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15 Fort Bonifacio Developement Corp. v. CIR
15 Fort Bonifacio Developement Corp. v. CIR
Taxation; Value Added Tax (VAT); Republic Act No. 7716 clarifies
that it is the real properties “held primarily for sale to customers or
held for lease in the ordinary course of trade or business” that are
subject to the Value-Added Tax (VAT), and not when the real
estate transactions are engaged in by persons who do not sell or
lease properties in the ordinary course of trade or business.—Rep.
Act No. 7716 clarifies that it is the real properties “held primarily
for sale to customers or held for lease in the ordinary course of
trade or business” that are subject to the VAT, and not when the
real estate transactions are engaged in by persons who do not sell
or lease properties in the ordinary course of trade or business. It
is clear that those regularly engaged in the real estate business
are accorded the same treatment as the merchants of other goods
or properties available in the market. In the same way that a
milliner considers hats as his goods and a rancher considers cattle
as his goods, a real estate dealer holds real property, whether or
not it contains improvements, as his goods. Had Section 100 itself
supplied any differentiation between the treatment of real
properties or real estate dealers and the treatment of the
transactions involving other commercial goods, then such
differing treatment would have constituted the statutory basis for
the CIR to engage in such differentiation which said re-
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* EN BANC.
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merely by operation of law, E.O. No. 273 or Rep. Act No. 7716 in
particular. It
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could also occur when one decides to start a business. Section 105
states that the transitional input tax credits become available
either to (1) a person who becomes liable to VAT; or (2) any person
who elects to be VAT-registered. The clear language of the law
entitles new trades or businesses to avail of the tax credit once
they become VAT-registered. The transitional input tax credit,
whether under the Old NIRC or the New NIRC, may be claimed
by a newly-VAT registered person such as when a business as it
commences operations. If we view the matter from the perspective
of a starting entrepreneur, greater clarity emerges on the
continued utility of the transitional input tax credit.
Same; Same; Same; It is apparent that the transitional input
tax credit operates to benefit newly Value-Added Tax (VAT)-
registered persons, whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods, materials and
supplies.—The interpretation proffered by the CTA would exclude
goods and properties which are acquired through sale not in the
ordinary course of trade or business, donation or through
succession, from the beginning inventory on which the
transitional input tax credit is based. This prospect all but
highlights the ultimate absurdity of the respondents’ position.
Again, nothing in the Old NIRC (or even the New NIRC) speaks of
such a possibility or qualifies the previous payment of VAT or any
other taxes on the goods, materials and supplies as a pre-requisite
for inclusion in the beginning inventory. It is apparent that the
transitional input tax credit operates to benefit newly VAT-
registered persons, whether or not they previously paid taxes in
the acquisition of their beginning inventory of goods, materials
and supplies. During that period of transition from non-VAT to
VAT status, the transitional input tax credit serves to alleviate
the impact of the VAT on the taxpayer. At the very beginning, the
VAT-registered taxpayer is obliged to remit a significant portion
of the income it derived from its sales as output VAT. The
transitional input tax credit mitigates this initial diminution of
the taxpayer’s income by affording the opportunity to offset the
losses incurred through the remittance of the output VAT at a
stage when the person is yet unable to credit input VAT
payments.
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that FBDC was excused from paying any tax on the purchase of
its properties from the national government, even claiming that to
allow the transitional input tax credit is “tantamount to giving an
undeserved bonus to real estate dealers similarly situated as
[FBDC] which the Government cannot afford to provide.” Yet the
tax laws in question, and all tax laws in general, are designed to
enforce uniform tax treatment to persons or classes of persons
who share minimum legislated standards. The common standard
for the application of the transitional input tax credit, as enacted
by E.O. No. 273 and all subsequent tax laws which reinforced or
reintegrated the tax credit, is simply that the taxpayer in
question has become liable to VAT or has elected to be a VAT-
registered person. E.O. No. 273 and the subsequent tax laws are
all decidedly neutral and accommodating in ascertaining who
should be entitled to the tax credit, and it behooves the CIR and
the CTA to adopt a similarly judicious perspective.
