FIRST DIVISION

[G.R. No. 125355. March 30, 2000]

COMMISSIONER OF INTERNAL REVENUE, petitioner , vs . COURT OF APPEALS and COMMONWEALTH

MANAGEMENT AND SERVICES CORPORATION, respondents . Court

DECISION

PARDO, J .:

What is before the Court is a petition for review on certiorari of the decision of the Court of Appeals,1 reversing that of
the Court of Tax Appeals,2 which affirmed with modification the decision of the Commissioner of Internal Revenue
ruling that Commonwealth Management and Services Corporation, is liable for value added tax for services to clients
during taxable year 1988.

Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation duly organized and
existing under the laws of the Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife),
organized by the letter to perform collection, consultative and other technical services, including functioning as an
internal auditor, of Philamlife and its other affiliates.

On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent COMASERCO
for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988, computed as follows:

"Taxable sale/receipt P1,679,155.00

10% tax due thereon 167,915.50

25% surcharge 41,978.88

20% interest per annum 125,936.63

Compromise penalty for late payment 16,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P 351,831.01"3

COMASERCO's annual corporate income tax return ending December 31, 1988 indicated a net loss in its operations
in the amount of P6,077.00. J lexj

On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of deficiency
VAT. On August 20, 1992, the Commissioner of Internal Revenue sent a collection letter to COMASERCO demanding
payment of the deficiency VAT.

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On September 29,1992, COMASERCO filed with the Court of Tax Appeals4 a petition for review contesting the
Commissioner's assessment. COMASERCO asserted that the services it rendered to Philamlife and its affiliates,
relating to collections, consultative and other technical assistance, including functioning as an internal auditor, were
on a "no-profit, reimbursement-of-cost-only" basis. It averred that it was not engaged id the business of providing
services to Philamlife and its affiliates. COMASERCO was established to ensure operational orderliness and
administrative efficiency of Philamlife and its affiliates, and not in the sale of services. COMASERCO stressed that it
was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss in
taxable year 1988. COMASERCO averred that since it was not engaged in business, it was not liable to pay VAT.

On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the Commissioner of Internal Revenue, the
dispositive portion of which reads:

"WHEREFORE, the decision of the Commissioner of Internal Revenue assessing petitioner deficiency
value-added tax for the taxable year 1988 is AFFIRMED with slight modifications. Accordingly,
petitioner is ordered to pay respondent Commissioner of Internal Revenue the amount of P335,831.01
inclusive of the 25% surcharge and interest plus 20% interest from January 24, 1992 until fully paid
pursuant to Section 248 and 249 of the Tax Code.

"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 respondent with respect to the value-added tax deficiency."5

On July 26, 1995, respondent filed with the Court of Appeals, petition for review of the decision of the Court of
Appeals.

After due proceedings, on May 13, 1996, the Court of Appeals rendered decision reversing that of the Court of Tax
Appeals, the dispositive portion of which reads: Lexj uris

"WHEREFORE, in view of the foregoing, judgment is hereby rendered REVERSING and SETTING ASIDE the
questioned Decision promulgated on 22 June 1995. The assessment for deficiency value-added tax
for the taxable year 1988 inclusive of surcharge, interest and penalty charges are ordered CANCELLED
for lack of legal and factual basis."6

The Court of Appeals anchored its decision on the ratiocination in another tax case involving the same parties, 7 where
it was held that COMASERCO was not liable to pay fixed and contractor's tax for services rendered to Philamlife and its
affiliates. The Court of Appeals, in that case, reasoned that COMASERCO was not engaged in business of providing
services to Philamlife and its affiliates. In the same manner, the Court of Appeals held that COMASERCO was not liable
to pay VAT for it was not engaged in the business of selling services.

On July 16, 1996, the Commissioner of Internal Revenue filed with this Court a petition for review on certiorari assailing
the decision of the Court of Appeals.

On August 7, 1996, we required respondent COMASERCO to file comment on the petition, and on September 26, 1996,
COMASERCO complied with the resolution.8

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We give due course to the petition.

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 immaterial whether profit is
derived from rendering the service. Juri smis

We agree with the Commissioner.

Section 99 of the National Internal Revenue Code of 1986, as amended by Executive Order (E.O.) No. 273 in 1988,
provides that:

"Section 99. Persons liable. - Any person who, in the course of trade or business, sells, barters or
exchanges goods, renders services, or engages in similar transactions and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code." 9

COMASERCO contends that the term "in the course of trade or business" requires that the "business" is carried on with
a view to profit or livelihood. It avers that the activities of the entity must be profit- oriented. COMASERCO submits
that it is not motivated by profit, as defined by its primary purpose in the articles of incorporation, stating that it is
operating "only on reimbursement-of-cost basis, without any profit." Private respondent argues that profit motive is
material in ascertaining who to tax for purposes of determining liability for VAT.

We disagree.

On May 28, 1994, Congress enacted Republic Act No. 7716, the Expanded VAT Law (EVAT), amending among other
sections, Section 99 of the Tax Code. On January 1, 1998, Republic Act 8424, the National Internal Revenue Code of
1997, took effect. The amended law provides that:

"SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports goods shall be
subject to the value-added tax (VAT) imposed in Sections 106 and 108 of this Code.

"The value-added 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 lease of goods, properties or services at the time of the effectivity of Republic Act
No.7716.

"The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial
or an economic activity, including transactions incidental thereto, by any person regardless of whether
or not the person engaged therein is a nonstock, nonprofit organization (irrespective of the disposition
of its net income and whether or not it sells exclusively to members of their guests), or government
entity. Jjj uris

"The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in
the Philippines by nonresident foreign persons shall be considered as being rendered in the course of
trade or business."

