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RepublicofthePhilippines
SUPREMECOURT
Manila
FIRSTDIVISION
G.R.No.125355March30,2000
COMMISSIONEROFINTERNALREVENUE,petitioner,
vs.
COURTOFAPPEALSandCOMMONWEALTHMANAGEMENTANDSERVICESCORPORATION,respondents.
PARDO,J.:
WhatisbeforetheCourtisapetitionforreviewoncertiorariofthedecisionoftheCourtofAppeals,1 reversing
thatoftheCourtofTaxAppeals,2whichaffirmedwithmodificationthedecisionoftheCommissionerofInternal
Revenue ruling that Commonwealth Management and Services Corporation, is liable for value added tax for
servicestoclientsduringtaxableyear1988.
Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation duly
organizedandexistingunderthelawsofthePhilippines.ItisanaffiliateofPhilippineAmericanLifeInsuranceCo.
(Philamlife), organized by the letter to perform collection, consultative and other technical services, including
functioningasaninternalauditor,ofPhilamlifeanditsotheraffiliates.
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On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent
COMASERCOfordeficiencyvalueaddedtax(VAT)amountingtoP351,851.01,fortaxableyear1988,computed
asfollows:
Taxablesale/receipt
10%taxduethereon
25%surcharge
20%interestperannum
Compromisepenaltyforlatepayment
TOTALAMOUNTDUEANDCOLLECTIBLE

P1,679,155.00
============
167,915.50
41,978.88
125,936.63
16,000.00
P351,831.01 3
============

COMASERCO's annual corporate income tax return ending December 31, 1988 indicated a net loss in its
operationsintheamountofP6,077.00.
On February 10, 1992, COMASERCO filed with the BIR, a letterprotest objecting to the latter's finding of
deficiency VAT. On August 20, 1992, the Commissioner of Internal Revenue sent a collection letter to
COMASERCOdemandingpaymentofthedeficiencyVAT.
OnSeptember29,1992,COMASERCOfiledwiththeCourtofTaxAppeals4apetitionforreviewcontestingthe
Commissioner'sassessment.COMASERCOassertedthattheservicesitrenderedtoPhilamlifeanditsaffiliates,
relating to collections, consultative and other technical assistance, including functioning as an internal auditor,
were on a "noprofit, reimbursementofcostonly" basis. It averred that it was not engaged in the business of
providingservicestoPhilamlifeanditsaffiliates.COMASERCOwasestablishedtoensureoperationalorderliness
andadministrativeefficiencyofPhilamlifeanditsaffiliates,andnotinthesaleofservices.COMASERCOstressed
thatitwasnotprofitmotivated,thusnotengagedinbusiness.Infact,itdidnotgenerateprofitbutsufferedanet
loss in taxable year 1988. COMASERCO averred that since it was not engaged in business, it was not liable to
payVAT.

