VALUE ADDED TAX NATURE, CHARACTERISTICS AND PURPOSE OF VAT1. Tolentino v Sec Finance GR 115455 LIM

DOCTRINES:E-VAT is NOT a license tax. It is fully compliant with the requisites of a valid tax law (Enforced contribution of money proportionate in character levied against persons, property, or the exercise of a right, by the law making body of the State who has jurisdiction over them in the name of some public purpose) The transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups. FACTS:This is a consolidated case concerning the validity of RA 7716, also known as the E-VAT. The issues relating to Tax 2 are found in the alleged violation of press and religious freedom of the Philippine Press Institute and Philippine Bible Society (respectively) and the alleged violations of the due process, equal protection and contract clauses and the rule on taxation raised by CREBA. The first issue tackles the matter of the nature of the E-VAT while the second takes on the matter of its characteristics and purpose. ISSUES:W/N RA 7716 violates the right to freedom of religion by imposing a tax on the Philippine Bible Society.W/N RA 7716 violates due process, equal protection, contract clauses, and the rule on taxation HELD: (No on both counts. On the FIRST issue:Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional." With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI. (All of whom had as issues taxes which were proven to have censure as their primary purpose; not taxation.) The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which are profit oriented (They refer to exemptions from the VAT, such as those previously granted to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort to broaden the base of the tax), continue to enjoy exemption under R.A. No. 7716. An enumeration of some of these transactions will suffice to show that by and large this is not so and that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit. The PPI asserts that it does not really matter that the law does not discriminate against the press because "even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of this assertion the following statement in Murdock v. Pennsylvania where it was held that a license tax is invalid when levied upon rights protected by the First Amendment (Freedom of Speech and Religion). The court held that VAT is different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution. The Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales would be to increase the price, while reducing the volume of sale. Granting that to be the case, the resulting burden on the exercise of religious freedom is so incidental as to make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible burden on the right of the preacher to make a sermon. On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7 of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration and enforcement of provisions such as those relating to accounting in 108 of the NIRC. That the PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal Revenue. On the SECOND issue:CREBA asserts that R.A. No. 7716 (E-VAT)(1) Impairs the obligations of contracts, (Does not)(2) Classifies transactions as covered or exempt without reasonable basis (Does not) and(3) Violates the rule that taxes should be uniform and equitable and that Congress shall "evolve a progressive system of taxation." (Does not) (1) With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of real property by installment or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at the time he entered into the contract. The court held in earlier cases that: - "Authorities from numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of the Constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense."- Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into contracts as a postulate of the legal order."- Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority. (2) It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products, food items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real property which is equally essential. The sale of real property for socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be exempted. The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between the "homeless poor" and the "homeless less poor" in the example given by petitioner, because the second group or middle class can afford to rent houses in the meantime that they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)). (3) Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1) which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation." Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned in an earlier case on grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory, unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At 382) The court rejected this challenge to the law, by holding that: EO 273 satisfies all the requirements of a valid tax. The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at the constant rate of 0% or 10%. The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public. CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the mandate of Congress to provide for a progressive system of taxation because the law imposes a flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized." Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC). The transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups. These include real properties held primarily for sale to customers or for lease in the ordinary course of trade or business, the right or privilege to use patent, copyright, and other similar property or right, the right or privilege to use industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television time, hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services of franchise grantees of telephone and telegraph.

2. Abakada Guro et, al. v Ermita, et. al. GR 168056 MANCIADoctrine: The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and services. Being an indirect tax on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer, with the seller acting merely as a tax collector.The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers.FACTS:ABAKADA GURO Party List et al filed a petition for prohibition questioning the constitutionality of Section 4, 5, and 6 of RA 9337 amending Sections 106, 107, and 108 respectively of the NIRC. These questioned provisions contain a uniform proviso authorizing the President upon recommendation of the Secretary of Finance, to raise the VAT rate to 12% effective January 1, 2006 after certain conditions provided for in the law have been satisfied to wit:(i) VAT collection as a percentage of GDP of the previous year exceeds 2 4/5 % or(ii) National government deficit as a percentage of GDP of the previous year exceeds 1 %Petitioners argue that the law is unconstitutional as it constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes under Article VI Section 28(2) of the 1987 Constitution. They contend that delegating to the President the legislative power to tax is contrary to republicanism. They insist that accountability, responsibility, and transparency should dictate the actions of Congress and they should not pass so the President the decision to impose taxes. They also argue that the law also effectively nullified the Presidents power of control, which includes the authority to set aside and nullify the acts of her subordinates like the Secretary of Finance by mandating the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance.

Issues:1. Whether or not the authority granted to the President to increase the rate of VAT from 10% to 12% is unconstitutional2. Whether or not the contingent increase of the VAT rate a violation of due process as it imposes an unfair and additional tax burden on the people.3. Whether or not the imposition of VAT contravene the rules of uniformity and equitability of taxation provided for in the Constitution4. Whether or not the imposition of a 70% limit on the amount of input tax to be credited against the output tax militate against the Constitutional mandate prescribing a progressive system of taxation5. Whether or not VAT violate the due process and equal protection clauses of the Constitution

