COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Respondent.

G.R. No. 140230, December 15, 2005

FACTS:
• From 1992-1994, PLDT paid taxes amounting to more than 164 M pesos for
equipment, machineries, and spare parts it imported for its business and also
paid VAT amounting to more than 116 M pesos for similar importations.
• It then sought a confirmatory ruling on its tax exemption privileges under section
12, RA 7082- the law that granted its franchise.
• BIR then responded by saying that the said company shall only be subjected to
3% franchise tax on gross receipts “in lieu of all taxes”. Thus, it shall also be
exempted from VAT.
• Armed by this ruling, PLDT claimed for tax refund amounting to more than
280M pesos representing the compensating taxes, advance sales taxes,
VAT and other internal revenue taxes alleged to have been erroneously paid
on its importations.
• Not having been acted upon by the BIR, it filed a petition for review before the
CTA which ruled in its favor but reduced the total amount to 223M+ pesos. CTA
associate Judge Saga dissented and said that the phrase in lieu of all taxes in
the aforementioned provision only covers direct taxes.
• On appeal, the CA affirmed the CTA decision. Hence, this petition.

ISSUE:
• Whether the phrase “in lieu of all taxes” found in section 12 of RA 7082 granting
the tax exemption to PLDT also covers indirect taxes and therefore exempts
PLDT from paying VAT and other indirect taxes.

HELD:
• The court started out by explaining the difference between direct
and indirect taxes.
• Direct taxes are those that are exacted from the very person who, it is intended
or desired, should pay them; they are impositions for which a taxpayer is directly
liable on the transaction or business he is engaged in.
• Indirect taxes are those that are demanded, in the first instance, from, or are
paid by, one person in the expectation and intention that he can shift the burden
to someone else. It then went on by saying that VAT is an indirect tax- the
amount of which may be shifted to the buyer, transferee, or lessee of goods
and is imposed on all taxpayers who import goods unless under exempted
transactions under section 109 of the Revenue code. It was also revealed that
VAT on importation replaced advance sales tax paid by regular importers. The
court then explained the concepts of the following:

1. Advance sales tax- having attributes of indirect tax, laying the economic
burden on the purchaser;
2. Compensation tax- an excise tax to place, for tax purposes, persons
purchasing from merchants in the Philippines on a more or less equal basis
with those who buy directly from foreign countries.
 • It further ruled that the liability of indirect tax payment lies only with the seller
who cannot invoke the exemption privileges to avoid passing VAT to him by
manufacturers or suppliers of goods bought. Thus, it is important to determine
if tax exemption includes indirect taxes. Otherwise, the presumption is
such exemption only includes direct taxes.
• As a rule, exemption is the exception. Statutes granting it must be construed in
strictissimi juris (in the strictest letter of the law.) It must be interpreted strictly
against the taxpayer and liberally in favor of the taxing authority. The burden of
justifying exemption lies on the one claiming for their fund or exemption.
• In this case, the phrase: “in lieu of all taxes” was immediately followed by:
“on this franchise or earnings thereof” which is considered as a limiting phrase.
The SC also used the maxim: Redendo singular singulis which means: take
the words distributive and apply the reference; each word or phrase must be
given its proper connection in order to give it proper force and effect rendering
none of them useless or unnecessary. Hence, the CTA and CA decisions’
practice of employing the literal meaning of the provision is entirely fallacious.
Tax exemption means a loss of revenue to the government and should not rest
on vague reference. As for the refund of advance sales tax and compensating
tax amounting to more than 94 M pesos, it was granted by the SC since it was
admitted by the BIR that VAT on importations already replaced these taxes.

• Thus, the petition was just partially granted.

Link: https://www.chanrobles.com/scdecisions/jurisprudence2005/dec2005/140230.php

GITO, RICH LLOYD P.

202180264