the government seeks to tax here are fees collected from
tollways that are constructed, maintained, and operated by private
tollway operators at their own expense under the build, operate,
and transfer scheme that the government has adopted for
expressways.26 Except for a fraction given to the government, the
toll fees essentially end up as earnings of the tollway
operators.
In sum, fees paid by the public to tollway operators for use of
the tollways, are not taxes in any sense. A tax is imposed under
the taxing power of the government principally for the purpose of
raising revenues to fund public expenditures.27 Toll fees, on the
other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as
to assure them a reasonable margin of income. Although toll fees
are charged for the use of public facilities, therefore, they are
not government exactions that can be properly treated as a tax.
Taxes may be imposed only by the government under its sovereign
authority, toll fees may be demanded by either the government or
private individuals or entities, as an attribute of
ownership.28Parenthetically, VAT on tollway operations cannot be
deemed a tax on tax due to the nature of VAT as an indirect tax. In
indirect taxation, a distinction is made between the liability for
the tax and burden of the tax. The seller who is liable for the VAT
may shift or pass on the amount of VAT it paid on goods, properties
or services to the buyer. In such a case, what is transferred is
not the sellers liability but merely the burden of the VAT.29Thus,
the seller remains directly and legally liable for payment of the
VAT, but the buyer bears its burden since the amount of VAT paid by
the former is added to the selling price. Once shifted, the VAT
ceases to be a tax30 and simply becomes part of the cost that the
buyer must pay in order to purchase the good, property or
service.
Consequently, VAT on tollway operations is not really a tax on
the tollway user, but on the tollway operator. Under Section 105 of
the Code, 31 VAT is imposed on any person who, in the course of
trade or business, sells or renders services for a fee. In other
words, the seller of services, who in this case is the tollway
operator, is the person liable for VAT. The latter merely shifts
the burden of VAT to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on
tax even if toll fees were deemed as a "users tax." VAT is assessed
against the tollway operators gross receipts and not necessarily on
the toll fees. Although the tollway operator may shift the VAT
burden to the tollway user, it will not make the latter directly
liable for the VAT. The shifted VAT burden simply becomes part of
the toll fees that one has to pay in order to use the
tollways.32Three. Petitioner Timbol has no personality to invoke
the non-impairment of contract clause on behalf of private
investors in the tollway projects. She will neither be prejudiced
by nor be affected by the alleged diminution in return of
investments that may result from the VAT imposition. She has no
interest at all in the profits to be earned under the TOAs. The
interest in and right to recover investments solely belongs to the
private tollway investors.
Besides, her allegation that the private investors rate of
recovery will be adversely affected by imposing VAT on tollway
operations is purely speculative. Equally presumptuous is her
assertion that a stipulation in the TOAs known as the Material
Adverse Grantor Action will be activated if VAT is thus imposed.
The Court cannot rule on matters that are manifestly conjectural.
Neither can it prohibit the State from exercising its sovereign
taxing power based on uncertain, prophetic grounds.
Four. Finally, petitioners assert that the substantiation
requirements for claiming input VAT make the VAT on tollway
operations impractical and incapable of implementation. They cite
the fact that, in order to claim input VAT, the name, address and
tax identification number of the tollway user must be indicated in
the VAT receipt or invoice. The manner by which the BIR intends to
implement the VAT by rounding off the toll rate and putting any
excess collection in an escrow account is also illegal, while the
alternative of giving "change" to thousands of motorists in order
to meet the exact toll rate would be a logistical nightmare. Thus,
according to them, the VAT on tollway operations is not
administratively feasible.33Administrative feasibility is one of
the canons of a sound tax system. It simply means that the tax
system should be capable of being effectively administered and
enforced with the least inconvenience to the taxpayer.
Non-observance of the canon, however, will not render a tax
imposition invalid "except to the extent that specific
constitutional or statutory limitations are impaired."34 Thus, even
if the imposition of VAT on tollway operations may seem burdensome
to implement, it is not necessarily invalid unless some aspect of
it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will
actually implement the VAT on tollway operations. Any declaration
by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Although the transcript of the
August 12, 2010 Senate hearing provides some clue as to how the BIR
intends to go about it,35 the facts pertaining to the matter are
not sufficiently established for the Court to pass judgment on.
Besides, any concern about how the VAT on tollway operations will
be enforced must first be addressed to the BIR on whom the task of
implementing tax laws primarily and exclusively rests. The Court
cannot preempt the BIRs discretion on the matter, absent any clear
violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare as
illegal, BIR RMC 63-2010 which directs toll companies to record an
accumulated input VAT of zero balance in their books as of August
16, 2010, the date when the VAT imposition was supposed to take
effect. The issuance allegedly violates Section 111(A)36 of the
Code which grants first time VAT payers a transitional input VAT of
2% on beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is
actually the product of negotiations with tollway operators who
have been assessed VAT as early as 2005, but failed to charge
VAT-inclusive toll fees which by now can no longer be collected.
The tollway operators agreed to waive the 2% transitional input
VAT, in exchange for cancellation of their past due VAT
liabilities. Notably, the right to claim the 2% transitional input
VAT belongs to the tollway operators who have not questioned the
circulars validity. They are thus the ones who have a right to
challenge the circular in a direct and proper action brought for
the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp
legislative prerogative or expand the VAT laws coverage when she
sought to impose VAT on tollway operations. Section 108(A) of the
Code clearly states that services of all other franchise grantees
are subject to VAT, except as may be provided under Section 119 of
the Code. Tollway operators are not among the franchise grantees
subject to franchise tax under the latter provision. Neither are
their services among the VAT-exempt transactions under Section 109
of the Code.
If the legislative intent was to exempt tollway operations from
VAT, as petitioners so strongly allege, then it would have been
well for the law to clearly say so. Tax exemptions must be
justified by clear statutory grant and based on language in the law
too plain to be mistaken.37 But as the law is written, no such
exemption obtains for tollway operators. The Court is thus
duty-bound to simply apply the law as it is found.1avvphi1Lastly,
the grant of tax exemption is a matter of legislative policy that
is within the exclusive prerogative of Congress. The Courts role is
to merely uphold this legislative policy, as reflected first and
foremost in the language of the tax statute. Thus, any unwarranted
burden that may be perceived to result from enforcing such policy
must be properly referred to Congress. The Court has no discretion
on the matter but simply applies the law.
The VAT on franchise grantees has been in the statute books
since 1994 when R.A. 7716 or the Expanded Value-Added Tax law was
passed. It is only now, however, that the executive has earnestly
pursued the VAT imposition against tollway operators. The executive
exercises exclusive discretion in matters pertaining to the
implementation and execution of tax laws. Consequently, the
executive is more properly suited to deal with the immediate and
practical consequences of the VAT imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance and
Commissioner of Internal Revenues motion for reconsideration of its
August 24, 2010 resolution, DISMISSES the petitioners Renato V.
Diaz and Aurora Ma. F. Timbols petition for lack of merit, and SETS
ASIDE the Courts temporary restraining order dated August 13,
2010.
SO ORDERED.