Held:1. No, because there is no delegation of legislative power involved in this case. There is but simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it and what us the scope of his authority.No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.When one speaks of the Sec of Finance as the alter ego of the President, it simply means that as head of the Department of Finance he is the assistant and agent of the Chief Executive. The acts of the secretaries of such departments such as the Department of Finance, performed and promulgated in the regular course of business, are unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive.In the present case, in making his recommendation to the President on the existence of either of the two conditions, the Sec of Finance is not acting as the alter ego of the President or even her subordinate. In such instance, he is not subject to the power of control and direction of the President. He is acting as the agent of the legislative department to determine and declare the event upon which its expressed will is to take effect. The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented considering that possesses all the facilities to gather data and information and has much broader perspective to properly evaluate them. His function is to gather and collate statistical date and other pertinent information and verily if any of the two conditions laid out by Congress is present. His personality in such instance is in reality but a projection if that of Congress. Thus being the agent of congress and not of the President, the President cannot later or modify or nullify or set aside the findings of the Sec of finance and to substitute the judgment of the former for that of the latter.Congress did not delegate the power to tax but the mere implement of the law. The intent and will to increase the VAT rate to 12% came from Congress chose to do in such a manner is not within the province if the Court to inquire into, its task being to interpret the law.2. No. it is not an unfair and additional tax burden on the people because Congress passed the law hoping for rescue from an inevitable financial catastrophe. Whether the law is indeed sufficient to answer the states economic dilemma is not for the Court to judge. Government policy is within the exclusive dominion of the political branches of the government. It is not this court to look into the wisdom or propriety of legislative determination. The law clearly does not provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is increased to 12%, the Vat collection foes below the 2 4/5 % of the GDP of the previous year or that the national government deficit as a percentage of the GDP of the previous year does not exceed 1 %. Therefore no statutory construction or interpretation is needed. Neither can conditions or limitations be introduced where none is provided for. There is no basis for petitioners feat of a fluctuating VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law us clear and unambiguous. 3. No. the law is uniform as it provides as a standard rate of 0% or 10% (or 12%) on all goods and services. Section 4, 5, and 6 of RA No 9337, amending Sections 206, 207, 208, respectively of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or lease of properties. These same sections also provide for a 0% rate on certain sales and transactions. Uniformity in taxation means that all taxable articles or kinds if property of the same class shall be taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times. Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on the creditable input tax, 5 year amortization of input tax paid on purchase of capital goods or the 5% withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation and only demands uniformity within the particular class. RA No 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding P1, 500,000. Also basic marine and agricultural food products in their original state are still not subject to tax, thus ensuring that prices at the grassroots level will remain accessible. It is admitted that RA No 9337 puts a premium on business with low profit margins and unduly favors those with high profit margins. Congress was not oblivious to this. Thus to equalize the eighty burden the law entails, the law under Section 116 imposed a 3% percentage tax on VAT exempt persons under Section 109 i.e. transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as an equalizer because in effect, bugger business that qualify for VAT coverage and VAT exempt taxpayers stand on equal footing. Moreover, congress provided mitigating measures to cushion the impact of the imposition of the tax on those previously exempt. Excise taxes on petroleum products and natural gas were reduced. Percentage tax on domestic carriers was removed. Power producers are not exempt from paying franchise tax. Aside from these, Congress also increased the income tax rates of corporations in order to distribute the burden of taxation. Domestic, foreign and non-resident corporations are now subject to a 35% income tax rate, from a previous 32%. Inter-corporate dividends of non-resident foreign corporations are still subject to 15% final withholding tax but the tax credit allowed on the corporations domicile was increased to 20%. The Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore. Even the sale by an artist of his works or services performed for the production of such works was not spared. All these were designed to ease, as well as spread out the burden of taxation, which would otherwise rest largely on the consumers. It cannot therefore be gainsaid that RA 9337 is equitable. 4. No, because the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall evolve a progressive system of taxation. The constitutional provision has been interpreted to mean simply that direct taxes are to be preferred and as much as possible indirect taxes should be minimized. Indeed, the mandate to Congress is not to prescribe, but to evolve a progressive tax system. The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation has no relation with the VAT system inasmuch the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. In other words, the VAT paid eats the same portion of an income whether big or small. The disparity lied in the income earned by a person or profit margin marked by a business, such that the higher the income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. The lower the income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or business with low profit margins that is always hardest hit. 5. No. There is no violation of due process in this case because input tax is not a property or a property right within the constitutional purview of the due process clause. A VAT registered persons entitlement to the creditable input tax is a mere statutory privilege. The distinction between statutory privileges. The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested rights in statutory privileges. The state may change or take away rights, which were created by the law of the state, although it may not take away property, which was vested by virtue of such rights. Neither is the equal protection clause impinged because the power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation the kind of property, the rates to be levied or the amounts to be raised the methods of assessment, valuation and collection the States power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination or arbitrariness. Equal protection does not require the universal application of the laws on all persons or things without distinction. What the clauses requires is equally among equals as determined according to a valid classification. By classification is meant the grouping of persons or things similar to each other in certain particulars and different from all others in these same particulars.

PERSONS LIABLE: in the course of trade of business v isolated transaction v incidental to the main line of business1. CIR v Magsaysay Lines GR 146984 MORENODOCTRINE: In a case involving the sale of vessels, pursuant to the privatization efforts of the government, by a GOCC engaged in the business of leasing out properties, the Supreme Court held that the sale of goods not in the course of trade or business of the taxpayer is not subject to VAT. The Supreme Court pointed out that under Section 99 (now Section 105) of the Tax Code, the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business. Transactions undertaken outside the course of trade or business may invariably contribute to the production chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not occur within the course of trade or business, the providers of such goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation of output VAT arises in the first place only through the ordinary course of trade or business.

FACTS: Pursuant to a government program of privatization, The National Development Corporation (NDC) decided to sell in one lot its National Marine Corporation (NMC) shares and five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels.The vessels were constructed for the NDC between 1981and 1984, then initially leased to Luzon Stevedoring Company, also its wholly-owned subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat basis, to the NMC.The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels."On 3 June 1988, private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new company still to be formed composed of itself and was approved by the Committee on Privatization, and a Notice of Award dated 1 July 1988 was issued to Magsaysay Lines who in turn was assessed of VAT through VAT Ruling No.568-88 dated 14 December 1988 from the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling cited the fact that NDC was a VAT-registered enterprise, and thus its "transactions incident to its normal VAT registered activity of leasing out personal property including sale of its own assets that are movable, tangible objects which are appropriable or transferable are subject to the 10% [VAT].CTA ruled that the sale of a vessel was an "isolated transaction," not done in the ordinary course of NDCs business, and was thus not subject to VAT, which under Section 99 of the Tax Code, was applied only to sales in the course of trade or businessThe CTA further held that - the sale of the vessels could not be "deemed sale," and thus subject to VAT, as the transaction did not fall under the enumeration of transactions deemed sale as listed either in Section 100(b) of the Tax Code, or Section 4 of R.R. No. 5-87. Finally, the CTA ruled that any case of doubt should be resolved in favor of private respondents since Section 99 of the Tax Code which implemented VAT is not an exemption provision, but a classification provision which warranted the resolution of doubts in favor of the taxpayer. Hence CIR appealed the CTA Decision.ISSUE:Whether the sale by the National Development Company (NDC) of five (5) of its vessels to the private respondentsis subject to value-added tax (VAT) under the National Internal Revenue Code of 1986 (Tax Code)then prevailing at the time of the sale. The facts are culled primarily from the ruling of the CTA.HELD:NOT SUBJECT TO VAT.VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed percentage.It is the end user of consumer goods or services which ultimately shoulders the tax, as the liability therefrom is passed on to the end users by the providers of these goods or services who in turn may credit their own VAT liability (or input VAT)from the VAT payments they receive from the final consumer (or output VAT).The final purchase by the end consumer represents the final link in a production chain that itself involves several transactions and several acts of consumption. The VAT system assures fiscal adequacy through the collection of taxes on every level of consumption, yet assuages the manufacturers or providers of goods and services by enabling them to pass on their respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax liability. Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayers role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations, the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business.