Same; Same; Same; Words and Phrases; Goods, as commonly
understood in the business sense, refers to the product which the
Value-Added Tax (VAT)-registered person offers for sale to the
public, and with respect to real estate dealers, it is the real
properties themselves which constitute their “goods.”—Under
Section 105, the beginning inventory of “goods” forms part of the
valuation of the transitional input tax credit. Goods, as commonly
understood in the business sense, refers to the product which the
VAT-registered person offers for sale to the public. With respect to
real estate dealers, it is the real properties themselves which
constitute their “goods.” Such real properties are the operating
assets of the real estate dealer. Section 4.100-1 of RR No. 7-95
itself includes in its enumeration of “goods or properties” such
“real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business.” Said definition
was taken from the very statutory language of Section 100 of the
Old NIRC. By limiting the definition of goods to “improvements”
in Section 4.105-1, the BIR not only contravened the definition of
“goods” as provided in the Old NIRC, but also the definition which
the same revenue regulation itself has provided.
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peals claimed that under Section 105 of the Old NIRC the basis
for the inventory of goods, materials and supplies upon which the
transitional input VAT would be based “shall be left to regulation
by the appropriate administrative authority.” This is based on the
phrase “filing of an inventory as prescribed by regulations” found
in Section 105. Nonetheless, Section 105 does include the
particular properties to be included in the inventory, namely
goods, materials and supplies. It is questionable whether the CIR
has the power to actually redefine the concept of “goods,” as she
did when she excluded real properties from the class of goods
which real estate companies in the business of selling real
properties may include in their inventory. The authority to
prescribe regulations can pertain to more technical matters, such
as how to appraise the value of the inventory or what papers need
to be filed to properly itemize the contents of such inventory. But
such authority cannot go as far as to amend Section 105 itself,
which the Commissioner had unfortunately accomplished in this
case. It is of course axiomatic that a rule or regulation must bear
upon, and be consistent with, the provisions of the enabling
statute if such rule or regulation is to be valid. In case of conflict
between a statute and an administrative order, the former must
prevail. Indeed, the CIR has no power to limit the meaning and
coverage of the term “goods” in Section 105 of the Old NIRC
absent statutory authority or basis to make and justify such
limitation. A contrary conclusion would mean the CIR could very
well moot the law or arrogate legislative authority unto himself
by retaining sole discretion to provide the definition and scope of
the term “goods.”
Same; Same; Transitional Input Tax Credit; Presumptive Input
Tax Credit; Legal Research; Words and Phrases; As with the
transitional input tax credit, the presumptive input tax credit is
creditable against the output Value-Added Tax (VAT), having
come into existence in our tax structure only after the introduction
of the Value-Added Tax (VAT); It was only in 1997, or eleven years
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after the Value-Added Tax (VAT) was first introduced, that the
presumptive input tax credit was first incorporated in the National
Internal Revenue Code (NIRC), more particularly in Section
111(B) of the New NIRC; Clearly, for more than a decade now, the
term “presumptive input tax credit” has contemplated a
particularly idiosyncratic tax credit far divorced from its original
usage in the transitory provisions of E.O. No. 273.—Let us clarify
the distinction between the presumptive input tax credit and the
transitional input tax credit. As with the
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was actually paid. This can be inferred from the provision that a
taxpayer is “allowed input tax on his beginning inventory x x x
equivalent to 8% x x x, or the actual value-added tax paid x x x,
whichever is higher.” However, such presumption assumes
the existence of a law imposing the tax presumed to have
been paid. Otherwise, the presumption will have no basis
because if no tax has been imposed by law, then there can
be no presumption that such a tax has been paid. If no tax
has been imposed by law, whether it be VAT or sales, percentage,
excise or privilege taxes, no such tax is legally due and payable,
and thus there can be no presumption that any such tax has been
paid. When the law says “transitional input tax” or
“presumptive input tax,” the presumption is that there
exists a law imposing the input tax and such tax is
presumed to have been paid.
