Central Luzon Tax Full Text

8/10/2019 Central Luzon Tax Full Text

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THIRD DIVISION

COMMISSIONER OF INTERNAL G.R. No.159647REVENUE,

Petitioe!, P!e"et#

P$%$i&$,J., C'$i!($, S$)o*$+G-tie!!e,

*e!"-" Co!o$, C$!/io Mo!$+e", $) G$!0i$,JJ

CENTRAL LUON DRUG P!o(-+%$te)#CORPORATION, Re"/o)et. A/!i+ 15, 2335

DECISION

PANGANIAN,J.:

he 20 percent discount required by the law to be given

to senior citizens is a tax credit not !erely a tax

deduction"ro! the gross inco!e or gross sale o" the

establish!ent concerned# $ tax creditis used by a private

%


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establish!ent only a"ter the ta& has been co!puted' a tax

deduction be"ore the ta& is co!puted# ($ )*+2

unconditionally grants a tax credit to all covered entities#

%hus the provisions o" the revenue regulation that withdraw

or !odi"y such grant are void# ,asic is the rule that

ad!inistrative regulations cannot a!end or revo-e the law#

T'e C$"e

,e"ore us is a .etition "or (eview/1under (ule * o"

the (ules o" Court see-ing to set aside the $ugust 23 2002

Decision/21and the $ugust 200+ (esolution/+1o" the

Court o" $ppeals 4C$5 in C$67( S. No# 8)*+3# %he assailed

Decision reads as "ollows9

WHEREFORE, premises considered, the Resolution appealedfrom is AFFIRMEDin toto. No costs.[4]

%he assailed (esolution denied petitioner:s ;otion "or

(econsideration#
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o" .30+0+?#+3# It reasoned that (epublic $ct No# 4($5 )*+2

required neither a ta& liability nor a pay!ent o" ta&es by

private establish!ents prior to the avail!ent o" a ta& credit#

;oreover such credit is not tanta!ount to an unintended

bene>t "ro! the law but rather a @ust co!pensation "or the

ta-ing o" private property "or public use#

Aence this .etition#/?1

%he Issues

.etitioner raises the "ollowing issues "or our

consideration9

Bhether the ;ourt of 0ppeals erred in holding that respondent may claimthe +- sales discount as a ta credit instead of as a deduction fromgross income or gross sales.

Bhether the ;ourt of 0ppeals erred in holding that respondent is entitledto a refund.[9]

%hese two issues !ay be su!!ed up in only one9

whether respondent despite incurring a net loss !ay still

clai! the 20 percent sales discount as a ta& credit#
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%he Court:s (uling

%he .etition is not !eritorious#

Sole Issue9Claim of 20 Percent Sales Discount

as T$ C!e)itDespite Net Lo""

Section *a5 o" ($ )*+2/01grants to senior citizens the

privilege o" obtaining a 20 percent discount on their

purchase o" !edicine "ro! any private establish!ent in the

country#/1 %he latter !ay then clai! the cost o" the

discount as a tax credit#/21 ,ut can such credit be clai!ed

even though an establish!ent operates at a lossB

e answer in the a=ir!ative#

T$ C!e)it versusT$ De)-0tio

$lthough the ter! is not speci>cally de>ned in our %a&

Code/+1tax creditgenerally re"ers to an a!ount that is
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subtracted directly "ro! one:s total ta& liability#/*1 It is

an allowance against the ta& itsel"/1or a deduction

"ro! what is owed/81by a ta&payer to the govern!ent#

E&a!ples o" tax creditsare withheld ta&es pay!ents o"

esti!ated ta& and invest!ent ta& credits#/)1

Tax creditshould be understood in relation to other ta&

concepts# One o" these is tax deduction66 de>ned as asubtraction "ro! inco!e "or ta& purposes/?1or an

a!ount that is allowed by law to reduce inco!e prior to

/the1 application o" the ta& rate to co!pute the a!ount o"

ta& which is due#/31 $n e&a!ple o" a tax deductionis any

o" the allowable deductions enu!erated in Section +*/201o"