2. Mindanao II Geothermal Partnership v CIR GR 193301 SANTOS

DOCTRINE: x x x it does not follow that an isolated transaction cannot be an incidental transaction for purposes of VAT liability. x x x Section 105 of the 1997 Tax Code would show that a transaction "in the course of trade or business" includes "transactions incidental thereto."FACTS: Mindanao II entered into a Built-Operate-Transfer (BOT) contract with the Philippine National Oil Corporation Energy Development Company (PNOC-EDC) for operation and maintenance of a geothermal power plant. Mindanao II shall convert the steam into electric capacity and energy for PNOC-EDC and shall deliver the same to the National Power Corporation (NPC) for and in behalf of PNOC-EDC.Mindanao II alleges that its sale of generated power and delivery of electric capacity and energy of Mindanao II to NPC for and in behalf of PNOC-EDC is its only revenue-generating activity which is in the ambit of VAT zero-rated sales under the EPIRA Law. Hence, the amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated power by generation companies from ten (10%) percent to zero (0%) percent.Pursuant to the provisions of the National Internal Revenue Code (NIRC), Mindanao II alleges that it can use its accumulated input tax credits to offset its output tax liability.Thus, on the belief that its sales qualify for VAT zero-rating, Mindanao II adopted the VAT zero-rating of the EPIRA in computing for its VAT payable when it filed its Quarterly VAT Returns.Considering that it has accumulated unutilized creditable input taxes from its only income-generating activity, Mindanao II filed an application for refund and/or issuance of tax credit certificate with the BIR.The CTA First Division found that Mindanao II is entitled to a refund in the amount of P7,703,957.79, after disallowing P522,059.91 from input VAT and deducting P18,181.82 from Mindanao IIs sale of a fully depreciated P200,000.00 Nissan Patrol. The input VAT on the sale of the Nissan Patrol was reduced by P18,181.82 because the output VAT for the sale was not included in the VAT declarations.Mindanao II filed a motion for partial reconsideration. It stated that the sale of the fully depreciated Nissan Patrol is a one-time transaction and is not incidental to its VAT zero-rated operations. Moreover, the disallowed input taxes substantially complied with the requirements for refund or tax credit.The CTA First Division found that the records of Mindanao IIs case are bereft of evidence that the sale of the Nissan Patrol is not incidental to Mindanao IIs VAT zero-rated operations. Moreover, Mindanao IIs submitted documents failed to substantiate the requisites for the refund or credit claims.ISSUE: W/N the sale of the Nissan Patrol was an isolated transaction.HELD: NO! It is a transaction incidental to its business."Incidental" TransactionMindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental transaction in the course of its business; hence, it is an isolated transaction that should not have been subject to 10% VAT. However, it does not follow that an isolated transaction cannot be an incidental transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the 1997 Tax Code would show that a transaction "in the course of trade or business" includes "transactions incidental thereto."Section 105 of the 1997 Tax Code does not support Mindanao IIs position:SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.Mindanao IIs business is to convert the steam supplied to it by PNOC-EDC into electricity and to deliver the electricity to NPC. In the course of its business, Mindanao II bought and eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao IIs property, plant, and equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of Mindanao IIs business which should be liable for VAT.

OUTPUT TAX ON SALE OF SERVICESA. Meaning of Sale or Exchange of Servicesa. CIR v Commonwealth Management and Services Corp GR No. 125355 SUPAPO

DOCTRINE:"sale of services" is defined by the NIRC as the "performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project."

FACTS:1. Commonwealth Management and Services Corporation (COMASERCO), a domestic corp. and an affiliate of Philamlife, was organized by the letter to perform collection, consultative and other technical services, including functioning as an internal auditor, of Philamlife and its other affiliates.2. For taxable year 1988, the CIR assessed COMASERCO with a deficiency VAT (incl. of 25% surcharge, and 20% interest) for services it rendered to clients.3. COMASERCO asserted that the services it rendered to Philamlife and its affiliates were on a "no-profit, reimbursement-of-cost-only" basis.4. It averred that it was not engaged in the business of providing services to Philamlife and its affiliates as it was established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and not in the sale of services. Hence, not liable to pay VAT.5. COMASERCO also pointed out that it incurred net loss in its operation for the year 1988.6. CTA: Affirmed CIRs decision. COMASERCO is liable to pay VAT.7. CA: Reversed CTAs decision. The CA anchored its decision on the ratiocination in another tax case involving the same parties, where it was held that COMASERCO was not liable to pay fixed and contractor's tax for services rendered to Philamlife and its affiliates.7.1. The CA, in that case, reasoned that COMASERCO was not engaged in business of providing services to Philamlife and its affiliates.7.2. In the same manner, the CA held that COMASERCO was not liable to pay VAT for it was not engaged in the business of selling services.8. CIR avers that to "engage in business" and to "engage in the sale of services" are two different things. Petitioner maintains that the services rendered by COMASERCO to Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is a tax on the value added by the performance of the service. It is immaterial whether profit is derived from rendering the service.9. COMASERCO contends that the term "in the course of trade or business" requires that the "business" is carried on with a view to profit or livelihood.9.1. It avers that the activities of the entity must be profit- oriented.9.2. COMASERCO submits that it is not motivated by profit, as defined by its primary purpose in the articles of incorporation, stating that it is operating "only on reimbursement-of-cost basis, without any profit."9.3. It argues that profit motive is material in ascertaining who to tax for purposes of determining liability for VAT. ISSUE: whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon HELD: YES! The Court agreed with the CIR.

Contrary to COMASERCO's contention, the provision in the EVAT law clarifies that even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented. The definition of the term "in the course of trade or business" incorporated in the present law applies to all transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of goods and services. Section 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of services" as the "performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project." Per BIR Ruling No. 010-98, a domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized without any intention of realizing profit, any income or profit generated by the entity in the conduct of its activities was subject to income tax. Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT.

b. CIR v SM Prime Holdings, Inc. and First Asia GR 183505 VELASCO

DOCTRINE:A cursory reading of the Sec108 NIRC shows that the enumeration of the sale or exchange of services subject to VAT is not exhaustive. The words, including, similar services, and shall likewise include, indicate that the enumeration is by way of example only.

The legislature never intended operators or proprietors of cinema/theater houses to be covered by VAT. No distinction must be made between the places of amusement taxed by the national government and those taxed by the local government.

FACTS SM Prime and First Asia are domestic corporations. Both are engaged in the business of operating cinema houses, among others.

Case 1: BIR sent SM Prime a Preliminary Assessment Notice (PAN) for value added tax (VAT) deficiency on cinema ticket sales for the year 2000. BIR sent SM Prime a Formal Letter of Demand for the alleged VAT deficiency, which the latter protested. BIR denied the protest and ordered SM to pay the VAT deficiency.

Case 2, 3 and 4: BIR sent First Asia a PAN for VAT deficiency on cinema ticket sales for the year 1999, 2000, 2002 and 2003. BIR issued a Formal Letter of Demand for the alleged VAT deficiency which was protested by First Asia. BIR denied the protest and ordered First Asia to pay the VAT deficiency.