OnJune22,1995,theCourtofTaxAppealsrendereddecisioninfavoroftheCommissionerofInternalRevenue,
thedispositiveportionofwhichreads:
WHEREFORE,thedecisionoftheCommissionerofInternalRevenueassessingpetitionerdeficiencyvalue
added tax for the taxable year 1988 is AFFIRMED with slight modifications. Accordingly, petitioner is
orderedtopayrespondentCommissionerofInternalRevenuetheamountofP335,831.01inclusiveofthe
25% surcharge and interest plus 20% interest from January 24, 1992 until fully paid pursuant to Section
248and249oftheTaxCode.
The compromise penalty of P16,000.00 imposed by the respondent in her assessment letter shall not be
included in the payment as there was no compromise agreement entered into between petitioner and
respondentwithrespecttothevalueaddedtaxdeficiency.5
OnJuly26,1995,respondentfiledwiththeCourtofAppeals,apetitionforreviewofthedecisionoftheCourtof
Appeals.
Afterdueproceedings,onMay13,1996,theCourtofAppealsrendereddecisionreversingthatoftheCourtof
TaxAppeals,thedispositiveportionofwhichreads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered REVERSING and SETTING ASIDE
thequestionedDecisionpromulgatedon22June1995.Theassessmentfordeficiencyvalueaddedtaxfor
the taxable year 1988 inclusive of surcharge, interest and penalty charges are ordered CANCELLED for
lackoflegalandfactualbasis.6
TheCourtofAppealsanchoreditsdecisionontheratiocinationinanothertaxcaseinvolvingthesameparties,7
where it was held that COMASERCO was not liable to pay fixed and contractor's tax for services rendered to
Philamlifeanditsaffiliates.TheCourtofAppeals,inthatcase,reasonedthatCOMASERCOwasnotengagedin
businessofprovidingservicestoPhilamlifeanditsaffiliates.Inthesamemanner,theCourtofAppealsheldthat
COMASERCOwasnotliabletopayVATforitwasnotengagedinthebusinessofsellingservices.
On July 16, 1996, the Commissioner of Internal Revenue filed with this Court a petition for review on certiorari
assailingthedecisionoftheCourtofAppeals.
OnAugust7,1996,werequiredrespondentCOMASERCOtofilecommentonthepetition,andonSeptember26,
1996,COMASERCOcompliedwiththeresolution.8
Wegiveduecoursetothepetition.
At issue in this case is whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT
thereon.
Petitioner avers that to "engage in business" and to "engage in the sale of services" are two different things.
Petitioner maintains that the services rendered by COMASERCO to Philamlife and its affiliates, for a fee or
consideration, are subject to VAT. VAT is a tax on the value added by the performance of the service. It is
immaterialwhetherprofitisderivedfromrenderingtheservice.
WeagreewiththeCommissioner.
Sec.99oftheNationalInternalRevenueCodeof1986,asamendedbyExecutiveOrder(E.O.)No.273in1988,
providesthat:
Sec.99.Personsliable.Anypersonwho,inthecourseoftradeorbusiness,sells,bartersorexchanges
goods, renders services, or engages in similar transactions and any person who, imports goods shall be
subjecttothevalueaddedtax(VAT)imposedinSections100to102ofthisCode.9
COMASERCOcontendsthattheterm"inthecourseoftradeorbusiness"requiresthatthe"business"iscarried
onwithaviewtoprofitorlivelihood.Itaversthattheactivitiesoftheentitymustbeprofitoriented.COMASERCO
submitsthatitisnotmotivatedbyprofit,asdefinedbyitsprimarypurposeinthearticlesofincorporation,stating
thatitisoperating"onlyonreimbursementofcostbasis,withoutanyprofit."Privaterespondentarguesthatprofit
motiveismaterialinascertainingwhototaxforpurposesofdeterminingliabilityforVAT.
Wedisagree.
OnMay28,1994,CongressenactedRepublicActNo.7716,theExpandedVATLaw(EVAT),amendingamong
other sections, Section 99 of the Tax Code. On January 1, 1998, Republic Act 8424, the National Internal
RevenueCodeof1997,tookeffect.Theamendedlawprovidesthat:

Sec.105.PersonsLiable.Anypersonwho,inthecourseoftradeorbusiness,sells,barters,exchanges,
leases goods or properties, renders services, and any person who imports goods shall be subject to the
valueaddedtax(VAT)imposedinSections106and108ofthisCode.
The valueadded tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing sale or
leaseofgoods,propertiesorservicesatthetimeoftheeffectivityofRepublicActNo.7716.
Thephrase"inthecourseoftradeorbusiness"meanstheregularconductorpursuitofacommercialoran
economicactivity,includingtransactionsincidentalthereto,byanypersonregardlessofwhetherornotthe
person engaged therein is a nonstock, nonprofit organization (irrespective of the disposition of its net
incomeandwhetherornotitsellsexclusivelytomembersoftheirguests),orgovernmententity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippinesbynonresidentforeignpersonsshallbeconsideredasbeingrenderedinthecourseoftradeor
business.
Contrary to COMASERCO's contention the above provision clarifies that even a nonstock, nonprofit,
organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on
transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or
property,andontheperformanceofservices,evenintheabsenceofprofitattributablethereto.Theterm"inthe
course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity
regardlessofwhetherornottheentityisprofitoriented.
Thedefinitionoftheterm"inthecourseoftradeorbusiness"presentlawappliestoalltransactionseventothose
made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or
business,sells,bartersorexchangesgoodsandservices,wasalreadyliabletopayVAT.Thepresentlawmerely
stresses that even a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of
goodsandservices.
Sec. 108 of the National Internal Revenue Code of 1997 10 defines the phrase "sale of services" as the
"performanceofallkindsofservicesforothersforafee,remunerationorconsideration."Itincludes"thesupplyof
technical advice, assistance or services rendered in connection with technical management or administration of
anyscientific,industrialorcommercialundertakingorproject."11
OnFebruary5,1998,theCommissionerofInternalRevenueissuedBIRRulingNo.0109812emphasizingthata
domestic corporation that provided technical, research, management and technical assistance to its affiliated
companiesandreceivedpaymentsonareimbursementofcostbasis,withoutanyintentionofrealizingprofit,was
subject to VAT on services rendered. In fact, even if such corporation was organized without any intention
realizingprofit,anyincomeorprofitgeneratedbytheentityintheconductofitsactivitieswassubjecttoincome
tax.
Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for
servicesrenderedtoitsaffiliatesonareimbursementoncostbasisonly,withoutrealizingprofit,forpurposesof
determiningliabilityforVATonservicesrendered.Aslongastheentityprovidesserviceforafee,remunerationor
consideration,thentheservicerenderedissubjecttoVAT.
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At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow exemptions are
construedstrictlyagainstthegranteeandliberallyinfavorofthegovernment.Otherwisestated,anyexemption
from the payment of a tax must be clearly stated in the language of the law it cannot be merely implied
therefrom.13InthecaseofVAT,Section109,RepublicAct8424clearlyenumeratesthetransactionsexempted
fromVAT.TheservicesrenderedbyCOMASERCOdonotfallwithintheexemptions.
Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled that the services
renderedbyCOMASERCOtoPhilamlifeanditsaffiliatesaresubjecttoVAT.AspointedoutbytheCommissioner,
theperformanceofallkindsofservicesforothersforafee,remunerationorconsiderationisconsideredassale
ofservicessubjecttoVAT.Asthegovernmentagencychargedwiththeenforcementofthelaw,theopinionofthe
Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great
weight.14Also,ithasbeenthelongstandingpolicyandpracticeofthisCourttorespecttheconclusionsofquasi
judicialagencies,suchastheCourtofTaxAppealswhich,bythenatureofitsfunctions,isdedicatedexclusively
to the study and consideration of tax cases and has necessarily developed an expertise on the subject, unless
therehasbeenanabuseorimprovidentexerciseofitsauthority.15
Thereisnomerittorespondent'scontentionthattheCourtofAppeals'decisioninCAG.R.No.34042,declaring
theCOMASERCOasnotengagedinbusinessandnotliableforthepaymentoffixedandpercentagetaxes,binds
petitioner. The issue in CAG.R. No. 34042 is different from the present case, which involves COMASERCO's

liability for VAT. As heretofore stated, every person who sells, barters, or exchanges goods and services, in the
courseoftradeorbusiness,asdefinedbylaw,issubjecttoVAT.
WHEREFORE,theCourtGRANTSthepetitionandREVERSESthedecisionoftheCourtofAppealsinCAG.R.
SP No. 37930. The Court hereby REINSTATES the decision of the Court of Tax Appeals in C. T. A. Case No.
4853.
Nocosts.
SOORDERED.

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Davide,Jr.,C.J.,Puno,KapunanandYnaresSantiago,JJ.,concur.

Footnotes
1 In CAG.R. SP No. 37930, promulgated on May 13, 1996. Justice Pacita CaizaresNye, ponente,

JusticesPedroA.RamirezandSalvadorJ.Valdez,Jr.,concurring.Rollo,pp.2731.
2InC.T.A.CaseNo.4853,promulgatedonJune22,1995.JudgeErnestoD.Acosta,presiding,Judges

ManuelK.GrubaandRamonO.DeVeyra,concurring,Rollo,pp.3242.
3CTADecision,Rollo,p.32.
4DocketedasC.T.A.CaseNo.4853.
5Rollo,pp.3243.
6Rollo,pp.2731.
7 Docketed as CAG.R. SP NO. 34032, Commonwealth Management and Services Corporation v.

Commissioner of Internal Revenue and the Court of Tax Appeals, promulgated on December 21, 1995.
Justice Jaime M. Lantin,ponente, Justices Eduardo O. Montenegro and Jose C. Dela Rama, concurring.
ThisdecisionbecamefinalsincenopetitionforreviewwasfiledwiththisCourt.
8Rollo,pp.5064.
9NowinSection105oftheTaxCode.
10FormerlySection102.
11Sec.108(A)(6),NationalInternalRevenueCodeof1997Section4.1021,RevenueRegulationsNo.7

95(ValueAddedTaxRegulations),asamended,December9,1995.
12UponaquerymadebyTipcoBataanGroupIncorporated.
13DavaoGufLumberCorporationv.CommissionerofInternalRevenue,293SCRA76(1998).
14MisamisOrientalAssociationofCocotraders,Inc.v.DepartmentofFinanceSecretary,238SCRA63,68

(1994).
15CommissionerofInternalRevenuev.CourtofAppeals,204SCRA183,189190(1991).
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