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TINGA, J.:
The value-added tax (VAT) system was first introduced
in the Philippines on 1 January 1988, with the tax
imposable on “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.”1 The first VAT law is found in
Executive Order No. 273 (E.O. 273), which amended
several provisions of the then National Internal Revenue
Code of 1986 (Old NIRC). E.O. No. 273 likewise
accommodated the potential burdens of the shift to the
VAT system by allowing newly liable VAT-registered
persons to avail of a transitional input tax credit, as
provided for in Section 105 of the old NIRC, as amended by
E.O. No. 273. Said Section 105 is quoted, thus:
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5 See G.R. No. 158885 Rollo, p. 215. The law itself was approved on 5
May 1994, but its implementation was delayed following the legal
challenges to its constitutionality, which were finally resolved in Tolentino
v. Secretary of Finance, G.R. 115455, 30 October 1995.
6 Sec. 100, National Internal Revenue Code of 1986, as amended by
Rep. Act No. 7716.
180
Rep. Act No. 8424 also made part of the NIRC, for the
first time, the concept of “presumptive input tax credits,”
with Section 111(b) of the New NIRC providing as follows:
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7 Sec. 111(a), National Internal Revenue Code of 1997; since amended by Rep.
Act No. 9337.
181
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11 Id., at p. 216.
12 Id.
13 Id., at p. 216.
14 Id., at p. 217.
15 Rollo, p. 187, the letter being signed by then Commissioner of
Internal Revenue (now Representative Liwayway Vinzons-Chato).
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184
x x x”
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of Internal Revenue
IV.
The fact alone that the denial of FBDC’s claims is in
accord with Section 4.105-1 of RR 7-95 does not, of course,
put this inquiry to rest. If Section 4.105-1 is itself
incongruent to Rep. Act No. 7716, the incongruence cannot
by itself justify the denial of the claims. We need to inquire
into the rationale behind Section 4.105-1, as well as the
question whether the interpretation of the law embodied
therein is validated by the law itself.
The CTA, in its rulings, proceeded from a thesis which is
not readily apparent from the texts of the laws we have
cited. The transitional input tax credit is conditioned on the
prior payment of sales taxes or the VAT, so the CTA
observed. The introduction of the VAT through E.O. No.
273 and its subsequent expansion through Rep. Act No.
7716 subjected various persons to the tax for the very first
time, leaving them unable to claim the input tax credit
based on their purchases before they became subject to the
VAT. Hence, the transitional input tax credit was designed
to alleviate that relatively iniquitous loss. Given that
rationale, according to the CTA, it would be improper to
allow FBDC, which had acquired its properties through a
tax-free purchase, to claim the transitional input tax credit.
The CTA added that Section 105.4.1 of RR 7-95 is
consonant with its perceived rationale behind the
transitional input tax credit since the materials used for
the construction of improvements would have most likely
involved the payment of VAT on their purchase.
Concededly, this theory of the CTA has some sense,
extravagantly extrapolated as it is though from the
seeming silence on the part of the provisions of the law. Yet
ultimately, the theory is woefully limited in perspective.
It is correct, as pointed out by the CTA, that upon the shift
from sales taxes to VAT in 1987 newly-VAT registered
people would have been prejudiced by the inability to credit
against the output VAT their payments by way of sales tax
on their
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38 See note 2.
194
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39 Lina, Jr. v. Carino, G.R. No. 100127, 23 April 1993, 221 SCRA 515,
531; United BF Homeowners Association v. Home Insurance and Guaranty
Corp., G.R. No. 124783, 14 July 1999, 310 SCRA 304, 316.
40 Kilusang Mayo Uno Labor Center vs. Garcia, Jr., G.R. No. 115381,
239 SCRA 386, 411, 23 December 1994; Conte v. Commission on Audit,
G.R. No. 116422, 4 November 1996, 126 SCRA 19, 50.
196
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197
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42 See note 8.
43 Id.
44 Id.
198
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200
CONCURRING OPINION
YNARES-SANTIAGO, J.:
After a careful review of the actual effects of the tax
measures involved herein, and with due regard to the
intent of the framers of the law and the real benefits
thereof on the taxpayer, I vote to grant the herein
consolidated petitions.
