3.

VAT-taxable transactions

[G.R. No. 183505 : February 26, 2010]

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. SM PRIME

HOLDINGS, INC. AND FIRST ASIA REALTY DEVELOPMENT CORPORATION,
RESPONDENTS.

DECISION

DEL CASTILLO, J.:

CIR v. SM Prime Holdings, Inc. (2010)

FACTS: Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation
(First Asia) are domestic corporations duly organized and existing under the laws of the Republic of the
Philippines. Both are engaged in the business of operating cinema houses, among others.

Simply put, the issue in this case is whether the gross receipts derived by operators or proprietors of
cinema/theater houses from admission tickets are subject to VAT.

Petitioner’s Arguments

Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not
exhaustive because it covers all sales of services unless exempted by law. He claims that the CTA erred
in applying the rules on statutory construction and in using extrinsic aids in interpreting Section 108
because the provision is clear and unambiguous. Thus, he maintains that the exhibition of movies by
cinema operators or proprietors to the paying public, being a sale of service, is subject to VAT.

Respondents’ Arguments

Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of 1997 shows
that the gross receipts of proprietors or operators of cinemas/theaters derived from public admission
are not among the services subject to VAT. Respondents insist that gross receipts from cinema/theater
admission tickets were never intended to be subject to any tax imposed by the national government.
According to them, the absence of gross receipts from cinema/theater admission tickets from the list of
services which are subject to the national amusement tax under Section 125 of the NIRC of
1997 reinforces this legislative intent. Respondents also highlight the fact that RMC No. 28-2001 on
which the deficiency assessments were based is an unpublished administrative ruling.

ISSUE: Are the gross receipts derived by operators or proprietors of cinema/theater houses from
admission tickets subject to VAT?

HELD: NO. It is the legislative intent not to impose VAT on persons already covered by the amusement
tax.

These reveal the legislative intent not to impose VAT on persons already covered by the amusement tax.
This holds true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely
because the VAT law was intended to replace the percentage tax on certain services. The mere fact that
they are taxed by the local government unit and not by the national government is immaterial. The Local
Tax Code, in transferring the power to tax gross receipts derived by cinema/theater operators or
proprietor from admission tickets to the local government, did not intend to treat cinema/theater
houses as a separate class. No distinction must, therefore, be made between the places of amusement
taxed by the national government and those taxed by the local government.

To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or

proprietors, who would be paying an additional 10% VAT on top of the 30% amusement tax imposed by
Section 140 of the LGC of 1991, or a total of 40% tax. Such imposition would result in injustice, as
persons taxed under the NIRC of 1997 would be in a better position than those taxed under the LGC of
1991. We need not belabor that a literal application of a law must be rejected if it will operate unjustly
or lead to absurd results. Thus, we are convinced that the legislature never intended to include
cinema/theater operators or proprietors in the coverage of VAT.

NOCIETE

LUNA (ABSENT)

GONZALEZ (ABSENT

DECEDA

BELOSO

BAUTISTA

AUGMENTADO

SERANO

VENUS

AREVALO

VILLANUEVA

ABELILA

DAVA

PERALTA

PINOL

EDORA
OPISTAN

HERERA

VIRGO

ROGEL

RAVINA

G.R. No. 193007               July 19, 2011

RENATO V. DIAZ and AURORA MA. F. TIMBOL, Petitioners,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.

DECISION

ABAD, J.:

Diaz v. Secretary of Finance (2011)

FACTS: Petitioners filed a petition for declaratory relief assailing the validity of the impending
imposition of value added tax (VAT) by the Bureau of Internal Revenue (BIR)
on the collections of tollway operators.

Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as
regular users of tollways in stopping the BIR action.

Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll
fees within the meaning of “sale of services” that are subject to VAT; that a toll fee is a “user’s
tax,” not a sale of services; that to impose VAT on toll fees would amount to a tax on public
service; and that, since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution.

On the other hand, the government avers that the NIRC imposes VAT on all kinds of services of
franchise grantees, including tollway operations. The government also argues that petitioners
have no right to invoke the non-impairment of contracts clause since they clearly have no
personal interest in existing toll operating agreements (TOAs) between the government and
tollway operators. At any rate, the non-impairment clause cannot limit the State’s sovereign
taxing power which is generally read into contracts.

ISSUE:
Substantive issues:
1. Whether or not the government is unlawfully expanding VAT coverage by including
tollway operators and tollway operations in the terms “franchise grantees” and “sale of
services” under Section 108 of the NIRC?
2. Whether or not the imposition of VAT on tollway operators would:
a. Amount to a tax on a tax and not a tax on services?
b. Impair the tollway operator’s right to a reasonable return of investment under their
TOA’s? and,
c. Not administratively feasible and cannot be implemented?

