Republic of the
SUPREME COURT
SECOND DIVISION
THE COMMISIONER OF G.R. No. 147295
INTERNAL REVENUE,
Petitioner, Present:
QUISUMBING, J.,
Chairperson,
- versus - CARPIO,
CARPIO
MORALES,
TINGA,
and
VELASCO,
JR., JJ.
ACESITE (
HOTEL CORPORATION, Promulgated:
Respondent.
February 16, 2007
x-----------------------------------------------------------------------------------------x
D E C I S I O N
VELASCO, JR., J.:
The Case
Before
us is a Petition for Review on Certiorari[1]
under Rule 45 of the Rules of Court, assailing the November 17, 2000 Decision[2]
of the Court of Appeals (CA) in CA-G.R. SP No. 56816, which affirmed the January 3,
2000 Decision[3] of
the Court of Tax Appeals (CTA) in CTA
Case No. 5645 entitled Acesite
(Philippines) Hotel Corporation v. The Commissioner of Internal Revenue for
Refund of VAT Payments.
The Facts
The
facts as found by the appellate court are undisputed, thus:
Acesite
is the owner and operator of the Holiday Inn Manila Pavilion Hotel along
Thus,
PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the
latter paid the VAT to the Commissioner of Internal Revenue [hereafter, CIR] as
it feared the legal consequences of non-payment of the tax. However, Acesite belatedly arrived at the
conclusion that its transaction with PAGCOR was subject to zero rate as it was
rendered to a tax-exempt entity. On
As earlier
stated, Petitioner is subject to zero percent tax pursuant to Section 102
(b)(3) [now 106(A)(C)] insofar as its gross income from rentals and sales to
PAGCOR, a tax exempt entity by virtue of a special law. Accordingly, the amounts
of P21,413,026.78 and P8,739,865.24, representing the 10% EVAT on its sales of
food and services and gross rentals, respectively from PAGCOR shall, as a
matter of course, be refunded to the petitioner for having been inadvertently
remitted to the respondent.
Thus, taking
into consideration the prescribed portion of Petitioner’s claim for refund of
P98,743.40, and considering further the principle of ‘solutio indebiti’
which requires the return of what has been delivered through mistake,
Respondent must refund to the Petitioner the amount of P30,054,148.64 computed
as follows:
Total amount
per claim 30,152,892.02
Less Prescribed
amount (Exhs
A, X, & X-20)
January 1996 P 2,199.94
February 1996 26,205.04
March 1996 70,338.42 98,743.40
P30,054,148.64
vvvvvvvvvvvvv
WHEREFORE, in
view of all the foregoing, the instant Petition for Review is partially
GRANTED. The Respondent is hereby
ORDERED to REFUND to the petitioner the amount of THIRTY MILLION FIFTY FOUR
THOUSAND ONE HUNDRED FORTY EIGHT PESOS AND SIXTY FOUR CENTAVOS (P30,054,148.64)
immediately.
SO ORDERED.[4]
The Ruling
of the Court of Appeals
Upon
appeal by petitioner, the CA affirmed in toto the decision of the CTA
holding that PAGCOR was not only exempt from direct taxes but was also exempt
from indirect taxes like the VAT and consequently, the transactions between
respondent Acesite and PAGCOR were “effectively zero-rated” because they
involved the rendition of services to an entity exempt from indirect taxes. Thus, the CA affirmed the CTA’s determination
by ruling that respondent Acesite was entitled to a refund of PhP 30,054,148.64
from petitioner.
The Issues
Hence,
we have the instant petition with the following issues: (1) whether PAGCOR’s tax exemption privilege
includes the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT
rate; and (2) whether the zero percent (0%) VAT rate under then Section 102
(b)(3) of the Tax Code (now Section 108 (B)(3) of the Tax Code of 1997) legally
applies to Acesite.
The
petition is devoid of merit.
In
resolving the first issue on whether PAGCOR’s tax exemption privilege includes
the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate, we
answer in the affirmative. We will
however discuss both issues together.
PAGCOR is exempt from payment
of indirect taxes
It is
undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an
exemption from the payment of taxes.
Section 13 of P.D. 1869 pertinently provides:
Sec. 13.
