Category: LATEST SUPREME COURT CASES


CASE NO. 2011-0087: COMMISSIONER OF INTERNAL REVENUE VS. MANILA BANKERS’ LIFE INSURANCE CORPORATION (G.R. NO. 169103, 16 MARCH 2011, LEONARDO-DE CASTRO, J.) SUBJECT: DOCUMENTARY STAMP TAX ON INSURANCE POLICY. (BRIEF TITLE: CIR VS. MANILA BANKERS) 

  

Republic of the Philippines

Supreme Court

Manila

 

FIRST DIVISION

 

COMMISSIONER OF INTERNAL REVENUE,

 Petitioner,

– versus –

 

 

 

 

MANILA BANKERS’ LIFE INSURANCE CORPORATION,

Respondent.

G.R. No. 169103

 

Present:

 

CORONA, C.J.,

     Chairperson,     

VELASCO, JR.,

LEONARDO-DE CASTRO,

DEL CASTILLO, and

PEREZ, JJ.

Promulgated:

March 16, 2011

x – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –  x

D E C I S I O N

 

 

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari[1] filed by the Commissioner of Internal Revenue (CIR) of the April 29, 2005 Decision[2] and July 27, 2005 Resolution[3] of the Court of Appeals in CA-G.R. SP No. 70600, which upheld the April 4, 2002 Decision[4] of the Court of Tax Appeals (CTA) in CTA Case No. 6189.

The facts as found by the CTA and Court of Appeals are undisputed.

Respondent Manila Bankers’ Life Insurance Corporation is a duly organized domestic corporation primarily engaged in the life insurance business.[5]

On May 28, 1999, petitioner Commissioner of Internal Revenue issued Letter of Authority No. 000020705[6] authorizing a special team of Revenue Officers to examine the books of accounts and other accounting records of respondent for taxable year “1997 & unverified prior years.”[7]

On December 14, 1999, based on the findings of the Revenue Officers, the petitioner issued a Preliminary Assessment Notice[8] against the respondent for its deficiency internal revenue taxes for the year 1997.  The respondent agreed to all the assessments issued against it except to the amount of P2,351,680.90 representing deficiency documentary stamp taxes on its policy premiums and penalties. [9]

Thus, on January 4, 2000, the petitioner issued against the respondent a Formal Letter of Demand[10] with the corresponding Assessment Notices attached,[11] one of which was Assessment Notice No. ST-DST2-97-0054-2000[12] pertaining to the documentary stamp taxes due on respondent’s policy premiums: 

Documentary Stamp Tax on Policy Premiums

Assessment No. ST-DST2-97-0054-2000

Tax Due                                                                                    3,954,955.00

Less: Tax Paid                                                                            2,308,505.74

Tax Deficiency                                                                           1,646,449.26

Add:    20% Int./a                                                                         680,231.64

                        Recommended Compromise Penalty-                                                                                  

                          Late Payment           _____          25,000.00

Total Amount Due                                                                     2,351,680.90[13]

The tax deficiency was computed by including the increases in the life insurance coverage or the sum assured by some of respondent’s life insurance plans[14]:

                                                           ISSUED                     INCREASED

ORDINARY                               P648,127,000.00         P     74,755,000.00

GROUP                                         114,936,000.00              744,164,000.00

TOTAL                                        P763,063,000.00         P   818,919,000.00

GRAND TOTAL/TAX BASE                                        P1,581,982,000.00

TAX RATE                                                                              P0.50/200.00

TAX DUE                                                                       P       3,954,955.00

LESS: TAX PAID                                                           P       2,308,505.74

DEFICIENCY DST    –  BASIC                                    P       1,646,499.26

                                                –  20% INTEREST                                   680,231.64

                                                –  SURCHARGE                                       25,000.00

            TOTAL ASSESSMENT                                                 P       2,351,680.90[15]

The amount of P818,919,000.00 comprises the increases in the sum assured for the respondent’s ordinary insurance – the “Money Plus Plan” (P74,755,000.00), and group insurance (P744,164,000.00).[16]

On February 3, 2000, the respondent filed its Letter of Protest[17] with the Bureau of Internal Revenue (BIR) contesting the assessment for deficiency documentary stamp tax on its insurance policy premiums.  Despite submission of documents on April 3, 2000,[18] as required by the BIR in its March 20, 2000[19] letter, the respondent’s Protest was not acted upon by the BIR within the 180-day period given to it by Section 228 of the 1997 National Internal Revenue Code (NIRC) within which to rule on the protest. Hence, on October 26, 2000, the respondent filed a Petition for Review with the CTA for the cancellation of Assessment Notice No. ST-DST2-97-0054-2000.  The respondent invoked the CTA’s March 30, 1993 ruling in the similar case of Lincoln Philippine Life Insurance Company, Inc. (now Jardine-CMA Life Insurance Company, Inc.) v. Commissioner of Internal Revenue,[20] wherein the CTA held that the tax base to be used in computing the documentary stamp tax is the value at the time the instrument is issued because the documentary stamp tax is levied and paid only once, which is at the time the taxable document is issued.

On April 4, 2002, the CTA granted the respondents’ Petition with the dispositive portion as follows:

WHEREFORE, in the light of all the foregoing, respondent Commissioner of Internal Revenue is hereby ORDERED to CANCEL andWITHDRAW Assessment Notice No. ST-DST2-97-0054-2000 dated January 4, 2000 in the amount of P2,351,680.90 representing deficiency documentary stamp taxes for the taxable year 1997.[21]

The CTA, applying the Tax Code Provisions then in force, held that:

[T]he documentary stamp tax on life insurance policies is imposed only once based on the amount insured at the time of actual issuance of such policies.  The documentary stamp tax which is in the nature of an excise tax is imposed on the document as originally issued.  Therefore, any subsequent increase in the insurance coverage resulting from policies which have been subjected to the documentary stamp tax at the time of their issuance, is no longer subject to the documentary stamp tax.[22]

Aggrieved by the decision, the petitioner went to the Court of Appeals on a Petition for Review[23] docketed as CA-G.R. SP No. 70600 on the ground that:

THE TAX COURT ERRED IN RULING THAT INCREASES IN THE COVERAGE OR THE SUM ASSURED BY AN EXISTING INSURANCE POLICY IS NOT SUBJECT TO THE DOCUMENTARY STAMP TAX. (DST).[24]

            On April 29, 2005, the Court of Appeals sustained the cancellation of Assessment Notice No. ST-DST2-97-0054-2000 in its Decision, the decretal portion of which reads:

WHEREFORE, all considered and finding no merit in the herein appeal, judgment is hereby rendered upholding the April 4, 2002, CTA Decision in CTA Case No. 6189 entitled “Manila Bankers’ Life Insurance Corporation, Petitioner, versus Commissioner of Internal Revenue, Respondent.[25]

The Court of Appeals, in upholding the decision of the CTA, said that the subject of the documentary stamp tax is the issuance of the instrument representing the creation, change or cessation of a legal relationship.[26]  It further held that because the legal status or nature of the relationship embodied in the document has no bearing at all on the tax, the fulfillment of suspensive conditions incorporated in the respondent’s policies, as claimed by the petitioner, would still not give rise to new documentary stamp tax payments.[27]

The petitioner asked for reconsideration of the above Decision and cited this Court’s March 19, 2002 Decision inCommissioner of Internal Revenue v. Lincoln Philippine Life Insurance Company, Inc.,[28] the very same case the respondent invoked before the CTA.  The petitioner argued that in Lincoln, this Court reversed both the CTA and the Court of Appeals and sustained the validity of the deficiency documentary stamp tax imposed on the increase in the sum insured even though no new policy was issued because the increase, by reason of the “Automatic Increase Clause,” was already definite at the time the policy was issued.

On July 27, 2005, the Court of Appeals sustained its ruling, and stated that the Lincoln Case was not applicable because the increase in the sum assured in Lincoln’s insurance policy was definite and determinable at the time such policy was issued as the automatic increase clause, which allowed for the increase, formed an integral part of the policy; whereas in the respondent’s case, “the tax base of the disputed deficiency assessment was not [a] definite or determinable increase in the sum assured.”[29]

The petitioner is now before us praying for the nullification of the Court of Appeals’ April 29, 2005 Decision and July 27, 2005 Resolution and to have the assessment for deficiency documentary stamp tax on respondent’s policy premiums, plus 25% surcharge for late payment and 20% annual interest, sustained[30] on the following arguments:

A.

 

THE APPLICABLE PROVISIONS OF THE NIRC AT THE TIME THE ASSESSMENT FOR DEFICIENCY DOCUMENTARY STAMP TAX WAS ISSUED PROVIDE THAT DOCUMENTARY STAMP TAX IS COLLECTIBLE NOT ONLY ON THE ORIGINAL POLICY BUT ALSO UPON RENEWAL OR CONTINUANCE THEREOF.

 

B.

 

THE AMOUNT INSURED BY THE POLICY AT THE TIME OF ITS ISSUANCE NECESSARILY INCLUDED THE ADDITIONAL SUM AS A RESULT OF THE EXERCISE OF THE OPTION UNDER THE “GUARANTEED CONTINUITY” CLAUSE IN RESPONDENT’S INSURANCE POLICIES.

 

C.

 

THE “GUARANTEED CONTINUITY” CLAUSE OFFERS TO THE INSURED AN OPTION TO AVAIL OF THE RIGHT TO RENEW OR CONTINUE THE POLICY.  IF AND WHEN THE INSURED AVAILS OF SUCH OPTION AND SUCH GUARANTEED CONTINUITY CLAUSE TAKES EFFECT, THE INSURER IS LIABLE FOR DEFICIENCY DOCUMENTARY STAMP TAX CORRESPONDING TO THE INCREASE OF THE INSURANCE COVERAGE.

 

D.

