Teday is Monday, February 13,2028 + The LAWPHIL Project CI None ive Laves avo suesPaUCENCE DATABANK ® Supreme Court Manila FIRST DIVISION GR No. 125355 March 30, 2000 COMMISSIONER OF INTERNAL REVENUE, petitioner, ‘COURT OF APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION, respondents. PARDO, J. What is before the Courts a petlton for review on cortorar ofthe decision ofthe Court of Appeals." reversing that ofthe Court of Tax Appeals. which affrmed with modifcation the decision ofthe Commissioner of Internal Revenue fuling that Commonwealth Management and Services Corporation, Is lable for value added tax for servicas to clents during taxable year 1988, Commanwealth Management and Services Corporation (COMASERCO, for bravily), i a corporation duly organized ‘and existing under the laws ofthe Philppines. It an afliate of Phillpine American Life Insurance Co. Pham), ‘organized by the letter to perform collection, consultative and other technical services, including funcoring as an internal autor, of Phiamife and ts other atiates (On January 24, 1992, the Bureau of Inlemal Revenue (SIR) issued an assessment to private respondent COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 7988, computed as follows ‘Taxable salolocelpt P1679,156.00 410% tax due thereon 167,915.50 25% surcharge 41,978.88 20% interest per annum 125,936.63 Compromise penal for late payment 18,000.00 TOTALAMOUNT DUE AND COLLECTIBLE _P351,831.01 + COMASERCO's annual corporate income tax rotum ending December 31, 1988 indicated 2 net Joss in its ‘operations inthe amount of PS,077 00. On February 10, 1992, COMASERCO filed withthe BIR, alatter-protest objecting fo the later’s finding of defclency VAT. On August 20, 1992, the Commissioner of Inimal Revenue sent a collection letter to COMASERCO demanding payment ofthe deficiency VAT. (On September 29, 1992, COMASERCO filed with the Court of Tax Appeals! @ peion for review contesting the Commissioner's assessment, COMASERCO asserted that the services i rendered to Philamife and is aftiates, Felating to colectons, consuliabve and other technical assistance, including functioning as an internal auto, wore fon a “hosprofi, reimbursementotcost-ony" basis. It averred Tal it was not engaged In the business of providing Services to Philamife and is affltes, COMASERCO was established to ensure operational orderliness and administrative effciancy of Phlamife and its afiates, and notin the sale of services. COMASERCO stressed thal t ‘was not prof mativated, thus nat engaged in business. In Tac, it aid not generate proft but suffered a net los in taxable year 1985. COMASERCO averred that since it was not engaged in Business, it was nt lable to pay VAT. (On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the Commissioner of intemal Revenue, the aispostve potion of which reads: WHEREFORE, the decison of the Commissioner of inlemal Revenue assessing petitioner deficiency value- ‘adie tax forthe taxable year 1988 is AFFIRMED with sight modifeations. Accordingly, pettoner is ordered to pay respondent Commissioner of Intemal Revenue the amount of 335,831.01 inclusive of the 25% surcharge and interest plus 20% interest from January 24, 1992 untl fly paic pursuant to Secton 248 and 249 of the Tax Code, “The compromise penaly of P16,000.00 imposed by the respondent in hor assessment ltr shal not be included in the payment as there was no compromise agreement entered inlo between petiloner and respondent wih respect othe value-added tax detcioney* (On July 26, 1995, respondent fled withthe Court of Appeals, a petiton for review ofthe decision of the Court of Appeals ‘Aor due proceedings, on May 13, 1898, te Court of Appeals rendered decision reversing that of the Court of Tax ‘Appeals, the dspostive portion of which reads: 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 defclency value-added tax forthe taxable year 1988 inclusive of surcharge, interest and ponally charges are ordered CANCELLED for lack of legal and factual basis. * ‘The Court of Appeals anchored its decision on the raiocnatio in another tax case involving the same parties,” where i was Neld that COMASERCO was not lable to pay fXed and contractors tax for services rendered toPhilamife and ts affiates. The Court of Appeals, in that case, reasoned that COMASERCO was not engaged in business of providing sorvicos fo Philamlife and is affiiates. In tho same manner, the Court of Appoals hele that COMASERCO was not liable fo pay VAT fort was not engaged inthe business of eeling servces. (On July 16, 1996, the Commissioner of Intemal Revenue filed with ths Court a pation for review on cortorat assaling the decision ofthe Cour of Appeals. On August 7, 1996, wo roquired respondent COMASERCO to flo comment on the peion, and on September 26, 11896, COMASERCO complied withthe resoluton.