G.R. No. 183505 February 26, 2010COMMISSIONER OF INTERNAL
REVENUE, vs. SM PRIME HOLDINGS, INC. and FIRST ASIA REALTY DEVT
CORPWhen the intent of the law is not apparent as worded, or when
the application of the law would lead to absurdity or injustice,
legislative history is all important. In such cases, courts may
take judicial notice of the origin and history of the law,1 the
deliberations during the enactment,2 as well as prior laws on the
same subject matter3 to ascertain the true intent or spirit of the
law.
This Petition for Review on Certiorari under Rule 45 of the
Rules of Court, in relation to Republic Act (RA) No. 9282,4 seeks
to set aside the April 30, 2008 Decision5 and the June 24, 2008
Resolution6 of the Court of Tax Appeals (CTA).
Factual AntecedentsRespondents SM Prime Holdings, Inc. (SM
Prime) and First Asia Realty Development Corporation (First Asia)
are domestic corporations duly organized and existing under the
laws of the Republic of the Philippines. Both are engaged in the
business of operating cinema houses, among others.7CTA Case No.
7079On September 26, 2003, the Bureau of Internal Revenue (BIR)
sent SM Prime a Preliminary Assessment Notice (PAN) for value added
tax (VAT) deficiency on cinema ticket sales in the amount of
P119,276,047.40 for taxable year 2000.8 In response, SM Prime filed
a letter-protest dated December 15, 2003.9On December 12, 2003, the
BIR sent SM Prime a Formal Letter of Demand for the alleged VAT
deficiency, which the latter protested in a letter dated January
14, 2004.10On September 6, 2004, the BIR denied the protest filed
by SM Prime and ordered it to pay the VAT deficiency for taxable
year 2000 in the amount of P124,035,874.12.11On October 15, 2004,
SM Prime filed a Petition for Review before the CTA docketed as CTA
Case No. 7079.12CTA Case No. 7085On May 15, 2002, the BIR sent
First Asia a PAN for VAT deficiency on
cinema ticket sales for taxable year 1999 in the total amount of
P35,823,680.93.13 First Asia protested the PAN in a letter dated
July 9, 2002.14Subsequently, the BIR issued a Formal Letter of
Demand for the alleged VAT deficiency which was protested by First
Asia in a letter dated December 12, 2002.15On September 6, 2004,
the BIR rendered a Decision denying the protest and ordering First
Asia to pay the amount of P35,823,680.93 for VAT deficiency for
taxable year 1999.16Accordingly, on October 20, 2004, First Asia
filed a Petition for Review before the CTA, docketed as CTA Case
No. 7085.17CTA Case No. 7111On April 16, 2004, the BIR sent a PAN
to First Asia for VAT deficiency on cinema ticket sales for taxable
year 2000 in the amount of P35,840,895.78. First Asia protested the
PAN through a letter dated April 22, 2004.18Thereafter, the BIR
issued a Formal Letter of Demand for alleged VAT deficiency.19
First Asia protested the same in a letter dated July 9, 2004.20On
October 5, 2004, the BIR denied the protest and ordered First Asia
to pay the VAT deficiency in the amount of P35,840,895.78 for
taxable year 2000.21This prompted First Asia to file a Petition for
Review before the CTA on December 16, 2004. The case was docketed
as CTA Case No. 7111.22CTA Case No. 7272Re: Assessment Notice No.
008-02A PAN for VAT deficiency on cinema ticket sales for the
taxable year 2002 in the total amount of P32,802,912.21 was issued
against First Asia by the BIR. In response, First Asia filed a
protest-letter dated November 11, 2004. The BIR then sent a Formal
Letter of Demand, which was protested by First Asia on December 14,
2004.23Re: Assessment Notice No. 003-03A PAN for VAT deficiency on
cinema ticket sales in the total amount of P28,196,376.46 for the
taxable year 2003 was issued by the BIR against First Asia. In a
letter dated September 23, 2004, First Asia protested the PAN. A
Formal Letter of Demand was thereafter issued by the BIR to First
Asia, which the latter protested through a letter dated November
11, 2004. 24On May 11, 2005, the BIR rendered a Decision denying
the protests. It ordered First Asia to pay the amounts of
P33,610,202.91 and P28,590,826.50 for VAT deficiency for taxable
years 2002 and 2003, respectively.25Thus, on June 22, 2005, First
Asia filed a Petition for Review before the CTA, docketed as CTA
Case No. 7272.26Consolidated PetitionsThe Commissioner of Internal
Revenue (CIR) filed his Answers to the Petitions filed by SM Prime
and First Asia.27On July 1, 2005, SM Prime filed a Motion to
Consolidate CTA Case Nos. 7085, 7111 and 7272 with CTA Case No.
7079 on the grounds that the issues raised therein are identical
and that SM Prime is a majority shareholder of First Asia. The
motion was granted.28Upon submission of the parties respective
memoranda, the consolidated cases were submitted for decision on
the sole issue of whether gross receipts derived from admission
tickets by cinema/theater operators or proprietors are subject to
VAT.29Ruling of the CTA First DivisionOn September 22, 2006, the
First Division of the CTA rendered a Decision granting the Petition
for Review. Resorting to the language used and the legislative
history of the law, it ruled that the activity of showing
cinematographic films is not a service covered by VAT under the
National Internal Revenue Code (NIRC) of 1997, as amended, but an
activity subject to amusement tax under RA 7160, otherwise known as
the Local Government Code (LGC) of 1991. Citing House Joint
Resolution No. 13, entitled "Joint Resolution Expressing the True
Intent of Congress with Respect to the Prevailing Tax Regime in the
Theater and Local Film Industry Consistent with the States Policy
to Have a Viable, Sustainable and Competitive Theater and Film
Industry as One of its Partners in National Development,"30 the CTA
First Division held that the House of Representatives resolved that
there should only be one business tax applicable to theaters and
movie houses, which is the 30% amusement tax imposed by cities and
provinces under the LGC of 1991. Further, it held that consistent
with the States policy to have a viable, sustainable and
competitive theater and film industry, the national government
should be precluded from imposing its own business tax in addition
to that already imposed and collected by local government units.
The CTA First Division likewise found that Revenue Memorandum
Circular (RMC) No. 28-2001, which imposes VAT on gross receipts
from admission to cinema houses, cannot be given force and effect
because it failed to comply with the procedural due process for tax
issuances under RMC No. 20-86.31 Thus, it disposed of the case as
follows:
IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the
Petitions for Review. Respondents Decisions denying petitioners
protests against deficiency value-added taxes are hereby REVERSED.
Accordingly, Assessment Notices Nos. VT-00-000098, VT-99-000057,
VT-00-000122, 003-03 and 008-02 are ORDERED cancelled and set
aside.
SO ORDERED.32Aggrieved, the CIR moved for reconsideration which
was denied by the First Division in its Resolution dated December
14, 2006.33Ruling of the CTA En BancThus, the CIR appealed to the
CTA En Banc.34 The case was docketed as CTA EB No. 244.35 The CTA
En Banc however denied36 the Petition for Review and dismissed37 as
well petitioners Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC actually sets
forth an exhaustive enumeration of what services are intended to be
subject to VAT. And since the showing or exhibition of motion
pictures, films or movies by cinema operators or proprietors is not
among the enumerated activities contemplated in the phrase "sale or
exchange of services," then gross receipts derived by cinema/
theater operators or proprietors from admission tickets in showing
motion pictures, film or movie are not subject to VAT. It
reiterated that the exhibition or showing of motion pictures,
films, or movies is instead subject to amusement tax under the LGC
of 1991. As regards the validity of RMC No. 28-2001, the CTA En
Banc agreed with its First Division that the same cannot be given
force and effect for failure to comply with RMC No. 20-86.