On the substantive issues:

 1. No. It is plain view that the law (Section 108 of the NIRC) imposes VAT on “all kinds of
services” rendered in the Philippines for a fee, including those specified in the list. The
enumeration of the affected services is not exclusive. By qualifying “services” with the
words “all kinds,” Congress has given the term “services” an all-encompassing meaning.
The listing of specific services are intended to illustrate how pervasive and broad is the
VAT’s reach rather than establish concrete limits to its application. Thus, every activity
that can be imagined as a form of “service” rendered for a fee should be deemed
included unless some provision of law especially excludes it.
2. A) No. Tollway fees are not taxes.
VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as
an indirect tax. In indirect taxation, a distinction is made between the liability for the tax
and burden of the tax. The seller who is liable for the VAT may shift or pass on the
amount of VAT it paid on goods, properties or services to the buyer. In such a case,
what is transferred is not the seller’s liability but merely the burden of the VAT.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on
the tollway operator. Under Section 105 of the Code, VAT is imposed on any person
who, in the course of trade or business, sells or renders services for a fee. In other
words, the seller of services, who in this case is the tollway operator, is the person liable
for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll
fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were
deemed as a “user’s tax.” VAT is assessed against the tollway operator’s gross receipts
and not necessarily on the toll fees.

B) Petitioners have no personality to invoke the non-impairment of contract clause on

behalf of private investors in the tollway projects. She will neither be prejudiced by nor
be affected by the alleged diminution in return of investments that may result from the
VAT imposition. She has no interest at all in the profits to be earned under the TOAs.
The interest in and right to recover investments solely belongs to the private tollway
investors.
Besides, her allegation that the private investor’s rate of recovery will be adversely
affected by imposing VAT on tollway operations is purely speculative.

C) No. Administrative feasibility is one of the canons of a sound tax system. It simply
means that the tax system should be capable of being effectively administered and
enforced with the least inconvenience to the taxpayer. Non-observance of the canon,
however, will not render a tax imposition invalid “except to the extent that specific
constitutional or statutory limitations are impaired.” Thus, even if the imposition of VAT
on tollway operations may seem burdensome to implement, it is not necessarily invalid
unless some aspect of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on
tollway operations.

May toll fees collected by tollway operators be subject to VAT?

YES.
(1) VAT is imposed on “all kinds of services” and tollway operators who are engaged in
constructing, maintaining, and operating expressways are no different from lessors of
property, transportation contractors, etc.

(2) Not only do they fall under the broad term under (1) but also come under those described
as “all other franchise grantees” which is not confined only to legislative franchise grantees
since the law does not distinguish. They are also not a franchise grantee under Section 119
which would have made them subject to percentage tax and not VAT.

(3) Neither are the services part of the enumeration under Section 109 on VAT-exempt
transactions.

(4) The toll fee is not a user’s tax and thus it is permissible to impose a VAT on the said fee.
The MIAA case does not apply and the Court emphasized that toll fees are not taxes since they
are not assessed by the BIR and do not go the general coffers of the government. Toll fees are
collected by private operators as reimbursement for their costs and expenses with a view to a
profit while taxes are imposed by the government as an attribute of its sovereignty. Even if
the toll fees were treated as user’s tax, the VAT can not be deemed as a ‘tax on tax’ since the
VAT is imposed on the tollway operator and the fact that it might pass-on the same to the
tollway user, it will not make the latter directly liable for VAT since the shifted VAT simply
becomes part of the cost to use the tollways.

(5) The assertion that the VAT imposed is not administratively feasible given the manner by
which the BIR intends to implement the VAT (i.e., rounding off the toll rates and putting any
excess collection in an escrow account) is not enough to invalidate the law. Non-observance
of the canon of administrative feasibility will not render a tax imposition invalid “except to
the extent that specific constitutional or statutory limitations are impaired”.
Medicard Philippines, Inc. vs. Commissioner of Internal Revenue (April 5, 2017)

April 5, 2017

G.R. No. 222743

MEDICARD PHILIPPINES, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

REYES,, J.:

MEDICARD PHILIPPINES, INC VS. CIR

In this case, Petitioner is a Health Maintenance Organization. Respondent CIR contends that the entire
money paid to Petitioner by its clients is subject to Value Added Tax. Petitioner argued that not all the
money it received from its client is taxable under the VAT because only the gross receipts are subjected
under it. Petitioner claims that only 20 percent of the money paid to it by its client should be considered
gross receipt that is taxable under the VAT, because the remaining 80 percent does not form part of its
compensation for services rendered but rather allocated to the benefit of the clients themselves.