* Wie dive due course to the pettion, [At issue in this case is whether COMASERCO was engaged in the sale of services, and thus lable to pay VAT thereon Petitioner avers that to "engage in business" and to “engage in the sale of services" are two diferent things. Potitoner maintains that the sorvices rendered by COMASERCO to Phiamife and is affales, for a feo or Consideration, ae subject to VAT. VAT is a tax onthe value added by the performance ofthe sorvice, its immateral ‘whether prot is derved (rom rendering the service We agree with the Commissioner. ‘Sec, 99 af the Natonal Internal Re provides that rue Code of 1986, as amended by Executive Order (E. 0.) No. 273 in 1988, Sec. 99. Persons lable. — Any person who, in the course of trade or business, sells, barers or exchanges. ‘goods, renders services, of engages in simlar laneactons and any person who, imports goods shall be Subject othe value-added tax (VA) mposed in Sectons 100 to 102 ofthis Code. * COMASERCO contends thatthe term “in the course of trade or business" requires that the “business” is caried on with a view to proft or lvenoad, It avers that the activites ofthe entty must be prof-orented. COMASERCO submits that itis not motivated by profi, as defined by ts primary purpose in the aces of incorporation, sting that itis oparating “only on reimbursement-oF-cost basis, without any prof." Private respondent argues that prof motive Is material in ascertaining who to tax for purposes of determining labilty for VAT We disagree. On May 28, 1994, Congress enacted Republic Act No, 7716, the Expanded VAT Law (EVAT), amending among ther sections, Section 98 ofthe Tax Code. On January 1, 1988, Republic Act 8424, the National inernal Revenue Code of 1997, took effect. The amended law provides nat Sec. 105, Persons Liable. — Any person who, in the course of trade or business, sels, barters, exchanges, leases goods or properiss, renders services, and any person who Imports goods shall be subject fo the value-added tax (VAT) imposed in Sections 106 and 108 of tis Code. “The value-added tax isan indirect tax and the amount of tax may be shifted or passed on tothe buyer, transferee or lessee of the goods, properties or services. Ths rue shall iKewise apply to existing sale or lease of goods, properties or services atthe time ofthe effectvty of Republic Act No. 7716. “The phrase “inthe course of rade or business" means the regular conduct ar pursult of a commercial or an ‘economic activity, including transactions ineidental thereto, by any person regardless of whether ar not the person engaged therein isa nonstock, nonprofit arganzaion (respective of Vie disposton of ts net income find whether or not sells exclusively to members of thelr quests), or government ety. ‘The rulo of regulary, to the contrary notwithstanding, services as defined in this Code rendered in the Philppines by nonresident foreign persons shall be considered as being rendered in the course of ade oF business, Contrary to COMASERCO's contenton the above provision clarifies that even a non:stock, non prof, organization for government ently, s lable to pay VAT on the sale of goods or services. VAT isa tax on transaction, imposed at every stage ofthe dlstibution process on the sale, barter, exchange of goods o” property, and on the performance Df services, even in the absence of prof atibutable thereto. The term "nthe course of trade or business" requires the regular conduct oF pursuit of a commercial or an economic actiy regardless of whether ar not the ently iS profitarented The definition of the term “in the course of trade or business” present law applies to all vansactions even to those made prior fo is enactment. Executive Order No. 273 stated tnat any person who, in the coutse of trade ot business, colle, barore or exchanges goods an eervces, was already lable to pay VAT. The present law merely Stresses that even a nonstock, nonprofk organization or gvernment any i lable to pay VAT forthe sale of goods ‘Soc. 108 ofthe National Intemal Revenue Code of 1997 “defines the phrase “sale of sorvices” as the “performance fall kinds of sorvces for others for a fee, remuneration of consideration.” I inchides “the suppl of technical ‘advice, assistance or services renderee in connection with