IssueHence, the present recourse, where petitioner alleges that
the CTA En Banc seriously erred:
(1) In not finding/holding that the gross receipts derived by
operators/proprietors of cinema houses from admission tickets [are]
subject to the 10% VAT because:
(a) THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS TO
THE PAYING PUBLIC IS A SALE OF SERVICE;
(b) UNLESS EXEMPTED BY LAW, ALL SALES OF SERVICES ARE EXPRESSLY
SUBJECT TO VAT UNDER SECTION 108 OF THE NIRC OF 1997;
(c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR PROVISION OF LAW
AND THE APPLICATION OF RULES OF STATUTORY CONSTRUCTION AND
EXTRINSIC AIDS IS UNWARRANTED;
(d) GRANTING WITHOUT CONCEDING THAT RULES OF CONSTRUCTION ARE
APPLICABLE HEREIN, STILL THE HONORABLE COURT ERRONEOUSLY APPLIED
THE SAME AND PROMULGATED DANGEROUS PRECEDENTS;
(e) THERE IS NO VALID, EXISTING PROVISION OF LAW EXEMPTING
RESPONDENTS SERVICES FROM THE VAT IMPOSED UNDER SECTION 108 OF THE
NIRC OF 1997;
(f) QUESTIONS ON THE WISDOM OF THE LAW ARE NOT PROPER ISSUES TO
BE TRIED BY THE HONORABLE COURT; and
(g) RESPONDENTS WERE TAXED BASED ON THE PROVISION OF SECTION 108
OF THE NIRC.
(2) In ruling that the enumeration in Section 108 of the NIRC of
1997 is exhaustive in coverage;
(3) In misconstruing the NIRC of 1997 to conclude that the
showing of motion pictures is merely subject to the amusement tax
imposed by the Local Government Code; and
(4) In invalidating Revenue Memorandum Circular (RMC) No.
28-2001.38Simply put, the issue in this case is whether the gross
receipts derived by operators or proprietors of cinema/theater
houses from admission tickets are subject to VAT.
Petitioners ArgumentsPetitioner argues that the enumeration of
services subject to VAT in Section 108 of the NIRC is not
exhaustive because it covers all sales of services unless exempted
by law. He claims that the CTA erred in applying the rules on
statutory construction and in using extrinsic aids in interpreting
Section 108 because the provision is clear and unambiguous. Thus,
he maintains that the exhibition of movies by cinema operators or
proprietors to the paying public, being a sale of service, is
subject to VAT.
Respondents ArgumentsRespondents, on the other hand, argue that
a plain reading of Section 108 of the NIRC of 1997 shows that the
gross receipts of proprietors or operators of cinemas/theaters
derived from public admission are not among the services subject to
VAT. Respondents insist that gross receipts from cinema/theater
admission tickets were never intended to be subject to any tax
imposed by the national government. According to them, the absence
of gross receipts from cinema/theater admission tickets from the
list of services which are subject to the national amusement tax
under Section 125 of the NIRC of 1997 reinforces this legislative
intent. Respondents also highlight the fact that RMC No. 28-2001 on
which the deficiency assessments were based is an unpublished
administrative ruling.
Our RulingThe petition is bereft of merit.
The enumeration of services subject to VAT under Section 108 of
the NIRC is not exhaustive
Section 108 of the NIRC of the 1997 reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease
of Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of
gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
The phrase "sale or exchange of services" means the performance
of all kinds of services in the Philippines for others for a fee,
remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real
estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors
or distributors of cinematographic films; persons engaged in
milling, processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, rest houses,
pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods
or cargoes, including persons who transport goods or cargoes for
hire and other domestic common carriers by land, air and water
relative to their transport of goods or cargoes; services of
franchise grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under
Section 119 of this Code; services of banks, non-bank financial
intermediaries and finance companies; and non-life insurance
companies (except their crop insurances), including surety,
fidelity, indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties. The phrase
"sale or exchange of services" shall likewise include:
(1) The lease or the use of or the right or privilege to use any
copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or
right;
x x x x
(7) The lease of motion picture films, films, tapes and discs;
and
(8) The lease or the use of or the right to use radio,
television, satellite transmission and cable television time.
x x x x (Emphasis supplied)
A cursory reading of the foregoing provision clearly shows that
the enumeration of the "sale or exchange of services" subject to
VAT is not exhaustive. The words, "including," "similar services,"
and "shall likewise include," indicate that the enumeration is by
way of example only.39Among those included in the enumeration is
the "lease of motion picture films, films, tapes and discs." This,
however, is not the same as the showing or exhibition of motion
pictures or films. As pointed out by the CTA En Banc:
"Exhibition" in Blacks Law Dictionary is defined as "To show or
display. x x x To produce anything in public so that it may be
taken into possession" (6th ed., p. 573). While the word "lease" is
defined as "a contract by which one owning such property grants to
another the right to possess, use and enjoy it on specified period
of time in exchange for periodic payment of a stipulated price,
referred to as rent (Blacks Law Dictionary, 6th ed., p. 889). x x
x40Since the activity of showing motion pictures, films or movies
by cinema/ theater operators or proprietors is not included in the
enumeration, it is incumbent upon the court to the determine
whether such activity falls under the phrase "similar services."
The intent of the legislature must therefore be ascertained.
The legislature never intended operators
or proprietors of cinema/theater houses to be covered by VAT
Under the NIRC of 1939,41 the national government imposed
amusement tax on proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses, boxing exhibitions, and
other places of amusement, including cockpits, race tracks, and
cabaret.42 In the case of theaters or cinematographs, the taxes
were first deducted, withheld, and paid by the proprietors,
lessees, or operators of such theaters or cinematographs before the
gross receipts were divided between the proprietors, lessees, or
operators of the theaters or cinematographs and the distributors of
the cinematographic films. Section 1143 of the Local Tax Code,44
however, amended this provision by transferring the power to impose
amusement tax45 on admission from theaters, cinematographs, concert
halls, circuses and other places of amusements exclusively to the
local government. Thus, when the NIRC of 197746 was enacted, the
national government imposed amusement tax only on proprietors,
lessees or operators of cabarets, day and night clubs, Jai-Alai and
race tracks.47On January 1, 1988, the VAT Law48 was promulgated. It
amended certain provisions of the NIRC of 1977 by imposing a
multi-stage VAT to replace the tax on original and subsequent sales
tax and percentage tax on certain services. It imposed VAT on sales
of services under Section 102 thereof, which provides:
SECTION 102. Value-added tax on sale of services. (a) Rate and
base of tax. There shall be levied, assessed and collected, a
value-added tax equivalent to 10% percent of gross receipts derived
by any person engaged in the sale of services. The phrase "sale of
services" means the performance of all kinds of services for others
for a fee, remuneration or consideration, including those performed
or rendered by construction and service contractors; stock, real
estate, commercial, customs and immigration brokers; lessors of
personal property; lessors or distributors of cinematographic
films; persons engaged in milling, processing, manufacturing or
repacking goods for others; and similar services regardless of
whether or not the performance thereof calls for the exercise or
use of the physical or mental faculties: Provided That the
following services performed in the Philippines by VAT-registered
persons shall be subject to 0%:
(1) Processing manufacturing or repacking goods for other
persons doing business outside the Philippines which goods are
subsequently exported, x x x
x x x x
"Gross receipts" means the total amount of money or its
equivalent representing the contract price, compensation or service
fee, including the amount charged for materials supplied with the
services and deposits or advance payments actually or
constructively received during the taxable quarter for the service
performed or to be performed for another person, excluding
value-added tax.