the %a& Code#

$ tax creditdi=ers "ro! a tax deduction# On the one

hand a tax creditreduces the ta& due including 66 whenever

applicable 66 the income taxthat is deter!ined a"ter applying

the corresponding ta& rates to taxable income#/21 $ tax

deduction on the other reduces the inco!e that is sub@ect

to ta&/221in order to arrive at taxable income#/2+1 %o thin-
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i!practicable# Nevertheless the irre"utable "act re!ains

that under ($ )*+2 Congress has granted without

conditions a tax creditbene>t to all covered establish!ents#

$lthough this tax creditbene>t is available it need not

be used by losing ventures since there is no ta& liability that

calls "or its application# Neither can it be reduced to nil by

the quic- yet callow stro-e o" an ad!inistrative pen si!plybecause no reduction o" ta&es can instantly be e=ected# ,y

its nature the tax credit!ay still be deducted "ro! afuture

not a present ta& liability without which it does not have

any use# In the !eanti!e it need not !ove# ,ut it

breathes#

Prior Tax Payments #ote!uire" for T$ C!e)it

hile a ta& liability is essential to the availment or useo"

any tax credit prior ta& pay!ents are not# On the contrary

"or the existence or grantsolely o" such credit neither a ta&

liability nor a prior ta& pay!ent is needed# %he %a& Code is

in "act replete with provisions granting or allowing tax


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is not our govern!ent but the do!iciliary country that

credits against the inco!e ta& payable to the latter by the

"oreign corporation the ta& to be "oregone or spared#/2?1

In contrast Section +*4C54+5 in relation to Section +*4C5

4)54b5 categorically allows as credits against the inco!e ta&

i!posable under %itle II the a!ount o" inco!e ta&es !erely

incurred 66 not necessarily paid 66 by a do!estic corporationduring a ta&able year in any "oreign country# ;oreover

Section +*4C545 provides that "or such ta&es incurred but

not paid a tax credit!ay be allowed sub@ect to the

condition precedent that the ta&payer shall si!ply give a

bond with sureties satis"actory to and approved by

petitioner in such su! as !ay be required' and "urther

conditioned upon pay!ent by the ta&payer o" any ta& "ound

due upon petitioner:s redeter!ination o" it#

In addition to the above6cited provisions in the %a& Code

there are also ta& treaties and special laws that grant or

allow tax credits even though no prior ta& pay!ents have

been !ade#
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Fnder the treaties in which the tax credit!ethod is used

as a relie" to avoid double ta&ation inco!e that is ta&ed in

the state of sourceis also ta&able in the state of residence

but the ta& paid in the "or!er is !erely allowed as a credit

against the ta& levied in the latter#/231 $pparently pay!ent

is !ade to the state of source not the state of residence# No

ta& there"ore has been previouslypaid to the latter#

Fnder special laws that particularly a=ect businesses

there can also be tax creditincentives# %o illustrate the

incentives provided "or in $rticle *? o" .residential Decree

No# 4.D5 )?3 as a!ended by ,atas .a!bansa ,lg# 4,.5

+3 include tax creditsequivalent to either >ve percent o"

the net value earned or >ve or ten percent o" the net local

content o" e&ports#/+01 In order to avail o" such credits

under the said law and still achieve its ob@ectives no prior

ta& pay!ents are necessary#


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anything#/+81 %o be !ore precise it is in business parlance

a deduction or lowering o" an a!ount o" !oney'/+)1or a

reduction "ro! the "ull a!ount or value o" so!ething

especially a price#/+?1 In business there are !any -inds o"

discount the !ost co!!on o" which is that a=ecting

the income statement/+31or >nancial report upon which

the income taxis based#

)usiness DiscountsDe"ucte" from G!o"" S$+e"