It is an undisputed fact that when petitioner acquired
the lands within the Fort Bonifacio military reservation
from the national government, the latter did not have to
pay any tax, be it sales or value-added. This
notwithstanding, my reading of the applicable tax laws is
that petitioner may still claim transitional input tax credit.
Prior to January 1, 1996, sales of real properties were
not subject to VAT. On the said date, Republic Act No. 7716
took effect amending portions of the National Internal
Revenue Code. It was only then that the value-added tax
was imposed on the sale of real properties. Section 100 of
the NIRC was amended to read:
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1 Underscoring added.
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“The term ‘input tax’ means the value-added tax due from or
paid by a VAT-registered persons in the course of his trade or
business on importation of goods or local purchase of goods or
services, including lease or use of property, from a VAT-registered
person. It shall also include the transitional input tax determined
in accordance with Section 135 of this Code.”2
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taxpayer may claim under Section 105. Where the law does
not distinguish, courts should not distinguish.5
Rules and regulations issued by administrative agencies
in the implementation of laws they administer shall not in
any way modify, or be inconsistent with, explicit provisions
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never paid and could never have paid. At the time of the
sale by the government of the land, there was still no VAT
on the sale of land, and the government as seller was, and
still is today, not subject to VAT. There is no dispute that if
the sale were to take place today, when there is already
VAT on the sale of land, the sale transaction would still be
VAT-free because the government is not subject to VAT,
and hence petitioner as buyer cannot avail of any input
VAT since petitioner can never present a VAT receipt.
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10 Id.
11 Id., at p. 184.
12 Id., at pp. 185-186.
13 Id., at p. 187.
14 Id. Underscoring in the original.
15 The contents of RR 7-95 were reiterated in BIR’s Revenue
Memorandum Circular No. 3-96 dated 15 January 1996 in a question and
answer format.
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est per annum from 1 June 1998 until fully paid pursuant
to Section 24922 of the NIRC.
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31 Vitug, Jose C. and Acosta, Ernesto D., Tax Law and Jurisprudence,
2006 edition, p. 230.
32 SEC. 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.
33 SEC. 100. Value-added tax on sale of goods.—(a) Rate and base of
tax.—There shall be levied, assessed and collected on every sale, barter or
exchange of goods, a value-added tax equivalent to 10% of the gross selling
price or gross value in money of the goods sold, bartered or exchanged,
such tax to be paid by the seller or transferor x x x.
34 Section 2 of RA 7716.
35 G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852,
115873, 115931, 25 August 1994, 235 SCRA 630.
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39 The National Government, as the seller of the Global City land, is a tax-
exempt entity and such sale had been mandated by RA 9227 or The Bases
Conversion and Development Act of 1992, which states:
Sec. 8. Funding Scheme.—The capital of the Conversion Authority
shall come from the sales proceeds and/or transfers of certain Metro
Manila military camps, including all lands covered by Proclamation No.
423, series of 1957, commonly known as Fort Bonifacio and Villamor
(Nichols) Air Base x x x
The President is hereby authorized to sell the above lands, in whole or
in part, which are hereby declared alienable and disposable pursuant to
the provisions of existing laws and regulations governing sales of
government properties: Provided, That no sale or disposition of such lands
will be undertaken until a development plan embodying projects for
conversion shall be approved by the President in accordance with
Paragraph (b), Section 4, of this Act. However, six (6) months after
approval of this Act, the President shall authorize the Conversion
Authority to dispose of certain areas in Fort Bonifacio and Villamor as the
latter so determines. The Conversion Authority shall provide the President
a report on any such disposition or plan for disposition within one (1)
month from such disposition or preparation of such plan. x x x (Emphasis
supplied)
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40 Under Section 105 of the present NIRC, the person liable for the
payment of value-added tax is “any person who, in the course of trade or
business, sells goods or properties.” In Section 22 of the same statute, the
term “person” is defined as an individual, a trust, estate, or corporation.
The national government does not fall under any of the enumerated
entities. It is neither an individual or a corporation which comes under the
purview of the law.
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