(b) Determination of the tax. (1) Tax billed as a separate item
in the invoice. If the tax is billed as a separate item in the
invoice, the tax shall be based on the gross receipts, excluding
the tax.
(2) Tax not billed separately or is billed erroneously in the
invoice. If the tax is not billed separately or is billed
erroneously in the invoice, the tax shall be determined by
multiplying the gross receipts (including the amount intended to
cover the tax or the tax billed erroneously) by 1/11. (Emphasis
supplied)
Persons subject to amusement tax under the NIRC of 1977, as
amended, however, were exempted from the coverage of VAT.49On
February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued
RMC 8-88, which clarified that the power to impose amusement tax on
gross receipts derived from admission tickets was exclusive with
the local government units and that only the gross receipts of
amusement places derived from sources other than from admission
tickets were subject to amusement tax under the NIRC of 1977, as
amended. Pertinent portions of RMC 8-88 read:
Under the Local Tax Code (P.D. 231, as amended), the
jurisdiction to levy amusement tax on gross receipts arising from
admission to places of amusement has been transferred to the local
governments to the exclusion of the national government.
x x x x
Since the promulgation of the Local Tax Code which took effect
on June 28, 1973 none of the amendatory laws which amended the
National Internal Revenue Code, including the value added tax law
under Executive Order No. 273, has amended the provisions of
Section 11 of the Local Tax Code. Accordingly, the sole
jurisdiction for collection of amusement tax on admission receipts
in places of amusement rests exclusively on the local government,
to the exclusion of the national government. Since the Bureau of
Internal Revenue is an agency of the national government, then it
follows that it has no legal mandate to levy amusement tax on
admission receipts in the said places of amusement.
Considering the foregoing legal background, the provisions under
Section 123 of the National Internal Revenue Code as renumbered by
Executive Order No. 273 (Sec. 228, old NIRC) pertaining to
amusement taxes on places of amusement shall be implemented in
accordance with BIR RULING, dated December 4, 1973 and BIR RULING
NO. 231-86 dated November 5, 1986 to wit:
"x x x Accordingly, only the gross receipts of the amusement
places derived from sources other than from admission tickets shall
be subject to x x x amusement tax prescribed under Section 228 of
the Tax Code, as amended (now Section 123, NIRC, as amended by E.O.
273). The tax on gross receipts derived from admission tickets
shall be levied and collected by the city government pursuant to
Section 23 of Presidential Decree No. 231, as amended x x x" or by
the provincial government, pursuant to Section 11 of P.D. 231,
otherwise known as the Local Tax Code. (Emphasis supplied)
On October 10, 1991, the LGC of 1991 was passed into law. The
local government retained the power to impose amusement tax on
proprietors, lessees, or operators of theaters, cinemas, concert
halls, circuses, boxing stadia, and other places of amusement at a
rate of not more than thirty percent (30%) of the gross receipts
from admission fees under Section 140 thereof.50 In the case of
theaters or cinemas, the tax shall first be deducted and withheld
by their proprietors, lessees, or operators and paid to the local
government before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the
cinematographic films. However, the provision in the Local Tax Code
expressly excluding the national government from collecting tax
from the proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses and other places of
amusements was no longer included.
In 1994, RA 7716 restructured the VAT system by widening its tax
base and enhancing its administration. Three years later, RA 7716
was amended by RA 8241. Shortly thereafter, the NIRC of 199751 was
signed into law. Several amendments52 were made to expand the
coverage of VAT. However, none pertain to cinema/theater operators
or proprietors. At present, only lessors or distributors of
cinematographic films are subject to VAT. While persons subject to
amusement tax53 under the NIRC of 1997 are exempt from the coverage
of VAT.54Based on the foregoing, the following facts can be
established:
(1) Historically, the activity of showing motion pictures, films
or movies by cinema/theater operators or proprietors has always
been considered as a form of entertainment subject to amusement
tax.
(2) Prior to the Local Tax Code, all forms of amusement tax were
imposed by the national government.
(3) When the Local Tax Code was enacted, amusement tax on
admission tickets from theaters, cinematographs, concert halls,
circuses and other places of amusements were transferred to the
local government.
(4) Under the NIRC of 1977, the national government imposed
amusement tax only on proprietors, lessees or operators of
cabarets, day and night clubs, Jai-Alai and race tracks.
(5) The VAT law was enacted to replace the tax on original and
subsequent sales tax and percentage tax on certain services.
(6) When the VAT law was implemented, it exempted persons
subject to amusement tax under the NIRC from the coverage of
VAT.1auuphil(7) When the Local Tax Code was repealed by the LGC of
1991, the local government continued to impose amusement tax on
admission tickets from theaters, cinematographs, concert halls,
circuses and other places of amusements.
(8) Amendments to the VAT law have been consistent in exempting
persons subject to amusement tax under the NIRC from the coverage
of VAT.
(9) Only lessors or distributors of cinematographic films are
included in the coverage of VAT.
These reveal the legislative intent not to impose VAT on persons
already covered by the amusement tax. This holds true even in the
case of cinema/theater operators taxed under the LGC of 1991
precisely because the VAT law was intended to replace the
percentage tax on certain services. The mere fact that they are
taxed by the local government unit and not by the national
government is immaterial. The Local Tax Code, in transferring the
power to tax gross receipts derived by cinema/theater operators or
proprietor from admission tickets to the local government, did not
intend to treat cinema/theater houses as a separate class. No
distinction must, therefore, be made between the places of
amusement taxed by the national government and those taxed by the
local government.
To hold otherwise would impose an unreasonable burden on
cinema/theater houses operators or proprietors, who would be paying
an additional 10%55 VAT on top of the 30% amusement tax imposed by
Section 140 of the LGC of 1991, or a total of 40% tax. Such
imposition would result in injustice, as persons taxed under the
NIRC of 1997 would be in a better position than those taxed under
the LGC of 1991. We need not belabor that a literal application of
a law must be rejected if it will operate unjustly or lead to
absurd results.56 Thus, we are convinced that the legislature never
intended to include cinema/theater operators or proprietors in the
coverage of VAT.
On this point, it is apropos to quote the case of Roxas v. Court
of Tax Appeals,57 to wit:
The power of taxation is sometimes called also the power to
destroy. Therefore, it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector
kill the "hen that lays the golden egg." And, in order to maintain
the general public's trust and confidence in the Government this
power must be used justly and not treacherously.
The repeal of the Local Tax Code by the LGC of 1991 is not a
legal basis for the imposition of VAT
Petitioner, in issuing the assessment notices for deficiency VAT
against respondents, ratiocinated that:
Basically, it was acknowledged that a cinema/theater operator
was then subject to amusement tax under Section 260 of Commonwealth
Act No. 466, otherwise known as the National Internal Revenue Code
of 1939, computed on the amount paid for admission. With the
enactment of the Local Tax Code under Presidential Decree (PD) No.