technical management or administration of any stent, industial or eommercal undertaking or project" On February 5, 1998, the Commissioner of inernal Revenue issued BIR Ruling No. 010-98 12 emphasizing that 2 domestic corporation that provided technical, research, management and technical assistance to its afflated Companies and rece'ved payments on a raimbursementof-st basi, without any infenton of realizing prof, was subject fo VAT on services rendered. In fact, even f such corporation was organized without any intention realizing Profit any income or prof generated by the entity inthe concct ofits activities was subjctto income tax. Hone tis immaterial whether the primary purpose ofa corporation indicates that it relves payments fr services rendered to its affilates on a rsimbursement-an-cost basis only, without realizing prft, for purposes of determining lablty for VAT on services rendered, As long as the ently provides service fora fee, remuneration or consideration, than the service rendered fs subject to VAT. [At any rate, ite a rule that because taxes are the Mebloed of the nation, statutes that allow exemplions ae Conse sic against the grantee and liberally in favor ofthe government. Otherwise stated, any exemption rom the payment of a tax must be clearly stated in the language ofthe law; it cannot be merely imped therefrom. In the ease of VAT, Section 103, Republic Act 8426 clearly enumerates the transactions exempted ‘Tom VAT. The services rendered by COMASERCO do not fall within the exertion. Both the Commissioner of Intemal Revenue and the Cout of Tax Appeals corecly ruled that the services rendered by COMASERCO to Philamife and its alates are subject to VAT. As pointed out by the Commissioner, the performance ofall kinds of services for others for fee, remuneration or consideration is considered as sale of Services subject to VAT. As the government agency charged wilh the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that tis plainly wrong, sentiled to great weight Also, ft has been the long standing poly and pracice of his Court to respect the conclusions of quas/udialagencies, such as the Court of Tax Appeals which, by the nature ofits functions, is dedicated exclusively to the study and consideration of tax cases and has necossariy developed an expertse on the subject, unless there has beon an abuse orimprovident exorcise ofits authori." ‘There is no mest to respondents contention that the Court of Appeals’ decision in CA-G.R. No. 24042, declaring the COMASERCO as nol engaged in business and nat liable forthe payment of fad and perceniage taxes, Dinds peitioner. The issue in CA-G.R. No. 34042 's diferent ftom the present case, which involves COMASERCO's Tabilty for VAT. As heretofore slated, every person who sels, barter, or exchanges goods and services, inthe course of trade or business, as dofned by law, Is subct to VAT, WHEREFORE, the Court GRANTS the peion and REVERSES the decision of the Cour of Appeals in CAG. SP. No, 37830, The Court nreby REINSTATES the decision of the Court af Tax Appeal in C. 7. Case No. 4858. No cos ‘SO ORDERED. Davide, Jr, C.J, Pun, Kapunan and Ynares-Santiogo, JU, concur Footnotes ‘In CACG.R. SP No. 37930, promulgated on May 13, 1996. Justice Pacita Cafizares-Nye, pononto, Jusions Pedro. Ramirez and Salvader J. Valdez, J, concuing. Rola. pp. 27-31 7 In ©. T, A, Case No, 4853, promulgated on June 22, 1995. Judge Emesto D. Acosta, presiding, Judges Manuel K. Gruba and Ramon 0. De Veyra, concurring, Rolle, pp. 32-42 *CTADecision, Ral, 9. 92 “Docketad as C. 7. A, Case No. 4853, * Rollo, pp. 32-43 Rollo, pp. 27-21 * Docksted as CA-GR. SP NO. 34082, Commonwealtn Management and Services Corporation v. Commissioner of Intemal Revenue and the Cour of Tax Appeals, promulgated on Decemioer 21, 1985. Justice Jaime M, Lantn, ponento, usties Eduard ©. Montenegro and Jose C. Dela Rama, concurring. Ths ‘docsion became final since no petton for review was fled with this Court Rollo, pp. 50-64 * Now in Section 105 ofthe Tax Code. Formerly Section 102. "Sec. 108 (A) (6), National Internal Revenue Code of 1997: Section 4.102-1, Revenue Regulations No. 7-95 (Value-Added Tax Regulations), as amended, December 9, 185. "Upon a query made by Tipco-Batean Group Incorporated. Davao Gut Lumber Corporation v. Commissioner af Inlrnal Revenue, 283 SCRA 76 (1998). "Misamis Oriental Association of Coco traders, Inc. v. Department of Finance Secretary, 238 SCRA 63, 68 (1986). "Commissioner of Intemal Revenue v. Court of Appeals, 204 SCRA 183, 189-190 (1991). oo res