 

SECTION 198 OF THE 1997 NIRC CLEARLY STATES THAT THE DOCUMENTARY STAMP TAX IS IMPOSABLE UPON RENEWAL OR CONTINUANCE OF ANY POLICY OF INSURANCE OR THE RENEWAL OR CONTINUANCE OF ANY CONTRACT BY ALTERING OR OTHERWISE, AT THE SAME RATE AS THAT IMPOSED ON THE ORIGINAL INSTRUMENT.[31]

 

 

As can be gleaned from the facts, the deficiency documentary stamp tax was assessed on the increases in the life insurance coverage of two kinds of policies: the “Money Plus Plan,” which is an ordinary term life insurance policy; and the group life insurance policy.  The increases in the coverage of the life insurance policies were brought about by the premium payments made subsequent to the issuance of the policies.  The Money Plus Plan is a 20-year term ordinary life insurance plan with a “Guaranteed Continuity Clause” which allowed the policy holder to continue the policy after the 20-year term subject to certain conditions.  Under the plan, the policy holders paid their premiums in five separate periods, with the premium payments, after the first period premiums, to be made only upon reaching a certain age.  The succeeding premium payments translated to increases in the sum assured.  Thus, the petitioner believed that since the documentary stamp tax was affixed on the policy based only on the first period premiums, then the succeeding premium payments should likewise be subject to documentary stamp tax.  In the case of respondent’s group insurance, the deficiency documentary stamp tax was imposed on the premiums for the additional members to already existing and effective master policies.  The petitioner concluded that any additional member to the group of employees, who were already insured under the existing mother policy, should similarly be subjected to documentary stamp tax.[32]

The resolution of this case hinges on the validity of the imposition of documentary stamp tax on increases in the coverage or sum assured by existing life insurance policies, even without the issuance of new policies.

In view of the fact that the assessment for deficiency documentary stamp tax covered the taxable year 1997, the relevant and applicable legal provisions are those found in the 1977 National Internal Revenue Code (Tax Code) as amended,[33] to wit:

 

Section 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. — Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted, or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines,and the same time such act is done or transaction hadProvided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party who is not exempt shall be the one directly liable for the tax. [34]

Section 183. Stamp Tax on Life Insurance Policies. — On all policies of insurance or other instruments by whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives, there shall be collected a documentary stamp tax of fifty centavos on each two hundred pesos or fractional part thereof, of the amount insured by any such policy.[35] (Emphases ours.)

Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.[36]  It is in the nature of an excise tax because it is imposed upon the privilege, opportunity or facility offered at exchanges for the transaction of the business.  It is an excise upon the facilities used in the transaction of the business distinct and separate from the business itself.[37]

To elucidate, documentary stamp tax is levied on the exercise of certain privileges granted by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments.  Examples of these privileges, the exercise of which are subject to documentary stamp tax, are leases of lands, mortgages, pledges, trusts and conveyances of real property. Documentary stamp tax is thus imposed on the exercise of these privileges through the execution of specific instruments, independently of the legal status of the transactions giving rise thereto.  The documentary stamp tax must be paid upon the issuance of these instruments, without regard to whether the contracts which gave rise to them are rescissible, void, voidable, or unenforceable. [38]

Accordingly, the documentary stamp tax on insurance policies, though imposed on the document itself, is actually levied on the privilege to conduct insurance business.  Under Section 173, the documentary stamp tax becomes due and payable at the time the insurance policy is issued, with the tax based on the amount insured by the policy as provided for in Section 183.

Documentary Stamp Tax

on the “Money Plus Plan”

 

The petitioner would have us reverse both the CTA and the Court of Appeals based on our decision in Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance Company, Inc.[39] 

The Lincoln case has been invoked by both parties in different stages of this case.  The respondent relied on the CTA’s ruling in the Lincoln case when it elevated its protest there; and when we reversed the CTA’s ruling therein, the petitioner called the Court of Appeals’ attention to it, and prayed for a decision upholding the assessment for deficiency documentary stamp tax just like in theLincoln case.

It is therefore necessary to briefly discuss the Lincoln case to determine its applicability, if any, to the case now before us. Prior to 1984, Lincoln Philippine Life Insurance Company, Inc. (Lincoln) had been issuing its “Junior Estate Builder Policy,” a special kind of life insurance policy because of a clause which provided for an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need of a new policy.  As Lincoln paid documentary stamp taxes only on the initial sum assured, the CIR issued a deficiency documentary stamp tax assessment for the year 1984, the year the clause took effect.  Both the CTA and the Court of Appeals found no basis for the deficiency assessment.  As discussed above, however, this Court reversed both lower courts and sustained the CIR’s assessment.

This Court ruled that the increase in the sum assured brought about by the “automatic increase” clause incorporated inLincoln’s Junior Estate Builder Policy was still subject to documentary stamp tax, notwithstanding that no new policy was issued, because the date of the effectivity of the increase, as well as its amount, were already definite and determinable at the time the policy was issued.  As such, the tax base under Section 183, which is “the amount fixed in the policy,” is “the figure written on its face and whatever increases will take effect in the future by reason of the ‘automatic increase clause.’” [40]  This Court added that the automatic increase clause was “in the nature of a conditional obligation under Article 1181,[41] by which the increase of the insurance coverage shall depend upon the happening of the event which constitutes the obligation.” [42]

Since the Lincoln case, wherein the then CIR’s arguments for the BIR are very similar to the petitioner’s arguments herein, was decided in favor of the BIR, the petitioner is now relying on our ruling therein to support his position in this case.  Although the two cases are similar in many ways, they must be distinguished by the nature of the respective “clauses” in the life insurance policies involved, where we note a major difference.  In Lincoln, the relevant clause is the “Automatic Increase Clause” which provided for the automatic increase in the amount of life insurance coverage upon the attainment of a certain age by the insured, without any need for another contract.  In the case at bar, the clause in contention is the “Guaranteed Continuity Clause” in respondent’s Money Plus Plan, which reads:

GUARANTEED CONTINUITY

We guarantee the continuity of this Policy until the Expiry Date stated in the Schedule provided that the effective premium is consecutively paid when due or within the 31-day Grace Period.

We shall not have the right to change premiums on your Policy during the 20-year Policy term.

At the end of each twenty-year period, and provided that you have not attained age 55, you may renew your Policy for a further twenty-year period. To renew, you must submit proof of insurability acceptable to MBLIC and pay the premium due based on attained age according to the rates prevailing at the time of renewal.[43]

A simple reading of respondent’s guaranteed continuity clause will show that it is significantly different from the “automatic increase clause” in Lincoln.  The only things guaranteed in the respondent’s continuity clause were: the continuity of the policy until the stated expiry date as long as the premiums were paid within the allowed time; the non-change in premiums for the duration of the 20-year policy term; and the option to continue such policy after the 20-year period, subject to certain requirements.  In fact, even the continuity of the policy after its term was not guaranteed as the decision to renew it belonged to the insured, subject to certain conditions.  Any increase in the sum assured, as a result of the clause, had to survive a new agreement between the respondent and the insured.  The increase in the life insurance coverage was only corollary to the new premium rate imposed based upon the insured’s age at the time the continuity clause was availed of.  It was not automatic, was never guaranteed, and was certainly neither definite nor determinable at the time the policy was issued. 

Therefore, the increases in the sum assured brought about by the guaranteed continuity clause cannot be subject todocumentary stamp tax under Section 183 as insurance made upon the lives of the insured. 

However, it is clear from the text of the guaranteed continuity clause that what the respondent was actually offering in its Money Plus Plan was the option to renew the policy, after the expiration of its original term.  Consequently, the acceptance of this offer would give rise to the renewal of the original policy. 

The petitioner avers that these life insurance policy renewals make the respondent liable for deficiency documentary stamp tax under Section 198.

Section 198 of the old Tax Code reads:

Section 198. Stamp Tax on Assignments and Renewals of Certain Instruments. – Upon each and every assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any agreement, contract, charter, or any evidence of obligation or indebtedness by altering or otherwise, there shall be levied, collected and paid a documentary stamp tax, at the same rate as that imposed on the original instrument.[44]

Section 198 speaks of assignments and renewals.  In the case of insurance policies, this section applies only when such policy was assigned or transferred.  The provision which specifically applies to renewals of life insurance policies is Section 183:

 

Section 183. Stamp Tax on Life Insurance Policies. — On all policies of insurance or other instruments by whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives, there shall be collected a documentary stamp tax of fifty centavos on each two hundred pesos or fractional part thereof, of the amount insured by any such policy. (Emphasis ours.)

Section 183 is a substantial reproduction of the earlier documentary stamp tax provision, Section 1449(j) of the Administrative Code of 1917.  Regulations No. 26, or The Revised Documentary Stamp Tax Regulations,[45] provided the implementing rules to the provisions on documentary stamp tax under the Administrative Code of 1917.  Section 54 of the Regulations, in reference to what is now Section 183, explicitly stated that the documentary stamp tax imposed under that section is also collectible upon renewals of life insurance policies, viz:

Section 54. Tax also due on renewals. – The tax under this section is collectible not only on the original policy or contract of insurance but also upon the renewal of the policy or contract of insurance.

To argue that there was no new legal relationship created by the availment of the guaranteed continuity clause would mean that any option to renew, integrated in the original agreement or contract, would not in reality be a renewal but only a discharge of a pre-existing obligation.  The truth of the matter is that the guaranteed continuity clause only gave the insured the right to renew his life insurance policy which had a fixed term of twenty years.  And although the policy would still continue with essentially the same terms and conditions, the fact is, its maturity date, coverage, and premium rate would have changed.  We cannot agree with the CTA in its holding that “the renewal, is in effect treated as an increase in the sum assured since no new insurance policy was issued.”[46]  The renewal was not meant to restore the original terms of an old agreement, but instead it was meant to extend the life of an existing agreement, with some of the contract’s terms modified.  This renewal was still subject to the acceptance and to the conditions of both the insured and the respondent.  This is entirely different from a simple mutual agreement between the insurer and the insured, to increase the coverage of an existing and effective life insurance policy.

It is clear that the availment of the option in the guaranteed continuity clause will effectively renew the Money Plus Plan policy, which is indisputably subject to the imposition of documentary stamp tax under Section 183 as an insurance renewed upon the life of the insured.

Documentary Stamp Tax

 on Group Life Insurance

 

          The petitioner is also asking this Court to sustain his deficiency documentary stamp tax assessment on the additional premiums earned by the respondent in its group life insurance policies. 

          This Court, in Pineda v. Court of Appeals[47] has had the chance to discuss the concept of “group insurance,” to wit:

In its original and most common form, group insurance provides life or health insurance coverage for the employees of one employer.

The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the insurer to a representative of the group or to an administrator of the insurance program, such as an employer. The employer acts as a functionary in the collection and payment of premiums and in performing related duties.  Likewise falling within the ambit of administration of a group policy is the disbursement of insurance payments by the employer to the employees.  Most policies, such as the one in this case, require an employee to pay a portion of the premium, which the employer deducts from wages while the remainder is paid by the employer.  This is known as a contributory plan as compared to a non-contributory plan where the premiums are solely paid by the employer.

            Although the employer may be the titular or named insured, the insurance is actually related to the life and health of the employee.  Indeed, the employee is in the position of a real party to the master policy, and even in a non-contributory plan, the payment by the employer of the entire premium is a part of the total compensation paid for the services of the employee.  Put differently, the labor of the employees is the true source of the benefits, which are a form of additional compensation to them.[48] (Emphasis ours.)