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Contrary to COMASERCO's contention the above provision clarifies that even a non-stock, non-profit, 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, and on the performance of
services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the
regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-
oriented.

The definition of the term "in the course of trade or business" incorporated in the present law applies to all
transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the
course of trade or business, sells, barters or exchanges goods and services, was already liable to pay VAT. The
present law merely stresses that even a nonstock, nonprofit organization or government entity is liable to pay VAT for
the sale of goods and services.

Section 108 of the National Internal Revenue Code of 1997 10 defines the phrase "sale of services" as the
"performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the supply of
technical advice, assistance or services rendered in connection with technical management or administration of any
scientific, industrial or commercial undertaking or project."11

On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-9812 emphasizing that a
domestic corporation that provided technical, research, management and technical assistance to its affiliated
companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was
subject to VAT on services rendered. In fact, even if such corporation was organized without any intention of realizing
profit, any income or profit generated by the entity in the conduct of its activities was subject to income tax. lex

Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services
rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining
liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration,
then the service rendered is subject to VAT.

At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow exemptions are construed
strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the
payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom. 13 In the case
of VAT, Section 109, Republic Act 8424 clearly enumerates the transactions exempted from VAT. The services rendered
by COMASERCO do not fall within the exemptions.

Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled that the services rendered by
COMASERCO to Philamlife and its affiliates are subject to VAT. As pointed out by the Commissioner, the performance
of all kinds of services for others for a fee, remuneration or consideration is considered as sale of services subject to
VAT. As the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal
Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight.14 Also, it has been the long
standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of
Tax Appeals which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax cases

10

11

12

13

14

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and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of
its authority.15

There is no merit to respondent's contention that the Court of Appeals' decision in CA-G. R. No. 34042, declaring the
COMASERCO as not engaged in business and not liable for the payment of fixed and percentage taxes, binds
petitioner. The issue in CA-G. 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 course of trade
or business, as defined by law, is subject to VAT. Jksm

WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the Court of Appeals in CA-G. R. SP No.
37930. The Court hereby REINSTATES the decision of the Court of Tax Appeals in C. T. A. Case No. 4853.

No costs.

SO ORDERED.

Davide, Jr., C.J.,(Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

CIR vs. CA and ComasercoG.R. No. 125355March 30, 2000Facs!

Commonwealth Management and Services Corporation (COMASERCO) is a domestic corporation. It is an affiliate of

Philippine American ife Ins!rance Co. (Philamlife). It was organi"ed #$ the latter to perform collection% cons!ltative
and other technical services% incl!ding f!nctioning as an internal a!ditor% of Philamlife and its other affiliates.In &''%
the !rea! of Internal Reven!e (IR) iss!ed an assessment to private respondent COMASERCO for deficienc$ val!e*added
ta+ (,A-) amo!nting to P/&%0/&.11 for ta+a#le $ear &'00. In the same $ear% COMASERCO filed with the IR% a
letter*protest o#2ecting to the latter3s finding of deficienc$ ,A-. Afterwards% the Commissioner of Internal Reven!e
sent a collection letter to COMASERCO demanding pa$ment of the deficienc$ ,A-. -he following month of the same
$ear% COMASERCO filed with the C-A a petition for review contesting the Commissioner3s assessment. COMASERCO
asserted that4 &) it was on a 5no*profit% reim#!rsement*of*cost*onl$6 #asis7 ) it was not engaged in the #!siness
of providing services to Philamlife and its affiliates7 ) COMASERCO was esta#lished to ens!re operational orderliness
and administrative efficienc$ of Philamlife and its affiliates% not on the sale of services7 and 8) it even did not
generate profit #!t s!ffered a net loss in ta+a#le $ear &'00. -h!s% it was not lia#le to pa$ ,A-.In &''/% the C-A
rendered a decision in favor of the Commissioner with slight modifications. COMASERCO was lia#le to pa$ the amo!nt
of P/%0&.1&. 9!ring the same $ear% COMASERCO filed with the CA% a petition for review of the decision of the
C-A. -he CA r!led in favor of the respondent and #ased its decision in another ta+ case involving the same parties
where it was held that COMASERCO was not lia#le to pa$ fi+ed and contractor3s ta+ andit was not engaged in #!
siness of providing services to Philamlife and its affiliates. :ence% this petition was filed #efore the SC.

Iss"e!

;hether or not COMASERCO is engaged in the sale of services% th!s lia#le to pa$ ,A-.

#e$d!

<es. Contrar$ to COMASERCO3s contention% Sec. &1/ of the -a+ Code states that even a non*stoc=% non*profit%
organi"ation or government entit$% is lia#le to pa$ ,A- on the sale of goods or services. ,A- is a ta+ on transactions%
imposed at ever$ stage of the distri#!tion process on the sale% #arter% e+change of goods or propert$% and on
the performance of services%even in the a#sence of profit attri#!ta#le thereto. -he term 5in the co!rse of trade or
15

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#!siness6 re>!ires the reg!lar cond!ct or p!rs!it of a commercial or an economic activit$% regardless of whether or not
the entit$ is profit*oriented. As long as the entit$ provides service for a fee% rem!neration or consideration% then the
service rendered is s!#2ect to ,A-. eca!se ta+es are the life#lood of the nation% stat!tes that allow e+emptions are
constr!ed strictl$ against the grantee and li#erall$ in favor of the government. Section &1' of the -a+ Code en!
merates the transactions e+empted from ,A-. -heservices rendered #$ COMASERCO do not fall within the
e+emptions. It falls !nder Section &10 of the -a+ Code in which it defines the phrase 5sale of services6 as the
performance of all =inds of services for others for a fee% rem!neration or consideration.

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