231, dated June 28, 1973, the power of imposing taxes on gross
receipts from admission of persons to cinema/theater and other
places of amusement had, thereafter, been transferred to the
provincial government, to the exclusion of the national or
municipal government (Sections 11 & 13, Local Tax Code).
However, the said provision containing the exclusive power of the
provincial government to impose amusement tax, had also been
repealed and/or deleted by Republic Act (RA) No. 7160, otherwise
known as the Local Government Code of 1991, enacted into law on
October 10, 1991. Accordingly, the enactment of RA No. 7160, thus,
eliminating the statutory prohibition on the national government to
impose business tax on gross receipts from admission of persons to
places of amusement, led the way to the valid imposition of the VAT
pursuant to Section 102 (now Section 108) of the old Tax Code, as
amended by the Expanded VAT Law (RA No. 7716) and which was
implemented beginning January 1, 1996.58 (Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is not a
legal basis for the imposition of VAT on the gross receipts of
cinema/theater operators or proprietors derived from admission
tickets. The removal of the prohibition under the Local Tax Code
did not grant nor restore to the national government the power to
impose amusement tax on cinema/theater operators or proprietors.
Neither did it expand the coverage of VAT. Since the imposition of
a tax is a burden on the taxpayer, it cannot be presumed nor can it
be extended by implication. A law will not be construed as imposing
a tax unless it does so clearly, expressly, and unambiguously.59 As
it is, the power to impose amusement tax on cinema/theater
operators or proprietors remains with the local government.
Revenue Memorandum Circular No. 28-2001 is invalid
Considering that there is no provision of law imposing VAT on
the gross receipts of cinema/theater operators or proprietors
derived from admission tickets, RMC No. 28-2001 which imposes VAT
on the gross receipts from admission to cinema houses must be
struck down. We cannot overemphasize that RMCs must not override,
supplant, or modify the law, but must remain consistent and in
harmony with, the law they seek to apply and implement.60In view of
the foregoing, there is no need to discuss whether RMC No. 28-2001
complied with the procedural due process for tax issuances as
prescribed under RMC No. 20-86.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents need
not prove their entitlement to an exemption from the coverage of
VAT. The rule that tax exemptions should be construed strictly
against the taxpayer presupposes that the taxpayer is clearly
subject to the tax being levied against him.61 The reason is
obvious: it is both illogical and impractical to determine who are
exempted without first determining who are covered by the
provision.62 Thus, unless a statute imposes a tax clearly,
expressly and unambiguously, what applies is the equally
well-settled rule that the imposition of a tax cannot be
presumed.63 In fact, in case of doubt, tax laws must be construed
strictly against the government and in favor of the
taxpayer.64WHEREFORE, the Petition is hereby DENIED. The assailed
April 30, 2008 Decision of the Court of Tax Appeals En Banc holding
that gross receipts derived by respondents from admission tickets
in showing motion pictures, films or movies are not subject to
value-added tax under Section 108 of the National Internal Revenue
Code of 1997, as amended, and its June 24, 2008 Resolution denying
the motion for reconsideration are AFFIRMED.
SO ORDERED.
G.R. No. 179085 January 21, 2010TAMBUNTING PAWNSHOP, INC., vs.
COMMISSIONER OF INTERNAL REVENUE- - - - MISSING PART - - -
1Petitioner protested the assessment.
HYPERLINK
"http://www.lawphil.net/judjuris/juri2010/jan2010/gr_179085_2010.html"
\l "fnt2" 2 As the protest merited no response, it filed a Petition
for Review3 with the Court of Tax Appeals (CTA) pursuant to Section
228 of the National Internal Revenue Code,4 raising the following
arguments:A. Pawnshops are not subject to Value Added Tax pursuant
to Section 108 of the National Internal Revenue Code.5B. Petitioner
properly withheld and remitted to the respondent the correct amount
of expanded withholding tax for taxable year 1999.6C. Petitioner
has already paid the assessed amount of P14,398.38 [sic],
representing deficiency withholding tax on compensation, thus,
assessment on withholding on compensation must be cancelled.7D.
Petitioner's pawn tickets are not subject to documentary stamp tax
pursuant to existing laws and jurisprudence.8 (emphasis and
underscoring in the original)
The First Division of the CTA ruled that petitioner is liable
for VAT and documentary stamp tax but not for withholding tax on
compensation and expanded withholding tax.9 Thus it disposed:
WHEREFORE, premises considered, the Petition for Review is
PARTIALLY GRANTED. Respondent's assessments for deficiency Expanded
Withholding Tax and Withholding Tax on Compensation for the taxable
year 1999, in the amounts of Twenty One Thousand Seven Hundred
Twenty Three and 75/100 Pesos (P21,723.75) and Sixty Seven Thousand
Two Hundred One and 55/100 Pesos (P67,201.55), respectively, are
hereby CANCELLED and SET ASIDE. However, the assessments for
deficiency Value-Added Tax and Documentary Stamp Tax are hereby
AFFIRMED.
Accordingly, petitioner is ORDERED TO PAY the respondent the
amount of Three Million Fifty Five Thousand Five Hundred Sixty Four
and 34/100 Pesos (P3,055,564.34) and Four Hundred Six Thousand
Ninety Two and 500/100 Pesos (P406,092.50) representing deficiency
Value-Added Tax and Documentary Stamp Tax, respectively, for the
taxable year 1999, plus 20% delinquency interest from February 18,
2003 up to the time such amount is fully paid pursuant to Section
249 (c) of the 1997 NIRC.
SO ORDERED.10 (emphasis in the original; underscoring
supplied)
Petitioner's Motion for Partial Reconsideration11 having been
denied,12 it filed a Petition for Review13 before the CTA En Banc
which dismissed14 it as it did petitioner's Motion for
Reconsideration.15Hence, the present Petition for Review on
Certiorari.16
To petitioner, a pawnshop is not enumerated as one of those
engaged in "sale or exchange of services"17 in Section 108 of the
National Internal Revenue Code.18 Citing Commissioner of Internal
Revenue v. Michel J. Lhuillier Pawnshops, Inc.,19 it contends that
the nature of the business of pawnshops does not fall under
"service" as defined under the Legal Thesaurus of William C.
Burton, viz:
accommodate, administer to, advance, afford, aid, assist,
attend, be of use, care for, come to the aid of, commodere, comply,
confer a benefit, contribute to, cooperate, deservire, discharge
one's duty, do a service, do one's bidding, fill an office,
forward, furnish aid, furnish assistance, give help, lend, aid,
minister to, promote, render help, servire, submit, succor, supply
aid, take care of, tend, wait on, work for.20The petition is in
part meritorious.
On the issue of whether pawnshops are liable to pay VAT, the
Court, in First Planters Pawnshop, Inc. v. Commissioner of Internal
Revenue,21 held:
In fine, prior to the [passage of the] EVAT Law [in 1994],
pawnshops were treated as lending investors subject to lending
investor's tax. Subsequently, with the Court's ruling in Lhuillier,
pawnshops were then treated as VAT-able enterprises under the
general classification of "sale or exchange of services" under
Section 108 (A) of the Tax Code of 1997, as amended. R.A. No. 9238
[which was passed in 2004] finally classified pawnshops as Other
Non-bank Financial Intermediaries.