The consolidated cases were submitted for decision on the sole issue of whether gross receipts derived from admission tickets by cinema/theater operators or proprietors are subject to VAT. CTA: the activity of showing cinematographic films is not a service covered by VAT under the NIRC, but an activity subject to amusement tax under the Local Government Code of 1991, which is the 30% amusement tax imposed by cities and provinces. The national government should be precluded from imposing its own business tax in addition to that already imposed and collected by local government units. Revenue Memorandum Circular (RMC) No. 28-2001, which imposes VAT on gross receipts from admission to cinema houses, cannot be given force and effect because it failed to comply with the procedural due process for tax issuances. Section 108 of the NIRC actually sets forth an exhaustive enumeration of what services are intended to be subject to VAT. And since the showing or exhibition of motion pictures, films or movies by cinema operators or proprietors is not among the enumerated activities contemplated in the phrase sale or exchange of services, then gross receipts derived by cinema/ theater operators or proprietors from admission tickets in showing motion pictures, film or movie are not subject to VAT. ISSUE: WON the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets are subject to VAT. HELD: NO

The enumeration of services subject to VAT under Section 108 of the NIRC is not exhaustive. A cursory reading of the provision shows that the enumeration of the sale or exchange of services subject to VAT is not exhaustive. The words, including, similar services, and shall likewise include, indicate that the enumeration is by way of example only. Among those included in the enumeration is the lease of motion picture films, films, tapes and discs. This, however, is not the same as the showing or exhibition of motion pictures or films. Since the activity of showing motion pictures, films or movies by cinema/ theater operators or proprietors is not included in the enumeration, it is incumbent upon the court to the determine whether such activity falls under the phrase similar services. The intent of the legislature must therefore be ascertained. The legislature never intended operators or proprietors of cinema/theater houses to be covered by VAT. The Local Tax Code, in transferring the power to tax gross receipts derived by cinema/theater operators or proprietor from admission tickets to the local government, did not intend to treat cinema/theater houses as a separate class. No distinction must be made between the places of amusement taxed by the national government and those taxed by the local government. To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or proprietors, who would be paying an additional 10% VAT on top of the 30% amusement tax imposed by Section 140 of the LGC of 1991, or a total of 40% tax. The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT. The removal of the prohibition under the Local Tax Code did not grant nor restore to the national government the power to impose amusement tax on cinema/theater operators or proprietors. It did not expand the coverage of VAT. Since the imposition of a tax is a burden on the taxpayer, it cannot be presumed nor can it be extended by implication. A law will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously.

c. Diaz and Timbol v Secretary of Finance GR 193007 VILLAFUERTE

Doctrine: Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of VAT.

Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.

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

The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.

The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators. At any rate, the non-impairment clause cannot limit the State's sovereign taxing power which is generally read into contracts.

Issue: WON toll fees collected by tollway operators can be subjected to VAT.

Held: Yes. When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway operator is no different from the service providers under Section 108 who allow others to use their properties or facilities for a fee.

Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern.

Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state.

A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income.

Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.

B. Zero rated sale of services: Foreign Currency Denominated Salea. CIR v Placer Dome Technical Services GR 164365 ATIENZADOCTRINE: Section 102(b)(2) of the Tax Code is very clear. Therefore, no statutory construction or interpretation is needed. Services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or repacking of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated

FACTS

Take note:1. Placer Dome, Inc (referred as PDI) is the owner of the Marcopper2. Placer Dome Technical Services Limited (referred as PDTSL) is a non-resident foreign corporation asked by PDI to clean up and rehabilitate3. Placer Dome Technical Services (Philippines) Inc. (referred as respondent) is a domestic corporation hired by PDTSL to do the clean up

On 24 March 1996, a tailing leak occurred at the San Antonio Mines in Marinduque owned by Marcopper Mining Corporation (Marcopper). To contain the damage and prevent the further spread of the tailing leak, Placer Dome, Inc. (PDI), the owner of Marcopper, undertook to perform the clean-up and rehabilitation. To accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL), a non-resident foreign corporation with office in Canada, to carry out the project. In turn, PDTSL engaged the services of Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic corporation and registered Value-Added Tax (VAT) entity, to implement the project in the Philippines.

In August of 1998, respondent amended its quarterly VAT returns for the last two quarters of 1996, and for the four quarters of 1997. In the amended returns, respondent declared a total input VAT payment of P43,015,461.98 for the said quarters, and P42,837,933.60 as its total excess input VAT for the same period. It subsequently asked for a refund arguing that the revenues it derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero-rated sales under Section 102(b)(2) of the then Tax Code, since it was paid in foreign currency inwardly remitted to the Philippines.

However, the Commission of Internal Revenue (CIR), the petitioner, argues that pursuant to Revenue Regulation No. 5-96, there are only two categories of services that are subject to zero percent VAT, namely: services other than processing, manufacturing or repacking for other persons doing business outside the Philippines for goods which are subsequently exported; and services by a resident to a non-resident foreign client, such as project studies, information services, engineering and architectural designs and other similar services. Petitioner explains that the services rendered by respondent were not for goods which were subsequently exported. Likewise, it is argued that the services rendered by respondent were not similar to "project studies, information services, engineering and architectural designs" which were destined to be consumed abroad by non-resident foreign clients.

ISSUE: WON the goods or services that should be paid in foreign currency to qualify as zero-rated must form part of the cost of goods or services to be exported.

HELD: NOThe SC referred back to its previous ruling in Commissioner of Internal Revenue v. American Express. The SC concluded in American Express that the service or goods rendered need NOT be directly part of the cost of the exported goods.

It is to be noted that the transaction of the respondent is for a cleanup operation. This does not form part of the cost of the goods to be exported. Regardless, the SC ruled that this is still zero rated as it complied with the requirements of Section 102(b).Section 102(b) of the 1986 NIRC applies zero-rating on two categories of transactions: (1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP; and (2) services other than those mentioned in the preceding subparagraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.

It is argued by the petitioner that the second category is too broad and vague. However, the SC held that even if it is broad, Section 102(b) is, in fact, "very clear," the Court declared that any resort to statutory construction or interpretation was unnecessary. Neither can conditions or limitations be introduced where none is provided for.

The case revolved more on the issue of WON a spill is to be considered as a zero-rated service, however, in the statement of facts, there is a mention of the CTAs ruling that limited the zero rated service to those foreign currency payment that were actually remitted to the Philippines and supported by documents as such.