$ cash discount "or e&a!ple is one granted by business

establish!ents to credit customers"or their pro!pt

pay!ent#/*01 It is a reduction in price o=ered to the

purchaser i" pay!ent is !ade within a shorter period o" ti!e

than the !a&i!u! ti!e speci>ed#/*1 $lso re"erred to as

a sales discounton the part o" the seller and a purchase

discounton the part o" the buyer it !ay be e&pressed in

such
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syste!#/*31 %his role usually involves warehousing or

advertising#

,ased on this discussion we >nd that the nature o"

a sales discountis peculiar# $pplying generally accepted

accounting principles 47$$.5 in the country this type o"

discount is reected in the income statement/01as a line

ite! deducted 66 along with returns allowances rebates andother si!ilar e&penses 66 "ro! gross salesto arrive at net

sales#/1 %his type o" presentation is resorted to because

the accounts receivableand sales>gures that arise

"ro! sales discounts 66 as well as "ro! quantity,

volumeor bulk discounts66 are recorded in the !anual and

co!puterized books of accountsand reected in the

>nancial state!ents at the gross a!ounts o" the invoices#

/21 %his !anner o" recording credit sales 66 -nown as

the gross method66 is !ost widely used because it is si!ple

!ore convenient to apply than the net method and produces

no !aterial errors over ti!e#/+1

Aowever under the net methodused in
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all these two provisions a=ir! thatsales discountsare

a!ounts that are always deductible "ro! gross sales#

eason for t*e Senior Citi+en Discount:T*e La, #ot Prompt Payment

$ distinguishing "eature o" the i!ple!enting rules o" ($

)*+2 is the private establish!ent:s outright deduction o" the

discount "ro! the invoice price o" the !edicine sold to thesenior citizen#/801 It is there"ore e&pected that "or each

retail sale !ade under this law the discount period lasts no

!ore than a day because such discount is given 66 and the

net a!ount thereo" collected 66 i!!ediately upon per"ection

o" the sale#/81 $lthough pro!pt pay!ent is !ade "or an

ar!:s6length transaction by the senior citizen the real and

co!pelling reason "or the private establish!ent giving the

discount is that the law itsel" !a-es it !andatory#

hat ($ )*+2 grants the senior citizen is a !ere

discount privilege not a sales discountor any o" the above

discounts in particular# .ro!pt pay!ent is not the reason

"or 4although a necessary consequence o"5 such grant# %o be


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the income taxis co!puted# $s !entioned earlier a

discount is not necessarily a sales discount and a tax

credit"or a si!ple discount privilege should not be

auto!atically treated li-e a sales discount# Ubi lex non

distinguit, nec nos distinguere debemus# here the law

does not distinguish we ought not to distinguish#

Sections 2#i and * o" (evenue (egulations No# 4((5 263*de>ne tax creditas the 20 percent discount deductible

"ro! gross income"or income taxpurposes or "ro! gross

sales"or G$% or other percentage ta& purposes# In e=ect

the tax creditbene>t under ($ )*+2 is related to a sales

discount# %his contrived de>nition is i!proper considering

that the latter has to be deducted "ro! gross salesin order

to co!pute the gross incomein the income statementand

cannot be deducted again even "or purposes o" co!puting

the income tax#

hen the law says that the cost o" the discount !ay be

clai!ed as a tax credit it !eans that the a!ount 66 when

clai!ed 66 shall be treated as a reduction "ro! any ta&


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liability plain and si!ple# %he option to avail o" the tax

creditbene>t depends upon the e&istence o" a ta& liability

but to li!it the bene>t to a sales discount66 which is not

even identical to the discount privilege that is granted by

law 66 does not de>ne it at all and serves no use"ul purpose#

%he de>nition !ust there"ore be stric-en down#

Las #ot -men"e"

by e%ulations

econd the law cannot be a!ended by a !ere

regulation# In "act a regulation that operates to create a

rule out o" har!ony with


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the statute is a !ere nullity'/821it cannot prevail#