Also, the amounts that MEDICARD earmarked and eventually paid to

doctors, hospitals and clinics cannot be excluded from the computation of
its gross receipts because the act of earmarking or allocation is by itself an
act of ownership and management over the funds by MEDICARD which is
beyond the contemplation of RR No. 4-2007. Furthermore, MEDICARD’s
earnings from its clinics and laboratory facilities cannot be excluded from
its gross receipts because the operation of these clinics and laboratory is
merely an incident to MEDICARD’s line of business as an HMO.

ISSUES:

1. WHETHER OR NOT THE ENTIRE MONEY PAID TO PETITIONER BY ITS CLIENTS FORM PART OF THE
GROSS RECIEPTS WHICH IS TAXABLE UNDER THE VAT.

RULING:
 1. No. The VAT is a tax on the value added by the performance of the
service by the taxpayer. It is, thus, this service and the value charged
thereof by the taxpayer that is taxable under the NLRC.
According to the SC, citing the National Internal Revenue Code The term “gross receipts” means the
total amount of money or its equivalent representing the contract price, compensation, service fee,
rental or royalty, including the amount charged for materials supplied with the services and deposits
and advanced payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.

The entire money received by petitioner should not all be considered gross receipts because only 20
percent of such is received by petitioner as compensation for services performed or services rendered.
The remaining 80 percent is used and allocated for the benefit of the clients of the Petitioner
themselves. the amounts earmarked and actually spent for medical utilization of its members should not be
included in the computation of its gross receipts.
4. VAT exempt transactions

Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue (January 21, 2010)

[G.R. No. 179085 : January 21, 2010]

TAMBUNTING PAWNSHOP, INC., PETITIONER, VS. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT.

DECISION

CARPIO MORALES, J.:

TAMBUNTING PAWNSHOP, INC. v. COMMISSIONER OF INTERNAL

REVENUE. G.R. No. 179085. January 21, 2010
FACTS:

Petitioner was issued an assessment for deficiency VAT for the taxable year of 1999. Petitioner, after
his protest with the CIR merited no response, it filed a Petition for Review with the CTA raising that
pawnshops are not subject to VAT under the NIRC and that pawn tickets are not subject to
documentary stamp tax.

The CTA ruled that petitioner is liable for the deficiency VAT and the documentary stamp tax.

The petitioner argues that a pawnshop is not enumerated as one of those engaged in sale or exchange
of services in Section 108 of the National Internal Revenue Code and citing the case
of Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshops, Inc. as basis.

ISSUE:

Whether or Not Pawnshops are exempt from the Value Added Tax.

RULING:

The Supreme Court ruled that Pawnshops being classified as a non bank financial intermediaries are
exempt from the VAT by virtue of RA 9238 which partially amended the NIRC of 1997. Therein,
pawnshops instead of being liable under VAT, now becomes liable for percentage tax on gross receipts.
from 0 to 5 percent as the case may be.
Commissioner of Internal Revenue vs. Philippine Health Care Providers, Inc. (April 24, 2007)

G.R. No. 168129             April 24, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
PHILIPPINE HEALTH CARE PROVIDERS, INC., Respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE HEALTH

CARE PROVIDERS, INC. G.R. No. 168129. April 24, 2007
FACTS: 

On 1987, CIR issued VAT Ruling stating that Philhealth, as a provider of medical services, is exempt from
the VAT coverage.  When RA 8424 or the new Tax Code was implemented it adopted the provisions of
VAT and E-VAT. On 1999, the BIR sent Philhealth an assessment notice for deficiency VAT and
documentary stamp taxes for taxable years 1996 and 1997. After CIR did not act on it, Philhealth filed a
petition for review with the CTA. The CTA withdrew the VAT assessment. The CIR then filed an appeal
with the CA which was denied.
ISSUES: 
1. Whether Philhealth is subject to VAT. 
2. Whether VAT Ruling No. 231-88 exempting Philhealth from payment of VAT has retroactive
application.
 RULING:

YES. Section 103 of the NIRC exempts taxpayers engaged in the performance of medical, dental, hospital,
and veterinary services from VAT. But, in Philhealth's letter requesting of its VAT-exempt status, it was
held that it showed Philhealth provides medical service only between their members and their accredited
hospitals, that it only provides for the provision of pre-need health care services, it contracts the services
of medical practitioners and establishments for their members in the delivery of health services.  
Thus, Philhealth does not fall under the exemptions provided in Section 103, but merely arranges for
such, making Philhealth not VAT-exempt. YES. Generally, the NIRC has no retroactive application except
when: 
1. where the taxpayer deliberately misstates or omits material facts from his return or in any
document required of him by the Bureau of Internal Revenue;
2. where the facts subsequently gathered by the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based, or
3. where the taxpayer acted in bad faith.