In its Decision dated 19 March 2002, the CTA supported respondents legal position that its sale of services to PDTSL constituted a zero-rated transaction under the Tax Code, as these services were paid for in acceptable foreign currency which had been inwardly remitted to the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). However, at the same time, the CTA pointed out that of the US$27,544,707.00 paid by PDTSL to respondent, only US$14,750,473.00 was inwardly remitted and accounted for in accordance with the BSP. The CTA also noted that not all the reported total input VAT payments of respondent were properly supported by VAT invoices and/or official receipts, and that not all of the allowable input VAT of the respondent could be directly attributed to its zero-rated sales. b. Accenture, Inc v. CIR GR 190102 BUENAVENTURA

FACTS: Accenture is a domestic corporation claiming an administrative claim for VAT refund or the issuance of Tax Credit Certificate (TCC) filed with the DOF in 1 July 2004. The DOF did not act on the claim. Thus, Accenture filed a petition for review with the CTA. In 13 November 2008, CTA denied the petition of Accenture for failing to prove that the latter's sale of services to the alleged foreign clients qualified for zero percent VAT. CTA ruled that Accenture's services would qualify for zero-rating under the 1997 Tax Code only if the recipient of the services was doing business outside of the Philippines, similar to the 2007 SC ruling on the case of CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (Burmeister) Accenture questions the Division's application to this case of the pronouncements made in Burmeister. According to petitioner, the provision applied to the present case was Section 102 (b) of the 1977 Tax Code, and not Section 108 (B) of the 1997 Tax Code, which was the law effective when the subject transactions were entered into and a refund was applied for. ISSUE: WON the contention of SCs rulings is applicable to the denial of Accentures claim for tax refund HELD: The recipient of services must be doing business outside the Philippines for the transaction to qualify it as zero-rated under Section 108 (B) of the National Internal Revenue Code of 1997 (1997 Tax Code). Since Section 108 (B) of the 1997 Tax Code is a verbatim copy of Section 102 (b) of the National Internal Revenue Code of 1977 (1977 Tax Code), any interpretation of the latter holds true for the former. When the Supreme Court decides a case, it does not pass a new law, but merely interprets a pre-existing one. Even though the taxpayers present petition was filed before the decision in the case of Commissioner of Internal Revenue v Burmeister and Wain Scandinavian Contractor Mindanao, Inc. was promulgated, the pronouncements made in that case may be applied to the present case without violating the rule against retroactive application. When the Court interpreted Section 102 (b) of the 1977 Tax Code in the Burmeister case, this interpretation became part of the law from the moment it became effective. It is elementary that the interpretation of a law by the Court constitutes part of that law from the date it was originally passed, since the Courts construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect.As explained by the Court in the Burmeister case: If the provider and recipient of the other services are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT under section 102 (a) [of the 1977 Tax Code] can avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of services. To interpret section 102 (b) (2) to apply to a payer-recipient of services doing business in the Philippines is to make the payment of the regular VAT under section 102 (a) dependent on the generosity of the taxpayer. The provider of services can choose to pay the regular VAT or avoid it by stipulating payment in foreign currency inwardly remitted by the payer-recipient. Such interpretation removes section 102 (a) as a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not a voluntary contribution. Instant petition is DENIED. The decision of CTA En Banc is AFFIRMED

C. Zero rated sale of services: Contractors and Subcontractors for Export Enterprisesa. Atlas Consolidated Mining v CIR GR 134467 CARIAGA

DOCTRINE: Sales to an export-oriented enterprise whose export sales exceed 70 percent of its annual production are to be zero-rated, provided the seller complies with other requirements, like registration with the BOI and the EPZA. The said Regulation does not even hint, much less expressly mention, that only a percentage of the sales would be zero-rated. The internal revenue commissioner cannot, by administrative fiat, amend the law by making compliance therewith more burdensome.FACTS: The antecedent facts of the case as agreed to by the parties in the Joint Stipulation of Facts submitted to the Court of Tax Appeals (CTA) are as follows:XXX XXX XXX 2. Petitioner is engaged in the business of mining, production and sale of various mineral products, consisting principally of copper concentrates and gold and duly registered with the BIR as a VAT enterprise per its Registration No. 32-A-6-002224.3. Respondent BIR duly approved petitioners application for VAT zero-rating of the following sales:A. Gold to the Central Bank (CB);B. Copper concentrates to the Phil. Smelting and Refining Corp. (PASAR); andC. Pyrite to Philippine Phosphates, Inc. (Philphos).The BIRs approval of sales to CB and PASAR was dated April 21, 1988 while zero-rating of sales to PHILPHOS was approved effective June 1, 1988.4. PASAR and Philphos are both Board of Investments (BOI) and Export Processing Zone Authority (EPZA) registered export-oriented enterprises located in an EPZA zone.5. On April 20, 1990, petitioner filed a VAT return with the BIR for the first quarter of 1990 whereby it declared its sales described in par. 3 hereof as zero-rated sales and therefore not subject to any output VAT.6. On or about July 24, 1990, petitioner filed a claim with respondent for refund/credit of VAT input taxes on its purchase of goods and services for the first quarter of 1990 in the total amount of P40,078,267.81.7. On or about September 2, 1992, petitioner filed an Amended Application for tax credit/refund in the amount of P 35,522,056.58.8. On September 9, 1992, respondent resolved petitioners claim for VAT refund/credit by allowing only P2,518,122.32 as refundable/creditable while disallowing P33,003,934.26.9. A supplemental report of investigation was submitted by the BIR examiners recommending the increase in allowable input tax credit from P2,518,122.32 to P12,101,569.11 or an increment of P9,583,446.79 due to petitioners submission of BOI certifications on the sales to PASAR which brought down the deduction of P12,404,150.65 to P2,518,122.32.CTA rendered a decision in favor of the respondent: That the petitioner is registered with the BIR as a VAT enterprise effective August 15, 1990. It explained that the "zero-percent rating" of BOI-registered enterprises shall be set in proportion to the amount of its actual exports; and that EPZA and BOI registrations were by themselves not enough for zero-rating to apply.The petitioner moved for reconsideration of the decision but was denied.Thus, this petition.SUB-ISSUE: Whether the court erred in upholding the finding of the CTA that petitioner is not VAT-registered for the 1st quarter of 1990 despite clear evidence showing the date of effectivity of petitioners VAT registration to be January 1, 1988.HELD: YES, the court erred. Petitioner contends that its sales to Philphos and PASAR should be zero-rated for the first quarter of 1990, and not only as of August 15, 1990 as held by the CA, which allegedly ignored "clear evidence" that petitioner's VAT registration had been effected earlier, on January 1, 1988.Respondent commissioner counters that by virtue of the Joint Stipulation of Facts, petitioner is bound by its admission therein that it was registered as a VAT enterprise effective only from August 15, 1990, well beyond the first quarter of 1990, the period for which it is applying for tax credit.We agree with the CA that, as a rule, a judicial admission, such as that made by petitioner in the Joint Stipulation of Facts, is binding on the declarant. However, such rule does not apply when there is a showing that (1) the admission was made through a "palpable mistake," or that (2) "no such admission was made."We are convinced that a "palpable mistake" was committed. True, petitioner was VAT-registered under Registration No. 32-A-6-00224, as indicated in Item 2 of the Stipulation.Moreover, the Registration Certificate bears the number 32-0-004622 and became effective August 15, 1990. But the actual VAT Registration Certificate, which petitioner mentioned in the stipulation, is numbered 32-A-6-002224 and became effective on January 1, 1988, thereby showing that petitioner had been VAT-registered even prior to the first quarter of 1990. Clearly, there exists a discrepancy, since the VAT registration number stated in the joint stipulation is NOT the one mentioned in the actual Certificate attached to the BIR Records.The foregoing simply indicates that petitioner made a "palpable mistake" either in referring to the wrong BIR record, which was evident, or in attaching the wrong VAT Registration Certificate.Petitioner also had another registration number, 32-0-004622, because sometime during the third quarter of 1990, it moved its principal place of business to a different revenue district. Its second registration as a VAT enterprise on August 15, 1990 was made in compliance with Section 3 of Revenue Memo Circular No. 6-88, which required it to re-register after it moved its principal place of business to another revenue district. Even the respondent commissioner, as shown in the other provisions of the joint stipulation, has granted petitioner VAT exemption for the period even prior to the first quarter of 1990; that is, as early as January 1, 1988. MAIN ISSUE: Whether the court erred in NOT holding that the totality of sales to EPZA-registered enterprises should be zero-rated, not merely the proportion which such sales have to the actual exports of the enterprise.HELD: YES, the court erred. It is the totality of petitioner's sales to Philphos and PASAR that must be taken into account, not merely the proportion of such sales to the actual exports of the said enterprises.Respondent maintains that before zero-rating can be applied, petitioner must first show that the entities to which the raw materials have been sold are export-oriented, and that their export sales exceed 70 percent of their total annual production. Should these conditions be met, zero-rating would apply, but only in proportion to the exports actually made.The Joint Stipulation of Facts expressly states that petitioners sales of raw materials have been approved for zero-rating. Verily, the commissioner has already conceded that PASAR and Philphos qualify as export-oriented enterprises whose export sales exceed 70 percent of their total annual production, and that petitioners sales to them thus qualify for zero-rating.Indeed, the BIR has already recognized and admitted that said transactions are zero-rated. Said stance is demonstrated in the following acts of the BIR:a. the grant of petitioners applications for zero-rating of sales to PASAR AND PHILPHOS;b. Revenue Regulation No. 2-88, wherein it recognized sales to BOI-registered enterprises which export over 70% of its sales as zero-rated, subject to certain conditions;c. VAT Ruling No. 271-88 (dated June 24, 1988), wherein it was recognized that sales to PHILPHOS are zero-rated;d. Letter dated April 18, 1988, whereby it recognized that sales of copper concentrates to PASAR are zero-rated; ande. VAT Ruling No. 008-92, which states that the sale of raw materials to BOI-registered enterprises can qualify for zero-rating.Finally, an examination of Section 4.100.2 of Revenue Regulation 7-95 in relation to Section 102 (b) of the Tax Code shows that sales to an export-oriented enterprise whose export sales exceed 70 percent of its annual production are to be zero-rated, provided the seller complies with other requirements, like registration with the BOI and the EPZA. The said Regulation does not even hint, much less expressly mention, that only a percentage of the sales would be zero-rated. The internal revenue commissioner cannot, by administrative fiat, amend the law by making compliance therewith more burdensome.