It is a cardinal rule that courts will and should respect

the conte!poraneous construction placed upon a statute by

the e&ecutive o=icers whose duty it is to en"orce it & &

/8+1 In the sche!e o" @udicial ta& ad!inistration the

need "or certainty and predictability in the i!ple!entation

o" ta& laws is crucial#/8*1 Our ta& authorities >ll in thedetails that Congress !ay not have the opportunity or

co!petence to provide#/81 %he regulations these

authorities issue are relied upon by ta&payers who are

certain that these will be "ollowed by the courts#/881 Courts

however will not uphold these authorities: interpretations

when clearly absurd erroneous or i!proper#

In the present case the ta& authorities have given the

ter! tax creditin Sections 2#i and * o" (( 263* a !eaning

utterly in contrast to what ($ )*+2 provides# %heir

interpretation has !uddled up the intent o" Congress in

granting a !ere discount privilege not a sales discount#

%he ad!inistrative agency issuing these regulations !ay not
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7ranting that there is a ta& liability and respondent

clai!s such cost as a tax credit then the tax creditcan

easily be applied# I" there is none the credit cannot be used

and will @ust have to be carried over and

revalidated/)1accordingly# I" however the business

continues to operate at a loss and no other ta&es are due

thus co!pelling it to close shop the credit can never be

applied and will be lost altogether#

In other words it is the e&istence or the lac- o" a ta&

liability that deter!ines whether the cost o" the discounts

can be used as a tax credit# ($ )*+2 does not give

respondent the un"ettered right to avail itsel" o" the credit

whenever it pleases# Neither does it allow our ta&

ad!inistrators to e&pand or contract the legislative

!andate# %he Kplain !eaning rule: or verba legisin

statutory construction is thus applicable & & here the

words o" a statute are clear plain and "ree "ro! a!biguity it

!ust be given its literal !eaning and applied without

atte!pted interpretation#/)81


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corresponding to the ta-ing o" private property "or public

use or benet#

$s a result o" the 20 percent discount i!posed by ($

)*+2 respondent beco!es entitled to a!ust compensation#

%his ter! re"ers not only to the issuance o" a tax

creditcerti>cate indicating the correct a!ount o" the

discounts given but also to the pro!ptness in its release#Equivalent to the pay!ent o" property ta-en by the State

such issuance 66 when not done within a reasonable

time"ro! the grant o" the discounts 66 cannot be considered

as!ust compensation# In e=ect respondent is !ade to su=er

the consequences o" being i!!ediately deprived o" its

revenues while awaiting actual receipt through the

certi>cate o" the equivalent a!ount it needs to cope with

the reduction in its revenues#/)31

,esides the ta&ation power can also be used as an

i!ple!ent "or the e&ercise o" the power o" e!inent do!ain#

/?01 %a& !easures are but en"orced contributions e&acted

on pain o" penal sanctions/?1and clearly i!posed "or
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statutory ob@ectives#


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can supplant or !odi"y the acts o" Congress#

WHEREFORE, the Petition is hereby DENIED. The assailed Decision

and Resolution of the Court of !!eals AFFIRMED. "o !ronounce#ent as

to costs.

SO O(DE(ED#

ARTEMIO V. PANGANIAN

$ssociate LusticeChair!an %hird Division

8 E C O N C U R#

ANGELINA SANDOVALGUTIERRE

RENATO C.CORONA

$ssociate Lustice $ssociate Lustice

CONCHITA CARPIO MORALES CANCIO C. GARCIA$ssociate Lustice $ssociate Lustice

ATTESTATION

I attest that the conclusions in the above decision had

been reached in consultation be"ore the case was assigned


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to the writer o" the opinion o" the Court:s Division#

ARTEMIO V. PANGANIAN

$ssociate LusticeChair!an %hird Division

CERTIFICATION

.ursuant to Section + $rticle GIII o" the Constitution

and the Chair!an:s $ttestation it is hereby certi>ed that the

conclusions in the above Decision had been reached in

consultation be"ore the case was assigned to the writer o"

the opinion o" the Court:s Division#

HILARIO G. DAVIDE, R. Chie" Lustice

/1 (ollo pp# 36+#

$%& 'd., !!. (()*+. Penned by ustice Rebecca de -uia)al/ador, 0ith the

concurrence of ustices -odardo . acinto 1Fourth Di/ision chair2 and Eloy R.