The Court finds that pawnshops should have been treated as
non-bank financial intermediaries from the very beginning, subject
to the appropriate taxes provided by law, thus -
Under the National Internal Revenue Code of 1977, pawnshops
should have been levied the 5% percentage tax on gross receipts
imposed on bank and non-bank financial intermediaries under Section
119 (now Section 121 of the Tax Code of 1997);
With the imposition of the VAT under R.A. No. 7716 or the EVAT
Law, pawnshops should have been subjected to the 10% VAT imposed on
banks and non-bank financial intermediaries and financial
institutions under Section 102 of the Tax Code of 1977 (now Section
108 of the Tax Code of 1997);
This was restated by R.A. No. 8241, 24 which amended R.A. No.
7716, although the levy, collection and assessment of the 10% VAT
on services rendered by banks, non-bank financial intermediaries,
finance companies, and other financial intermediaries not
performing quasi-banking functions, were made effective January 1,
1998;
R.A. No. 8424 or the Tax Reform Act of 1997 26 likewise imposed
a 10% VAT under Section 108 but the levy, collection and assessment
thereof were again deferred until December 31, 1999;
The levy, collection and assessment of the 10% VAT was further
deferred by R.A. No. 8761 until December 31, 2000, and by R.A. No.
9010, until December 31, 2002;
With no further deferments given by law, the levy, collection
and assessment of the 10% VAT on banks, non-bank financial
intermediaries, finance companies, and other financial
intermediaries not performing quasi-banking functions were finally
made effective beginning January 1, 2003;
Finally, with the enactment of R.A. No. 9238 in 2004, the
services of banks, non-bank financial intermediaries, finance
companies, and other financial intermediaries not performing
quasi-banking functions were specifically exempted from VAT, 28 and
the 0% to 5% percentage tax on gross receipts on other non-bank
financial intermediaries was reimposed under Section 122 of the Tax
Code of 1997.
At the time of the disputed assessment, that is, for the year
2000, pawnshops were not subject to 10% VAT under the general
provision on "sale or exchange of services" as defined under
Section 108 (A) of the Tax Code of 1997, which states: "'sale or
exchange of services' means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or
consideration . . . ." Instead, due to the specific nature of its
business, pawnshops were then subject to 10% VAT under the category
of non-bank financial intermediaries[.]Coming now to the issue at
hand - Since petitioner is a non-bank financial intermediary, it is
subject to 10% VAT for the tax years 1996 to 2002; however, with
the levy, assessment and collection of VAT from non-bank financial
intermediaries being specifically deferred by law, then petitioner
is not liable for VAT during these tax years. But with the full
implementation of the VAT system on non-bank financial
intermediaries starting January 1, 2003, petitioner is liable for
10% VAT for said tax year. And beginning 2004 up to the present, by
virtue of R.A. No. 9238, petitioner is no longer liable for VAT but
it is subject to percentage tax on gross receipts from 0% to 5%, as
the case may be. (emphasis and underscoring supplied)
In light of the foregoing ruling, since the imposition of VAT on
pawnshops, which are non-bank financial intermediaries, was
deferred for the tax years 1996 to 2002, petitioner is not liable
for VAT for the tax year 1999.
In dodging liability for documentary stamp tax on its pawn
tickets, petitioner argues that such tickets are neither securities
nor printed evidence of indebtedness.22 The argument fails.
Section 195 of the National Internal Revenue Code provides:
Section 195. On every mortgage or pledge of lands, estate or
property, real or personal, heritable or movable, whatsoever, where
the same shall be made as a security for the payment of any
definite and certain sum of money lent at the time or previously
due and owing or forborne to be paid, being payable, and on any
conveyance of land, estate, or property whatsoever, in trust or to
be sold, or otherwise converted into money which shall be and
intended only as security, either by express stipulation or
otherwise, there shall be collected a documentary stamp tax x x x.
(underscoring supplied)
Construing this provision vis a vis pawn tickets, the Court held
in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal
Revenue:
x x x A D[ocumentary] S[tamp] T[ax] is an excise tax on the
exercise of a right or privilege to transfer obligations, rights or
properties incident thereto. x x x
x x x x
Pledge is among the privileges, the exercise of which is subject
to DST. A pledge may be defined as an accessory, real and
unilateral contract by virtue of which the debtor or a third person
delivers to the creditor or to a third person movable property as
security for the performance of the principal obligation, upon the
fulfillment of which the thing pledged, with all its accessions and
accessories, shall be returned to the debtor or to the third
person. This is essentially the business of pawnshops which are
defined under Section 3 of Presidential Decree No. 114, or the
Pawnshop Regulation Act, as persons or entities engaged in lending
money on personal property delivered as security for loans.
x x x x
Section 3 of the Pawnshop Regulation Act defines a pawn ticket
as follows:
"Pawn ticket" is the pawnbrokers' receipt for a pawn. It is
neither a security nor a printed evidence of indebtedness."
True, the law does not consider said ticket as an evidence of
security or indebtedness. However, for purposes of taxation, the
same pawn ticket is proof of an exercise of a taxable privilege of
concluding a contract of pledge. There is therefore no basis in
petitioner's assertion that a DST is literally a tax on a document
and that no tax may be imposed on a pawn ticket.23 (emphasis and
underscoring supplied)1avvphi1With respect to petitioner's argument
against liability for surcharges and interest - that it was in good
faith in not paying documentary stamp taxes, it having relied on
the rulings of respondent CIR and the CTA that pawn tickets are not
subject to documentary stamp taxes24 - the Court finds the same
meritorious.
It is settled that good faith and honest belief that one is not
subject to tax on the basis of previous interpretations of
government agencies tasked to implement the tax law are sufficient
justification to delete the imposition of surcharges and
interest.25WHEREFORE, the petition is IN PART GRANTED. The May 24,
2007 Decision of the Court of Tax Appeals is AFFIRMED with the
MODIFICATION that the assessment deficiency value-added taxes for
the taxable year 1999 and for surcharges and delinquency interest
on deficient Value-Added Tax and Documentary Income Tax are SET
ASIDE. SO ORDERED.
G.R. No. 168129 April 24, 2007COMMISSIONER OF INTERNAL REVENUE
vs. PHILIPPINE HEALTH CARE PROVIDERS, INC.For our resolution is the
instant Petition for Review on Certiorari under Rule 45 of the 1997
Rules of Civil Procedure, as amended, seeking to reverse the
Decision1 dated February 18, 2005 and Resolution dated May 9, 2005
of the Court of Appeals (Fifteenth Division) in CA-G.R. SP No.
76449.
The factual antecedents of this case, as culled from the
records, are:
The Philippine Health Care Providers, Inc., herein respondent,
is a corporation organized and existing under the laws of the
Republic of the Philippines. Pursuant to its Articles of
Incorporation,2 its primary purpose is "To establish, maintain,
conduct and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of the
sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial
responsibilities of the organization."1^vvphi1.netOn July 25, 1987,
President Corazon C. Aquino issued Executive Order (E.O.) No. 273,
amending the National Internal Revenue Code of 1977 (Presidential
Decree No. 1158) by imposing Value-Added Tax (VAT) on the sale of
goods and services. This E.O. took effect on January 1, 1988.