When a group insurance plan is taken out, a group master policy is issued with the coverage and premium rate based on the number of the members covered at that time.  In the case of a company group insurance plan, the premiums paid on the issuance of the master policy cover only those employees enrolled at the time such master policy was issued.  When the employer hires additional employees during the life of the policy, the additional employees may be covered by the same group insurance already taken out without any need for the issuance of a new policy. 

The respondent claims that since the additional premiums represented the additional members of the same existing group insurance policy, then under our tax laws, no additional documentary stamp tax should be imposed since the appropriate documentary stamp tax had already been paid upon the issuance of the master policy.  The respondent asserts that since the documentary stamp tax, by its nature, is paid at the time of the issuance of the policy, “then there can be no other imposition on the same, regardless of any change in the number of employees covered by the existing group insurance.”[49]

To resolve this issue, it would be instructive to take another look at Section 183: On all policies of insurance or other instruments by whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives.

 

The phrase “other instruments” as also found in the earlier version of Section 183, i.e., Section 1449(j) of the Administrative Code of 1917, was explained in Regulations No. 26, to wit:

Section 52. “Other instruments” defined. – The term “other instruments” includes any instrument by whatever name the same is called whereby insurance is made or renewed, i.e., by which the relationship of insurer and insured is created or evidenced, whether it be a letter of acceptance, cablegrams, letters, binders, covering notes, or memoranda. (Emphasis ours.)

Whenever a master policy admits of another member, another life is insured and covered.  This means that the respondent, by approving the addition of another member to its existing master policy, is once more exercising its privilege to conduct the business of insurance, because it is yet again insuring a life.  It does not matter that it did not issue another policy to effect this change, the fact remains that insurance on another life is made and the relationship of insurer and insured is created between the respondent and the additional member of that master policy.  In the respondent’s case, its group insurance plan is embodied in a contract which includes not only the master policy, but all documents subsequently attached to the master policy.[50]  Among these documents are the Enrollment Cards accomplished by the employees when they applied for membership in the group insurance plan.  The Enrollment Card of a new employee, once registered in the Schedule of Benefits and attached to the master policy, becomes evidence of such employee’s membership in the group insurance plan, and his right to receive the benefits therein.  Everytime the respondent registers and attaches an Enrollment Card to an existing master policy, it exercises its privilege to conduct its business of insurance and this ispatently subject to documentary stamp tax as insurance made upon a life under Section 183.

The respondent would like this Court to ignore the petitioner’s argument that renewals of insurance policies are also subject to documentary stamp tax for being raised for the first time.  This Court was faced with the same dilemma in Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation,[51] when the petitioner also raised an issue therein for the first time in the Supreme Court.  In addressing the procedural lapse, we said:

As clearly ruled by Us “To allow a litigant to assume a different posture when he comes before the court and challenges the position he had accepted at the administrative level,” would be to sanction a procedure whereby the Court – which is supposed to review administrative determinations – would not review, but determine and decide for the first time, a question not raised at the administrative forum.  Thus it is well settled that under the same underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court cannot generally be raised for the first time on appeal. x x x.[52]

However, in the same case, we also held that:

Nonetheless it is axiomatic that the State can never be in estoppel, and this is particularly true in matters involving taxation. The errors of certain administrative officers should never be allowed to jeopardize the government’s financial position.[53] (Emphasis ours.)

Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty.[54] Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need.  It is through taxes that government agencies are able to operate and with which the State executes its functions for the welfare of its constituents.[55]  It is for this reason that we cannot let the petitioner’s oversight bar the government’s rightful claim.

This Court would like to make it clear that the assessment for deficiency documentary stamp tax is being upheld not because the additional premium payments or an agreement to change the sum assured during the effectivity of an insurance plan are subject to documentary stamp tax, but because documentary stamp tax is levied on every document which establishes that insurance was made or renewed upon a life.

 

WHEREFORE, the petition is GRANTED.  The April 29, 2005 Decision and the July 27, 2005 Resolution of the Court of Appeals in CA-G.R. SP No. 70600 are hereby SET ASIDE.  Respondent Manila Bankers’ Life Insurance Corp. is hereby ordered to pay petitioner Commissioner of Internal Revenue the deficiency documentary stamp tax in the amount of P1,646,449.26, plus the delinquency penalties of 25% surcharge on the amount due and 20% annual interest from January 5, 2000 until fully paid.

 

SO ORDERED.

                                                TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

RENATO C. CORONA

Chief Justice

Chairperson

PRESBITERO J. VELASCO, JR.

Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

   
   
   
   
   
   
JOSE PORTUGAL PEREZ

Associate Justice

 

CERTIFICATION

 

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

RENATO C. CORONA
                                                            Chief Justice

 


[1]               Under Rule 45 of the 1997 Rules of Civil Procedure.

[2]               Rollo, pp. 54-62; penned by Associate Justice Godardo A. Jacinto with Associate Justices Bienvenido L. Reyes and Rosalinda Asuncion-Vicente, concurring.

[3]               Id. at 64-71.

[4]               Id. at 96-107.

[5]               Id. at 79.

[6]               Id. at 72.

[7]               Id.

[8]               Id. at 73-74.

[9]               CA rollo, p. 37.

[10]             Rollo, pp. 75-76.

[11]             CA rollo, pp. 54-57.

[12]             Id. at 58.

[13]             Rollo, p. 76.

[14]             CA rollo, p. 128.

[15]             Rollo, p. 82.

[16]             Id. at 145.

[17]             CA rollo, p. 64.

[18]             Id. at 117.

[19]             Id. at 65.

[20]             CTA Case No. 4583; rollo, p. 84.

[21]             Rollo, p. 106.

[22]             Id. at 104.

[23]             Id. at 108-122.

[24]             Id. at 115.

[25]             Id. at 61.

[26]             Id. at 60.

[27]             Id.

[28]             429 Phil. 154 (2002).

[29]             Rollo, p. 66.

[30]             Id. at 45-46.

[31]             Id. at 27-29.

[32]             CA rollo, pp. 128-129.

[33]             Republic Act No. 8424 or the Tax Reform Act of 1997 became effective only on January 1, 1998.

[34]             Presidential Decree No. 1158 as renumbered and amended by Section 32 of Presidential Decree No. 1994, November 5, 1985; Section 23 of Executive Order No. 273, July 25, 1987; and Section 1 of Republic Act No. 7660, December 23, 1993.

[35]             Presidential Decree No. 1158 as amended by Section 29 of Annex of Presidential Decree No. 1457, June 11, 1978; Section 27 of Presidential Decree No. 1959, October 10, 1984; Section 45 of Presidential Decree No. 1994, November 5, 1985; and Section 23 of Executive Order No. 273, July 25, 1987.

[36]             Commissioner of Internal Revenue v. First Express Pawnshop Company, Inc., G.R. Nos. 172045-46, June 16, 2009, 589 SCRA 253, 263.

[37]             Lincoln Philippine Life Insurance Company, Inc. (Now Jardine-CMG Life Insurance Co. Inc.) v. Court of Appeals, 354 Phil. 896, 904 (1998).

[38]             Philippine Home Assurance Corporation v. Court of Appeals, 361 Phil. 368, 372-373 (1999).

[39]             Supra note 28.

[40]             Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance Company, Inc. supra note 28.

[41]             New Civil Code.

[42]             Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance Company, Inc. supra note 28 at 161-162.

[43]             CA rollo, p. 68.

[44]             Presidential Decree No. 1158 as renumbered by Section 45 of Presidential Decree No. 1994, November 5, 1985 and Section 23 of Executive Order No. 273, July 25, 1987.

[45]             March 26, 1924.  Amended by Regulations No. 77 (August 8, 1933); Revenue Regulations Nos. 4-68, (August 16, 1967); 1-72 (January 28, 1972); 3-75 (May 27, 1975); and Presidential Decree Nos. 1158 (June 3, 1977) and 1457.  See also Presidential Decree No. 1959 (October 15, 1984), re omnibus amendments to the Tax Code.

[46]             Rollo, p. 106.

[47]             G.R. No. 105562, September 27, 1993, 226 SCRA 754.

[48]             Id. at 765-766.

[49]             Rollo, p. 230.

[50]             CA rollo, p. 107.

[51]             243 Phil. 703 (1988).

[52]             Id. at 709.

[53]             Id.

[54]          Compagnie Financiere Sucres Et Denrees v. Commissioner of Internal Revenue, G.R. No. 133834, August 28, 2006, 499 SCRA 664, 667-668.

[55]             Proton Pilipinas Corporation v. Republic of the Philippines, represented by the Bureau of Customs, G.R. No. 165027, October 12, 2006, 504 SCRA 528, 547-548.

CASE NO. 2011-0086: NATIONWIDE SECURITY AND ALLIED SERVICES, INC. VS. RONALD P. VALDERAMA (G.R. NO. 186614, 23 FEBRUARY 2011, NACHURA, J.) SUBJECTS: CONSTRUCTIVE DISMISSAL UPHELD; ABANDONMENT OF WORK REBUTTED; VOLUNTARY RESIGNATION DISREGARDED; TEMPORARY OFF-DETAIL MUST NOT EXCEED 6 MONTHS. (BRIEF TITLE: NATIONWIDE SECURITY VS. VALDERAMA).

 

 

SECOND DIVISION

 

NATIONWIDE SECURITY AND

ALLIED SERVICES, INC.,

Petitioner,

          – versus –

 

 

 

 

RONALD P. VALDERAMA,

Respondent.

 

G.R. No. 186614

 

Present:

 

CARPIO, J.,

   Chairperson,

NACHURA,

PERALTA,

ABAD, and

MENDOZA, JJ.

Promulgated:

   February 23, 2011

 x———————————————————————————x

RESOLUTION

 

NACHURA, J.:

 

Petitioner Nationwide Security and Allied Services, Inc. (petitioner) appeals by certiorari under Rule 45 of the Rules of Court the December 9, 2008 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 104966, and the February 24, 2009 Resolution[2] denying its reconsideration.

Respondent Ronald Valderama (Valderama) was hired by petitioner as security guard on April 18, 2002.  He was assigned at the Philippine Heart Center (PHC), Quezon City, until his relief on January 30, 2006.  Valderama was not given any assignment thereafter.  Thus, on August 2, 2006, he filed a complaint for constructive dismissal and nonpayment of 13th month pay, with prayer for damages against petitioner and Romeo Nolasco.   