EXEMPT TRANSACTIONSA. Exempt v Zero Rated Salesa. CIR v Cebu Toyo Corporation GR 149073 DORIADOCTRINE:Taxable transactions are those transactions which are subject to VAT either at 10% or 0%. In taxable transactions, the seller shall be entitled to tax credit for the VAT paid on purchases and leases of goods, properties or services. An exemption means that the sale of goods, properties or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. Thus, a VAT-registered purchaser of goods, properties or services that are VAT-exempt, is not entitled to any input tax on such purchases despite the issuance of a VAT invoice or receipt. FACTS: Cebu Toyo Corporation is a domestic subsidiary of Toyo Lens Corporation - Japan, a non-resident corporation, engaged in the manufacture of lenses and optical components used in TV sets, cameras, CDs and other devices. Its principal office is located at the Mactan Export Processing Zone (MEPZ) in Cebu as it is a zone export enterprise registered with the Philippine Economic Zone Authority (PEZA), pursuant to P.D. No. 66. It is also registered with the BIR as a VAT taxpayer. As an export enterprise, Cebu Toyo sells 80% of its products to its mother corporation pursuant to an Agreement of Offsetting. The rest are sold to various enterprises doing business in the MEPZ. Both sales are considered export sales subject to VAT at 0% rate under Sec. 106(A)(2)(a) of the NIRC. Cebu Toyo filed its quarterly VAT returns from April 1996 to December 1997 showing a total input VAT of P4.4M. March 1998: Cebu Toyo filed an application for tax credit/refund with the Department of Finance, representing excess VAT input payments for the period of April 1996 to December 1997 amounting to P4.4M. However, it did not bother to wait for the Resolution of its claim by the CIR. Instead, it filed a Petition for Review with the CTA. Cebu Toyos claim: as a VAT-registered exporter of goods, it is subject to VAT at 0% on its export sales that do not result in any output tax. Hence, the unutilized VAT input taxes on its purchases of goods and services related to such zero-rated activities are available as tax credits or refunds. CIRs position: Cebu Toyo was not entitled to a refund or tax credit. Initially, the CTA denied the petition for insufficiency of evidence. The CTA found: Cebu Toyo was a VAT-registered entity. Sales to Toyo Lens and to establishments in the MEPZ were export sales subject to VAT at 0%. The input VAT covered by the claim was not applied against any output VAT. Cebu Toyo filed a Motion for Reconsideration CTA partly granted the MR. Respondent was entitled to a refund but not in the full amount of its claim. CIR was ordered to REFUND or, in the alternative, ISSUE a TAX CREDIT CERTIFICATE in favor of Cebu Toyo in the amount of P2.1M representing unutilized input tax payments. CIR filed an MR arguing that Cebu Toyo was not entitled to a refund because as a PEZA-registered enterprise, it was not subject to VAT pursuant to Sec. 2413 of R.A. No. 7916, as amended by R.A. No. 8748. Thus, since respondent was not subject to VAT, the capital goods it purchased must be deemed not used in VAT taxable business and therefore it was not entitled to a refund of input taxes on such capital goods. CTA denied MR. CIR appealed to the CA. CA affirmed CTA decision. CIR appealed to the SC. CIRs contention: Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and local taxes, including VAT, under Section 24 of R.A. No. 7916 and Sec. 10921 of the NIRC. Thus, it is not entitled to any refund or credit on input taxes it previously paid as provided under Sec. 4.103-122 of Revenue Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. Such registration was erroneous and did not confer upon Cebu Toyo any right to claim recognition of the input tax credit. Cebu Toyos contention: it availed of the income tax holiday under E.O. No. 226 for 4 years from August 1995 making it exempt from income tax but not from other taxes such as VAT. Hence, its export sales are not exempt from VAT, contrary to the CIRs claim, but are subject to 0% VAT. ISSUE: WON Cebu Toyo Corp, a PEZA-registered enterprise, is subject to VAT and is entitled to a refund. YES HELD:Cebu Toyo is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions. It is undisputed that respondent is engaged in the export business and is registered as a VAT taxpayer per Certificate of Registration of the BIR. The records show that the respondent is subject to VAT as it availed of the income tax holiday under E.O. No. 226. Perforce, respondent is subject to VAT at 0% rate and is entitled to a refund or credit of the unutilized input taxes. CIRs contention that respondent is not entitled to refund for being exempt from VAT is untenable. This argument turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Sec. 23 of R.A. No. 7916. Under said statute, Cebu Toyo had TWO options with respect to its tax burden.1. It could avail of an income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not from other internal revenue taxes such as VAT; OR2. It could avail of the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No. 7916.Both the CA and the CTA found that respondent availed of the income tax holiday for 4 years, as clearly reflected in its 1996 and 1997 Annual Corporate Income Tax Returns, where respondent specified that it was availing of the tax relief under E.O. No. 226. Export sales (sales outside the Philippines) shall be subject to VAT at 0% if made by a VAT-registered person. Under the VAT system, a zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchase of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund. In principle, the purpose of applying a 0% rate on a taxable transaction is to exempt the transaction completely from VAT previously collected on inputs. It is the only true way to ensure that goods are provided free of VAT. While the zero rating and the exemption are computationally the same, they actually differ in several aspects:(a) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax;(b) The input VAT on the purchases of a VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt;(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register while registration is optional for VAT-exempt persons.