Before the effectivity of E.O. No. 273, or on December 10, 1987,
respondent wrote the Commissioner of Internal Revenue (CIR),
petitioner, inquiring whether the services it provides to the
participants in its health care program are exempt from the payment
of the VAT.
On June 8, 1988, petitioner CIR, through the VAT Review
Committee of the Bureau of Internal Revenue (BIR), issued VAT
Ruling No. 231-88 stating that respondent, as a provider of medical
services, is exempt from the VAT coverage. This Ruling was
subsequently confirmed by Regional Director Osmundo G. Umali of
Revenue Region No. 8 in a letter dated April 22, 1994.
Meanwhile, on January 1, 1996, Republic Act (R.A.) No. 7716
(Expanded VAT or E-VAT Law) took effect, amending further the
National Internal Revenue Code of 1977. Then on January 1, 1998,
R.A. No. 8424 (National Internal Revenue Code of 1997) became
effective. This new Tax Code substantially adopted and reproduced
the provisions of E.O. No. 273 on VAT and R.A. No. 7716 on
E-VAT.
In the interim, on October 1, 1999, the BIR sent respondent a
Preliminary Assessment Notice for deficiency in its payment of the
VAT and documentary stamp taxes (DST) for taxable years 1996 and
1997.
On October 20, 1999, respondent filed a protest with the
BIR.
On January 27, 2000, petitioner CIR sent respondent a letter
demanding payment of "deficiency VAT" in the amount of
P100,505,030.26 and DST in the amount of P124,196,610.92, or a
total of P224,702,641.18 for taxable years 1996 and 1997. Attached
to the demand letter were four (4) assessment notices.
On February 23, 2000, respondent filed another protest
questioning the assessment notices.
Petitioner CIR did not take any action on respondent's protests.
Hence, on September 21, 2000, respondent filed with the Court of
Tax Appeals (CTA) a petition for review, docketed as CTA Case No.
6166.
On April 5, 2002, the CTA rendered its Decision, the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing, the instant Petition for
Review is PARTIALLY GRANTED. Petitioner is hereby ORDERED TO PAY
the deficiency VAT amounting to P22,054,831.75 inclusive of 25%
surcharge plus 20% interest from January 20, 1997 until fully paid
for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25%
surcharge plus 20% interest from January 20, 1998 until paid for
the 1997 VAT deficiency.1awphi1.nt Accordingly, VAT Ruling No.
231-88 is declared void and without force and effect. The 1996 and
1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from
collecting the said DST deficiency tax.
SO ORDERED.
Respondent filed a motion for partial reconsideration of the
above judgment concerning its liability to pay the deficiency
VAT.
In its Resolution3 dated March 23, 2003, the CTA granted
respondent's motion, thus:
WHEREFORE, in view of the foregoing, the instant Motion for
Partial Reconsideration is GRANTED. Accordingly, the VAT assessment
issued by herein respondent against petitioner for the taxable
years 1996 and 1997 is hereby WITHDRAWN and SET ASIDE.
SO ORDERED.
The CTA held:
Moreover, this court adheres to its conclusion that petitioner
is a service contractor subject to VAT since it does not actually
render medical service but merely acts as a conduit between the
members and petitioner's accredited and recognized hospitals and
clinics.
However, after a careful review of the facts of the case as well
as the Law and jurisprudence applicable, this court resolves to
grant petitioner's "Motion for Partial Reconsideration." We are in
accord with the view of petitioner that it is entitled to the
benefit of non-retroactivity of rulings guaranteed under Section
246 of the Tax Code, in the absence of showing of bad faith on its
part. Section 246 of the Tax Code provides:
Sec. 246. Non-Retroactivity of Rulings. - Any revocation,
modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be
given retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers, x x x.
Clearly, undue prejudice will be caused to petitioner if the
revocation of VAT Ruling No. 231-88 will be retroactively applied
to its case. VAT Ruling No. 231-88 issued by no less than the
respondent itself has confirmed petitioner's entitlement to VAT
exemption under Section 103 of the Tax Code. In saying so,
respondent has actually broadened the scope of "medical services"
to include the case of the petitioner. This VAT ruling was even
confirmed subsequently by Regional Director Ormundo G. Umali in his
letter dated April 22, 1994 (Exhibit M). Exhibit P, which served as
basis for the issuance of the said VAT ruling in favor of the
petitioner sufficiently described the business of petitioner and
there is no way BIR could be misled by the said representation as
to the real nature of petitioner's business. Such being the case,
this court is convinced that petitioner's reliance on the said
ruling is premised on good faith. The facts of the case do not show
that petitioner deliberately committed mistakes or omitted material
facts when it obtained the said ruling from the Bureau of Internal
Revenue. Thus, in the absence of such proof, this court upholds the
application of Section 246 of the Tax Code. Consequently, the
pronouncement made by the BIR in VAT Ruling No. 231-88 as to the
VAT exemption of petitioner should be upheld.
Petitioner seasonably filed with the Court of Appeals a petition
for review, docketed as CA-G.R. SP No. 76449.
In its Decision dated February 18, 2005, the Court of Appeals
affirmed the CTA Resolution.
Petitioner CIR filed a motion for reconsideration, but it was
denied by the appellate court in its Resolution4 dated May 9,
2005.
Hence, the instant petition for review on certiorari raising
these two issues: (1) whether respondent's services are subject to
VAT; and (2) whether VAT Ruling No. 231-88 exempting respondent
from payment of VAT has retroactive application.
On the first issue, respondent is contesting petitioner's
assessment of its VAT liabilities for taxable years 1996 and
1997.
Section 1025 of the National Internal Revenue Code of 1977, as
amended by E.O. No. 273 (VAT Law) and R.A. No. 7716 (E-VAT Law),
provides:
SEC. 102. Value-added tax on sale of services and use or lease
of properties. - (a) Rate and base of tax. - There shall be levied,
assessed and collected, a value-added tax equivalent to 10% of
gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
The phrase "sale or exchange of service" means the performance
of all kinds of services in the Philippines for a fee, remuneration
or consideration, including those performed or rendered by
construction and service contractors x x x.
Section 1036 of the same Code specifies the exempt transactions
from the provision of Section 102, thus:
SEC. 103. Exempt Transactions. - The following shall be exempt
from the value-added tax:
x x x
(l) Medical, dental, hospital and veterinary services except
those rendered by professionals
x x x
The import of the above provision is plain. It requires no
interpretation. It contemplates the exemption from VAT of taxpayers
engaged in the performance of medical, dental, hospital, and
veterinary services. In Commissioner of International Revenue v.
Seagate Technology (Philippines),7 we defined an exempt transaction
as one involving goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT, under
the Tax Code, without regard to the tax status of the party in the
transaction. In Commissioner of Internal Revenue v. Toshiba
Information Equipment (Phils.) Inc.,8 we reiterated this
definition.