Petitioner presented a different version.  It alleged that respondent was not constructively or illegally dismissed, but had voluntarily resigned.  Its version of the facts was summarized by the National Labor Relations Commission (NLRC) in this wise:

[Petitioner] x x x averred that [respondent] has committed serious violations of the security rules in the workplace.  On January 31, 2004, he was charged with conduct unbecoming for which he was required to explain.  Months after, he and four (4) other co-security guards failed to attend a mandatory seminar.  For this, he was suspended for seven (7) days.  On June 5, 2004, [respondent] displayed his discourteous and rude attitude upon his superior. He said to him in a high pitch of (sic) voice, “ano ba sir, personalan ba ito, sabihin mo lang kung ano gusto mo.” On June 8, 2004, [petitioner] required him to explain why no disciplinary action should be meted against him.

Again, on January 22, 2005, seven security guards, including [respondent], were made to explain their failure to report for duty without informing the office despite the instruction during their formation day which was held a day before. On January 31, 2006, Roy Datiles, Detachment Commander, reported that [respondent] confronted and challenged him in a high pitch and on top of his voice rudely showing discourtesy and rudeness.  Being his superior, Datiles recommended the relief of [respondent] in the detachment effective January 31, 2006.  By order of the Operations Manager, he was relieved from his post at the Philippine Heart Center.  He was directed to report to the office.  On February 10, 2006, he got his cash bond and firearm deposit.  Despite his voluntary resignation, [petitioner] sent him a letter through registered mail to report for the office and give information on whether or not he was still interested for report for duty or not. [Respondent] did not bother to reply.  Neither did he report to the office.[3]  

After due proceedings, the Labor Arbiter (LA) rendered a decision, viz.:

          This office is of the view that [respondent] was constructively dismissed.  [Petitioner’s] defense that [respondent] voluntarily resigned on February 10, 2006 is unsubstantiated (Annex “G”). What appears on record is the pro-forma resignation dated 04 October 2004 (Annex “D”) long before this complaint was filed.  It is a basic rule in evidence that the burden of proof is on the part of the party who makes the allegation. [Petitioner] failed to discharge the burden.

            The general rule is that the filing of a complaint for illegal dismissal is inconsistent with resignation.  The Supreme Court in Shie Jie Corp. vs. National Federation of Labor, G.R. No. 153148, July 15, 2005, held:

“By vigorously pursuing the litigation of his action against petitioner, private respondent clearly manifested that he has no intention of relinquishing his employment which is, wholly incompatible [with] petitioner[’]s assertion, that he voluntarily resigned.”

In Great Southern Maritime Services Corp. vs. Acuña, G.R. No. 140189, Feb. 28, 2005, it was ruled that the execution of the alleged “resignation letters cum release and quitclaim” to support the employer’s claim that respondents voluntarily resigned is unavailing as the filing of the complaint for illegal dismissal is inconsistent with resignation.

Further it is significant to note that [respondent] was even required by [petitioner] to undergo a “Re-Training Course” conducted from February 20, 2006 to March 1, 2006 (Annex “F”).  It is not only absurd but unbelievable that [respondent] who according to [petitioner] voluntarily resigned on February 10, 2006 and yet participated in the said “Re-Training Course” after his alleged resignation.

In this case, [respondent] was not posted since he was relieved from his post on January 30, 2006 until the filing of the instant complaint on August 2, 2006 or for a period of more than six (6) months. In Valdez vs. NLRC, 286 SCRA 87, the Supreme Court held that, “However, it must be emphasized that such temporary activity should continue for six months.  Otherwise, the security agency concerned could be held liable for constructive dismissal.

This office is in accord with [respondent’s] argument that the letter sent to the latter to report for work is an absurdity considering [petitioner’s] claim that [respondent] voluntarily resigned.  x x x.[4]

The LA disposed thus:

WHEREFORE, the foregoing considered, judgment is hereby rendered declaring [respondent] to have been constructively dismissed. [Petitioner is] ordered to reinstate [respondent] to his former position without loss of seniority rights and other benefits.  Further, [petitioner] Nationwide Security & Allied Services, Inc. is ordered to pay [respondent] the following monetary awards[:]

1.  Backwages (see computation)                   148, 125.00

2.  Prop. 13th Month Pay

     1/06 – 1/30/06 = 97 mo.

     P450 x 30 x 1/12 x .97                                   1,091.25

     TOTAL AWARD                                       149,216.25

x x x x

SO ORDERED.[5]

          On appeal, the NLRC modified the LA decision.  It declared that respondent was neither constructively terminated nor did he voluntarily resign.  As such, respondent remained an employee of petitioner.  The NLRC thus ordered respondent to immediately report to petitioner and assume his duty.  It also deleted the award of backwages and the order of reinstatement by the LA for lack of basis.[6] 

          The NLRC decreed that:

            WHEREFORE, the foregoing considered, the instant appeal is PARTIALLY GRANTED deleting the award of backwages and order of reinstatement.  [Respondent] is directed to report immediately and [petitioner is] ordered to accept him.  [Petitioner is] also ordered to pay his 13thmonth pay in the amount of P1,091.25 as ordered in the Decision.

            SO ORDERED.[7]

Respondent filed a motion for reconsideration, but the NLRC denied it on June 11, 2008.

Respondent went to the CA via certiorari.  On December 9, 2008, the CA rendered a Decision[8] setting aside the resolutions of the NLRC and reinstating that of the LA.  In gist, the CA sustained respondent’s claim of constructive dismissal.  It pointed out that respondent remained on floating status for more than six (6) months, and petitioner offered no credible explanation why it failed to provide a new assignment to respondent after he was relieved from PHC.  It likewise rejected petitioner’s claim that respondent voluntarily resigned, holding that no convincing evidence was offered to prove it.  The CA found it odd that respondent attended the re-training course conducted by petitioner from February 20, 2006 to March 1, 2006, if respondent indeed resigned on February 10, 2006.  The CA, therefore, ruled against the legality of respondent’s dismissal and sustained the LA’s award of backwages and order of reinstatement in favor of respondent.

The CA decreed, thus:

WHEREFORE, premises considered, the Petition is GRANTED.  The Resolutions dated 27 March 2008 and 11 June 2008 of the National Labor Relations Commission (Third Division) in NLRC NCR CASE NO. 00-08-06365-06; NLRC CA NO. 051626-07 areREVERSED and SET ASIDE.  The Decision dated 29 November 2006 of Labor Arbiter Enrique L. Flores, Jr. is hereby REINSTATED. Costs against [petitioner].

SO ORDERED.[9]

Petitioner filed a motion for reconsideration, but the CA denied it on February 24, 2009.[10]

Hence, this appeal by petitioner faulting the CA for sustaining respondent’s claim of constructive dismissal.

The appeal lacks merit.

In cases involving security guards, a relief and transfer order in itself does not sever employment relationship between a security guard and his agency. An employee has the right to security of tenure, but this does not give him a vested right to his position as would deprive the company of its prerogative to change his assignment or transfer him where his service, as security guard, will be most beneficial to the client. Temporary “off-detail” or the period of time security guards are made to wait until they are transferred or assigned to a new post or client does not constitute constructive dismissal, so long as such status does not continue beyond six months.[11]

The onus of proving that there is no post available to which the security guard can be assigned rests on the employer, viz.:

When a security guard is placed on a “floating status,” he does not receive any salary or financial benefit provided by law. Due to the grim economic consequences to the employee, the employer should bear the burden of proving that there are no posts available to which the employee temporarily out of work can be assigned.[12]

Respondent claims that he was relieved from PHC on January 30, 2006; thereafter, he was not given a new assignment. Petitioner, on the other hand, asserts that respondent refused to report to petitioner for his reassignment. Otherwise stated, petitioner claims that respondent abandoned his job. 

The jurisprudential rule on abandonment is constant.  It is a matter of intention and cannot lightly be presumed from certain equivocal acts. To constitute abandonment, two elements must concur:  (1) the failure to report for work or absence without valid or justifiable reason; and (2) a clear intent, manifested through overt acts, to sever the employer-employee relationship.[13] 

In this case, petitioner failed to establish clear evidence of respondent’s intention to abandon his employment.  Except for petitioner’s bare assertion that respondent did not report to the office for reassignment, no proof was offered to prove that respondent intended to sever the employer-employee relationship.

 Besides, the fact that respondent filed the instant complaint negates any intention on his part to forsake his work. It is a settled doctrine that the filing of a complaint for illegal dismissal is inconsistent with the charge of abandonment, for an employee who takes steps to protest his dismissal cannot by logic be said to have abandoned his work.[14]

Similarly, we cannot accept petitioner’s argument that respondent voluntarily resigned.  

Resignation is the voluntary act of an employee who is in a situation where one believes that personal reasons cannot be sacrificed in favor of the exigency of the service, and one has no other choice but to dissociate oneself from employment. It is a formal pronouncement or relinquishment of an office, with the intention of relinquishing the office accompanied by the act of relinquishment. As the intent to relinquish must concur with the overt act of relinquishment, the acts of the employee before and after the alleged resignation must be considered in determining whether, he or she, in fact, intended to sever his or her employment.[15]

In Mobile Protective & Detective Agency v. Ompad[16] and Mora v. Avesco Marketing Corporation,[17] we ruled that should the employer interpose the defense of resignation, it is incumbent upon the employer to prove that the employee voluntarily resigned.  On this point, petitioner failed to discharge the burden.

Petitioner was also firm in asserting that respondent voluntarily resigned.  Oddly, it failed to present the alleged resignation letter of respondent.  We also note that, in its March 24, 2006 letter,[18] petitioner required respondent to report at its office for reassignment.  It strains credulity that petitioner would require respondent to report for reassignment if the latter already tendered his resignation effective February 10, 2006.   

Petitioner capitalizes on the withdrawal of the cash and firearm bonds by respondent.  It contends that the withdrawal of bonds sufficiently proved respondent’s intention to terminate his employment contract with petitioner.  In support of its argument, petitioner cited Roberta Gaa v. Nationwide Security and Allied Services, Inc. and Romeo Nolasco,[19] which declared that cash bond and firearm bond are never withdrawable for as long as the security guard intends to remain an employee of the security agency.

Petitioner’s reliance on Gaa is misplaced. We note that the declaration that cash bond and firearm bond are never withdrawable for as long as the security guard intends to remain an employee of the security agency was made by the NLRC.[20]  Although this Court affirmed the NLRC in a Minute Resolution dated September 26, 2007,[21] still, the said NLRC ruling cannot be considered a binding precedent that can be invoked by petitioner in its favor.