3ello r. 1#e#ber, no0 retired2.

$(& 'd., !. *(.

$*& C Decision, !. 45 rollo, !. *+.$6& Penned by ud7e Ra#on O. De 8eyra 0ith the concurrence of ud7e #ancio

9. a7a. Presidin7 ud7e 1no0 Presidin7 ustice2 Ernesto D. costa dissented.

$:& Penned by Presidin7 ud7e 1no0 Presidin7 ustice2 Ernesto D. costa 0ith the

concurrence of ud7e 1no0 ustice2 uanito C. Casta;eda, r. ud7e #ancio 9.

a7a dissented.

$


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recei!t by the Court of res!ondent@s Ae#orandu#, si7ned by tty. oy nn

Aarie -. "olasco. Petitioner@s Ae#orandu# )) si7ned by olicitor -eneral

lfredo B. 3eni!ayo, ssistant olicitor -eneral Aa. ntonia Edita C. Dion, and

olicitor Aa7tan77ol A. Castro )) 0as filed on une %, %??*.

$4& Petitioner@s Ae#orandu#, !. 65 rollo, !. 4:. Ori7inal in u!!er case.

$+?& Entitled n ct to Aai#ie the Contribution of enior Citiens to "ation3uildin7, -rant 3enefits and !ecial Pri/ile7es and for other !ur!oses, this la0

too effect in +44%. ee Santos, Jr. v. Llamas, (


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$%6& G*.+?6)+ of 3'R Re/enue Re7ulations "o. 1RR2 Phil.

(>>, *?6)*?:, une %6, +444.

$(?& 'ili0inas 1ao, &nc. v. #A, *%( Phil. >(*, >(>)>(4, >6+, Dece#ber +>, %??+.

$(+& C Decision, !. 45 rollo, !!. *?)*+.

$(%& 'd., !!. 5 id., !!. (4)*?.

$((& G*.a of R


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De/elo!#ent uthority 1"ED2 ocial De/elo!#ent Co##ittee.

$:+& Theoretically, an allowance for sales $iscontaccount can also be set u! by a

business establish#ent in its boos of account at the end of its accountin7 !eriod

to reflect its esti#ates of cash discounts on o!en accounts based on !ast

e!erience. The accountin7 entry for this account is then re/ersed at the

be7innin7 of the net accountin7 !eriod, so that such discounts can a7ain benor#ally char7ed to thesales $iscontaccount. 8ali and Peralta, su!ra, !. (*>.

$:%& #ommissioner of &nternal *evene v. :$a. $e 'rieto, +?4 Phil. 64%, 64


44/45

%??( 1citin7;eirs of Jancho Ar$ona v. ;on. *eyes, %+? Phil. +>(, > .Ct. 44%, 446, !ril 4, +>>>2.

$>+& *e0/lic v. #O#O)8D, *%( Phil. , !ril 4,

%??( 1citin7 8itu7 and costa, Tax Law an$ Jris0r$ence$%nded., %???&, !!.+)

%2.

$>*& Salon!a v. )arrales, +4% Phil. :+*, :%*, uly +?, +4>+, !er Fernande,J.

$>6& Break(evenis the !oint at 0hich a business neither 7enerates an inco#e nor

incurs a loss fro# its o!erations.

$>:& 'te#s + = %, %nd!ara7ra!h of G+ of R 4& Deliberations of the 3ica#eral Conference Co##ittee Aeetin7 on ocial

ustice, February 6, +44%, !!. %%)%*. 'talics su!!lied.

$4?& Leyte As0halt - %ineral Oil #o., Lt$. v. Block, Johnston - reen/am, 6%

Phil. *%4, *(%, Dece#ber +*, +4%>, !er Ro#ualde,J.

$4+& #ity %ayor v. The #hief 'olice #onsta/lary, +%> Phil. :


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Central Luzon Tax Full Text