In its letter to the BIR requesting confirmation of its
VAT-exempt status, respondent described its services as
follows:
Under the prepaid group practice health care delivery system
adopted by Health Care, individuals enrolled in Health Care's
health care program are entitled to preventive, diagnostic, and
corrective medical services to be dispensed by Health Care's duly
licensed physicians, specialists, and other professional technical
staff participating in said group practice health care delivery
system established and operated by Health Care. Such medical
services will be dispensed in a hospital or clinic owned, operated,
or accredited by Health Care. To be entitled to receive such
medical services from Health Care, an individual must enroll in
Health Care's health care program and pay an annual fee. Enrollment
in Health Care's health care program is on a year-to-year basis and
enrollees are issued identification cards.
From the foregoing, the CTA made the following conclusions:
a) Respondent "is not actually rendering medical service but
merely acting as a conduit between the members and their accredited
and recognized hospitals and clinics."
b) It merely "provides and arranges for the provision of
pre-need health care services to its members for a fixed prepaid
fee for a specified period of time."
c) It then "contracts the services of physicians, medical and
dental practitioners, clinics and hospitals to perform such
services to its enrolled members;" and
d) Respondent "also enters into contract with clinics,
hospitals, medical professionals and then negotiates with them
regarding payment schemes, financing and other procedures in the
delivery of health services."
We note that these factual findings of the CTA were neither
modified nor reversed by the Court of Appeals. It is a doctrine
that findings of fact of the CTA, a special court exercising
particular expertise on the subject of tax, are generally regarded
as final, binding, and conclusive upon this Court, more so where
these do not conflict with the findings of the Court of Appeals.9
Perforce, as respondent does not actually provide medical and/or
hospital services, as provided under Section 103 on exempt
transactions, but merely arranges for the same, its services are
not VAT-exempt. Relative to the second issue, Section 246 of the
1997 Tax Code, as amended, provides that rulings, circulars, rules
and regulations promulgated by the Commissioner of Internal Revenue
have no retroactive application if to apply them would prejudice
the taxpayer. The exceptions to this rule are: (1) where the
taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of Internal
Revenue; (2) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which
the ruling is based, or (3) where the taxpayer acted in bad
faith.
We must now determine whether VAT Ruling No. 231-88 exempting
respondent from paying its VAT liabilities has retroactive
application.
In its Resolution dated March 23, 2003, the CTA found that there
is no showing that respondent "deliberately committed mistakes or
omitted material facts" when it obtained VAT Ruling No. 231-88 from
the BIR. The CTA held that respondent's letter which served as the
basis for the VAT ruling "sufficiently described" its business and
"there is no way the BIR could be misled by the said representation
as to the real nature" of said business.
In sustaining the CTA, the Court of Appeals found that "the
failure of respondent to refer to itself as a health maintenance
organization is not an indication of bad faith or a deliberate
attempt to make false representations." As "the term health
maintenance organization did not as yet have any particular
significance for tax purposes," respondent's failure "to include a
term that has yet to acquire its present definition and
significance cannot be equated with bad faith."
We agree with both the Tax Court and the Court of Appeals that
respondent acted in good faith. In Civil Service Commission v.
Maala,10 we described good faith as "that state of mind denoting
honesty of intention and freedom from knowledge of circumstances
which ought to put the holder upon inquiry; an honest intention to
abstain from taking any unconscientious advantage of another, even
through technicalities of law, together with absence of all
information, notice, or benefit or belief of facts which render
transaction unconscientious."
According to the Court of Appeals, respondent's failure to
describe itself as a "health maintenance organization," which is
subject to VAT, is not tantamount to bad faith. We note that the
term "health maintenance organization" was first recorded in the
Philippine statute books only upon the passage of "The National
Health Insurance Act of 1995" (Republic Act No. 7875). Section 4
(o) (3) thereof defines a health maintenance organization as "an
entity that provides, offers, or arranges for coverage of
designated health services needed by plan members for a fixed
prepaid premium." Under this law, a health maintenance organization
is one of the classes of a "health care provider."
It is thus apparent that when VAT Ruling No. 231-88 was issued
in respondent's favor, the term "health maintenance organization"
was yet unknown or had no significance for taxation purposes.
Respondent, therefore, believed in good faith that it was VAT
exempt for the taxable years 1996 and 1997 on the basis of VAT
Ruling No. 231-88.
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals,11 this
Court held that under Section 246 of the 1997 Tax Code, the
Commissioner of Internal Revenue is precluded from adopting a
position contrary to one previously taken where injustice would
result to the taxpayer. Hence, where an assessment for deficiency
withholding income taxes was made, three years after a new BIR
Circular reversed a previous one upon which the taxpayer had relied
upon, such an assessment was prejudicial to the taxpayer. To rule
otherwise, opined the Court, would be contrary to the tenets of
good faith, equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN
Broadcasting Corp. in the later cases of Commissioner of Internal
Revenue v. Borroughs, Ltd.,12 Commissioner of Internal Revenue v.
Mega Gen. Mdsg. Corp.13 Commissioner of Internal Revenue v.
Telefunken Semiconductor (Phils.) Inc.,14 and Commissioner of
Internal Revenue v. Court of Appeals.15 The rule is that the BIR
rulings have no retroactive effect where a grossly unfair deal
would result to the prejudice of the taxpayer, as in this case.
More recently, in Commissioner of Internal Revenue v. Benguet
Corporation,16 wherein the taxpayer was entitled to tax refunds or
credits based on the BIR's own issuances but later was suddenly
saddled with deficiency taxes due to its subsequent ruling changing
the category of the taxpayer's transactions for the purpose of
paying its VAT, this Court ruled that applying such ruling
retroactively would be prejudicial to the taxpayer.
WHEREFORE, we DENY the petition and AFFIRM the assailed Decision
and Resolution of the Court of Appeals in CA-G.R. SP No. 76449. No
costs.
SO ORDERED.G.R. No. 172087 March 15, 2011PAGCOR vs. BIR, JOHN
DOE and JANE DOEFor resolution of this Court is the Petition for
Certiorari and Prohibition1 with prayer for the issuance of a
Temporary Restraining Order and/or Preliminary Injunction, dated
April 17, 2006, of petitioner Philippine Amusement and Gaming
Corporation (PAGCOR), seeking the declaration of nullity of Section
1 of Republic Act (R.A.) No. 9337 insofar as it amends Section 27
(c) of the National Internal Revenue Code of 1997, by excluding
petitioner from exemption from corporate income tax for being
repugnant to Sections 1 and 10 of Article III of the Constitution.
Petitioner further seeks to prohibit the implementation of Bureau
of Internal Revenue (BIR) Revenue Regulations No. 16-2005 for being
contrary to law.
The undisputed facts follow.
PAGCOR was created pursuant to Presidential Decree (P.D.) No.
1067-A2 on January 1, 1977. Simultaneous to its creation, P.D. No.
1067-B3 (supplementing P.D. No. 1067-A) was issued exempting PAGCOR
from the payment of any type of tax, except a franchise tax of five
percent (5%) of the gross revenue.4 Thereafter, on June 2, 1978,
P.D. No. 1399 was issued expanding the scope of PAGCOR's
exemption.5To consolidate the laws pertaining to the franchise and
powers of PAGCOR, P.D. No. 18696 was issued. Section 13 thereof
reads as follows:
Sec. 13. Exemptions. x x x
(1) Customs Duties, taxes and other imposts on importations. -
All importations of equipment, vehicles, automobiles, boats, ships,
barges, aircraft and such other gambling paraphernalia,
including