As explained by this Court in Philippine Health Care Providers, Inc. v.  Commissioner of Internal Revenue:[22]

It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being questioned. As a result, our ruling in that case has already become final.  When a minute resolution denies or dismisses a petition for failure to comply with formal and substantive requirements, the challenged decision, together with its findings of fact and legal conclusions, are deemed sustained. But what is its effect on other cases?

With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata. However, if other parties or another subject matter (even with the same parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-Nickel, the Court noted that a previous case, CIR v. Baier-Nickel involving the same parties and the same issues, was previously disposed of by the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case “ha(d) no bearing” on the latter case because the two cases involved different subject matters as they were concerned with the taxable income of different taxable years.

Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and the law on which the judgment is based must be expressed clearly and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only by the clerk of court by authority of the justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision. Indeed, as a rule, this Court lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by the members of the Court and certified by the Chief Justice.

Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability for DST on its health care agreement was not the subject matter of G.R. No. 148680, petitioner cannot successfully invoke the minute resolution in that case (which is not even binding precedent) in its favor.

Furthermore, the filing of the complaint belies petitioner’s claim that respondent voluntarily resigned.  As held by this Court in Valdez v. NLRC:[23]

It would have been illogical for herein petitioner to resign and then file a complaint for illegal dismissal. Resignation is inconsistent with the filing of the said complaint.

Indubitably, respondent remained on “floating status” for more than six months.  He was relieved on January 30, 2006, and was not given a new assignment at the time he filed the complaint on August 2, 2006.  Jurisprudence is trite with pronouncements that the temporary inactivity or “floating status” of security guards should continue only for six months.  Otherwise, the security agency concerned could be liable for constructive dismissal.[24]   The failure of petitioner to give respondent a work assignment beyond the reasonable six-month period makes it liable for constructive dismissal.  The CA was correct in sustaining respondent’s claim.

          If there is a surplus of security guards caused by lack of clients or projects, the security agency may resort to retrenchment upon compliance with the requirements set forth in the Labor Code.  In this way, the security agency will not to be held liable for constructive dismissal and be burdened with the payment of backwages.

Under Article 279[25] of the Labor Code, an employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges; to his full backwages, inclusive of allowances; and to other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement.[26]  Therefore, the CA committed no reversible error in sustaining the LA’s award of backwages and ordering respondent’s reinstatement.

          WHEREFORE, the petition is DENIED.  The Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 104966 are AFFIRMED.

SO ORDERED.

 

 

                                      ANTONIO EDUARDO B. NACHURA

                                      Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

DIOSDADO M. PERALTA

Associate Justice

ROBERTO A. ABAD

Associate Justice

 

JOSE CATRAL MENDOZA

Associate Justice

 

A T T E S T A T I O N

          I attest that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                                 ANTONIO T. CARPIO

                                              Associate Justice

                                              Chairperson, Second Division

 


 

C E R T I F I C A T I O N

          Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                     

                                                     RENATO C. CORONA

                                                      Chief Justice


[1]               Penned by Associate Justice Celia C. Librea-Leagogo, with Associate Justices Mario L. Guariña III and Sesinando E. Villon, concurring; rollo, pp. 46-63.            

[2]               Id. at 68-69.

[3]               Id. at 156-157.

[4]               Id. at 110-112.

[5]               Id. at 114-115.

[6]               Id. at 155-159.

[7]               Id. at 158.

[8]               Supra note 1.

[9]               Id. at 63.

[10]             Supra note 2.

[11]             Megaforce Security and Allied Services, Inc. v. Lactao, G.R. No. 160940, July 21, 2008, 559 SCRA 110, 116-117.

[12]             Pido v. National Labor Relations Commission, G.R. No. 169812, February 23, 2007, 516 SCRA 609, 616-617.

[13]             CRC Agricultural Trading v. National Labor Relations Commission, G.R. No. 177664, December 23, 2009, 609 SCRA 138, 148.

[14]             Samarca v. Arc-Men Industries, Inc., 459 Phil. 506, 515 (2003).

[15]             BMG Records (Phils.), Inc. v. Aparecio, G.R. No. 153290, September 5, 2007, 532 SCRA 300, 313-314.

[16]             497 Phil. 621 (2005).

[17]             G.R. No. 177414, November 14, 2008, 571 SCRA 226.

[18]             Rollo, p. 221.

[19]             NLRC NCR 00-08-09249-04 (CA No. 046155-05); rollo, pp. 142-153.

[20]             Id. at 153.

[21]             G.R. No. 179206, September 26, 2007.

[22]             G.R. No. 167330, September 18, 2009, 600 SCRA 413, 446-447.

[23]             349 Phil. 760, 767 (1998).

[24]             Soliman Security Services, Inc. v. Court of Appeals, 433 Phil. 902, 910 (2002); Valdez v. NLRC, supra, at 765-766; Superstar Security Agency, Inc. v. NLRC,  G.R. No. 81493, April 3, 1990, 184 SCRA 74, 77.

[25]             ART. 279. Security of Tenure. — In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement.

[26]             Megaforce Security and Allied Services, Inc. v. Lactao, supra note 11, at 118-119.

CASE NO. 2011-0085: PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) VS. THE BUREAU OF INTERNAL REVENUE (BIR),  REPRESENTED HEREIN BY HON. JOSE MARIO BUÑAG, IN HIS OFFICIAL CAPACITY AS COMMISSIONER OF INTERNAL REVENUE, PUBLIC RESPONDENT; JOHN DOE AND JANE DOE, WHO ARE PERSONS ACTING FOR, IN BEHALF, OR UNDER THE AUTHORITY OF RESPONDENT. PUBLIC AND PRIVATE RESPONDENTS. (G.R. NO. 172087, 15 MARCH 2011, PERALTA, J.) SUBJECTS: PAGCOR NOT EXEMPT FROM CORPORATE INCOME TAX BUT EXEMPT FROM VAT; EQUAL PROTECTION CLAUSE; NON-IMPAIRMENT OF CONTRACT CLAUSE. (BRIEF TITLE: PAGCOR VS. BIR)        

 

Republic of the Philippines

Supreme Court

Manila

 

EN BANC

 

PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR),

             Petitioner,

– versus –

 

THE BUREAU OF INTERNAL REVENUE (BIR),  represented herein by HON. JOSE MARIO BUÑAG, in his official capacity as COMMISSIONER OF INTERNAL REVENUE,

             Public Respondent,

JOHN DOE and JANE DOE, who are persons acting for, in behalf, or under the authority of Respondent.

             Public and Private Respondents.        

G.R. No. 172087

 

Present:

CORONA, C.J.,

CARPIO,

CARPIO MORALES,

VELASCO, JR.,

NACHURA,*

LEONARDO-DE CASTRO,

BRION,*

PERALTA,

BERSAMIN,

DEL CASTILLO,

ABAD,

  VILLARAMA, JR.,

  PEREZ,

  MENDOZA, and

  SERENO, JJ.

Promulgated:

 

March 15, 2011

x————————————————————————————-x

D E C I S I O N

 

PERALTA, J.:

 For resolution of this Court is the Petition for Certiorari and Prohibition[1] with prayer for the issuance of a Temporary Restraining Order and/or Preliminary Injunction, dated April 17, 2006, of petitioner Philippine Amusement and Gaming Corporation (PAGCOR), seeking the declaration of nullity of Section 1 of Republic Act (R.A.) No. 9337 insofar as it amends Section 27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner from exemption from corporate income tax for being repugnant to Sections 1 and 10 of Article III of the Constitution.  Petitioner further seeks to prohibit the implementation of Bureau of Internal Revenue (BIR) Revenue Regulations No. 16-2005 for being contrary to law.

The undisputed facts follow.

PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A[2] on January 1, 1977.  Simultaneous to its creation, P.D. No. 1067-B[3] (supplementing P.D. No. 1067-A) was issued exempting PAGCOR from the payment of any type of tax, except a franchise tax of five percent (5%) of the gross revenue.[4] Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding the scope of PAGCOR’s exemption.[5]

To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No. 1869[6] was issued.  Section 13 thereof reads as follows:

Sec. 13. Exemptions. — x x x

(1) Customs Duties, taxes and other imposts on importations. – All importations of equipment, vehicles, automobiles, boats, ships, barges, aircraft and such other gambling paraphernalia, including accessories or related facilities, for the sole and exclusive use of the casinos, the proper and efficient management and administration thereof and such other clubs, recreation or amusement places to be established under and by virtue of this Franchise shall be exempt from the payment of duties, taxes and other imposts, including all kinds of fees, levies, or charges of any kind or nature.

Vessels and/or accessory ferry boats imported or to be imported by any corporation having existing contractual arrangements with the Corporation, for the sole and exclusive use of the casino or to be used to service the operations and requirements of the casino, shall likewise be totally exempt from the payment of all customs duties, taxes and other imposts, including all kinds of fees, levies, assessments or charges of any kind or nature, whether National or Local.

 

(2) Income and other taxes. – (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges, or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five percent (5%)of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established, or collected by any municipal, provincial or national government authority.

 

(b) Others: The exemption herein granted for earnings derived from the operations conducted under the franchise, specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator.

The fee or remuneration of foreign entertainers contracted by the Corporation or operator in pursuance of this provision shall be free of any tax.

(3) Dividend Income. − Notwithstanding any provision of law to the contrary, in the event the Corporation should declare a cash dividend income corresponding to the participation of the private sector shall, as an incentive to the beneficiaries, be subject only to a final flat income rate of ten percent (10%) of the regular income tax rates. The dividend income shall not in such case be considered as part of the beneficiaries’ taxable income; provided, however, that such dividend income shall be totally exempted from income or other form of taxes if invested within six (6) months from the date the dividend income is received in the following:

(a) operation of the casino(s) or investments in any affiliate activity that will ultimately redound to the benefit of the Corporation; or any other corporation with whom the Corporation has any existing arrangements in connection with or related to the operations of the casino(s);

(b) Government bonds, securities, treasury notes, or government debentures; or

(c) BOI-registered or export-oriented corporation(s).[7]

PAGCOR’s tax exemption was removed in June 1984 through P.D. No. 1931, but it was later restored by Letter of Instruction No. 1430, which was issued in September 1984.