The Court held that Philhealth acted in good faith. The term health maintenance organization was first
recorded in the Philippine statute books in 1995.  It is apparent that when VAT Ruling No. 231-88 was
issued in Philhealth's favor, the term health maintenance organization was unknown and had no
significance for taxation purposes. Philhealth, therefore, believed in good faith that it was VAT exempt for
the taxable years 1996 and 1997 on the basis of VAT Ruling No. 231-88.  The rule is that the BIR rulings
have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer.
Commissioner of Internal Revenue vs. Semirara Mining Corporation (June 19, 2017)

June 19, 2017

G.R. No. 202922

COMMISSIONER OF INTERNAL REVENUE, Petitioner

vs.
SEMIRARA MINING CORPORATION, Respondent

DECISION

CAGUIOA, J.:

FACTS: Respondent is a duly registered and existing domestic corporation, registered

with the BIR as a non-VAT enterprise engaged in coal mining business by virtue of P.D.
No. 972 (“Coal Development Act of 1976”). SMC executed a Coal Operating Contract
(COC) with the DOE, through the Bureau of Energy Development, until the year 2012.
SMC has been selling coal to NPC for years without paying VAT pursuant to the
exemption granted under Section 16 of PD No. 972. However, after RA No. 9337, which
amended certain provisions of the NIRC of 1997, as amended, took effect on July 1,
2005, NPC started to withhold a tax of five percent (5%) representing the final
withholding VAT on SMC's coal billings pursuant to Section 114(C) of the same law, on
the belief that the sale of coal by SMC was no longer exempt from VAT.
In view thereof, SMC requested for a BIR pronouncement sustaining its position that its
sale of coal to NPC was still exempt from VAT notwithstanding RA No. 9337, which the
BIR granted through BIR Ruling No. 006-2007.
Consequently, on May 21, 2007, January 21, 2008, and January 29, 2008, SMC filed for
a refund or issuance of a tax credit certificate (TCC) in the total amount of
₱77,253,245.39, representing the final withholding VAT withheld by NPC on its coal
billing for the period of July 1, 2006 to December 31, 2006.
The CTA Division and CTA En Banc ruled in favor of respondent. Hence, this petition.
ISSUE: Whether or not respondent is exempt from VAT and thus, entitled to a refund.
RULING: Yes. The tax exemption provided under Section 16 of PD No. 972 was not
revoked, withdrawn or repealed expressly or impliedly- by Congress with the enactment
of RA No. 9337.
It is a fundamental rule in statutory construction that a special law cannot be repealed or
modified by a subsequently enacted general law in the absence of any express
provision in the latter law to that effect. A special law must be interpreted to constitute
an exception to the general law in the absence of special circumstances warranting a
contrary conclusion. The repealing clause of RA No. 9337, a general law, did not
provide for the express repeal of PD No. 972, a special law.
Had Congress intended to withdraw or revoke the tax exemptions under PD No. 972, it
would have explicitly mentioned Section 16 of PD No. 972, in the same way that it
specifically mentioned Section 13 of RA No. 6395 and Section 6, paragraph 5 of RA No.
9136, as among the laws repealed by RA No. 9337.

The CTA also correctly ruled that RA No. 9337 could not have impliedly repealed PD
No. 972.
Comparing the two laws, it is apparent that neither kind of implied repeal exists in this
case. RA No. 9337 does not cover the whole subject matter of PD No. 972 and could
not have been intended to substitute the same. There is also no irreconcilable
inconsistency or repugnancy between the two laws.
SMC is exempt from the payment of VAT on the sale of coal produced under its COC,
because Section 16(a) of PD No. 972, a special law, grants SMC exemption from all
national taxes except income tax. Accordingly, SMC is entitled to claim for a refund of
the 5% final VAT erroneously withheld on SMC's coal billings and remitted by NPC to
the BIR. Notably, the BIR validated SMC's VAT exemption under PD No. 972 through
BIR Ruling No. 006-2007