b. Toshiba Information Equipment GR 157594 FERNANDEZ Doctrine: Value-added tax (VAT); exemption. Prior to the issuance by the BIR of Revenue Memorandum Circular No. 74-99, whether a PEZA-registered enterprise was exempt from VAT or subject to VAT depended on the type of fiscal incentive availed of by said enterprise. If the enterprise availed itself of 5% gross income taxation under Republic Act No. 7916, it was exempt from VAT. If it availed itself of income tax holiday under the Omnibus Investments Code, it was subject to VAT. VAT; zero-rating. Upon issuance of RMC 74-99, the rule was clearly established that following the cross-border doctrine, based on the fiction that ecozones are foreign territory, a sale by a supplier in the customs territory to a PEZA-registered enterprise is considered an export sale and therefore subject to zero VAT.

Facts: Toshiba is a domestic corporation with the primary purpose of engaging in the business of manufacturing and exporting of electrical and mechanical machinery and goods relating to information technology, computer hardware and software. In 1995, Toshiba registered w/ Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise. Toshiba also registered with the BIR as a VAT taxpayer. Toshiba filed its VAT returns for the year 1996 reporting its input VAT and alleging that its input VAT was from its purchases of capital goods and services which remained unutilized since it had not yet engaged in any business activity for which it may be liable for output VAT. Consequently, Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback center of the Department of Finance applications for tax credit/refund of its unutilized input VAT. Toshiba also filed a petition for review with the CTA to toll the running of the two-year prescriptive period for judicially claiming a tax credit/refund. CTA ordered the CIR to refund or to issue a tax credit certificate to Toshiba. CIR opposed on the ground that since Toshiba is registered with PEZA as an Ecozone Export Enterprise, its business is not subject to VAT pursuant to Section 109 of the Tax Code. Since Toshibas business is not subject to VAT, the capital goods and services it purchased are considered not used in VAT taxable business and therefore, it is not entitled to refund of input taxes on such capital goods.

I: W/n Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of capital goods and services

R: Yes, Toshiba is entitled to tax credit/refund of its input VAT on its purchases of capital goods and services. An Ecozone enterprise is a VAT-exempt entity. Sales of goods, properties, and services by persons from the Customs Territory to Ecozone enterprise shall be subject to VAT at zero percent (0%). PEZA-registered enterprises, which would necessarily be located within Ecozones, are VAT-exempt entities because of Section 8 of RA 7916 which establishes the fiction that Ecozones are foreign territory. The national territory of the Philippines outside of the proclaimed borders of the Ecozone are referred to as Customs Territory. The provision provides that PEZA shall manage and operate the Ecozones as a separate customs territory, thus creating the fiction that the Ecozone is a foreign territory. The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial board of the taxing authority. Sales of goods, properties, and services by a VAT-registered supplier from the Customs Territory to an Ecozone enterprise shall be treated as export sales. If such sales are made by a VAT-registered supplier, they shall be subject to VAT at 0%. In zero-rated transactions, the VAT-registered supplier shall not pass on any output VAT to the Ecozone enterprise, and at the same time, shall be entitled to claim tax credit/refund of its input VAT attributable to such sales. Zero-rating of export sales primarily intends to benefit the export (i.e., the supplier from Customs territory), who is directly and legally liable for VAT. Meanwhile, sales to an Ecozone enterprise made a by a non-VAT or unregistered supplier would only be exempt from VAT and the supplier shall not be able to claim credit/refund of its input VAT. Even conceding, however, that Toshiba as a PEZA-registered enterprise, is a VAT-exempt entity that could not have engaged in a VAT-taxable business, given the particular circumstances, Toshiba is entitled to a credit/refund of its input vat. The sales made to Toshiba, for which it is claiming a refund or credit of its unutilized input vat, were made in 1996 under the old rule that the tax-status of Ecozone enterprises would depend upon the tax incentives it chooses to avail of, either the 5% preferential tax or the income tax holiday under the Omnibus Investments Code where the entity will only be exempt from income tax but not from VAT. Since Toshiba chose to avail of the income tax holiday, it was therefore subject to the 10% VAT. Therefore Toshibas transactions in 1996 being subject to VAT, is entitled to a credit/refund of the unutilized input VAT it incurred which it wasnt able to apply against its output taxes. The transaction from a supplier in a customs territory to Toshiba, being a PEZA-registered enterprise, was considered an effectively VAT zero-rated transaction. However, the sales made by Toshiba to a foreign country were considered export sales. Thus, they were considered to be automatically VAT zero-rated transactions. Given that in the case of Toshiba, Toshiba was Buyer 1 and not the Seller, then it should not have claimed for an input tax credit since theoretically, there was no input VAT on Toshibas part. However, the Toshiba case happened prior to RMC 74-99 where PEZA-registered enterprises availed of income tax holidays and so Toshiba was subject to VAT. Thus, there was an assumption that the seller passed on VAT to Toshiba and so, Toshiba should be allowed to claim for an input tax credit. As regards the fact that Toshiba was asking for an input tax credit on capital goods, the ruling in that case is no longer applicable as input tax credit for capital goods under RA 9337 are governed by new rules. In this case, the Court also made a pronouncement that a VAT-registered supplier from the customs territory to an Ecozone enterprise shall be treated as export sales, while sales to an ECOZONE enterprise made by a NON-VAT or unregistered supplier would only be exempt from VAT and the supplier shall not be able to claim credit/refund for his input VAT.