On January 1, 1998, R.A. No. 8424,[8] otherwise known as the National Internal Revenue Code of 1997, took effect. Section 27 (c) of  R.A. No. 8424 provides that government-owned and controlled corporations (GOCCs) shall pay corporate income tax, except petitioner PAGCOR, the Government Service and Insurance Corporation, the Social Security System, the Philippine Health Insurance Corporation, and the Philippine Charity Sweepstakes Office, thus:

(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. – The provisions of existing special general laws to the contrary notwithstanding, all corporations, agencies or instrumentalities owned and controlled by the Government, except the Government Service and Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business, industry, or activity.[9]

With the enactment of R.A. No. 9337[10] on May 24, 2005, certain sections of the National Internal Revenue Code of 1997 were amended.  The particular amendment that is at issue in this case is Section 1 of R.A. No. 9337, which amended Section 27 (c) of the National Internal Revenue Code of 1997 by excluding PAGCOR from the enumeration of GOCCs that are exempt from payment of corporate income tax, thus:

(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. – The provisions of existing special general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned and controlled by the Government, except the Government Service and Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), and the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business, industry, or activity.

Different groups came to this Court via petitions for certiorari and prohibition[11] assailing the validity and constitutionality of R.A. No. 9337, in particular:

 1) Section 4, which imposes a 10% Value Added Tax (VAT) on sale of goods and properties; Section 5, which imposes a 10% VAT on importation of goods; and Section 6, which imposes a 10% VAT on sale of services and use or lease of properties, all contain a uniform proviso authorizing the President, upon the recommendation of the Secretary of Finance, to raise the VAT rate to 12%.  The said provisions were alleged to be violative of Section 28 (2), Article VI of the Constitution, which section vests in Congress the exclusive authority to fix the rate of taxes, and of Section 1, Article III of the Constitution on due process, as well as of Section 26 (2), Article VI of the Constitution, which section provides for the “no amendment rule” upon the last reading of a bill;

 2) Sections 8 and 12  were alleged to be violative of  Section 1, Article III of the Constitution, or the guarantee of equal protection of the laws, and Section  28 (1), Article VI of the Constitution; and

 3) other technical aspects of the passage of the law, questioning the manner  it was passed.

 On September 1, 2005, the Court dismissed all the petitions and upheld the constitutionality of R.A. No. 9337.[12]

On the same date, respondent BIR issued Revenue Regulations (RR) No. 16-­2005,[13]  specifically identifying PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108 of the National Internal Revenue Code of 1997, as amended by R.A. No. 9337.  The said revenue regulation, in part, reads:

 

Sec. 4. 108-3. Definitions and Specific Rules on Selected Services. 

x x x x

(h)  x x x

Gross Receipts of all other franchisees, other than those covered by Sec. 119 of the Tax Code, regardless of how their franchisees may have been granted, shall be subject to the 10% VAT imposed under Sec.108 of the Tax Code. This includes, among others, the Philippine Amusement and Gaming Corporation (PAGCOR), and its licensees or franchisees.

Hence, the present petition for certiorari.

PAGCOR raises the following issues:

I

WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING REPUGNANT TO THE EQUAL PROTECTION [CLAUSE] EMBODIED IN SECTION 1, ARTICLE III OF THE 1987 CONSTITUTION.

II

WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING REPUGNANT TO THE NON-IMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10, ARTICLE III OF THE 1987 CONSTITUTION.

III

WHETHER OR NOT RR 16-2005, SECTION 4.108-3, PARAGRAPH (H) IS NULL AND VOID AB INITIO FOR BEING BEYOND THE SCOPE OF THE BASIC LAW, RA 8424, SECTION 108, INSOFAR AS THE SAID REGULATION IMPOSED VAT ON THE SERVICES OF THE PETITIONER AS WELL AS PETITIONER’S LICENSEES OR FRANCHISEES WHEN THE BASIC LAW, AS INTERPRETED BY APPLICABLE JURISPRUDENCE, DOES NOT IMPOSE VAT ON PETITIONER OR ON PETITIONER’S LICENSEES OR FRANCHISEES.[14]

The BIR, in its Comment[15] dated December 29, 2006, counters:

          I

SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D. 1869 ARE BOTH VALID AND CONSTITUTIONAL PROVISIONS OF LAWS THAT SHOULD BE HARMONIOUSLY CONSTRUED TOGETHER SO AS TO GIVE EFFECT TO ALL OF THEIR PROVISIONS WHENEVER POSSIBLE.

II

SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF SECTION 1 AND SECTION 10, ARTICLE III OF THE 1987 CONSTITUTION.

III

BIR REVENUE REGULATIONS ARE PRESUMED VALID AND CONSTITUTIONAL UNTIL STRICKEN DOWN BY LAWFUL AUTHORITIES.

The Office of the Solicitor General (OSG), by way of Manifestation In Lieu of Comment,[16] concurred with the arguments of the petitioner. It added that although the State is free to select the subjects of taxation and that the inequity resulting from singling out a particular class for taxation or exemption is not an infringement of the constitutional limitation, a tax law must operate with the same force and effect to all persons, firms and corporations placed in a similar situation. Furthermore, according to the OSG, public respondent BIR exceeded its statutory authority when it enacted RR No. 16-2005, because the latter’s provisions are contrary to the mandates of P.D. No. 1869 in relation to R.A. No. 9337.

The main issue is whether or not PAGCOR is still exempt from corporate income tax and VAT with the enactment of R.A. No. 9337.

After a careful study of the positions presented by the parties, this Court finds the petition partly meritorious.

Under Section 1 of R.A. No. 9337, amending  Section  27 (c) of the National Internal Revenue Code of 1977,  petitioner is no longer exempt from corporate income tax as it has been effectively omitted from the list of GOCCs that are exempt from it. Petitioner argues that such omission is unconstitutional, as it is violative of its right to equal protection of the laws under Section 1, Article III of the Constitution:

Sec. 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.

.

In City of Manila v. Laguio, Jr.,[17] this Court expounded the meaning and scope of equal protection, thus:

Equal protection requires that all persons or things similarly situated should be treated alike, both as to rights conferred and responsibilities imposed. Similar subjects, in other words, should not be treated differently, so as to give undue favor to some and unjustly discriminate against others. The guarantee means that no person or class of persons shall be denied the same protection of laws which is enjoyed by other persons or other classes in like circumstances. The “equal protection of the laws is a pledge of the protection of equal laws.” It limits governmental discrimination. The equal protection clause extends to artificial persons but only insofar as their property is concerned.

x x x x

Legislative bodies are allowed to classify the subjects of legislation. If the classification is reasonable, the law may operate only on some and not all of the people without violating the equal protection clause. The classification must, as an indispensable requisite, not be arbitrary. To be valid, it must conform to the following requirements:

  1) It must be based on substantial distinctions.

2)  It must be germane to the purposes of the law.

3)  It must not be limited to existing conditions only.

4)  It must apply equally to all members of the class.[18]

It is not contested that before the enactment of R.A. No. 9337, petitioner was one of the five GOCCs exempted from payment of corporate income tax as  shown in  R.A. No. 8424, Section 27 (c) of which, reads:

(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. – The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies or instrumentalities owned and controlled by the Government, except the Government Service and Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business, industry, or activity.[19]

A perusal of the legislative records of the Bicameral Conference Meeting of the Committee on Ways on Means dated October 27, 1997 would show that the exemption of PAGCOR from the payment of corporate income tax was due to the acquiescence of the Committee on Ways on Means to the request of PAGCOR that it be exempt from such tax.[20]  The records of the Bicameral Conference Meeting reveal:

HON. R. DIAZ.  The other thing, sir, is we — I noticed we imposed a tax on lotto winnings.

CHAIRMAN ENRILE.  Wala na, tinanggal na namin yon.

HON. R. DIAZ.  Tinanggal na ba natin yon?

CHAIRMAN ENRILE. Oo.

HON. R. DIAZ.  Because I was wondering whether we covered the tax on — Whether on a universal basis, we included a tax on cockfighting winnings.

CHAIRMAN ENRILE.  No, we removed the —

HON. R. DIAZ.  I . . . (inaudible) natin yong lotto?

CHAIRMAN ENRILE.  Pati PAGCOR tinanggal upon request.

CHAIRMAN JAVIER.  Yeah, Philippine Insurance Commission.

CHAIRMAN ENRILE.  Philippine Insurance — Health, health ba.  Yon ang request ng Chairman, I will accept.  (laughter)  Pag-Pag-ibig yon, maliliit na sa tao yon.

HON. ROXAS.  Mr. Chairman, I wonder if in the revenue gainers if we factored in an amount that would reflect the VAT and other sales taxes—

CHAIRMAN ENRILE.  No, we’re talking of this measure only.  We will not — (discontinued)

HON. ROXAS.  No, no, no, no, from the — arising from the exemption.  Assuming that when we release the money into the hands of the public, they will not use that to — for wallpaper.  They will spend that eh, Mr. Chairman.  So when they spend that—

CHAIRMAN ENRILE.  There’s a VAT.

HON. ROXAS.  There will be a VAT and there will be other sales taxes no.  Is there a quantification?  Is there an approximation?

CHAIRMAN JAVIER.  Not anything.

HON. ROXAS.  So, in effect, we have sterilized that entire seven billion. In effect, it is not circulating in the economy which is unrealistic.

CHAIRMAN ENRILE.  It does, it does, because this is taken and spent by government, somebody receives it in the form of wages and supplies and other services and other goods.  They are not being taken from the public and stored in a vault.

CHAIRMAN JAVIER.  That 7.7 loss because of tax exemption.  That will be extra income for the taxpayers.

HON. ROXAS.  Precisely, so they will be spending it.[21]  

The discussion above bears out that under R.A. No. 8424, the exemption of PAGCOR from paying corporate income tax was not based on a classification showing substantial distinctions which make for real differences, but to reiterate, the exemption was granted upon the request of PAGCOR that it be exempt from the payment of corporate income tax.

With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, PAGCOR has been excluded from the enumeration of GOCCs that are exempt from paying corporate income tax. The records of the Bicameral Conference Meeting dated April 18, 2005, of the Committee on the Disagreeing Provisions of Senate Bill No. 1950 and House Bill No. 3555, show that it is the legislative intent that PAGCOR be subject to the payment of corporate income tax, thus: 

                        THE CHAIRMAN (SEN. RECTO).  Yes, Osmeña, the proponent of the amendment.

 

                        SEN. OSMEÑA.  Yeah. Mr. Chairman, one of the reasons why we’re even considering this VAT bill is we want to show the world who our creditors, that we are increasing official revenues that go to the national budget. Unfortunately today, Pagcor is unofficial.

 

                        Now, in 2003, I took a quick look this morning, Pagcor had a net income of 9.7 billion after paying some small taxes that they are subjected to.  Of the 9.7 billion, they claim they remitted to national government seven billion.  Pagkatapos, there are other specific remittances like to the Philippine Sports Commission, etc., as mandated by various laws, and then about 400 million to the President’s Social Fund.  But all in all, their net profit today should be about 12 billion.  That’s why I am questioning this two billion.  Because while essentially they claim that the money goes to government, and I will accept that just for the sake of argument.  It does not pass through the appropriation process. And I think that at least if we can capture 35 percent or 32 percent through the budgetary process, first, it is reflected in our official income of government which is applied to the national budget, and secondly, it goes through what is constitutionally mandated as Congress appropriating and defining where the money is spent and not through a board of directors that has absolutely no accountability.

