[G.R. No. 125355.

March 30, 2000]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION, respondents.

Facts:
Commonwealth Management and Services Corporation (COMASERCO) is a domestic corporation. It is an affiliate of Philippine American Life Insurance
Co. (Philamlife). It was organized by the latter to perform collection, consultative and other technical services, including functioning as an internal auditor, of
Philamlife and its other affiliates.
In 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent COMASERCO for deficiency value-added tax (VAT)
amounting to P351,851.00 for taxable year 1988. In the same year, COMASERCO filed with the BIR, a letter-protest objecting to the latter’s finding of deficiency
VAT. Afterwards, the Commissioner of Internal Revenue sent a collection letter to COMASERCO demanding payment of the deficiency VAT. The following
month of the same year, COMASERCO filed with the CTA a petition for review contesting the Commissioner’s assessment. COMASERCO asserted that: 1) it
was on a “no-profit, reimbursement-of-cost-only” basis; 2) it was not engaged in the business of providing services to Philamlife and its affiliates; 3)
COMASERCO was established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, not on the sale of services; and 4) it
even did not generate profit but suffered a net loss in taxable year 1988. Thus, it was not liable to pay VAT.
In 1995, the CTA rendered a decision in favor of the Commissioner with slight modifications. COMASERCO was liable to pay the amount of
P335,831.01. During the same year, COMASERCO filed with the CA, a petition for review of the decision of the CTA. The CA ruled in favor of the respondent
and based its decision in another tax case involving the same parties where it was held that COMASERCO was not liable to pay fixed and contractor’s tax and it
was not engaged in business of providing services to Philamlife and its affiliates. Hence, this petition was filed before the SC.

Issue:
Whether or not COMASERCO is engaged in the sale of services, thus liable to pay VAT.

Held:
Yes. Contrary to COMASERCO’s contention, Sec. 105 of the Tax Code states 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.
As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT. 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. Section 109 of the Tax Code
enumerates the transactions exempted from VAT. The services rendered by COMASERCO do not fall within the exemptions. It falls under Section 108 of the Tax
Code in which it defines the phrase “sale of services” as the performance of all kinds of services for others for a fee, remuneration or consideration.