B. Exempt Transactionsa. Sale or importation of agricultural and marine food products in their original statei. Misamis Oriental Coco Traders v Sec of Finance and BIR GR 108524 FRANCISCODoctrine:Copra is not food and is not intended for human consumption. Thus, it is not exempt from VAT. The rule now is the sale of copra is VAT- exempt. The sale of agricultural non-food products is exempt from VAT only when made by the primary producer or owner of the land from which the same is produced, but in the case of agricultural food products their sale in their original state is exempt at all stages of production or distribution.

Facts: Misamis Oriental Association of Coco Traders, Inc. (MOACTI) is a domestic corporation engaged in the buying and selling copra in Misamis Oriental. MOACTI alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under Sect. 103(b) of the NIRC and, therefore, exempt from VAT at all stages of production or distribution. Under Sec. 103(b) of the NIRC, the sale of agricultural food products in their original state is exempt from VAT at all stages of production or distribution. The reclassification had the effect of denying to the MOACTI the exemption it previously enjoyed when copra was classified as an agricultural food product under Sect. 103(b) of the NIRC. MOACTI challenges RMC No. 47-91 on various grounds.

Issue: W/n copra is an agricultural food product, hence, VAT-exempt.

Held: No, copra is not an agricultural food product rather it is an an agricultural nonfood product. SC opined that copra is not food and is not intended for human consumption. Thus, it is not exempt from VAT. The rule now is the sale of copra is VAT- exempt.

Pertinent Provision:SEC. 1203. Exempt Transactions.The following shall be exempt from the value-added tax:a. Sale of nonfood agricultural, marine and forest products in their original state by the primary producer or the owner of the land where the same are produced;b. Sale or importation in their original state of agricultural and marine food products, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption, and breeding stock and genetic material therefor;

b. Medical, dental, hospital and veterinary servicesi. Hermano (San Miguel Ferbes Cordero..) v CIR CTA Case No. 8194 GATCHALIAN

DOCTRINE: The sale of drugs or pharmaceutical items to in-patients of the hospital is considered part of the term hospital services" covered by the exemption from VAT under Section 109 (G) of the NIRC of 1997. FACTS: Respondent CIR is praying that Petitioner be ordered to pay the amount of P2,607,933.07 as deficiency (VAT) for the calendar year 2006 and 20% deficiency and delinquency interest and compromise penalty until fully paid. Below are its two allegations: The sale of pharmacy drugs/medicine to in -patients is not covered by the exemption from VAT under Section 109 (G) BASIS: respondent contends that since the drugs being sold by petitioner are tangible and capable of pecuniary estimation, drugs are considered 'goods' which when sold is subject to VAT under Section 106 (A)(1) of the NIRC of 1997. Respondent pointed out that petitioner's exemption based on Section 109 (G) of the NIRC of 1997, as amended, pertains to services. PETITIONERS OPPOSITION: They are exempt because they are included in the term hospital services in Sec. 109 (G) of NIRC Petitioner is liable for Deficiency VAT assessments for its failure submit sufficient documents to prove their exemption. ISSUES:1. WON the sale of pharmacy drugs/medicine to in patients is covered by the exemption from VAT under Sec. 109 of the NIRC? YES! BUT!! please refer to the second issue2. WON petitioner is liable for deficiency VAT for its failure to submit sufficient evidence to prove their exemption? YES

HELD:The sale of drugs or pharmaceutical items to in-patients of the hospital is considered part of the term hospital services" covered by the exemption from VAT under Section 109 (G) of the NIRC of 1997, as amended, 'because the maintenance and operation of a pharmacy or drugstore by a hospital is a necessary and essential service or facility rendered by any hospital for its patients and also because "unlike the sale of retailing of drugs or medicines by drugstores in general, the procurement of medicines and pharmaceutical items from the hospital drugstore or pharmacy amounts to the availment of service rendered or made available by the hospital for its in-patients and not simply the buying of such goods HOWEVER!!!!! Before a taxpayer may claim that its sale of drugs or pharmaceutical items is classified as 'hospital services' exempt from VAT under Section 109 (G) of the NIRC of 1997, as amended, the following must be established:1. that the taxpayer operates a hospital;2. that the said hospital has a pharmacy or drugstore; and3. that the sale of drugs - claimed to be exempt from VAT - was made by the said hospital drugstore or pharmacy

Petitioner failed to establish by competent evidence that it is an entity that operates as a hospital Its Articles of Incorporation reveals that it is a non-stock, non-profit educational corporation formed to provide institutional medium for financing programs dedicated to the establishment, maintenance, operation and management of educational facility in the field of medical and physical sciences. The Petition for Review it filed stated that it is a non-stock, non-profit educational corporation There is nowhere in the records or documents formally offered by the petitioner from which this Court infer that it actually operates as a hospital Hence, its alleged sale of drugs or pharmaceutical items CANNOT be considered as part of the term 'hospital services' exempt from VAT under Section 109 (G) of the NIRC of 1997, as amended; thereby making the alleged sale of drugs or pharmaceutical items by petitioner an appropriate subject of the deficiency VAT assessment. Even if, it was able to prove that it operates as a hospital, the court cannot still award the exemption because of its failure to fully account for and substantiate by competent evidence its stance that the NET discrepancy in the deficiency VAT assessment consists sales of pharmacy items to in-patients and/or special units such as operating and delivery rooms during medical procedures, and items which are no longer sold or passed on to patients or clients such as equipment and supplies

ii. CIR v Phil ealth Care Providers GR 168129 HAUTEA

CIR v PHILHEALTHFacts:PHILHEALTH is a corporation that operates a prepaid group practice health care delivery system to take care of sick and disabled people enrolled in a health plan. It wrote the Commissioner to inquire whether the services it provided to the participants in its health care program are exempt from VAT. At that time, the Commissioner issued VAT Ruling 231-88 stating that PHILHEALTH as a provider of medical services, was exempt from the VAT coverage. Meanwhile, RA 7716 or the E-VAT Law took effect, amending the NIRC of 1977. Subsequently the NIRC of 1997 took effect and reproduced the provisions of the E-VAT Law. With the passage of these laws, the BIR sent a Preliminary Assessment Notice (PAN) for deficiency in its payment of VAT and doc stamp taxes for 1996 and 1997. PHILHEALTH then filed a protest with the Commissioner which was not acted upon by the Commissioner. PHILHEALTH then brought the case to the CTA. Initially, the CTA required PHILHEALTH to pay deficiency VAT but cancelled the payment of DST. Upon Partial Reconsideration, CTA overruled its decision and held that PHILHEALTH was entitled to benefit from the non-retroactivity of rulings under the Tax Code.Issues:1. W/N PHILHEALTHs services are subject to VAT2. W/N VAT Ruling 231-88 has retroactive applicationHeld:1. PHILHEALTH services are not VAT exemptThe imposition of VAT relates to the sale or exchange of services. One of those exempted from VAT are those engaged in the performance of medical, dental, hospital and veterinary