 

                        REP. PUENTEBELLA.  Well, with all due respect, Mr. Chairman, follow up lang.

 

                        There is wisdom in the comments of my good friend from Cebu, Senator Osmeña.

 

                        SEN. OSMEÑA.  And Negros.

 

                        REP. PUENTEBELLA.  And Negros at the same time ay Kasimanwa.  But I would not want to put my friends from the Department of Finance in a difficult position, but may we know your comments on this knowing that as Senator Osmeña just mentioned, he said, “I accept that that a lot of it is going to spending for basic services,”  you know, going to most, I think, supposedly a lot or most of it should go to government spending, social services and the like.  What is your comment on this?  This is going to affect a lot of services on the government side.

 

                        THE CHAIRMAN (REP. LAPUS).  Mr. Chair, Mr. Chair.

 

                        SEN. OSMEÑA.  It goes from pocket to the other, Monico.

 

                        REP. PUENTEBELLA.  I know that.  But I wanted to ask them, Mr. Senator, because you may have your own pre-judgment on this and I don’t blame you.  I don’t blame you.  And I know you have your own research.  But will this not affect a lot, the disbursements on social services and other?

 

                        REP. LOCSIN.  Mr. Chairman.  Mr. Chairman, if I can add to that question also.  Wouldn’t it be easier for you to explain to, say, foreign  creditors, how do you explain to them that if there is a fiscal gap some of our richest corporations has [been] spared [from] taxation by the government which is one rich source of revenues.  Now, why do you save, why do you spare certain government corporations on that, like Pagcor?  So, would it be easier for you to make an argument if everything was exposed to taxation?

 

                        REP. TEVES.  Mr. Chair, please.

 

                        THE CHAIRMAN (REP. LAPUS).  Can we ask the DOF to respond to those before we call Congressman Teves?

 

                        MR. PURISIMA.  Thank you, Mr. Chair.

 

                        Yes, from definitely improving the collection, it will help us because it will then enter as an official revenue although when dividends declare it also goes in as other income. (sic)

 

            x x x x

 

                        REP. TEVES.  Mr. Chairman.

x x x x

 

                        THE CHAIRMAN (REP. LAPUS).  Congressman Teves.

 

                        REP. TEVES.  Yeah.  Pagcor is controlled under Section 27, that is on income tax.  Now, we are talking here on value-added tax.  Do you mean to say we are going to amend it from income tax to value-added tax, as far as Pagcor is concerned?

 

                        THE CHAIRMAN (SEN. RECTO).  No. We are just amending that section with regard to the exemption from income tax of Pagcor.

 

                        x x x x

                        REP. NOGRALES.  Mr. Chairman, Mr. Chairman.  Mr. Chairman.

                        THE CHAIRMAN (REP. LAPUS).  Congressman Nograles.

                        REP. NOGRALES.  Just a point of inquiry from the Chair.  What exactly are the functions of Pagcor that are VATable?  What will we VAT in Pagcor?

                        THE CHAIRMAN (REP. LAPUS).  This is on own income tax.  This is Pagcor income tax.

                        REP. NOGRALES.  No, that’s why.  Anong i-va-Vat natin sa kanya. Sale of what?

x x x x

                        REP. VILLAFUERTE.  Mr. Chairman, my question is, what are we VATing Pagcor with, is it the . . .

                        REP. NOGRALES.  Mr. Chairman, this is a secret agreement or the way they craft their contract, which basis?

                        THE CHAIRMAN (SEN. RECTO).  Congressman Nograles, the Senate version does not discuss a VAT on Pagcor but it just takes away their exemption from non-payment of income tax.[22]

 

 

Taxation is the rule and exemption is the exception.[23] The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the exemption so claimed.[24] As a rule, tax exemptions are construed strongly against the claimant.[25]Exemptions must be shown to exist clearly and categorically, and supported by clear legal provision.[26]

In this case, PAGCOR failed to prove that it is still exempt from the payment of corporate income tax, considering that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal Revenue Code of 1997 by omitting PAGCOR from the exemption.  The legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is to require PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR from exemption from the payment of corporate income tax.  It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.[27]  Thus, the express mention of the GOCCs exempted from payment of corporate income tax excludes all others.  Not being excepted, petitioner PAGCOR must be regarded as coming within the purview of the general rule that GOCCs shall pay corporate income tax, expressed in the maxim: exceptio firmat regulam in casibus non exceptis.[28]

PAGCOR cannot find support in the equal protection clause of the Constitution, as the legislative records of the Bicameral Conference Meeting dated October 27, 1997, of the Committee on Ways and Means, show that PAGCOR’s exemption from payment of corporate income tax, as provided in Section 27 (c) of R.A. No. 8424, or the National Internal Revenue Code of 1997, was not made pursuant to a valid classification based on substantial distinctions and the other requirements of  a reasonable classification by  legislative bodies, so that the law may operate only on some, and not all, without violating the equal protection clause.  The legislative records show that the basis of the grant of exemption to PAGCOR from corporate income tax was PAGCOR’s own request to be exempted.

Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and void ab initio for violating the non-impairment clause of the Constitution.  Petitioner avers that laws form part of, and is read into, the contract even without the parties expressly saying so.  Petitioner states that the private parties/investors transacting with it considered the tax exemptions, which inure to their benefit, as the main consideration and inducement for their decision to transact/invest with it.  Petitioner argues that the withdrawal of its exemption from corporate income tax by R.A. No. 9337 has the effect of changing the main consideration and inducement for the transactions of private parties with it; thus, the amendatory provision is violative of the non-impairment clause of the Constitution.

Petitioner’s contention lacks merit.

The non-impairment clause is contained in Section 10, Article III of the Constitution, which provides that no law impairing the obligation of contracts shall be passed. The non-impairment clause is limited in application to laws that derogate from prior acts orcontracts by enlarging, abridging or in any manner changing the intention of the parties.[29]  There is impairment if a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the parties.[30]

As regards franchises,  Section 11, Article XII of the  Constitution[31] provides that no franchise or right shall be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires.[32]

In Manila Electric Company v. Province of Laguna,[33] the Court held that a franchise partakes the nature of a grant, which is beyond the purview of the non-impairment clause of the Constitution.[34]  The pertinent portion of the case states:

While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises.  A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires.[35]

In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos, clubs and other recreation or amusement places, sports, gaming pools, i.e., basketball, football, lotteries, etc., whether on land or sea, within the territorial jurisdiction of the Republic of the Philippines.[36]  Under Section 11, Article XII of the Constitution, PAGCOR’s franchise is subject to amendment, alteration or repeal by Congress such as the amendment under Section 1 of R.A. No. 9377.   Hence, the provision in Section 1 of R.A. No. 9337, amending Section 27 (c) of R.A. No. 8424 by withdrawing the exemption of PAGCOR from corporate income tax, which may affect any benefits to PAGCOR’s transactions with private parties, is not violative of the non-impairment clause of the Constitution.

Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337.  Nowhere in R.A. No. 9337 is it provided that petitioner can be subjected to VAT.  R.A. No. 9337 is clear only as to the removal of petitioner’s exemption from the payment of corporate income tax, which was already addressed above by this Court.

As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to Section 7 (k) thereof, which reads:

Sec. 7. Section 109 of the same Code, as amended, is hereby further amended to read as follows:

Section 109. Exempt Transactions. – (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax:

x x x x

(k) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special lawsexcept Presidential Decree No. 529.[37]

Petitioner is exempt from the payment of VAT, because PAGCOR’s charter, P.D. No. 1869, is a special law that grants petitioner exemption from taxes.

Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which retained Section 108 (B) (3) of R.A. No. 8424, thus:

[R.A. No. 9337], SEC. 6.   Section 108 of the same Code (R.A. No. 8424), as amended, is hereby further amended to read as follows:

SEC. 108.  Value-Added Tax on Sale of Services and Use or Lease of Properties

(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: x x x

x x x x

 

(B)  Transactions Subject to Zero Percent (0%) Rate. — The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate;

                        x x x x

(3)  Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;

                        x x x x[38]

 As pointed out by petitioner, although R.A. No. 9337 introduced amendments to Section 108 of R.A. No. 8424 by imposing VAT on other services not previously covered, it did not amend the portion of Section 108 (B) (3) that subjects to zero percent rate services performed by VAT-registered persons to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% rate. 

 Petitioner’s exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly and extensively discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation.[39]   Acesite was the owner and operator of the Holiday Inn Manila Pavilion Hotel.  It leased a portion of the hotel’s premises to PAGCOR.  It incurred VAT amounting toP30,152,892.02 from its rental income and sale of food and beverages to PAGCOR  from January 1996 to April 1997.  Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR.  However, PAGCOR refused to pay the taxes because of its tax-exempt status.  PAGCOR paid only the amount due to Acesite minus VAT in the sum of P30,152,892.02. Acesite paid VAT in the amount of P30,152,892.02 to the Commissioner of Internal Revenue, fearing the legal consequences of its non-payment.  In May 1998, Acesite sought the refund of the amount it paid  as VAT on the ground that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.  The Court ruled that PAGCOR and Acesite were both exempt from paying VAT, thus:

x x x x

PAGCOR is exempt from payment of indirect taxes

It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides:

Sec. 13. Exemptions. —

x x x x

(2) Income and other taxes. – (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority.

(b) Others: The exemptions herein granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator.

Petitioner contends that the above tax exemption refers only to PAGCOR’s direct tax liability and not to indirect taxes, like the VAT.

We disagree.

A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also exempt from indirect taxes, like VAT, as follows:

Under the above provision [Section 13 (2) (b) of P.D. 1869], the term “Corporation” or operator refers to PAGCOR. Although the law does not specifically mention PAGCOR’s exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30, 152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis supplied.)

Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes.

 

The manner of charging VAT does not make PAGCOR liable to said tax.

 

It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales and rentals. Be that as it may, the use of either method, and in particular, the first method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.

VAT exemption extends to Acesite

 

Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424), which provides:

Section 102. Value-added tax on sale of services.– (a) Rate and base of tax – There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any person engaged in the sale of services x x x; Provided, that the following services performed in the Philippines by VAT­ registered persons shall be subject to 0%.

x x x x

(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate (emphasis supplied).

The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco &Sons, Inc., where the absolute tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We held in said case that the exemption of contractee WHO should be implemented to mean that the entity or person exempt is the contractor itself who constructed the building owned by contractee WHO, and such does not violate the rule that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor so that no contractor’s tax may be shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.[40]

Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation was Section 102 (b) of the 1977 Tax Code, as amended, which section was retained as Section 108 (B) (3) in R.A. No. 8424,[41]  it is still applicable to this case, since the provision relied upon has been retained in R.A. No. 9337.[42]

It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails, because the said rule or regulation cannot go beyond the terms and provisions of the basic law.[43]    RR No. 16-2005, therefore, cannot go beyond the provisions of R.A. No. 9337.  Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR No. 16-2005; hence, the said regulatory provision is hereby nullified.

WHEREFORE, the petition is PARTLY GRANTED.   Section 1 of Republic Act No. 9337, amending Section 27 (c)  of the National Internal Revenue Code of 1997, by excluding petitioner Philippine Amusement and Gaming Corporation from the enumeration of government-owned and controlled corporations exempted from corporate income tax is valid and constitutional, while BIR Revenue Regulations No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary to the National Internal Revenue Code of 1997, as amended by Republic Act No. 9337.

No costs.

SO ORDERED.

 

 

                                                        DIOSDADO M. PERALTA

                                                                   Associate Justice

WE CONCUR:

RENATO C. CORONA

Chief Justice

 

           ANTONIO T. CARPIO                CONCHITA CARPIO MORALES                                                                                                             

                  Associate Justice                                       Associate Justice

                                                                                         On Official Leave

    PRESBITERO J. VELASCO, JR.      ANTONIO EDUARDO B. NACHURA

                   Associate Justice                                       Associate Justice

                                                                                          On Official Leave

AN    TERESITA J. LEONARDO-DE CASTRO              ARTURO D. BRION

                              Associate Justice                                                Associate Justice

                               

                 

                 

 

 

                   LUCAS P. BERSAMIN                       MARIANO C. DEL CASTILLO

                         Associate Justice                                           Associate Justice

              

 

                   ROBERTO A. ABAD                           MARTIN S. VILLARAMA, JR.

                         Associate Justice                                           Associate Justice

N                     

              JOSE PORTUGAL PEREZ                        JOSE CATRAL MENDOZA

                        Associate Justice                                            Associate Justice

 

MA. LOURDES P.A. SERENO

Associate Justice

 

CERTIFICATION

          Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

                                                                            RENATO C. CORONA

                                                                                     Chief Justice                

 

 


*              On official leave.

[1]               Under Rule 65 of the Rules of Court.

[2]              CREATING THE PHILIPPINE AMUSEMENTS AND GAMING CORPORATION, DEFINING ITS POWERS AND FUNCTIONS, PROVIDING FUNDS THEREFOR, AND FOR OTHER PURPOSES.

[3]              GRANTING THE PAGCOR A FRANCHISE TO ESTABLISH, OPERATE AND MAINTAIN GAMBLING CASINOS ON LAND OR WATER WITHIN THE TERRITORIAL JURISDICTION OF THE REPUBLIC OF THE PHILIPPINES. 

[4]                      Section 4 of P.D. No. 1067-B, provides:

                Section 4. Exemptions. 

                (1) Duties, taxes and other imposts on importations. – All importations of equipment, vehicles, boats, ships, barges, aircraft and other gambling paraphernalia or facilities for the sale and exclusive use of the casinos, clubs and other recreation or amusement places to be established under and by virtue of this Franchise shall be exempt from the payment of duties, taxes and other imports.

(2) Income and other taxes. – No income or any other form shall be assessed and collected under this Franchise from the franchise holder; nor shall any form of tax or charge attach in any way to the earnings of the franchise holder, EXCEPT a Franchise Tax of five percent (5%) of the gross revenue or earnings derived by the franchise holder from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all taxes of any kind, nature or description, levied, established, or collected by any municipal, provincial or National authority.  (Emphasis supplied.)

[5]              Section 3, P.D. No. 1399, in part, reads:

                Section 3. Section 4 of Presidential Decree No. 1067-B is hereby amended to read as follows:

Section 4. Exemptions. — x x x

(1)                 Duties, taxes and other imposts on importation. – x x x

(2)                 Income and other taxes. —

(a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges, or levies of whatever nature, shall be assessed and collected under this Franchise from the Franchise Holder; nor shall any form of tax or charge attach in any way to the earnings of the Franchise Holder, except a Franchise Tax of five percent (5 %) of the gross revenue or earnings derived by the Franchise Holder form  its operation under this Franchise. Such tax shall be due and payable to the National Government and shall be in lieu of all taxes, levies, fees or assessments of any kind, nature or description, levied, established, or collected by any municipal, provincial or national authority.

(b) Others: The exemption herein granted for earnings derived from the operations conducted under the franchise, specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation/s, association/s, agency/ies, or individual/s with whom the Franchise has any contractual relationship in connection with the operations of the casino/s authorized to be conducted under the franchise and to those receiving compensation or other remuneration from the Franchise Holder as a result of essential facilities furnished and/or technical services rendered to the Franchise Holder. (Emphasis supplied.)

[6]              CONSOLIDATING AND AMENDING PRESIDENTIAL DECREE NOS. 1067-A, 1067-B, 1067-C, 1399 AND 1632, RELATIVE TO THE FRANCHISE AND POWERS OF THE PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR).

[7]              Emphasis supplied.

[8]                      AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES.

[9]              Emphasis supplied.

[10]                    AN ACT AMENDING SECTIONS 27, 28, 34, 106. 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237, AND  288  OF THE NATIONAL INTERNAL REVENUE CODE OF  1997, AS AMENDED, AND FOR OTHER PURPOSES.

[11]                    G.R. Nos. 168056, 168207, 168461, 168463 and 168730.

[12]                    See Abakada Guro Party List v. Ermita, 506 Phil. 1 (2005).

[13]           Revenue Regulations No. 16-2005 states: “Pursuant to the provisions of Secs. 244 and 245 of the National Internal Revenue Code of 1997, as last amended by Republic Act No. 9337 (Tax Code), in relation to Sec. 23 of the said Republic  Act, these Regulations are hereby promulgated to implement Title IV of the Tax Code, as well as other provisions pertaining to Value-Added Tax (VAT).  These Regulations supersedes Revenue Regulations No. 14-2005 dated June 22, 2005.”          

[14]             Rollo,  pp. 18-19; 318-319.

[15]              Id. at 230-260.

[16]              Id. at 190-222.

[17]              495 Phil. 289 (2005).

[18]            Id. at 326, citing Ichong v. Hernandez, 101 Phil. 1155 (1957), 16B Am Jur. 2d § 779 299, citing State of Missouri ex rel. Gaines v. Canada, 305 U.S. 337, 59 S. Ct. 232, 83 L. Ed. 208 (1938), reh’g denied, 305 U.S. 676, 59 S. Ct. 356, 83 L. Ed. 437 (1939) and mandate conformed to, 344 Mo. 1238, 131 S.W. 2d 217 (1939), Romer v. Evans, 517 U.S. 620, 116 S. Ct. 1620, 134 L. Ed. 2d 855, 109 Ed. Law Rep. 539, 70 Fair Empl. Prac. Cas. (BNA) 1180, 68 Empl. Prac. Dec. (CCH) 44013 (1996), Walker v. Board of Supervisors of Monroe County, 224 Miss. 801, 81 So. 2d 225 (1955), cert. denied, 350 U.S. 887, 76 S. Ct. 142, 100 L. Ed. 782 (1955); Preisler v. Calcaterra, 362 Mo. 662, 243 S.W. 2d 62 (1951); Smith, Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919):Nuñez v. Sandiganbayan, 197 Phil. 407 (1982); Cruz, Isagani A., Constitutional Law 125 (1998) and People v. Cayat,  68 Phil. 12 (1939).

[19]             Emphasis supplied.

[20]              Emphasis supplied.

[21]              Emphasis supplied.

[22]             Emphasis supplied.

[23]              National Power Corporation  v. Province of Isabela, G.R. No. 165827, June 16, 2006, 491 SCRA 169, 180.

[24]              Id.

[25]              National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 259 (2003).

[26]              Id.

[27]              Id.; Ruben E. Agpalo, Statutory Construction, Fifth Edition, © 2003, p. 222.

[28]              C.N. Hodges v. Municipal Board, Iloilo City,  et al.,125 Phil. 442, 449 (1967); Ruben E. Agpalo, Statutory Construction, Fifth Edition, © 2003, pp. 222-223.

[29]       BANAT Party-list v. COMELEC, G.R. No. 177508, August 7, 2009, 595 SCRA 477, 498, citing Serrano v. Gallant Maritime  Services, Inc., 582 SCRA 254 (2009).

[30]                    Id., citing Clemons v. Nolting, 42 Phil. 702 (1922).

[31]              The Constitution, Art. XII, Sec. 11.  No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years.  Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires.  The State shall encourage equity participation in public utilities by the general public.   The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied.)

[32]              Emphasis supplied.

[33]              366 Phil. 428 (1999).

[34]              Id. at 438. (Emphasis supplied.)

[35]              Id. at 438-439. (Emphasis supplied.)

[36]              See P.D. No. 1869, Sec. 10.

[37]                    Emphasis supplied.

[38]             Emphasis supplied.

[39]                    G.R. No. 147295, February 16, 2007, 516 SCRA 93, 101, citing Commissioner of Internal Revenue v. John Gotamco Sons, Inc., 148 SCRA 36 (1987).

[40]              Id. at 98-101. (Emphasis supplied.)

[41]             R.A. No. 8424, SEC. 108.  Value-Added Tax on Sale of Services and Use or Lease of Properties x x x

                 Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.

The phrase “sale or exchange of services” means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by xxx services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code; x x x

x x x x

(B)  Transactions Subject to Zero Percent (0%) Rate.—The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate;

x x x x

(3)  Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;

x x x x (Emphasis supplied.)

[42]             Section 6  of R.A. No. 9337states:

                SEC. 6.   Section 108 of the same Code, as amended, is hereby further amended to read as follows:

SEC. 108.  Value-Added Tax on Sale of Services and Use or Lease of Properties

(A) Rate and Base of Tax— There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties x x x

  x x x x

(B)  Transactions Subject to Zero percent (0%) Rate.—The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate;

  x x x x

(3)  Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;

x x x x (Emphasis supplied.)

[43]             Hijo Plantation, Inc.  v. Central Bank, 247 Phil. 154, 162 (1988), citing People v. Lim, 108 Phil. 1091 (1960).

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