Exemptions. –
x x x x
(2) Income and other taxes. – (a) Franchise Holder: No tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local, shall be assessed and collected under this Franchise from
the Corporation; nor shall any form of tax or charge attach in any way to the
earnings of the Corporation, except a Franchise Tax of five (5%) percent of
the gross revenue or earnings derived by the Corporation from its operation
under this Franchise. Such tax shall be
due and payable quarterly to the National Government and shall be in lieu of
all kinds of taxes, levies, fees or assessments of any kind, nature or
description, levied, established or collected by any municipal, provincial, or
national government authority.
x x x x
(b) Others:
The exemptions herein granted for earnings derived from the
operations conducted under the franchise specifically from the payment of any
tax, income or otherwise, as well as any form of charges, fees or levies, shall
inure to the benefit of and extend to corporation(s), association(s),
agency(ies), or individual(s) with whom the Corporation or operator has any
contractual relationship in connection with the operations of the casino(s)
authorized to be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation or operator as a result
of essential facilities furnished and/or technical services rendered to the
Corporation or operator. (Emphasis supplied.)
Petitioner
contends that the above tax exemption refers only to PAGCOR’s direct tax
liability and not to indirect taxes, like the VAT.
We
disagree.
A close
scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to
taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is
also exempt from indirect taxes, like VAT, as follows:
Under
the above provision [Section 13 (2) (b) of P.D. 1869], the term “Corporation”
or operator refers to PAGCOR. Although
the law does not specifically mention PAGCOR’s exemption from indirect taxes, PAGCOR
is undoubtedly exempt from such taxes because the law exempts from taxes
persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the provision
clearly exempts PAGCOR from indirect taxes.
In fact, it goes one step further by granting tax exempt status to
persons dealing with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is
not liable for the P30,152,892.02 VAT and neither is Acesite as the latter is
effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424. (Emphasis supplied.)
Indeed,
by extending the exemption to entities or individuals dealing with PAGCOR, the
legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of
VAT, as in the instant case, can be shifted or passed to the buyer, transferee,
or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to
entities or individuals dealing with PAGCOR in casino operations, it is
exempting PAGCOR from being liable to indirect taxes.
The manner of charging
VAT does not make PAGCOR liable to said tax
It is
true that VAT can either be incorporated in the value of the goods, properties,
or services sold or leased, in which case it is computed as 1/11 of such value,
or charged as an additional 10% to the value.
Verily, the seller or lessor has the option to follow either way in
charging its clients and customer. In
the instant case, Acesite followed the latter method, that is, charging an
additional 10% of the gross sales and rentals.
Be that as it may, the use of either method, and in particular, the
first method, does not denigrate the fact that PAGCOR is exempt from an
indirect tax, like VAT.
VAT
exemption extends to Acesite
Thus,
while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the
latter is not liable for the payment of it as it is exempt in this particular
transaction by operation of law to pay the indirect tax. Such exemption falls within the former
Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of
R.A. 8424), which provides:
Section
102. Value-added tax on sale of services
– (a) Rate and base of tax – There shall be levied, assessed and collected, a
value-added tax equivalent to 10% of gross receipts derived by any person
engaged in the sale of services x x x;
Provided, that the following services performed in the Philippines by
VAT-registered persons shall be subject to 0%.
x
x x x
(b) Transactions subject to zero percent (0%)
rated.—
x
x x x
(3) Services rendered to persons or entities
whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of such services to
zero (0%) rate (emphasis supplied).
The
rationale for the exemption from indirect taxes provided for in P.D. 1869 and
the extension of such exemption to entities or individuals dealing with PAGCOR
in casino operations are best elucidated from the 1987 case of Commissioner
of Internal Revenue v. John Gotamco & Sons, Inc.,[5] where
the absolute tax exemption of the World Health Organization (WHO) upon an
international agreement was upheld. We
held in said case that the exemption of contractee WHO should be implemented to
mean that the entity or person exempt is the contractor itself who constructed
the building owned by contractee WHO, and such does not violate the rule that
tax exemptions are personal because the manifest intention of the agreement
is to exempt the contractor so that no contractor’s tax may be shifted to the
contractee WHO. Thus, the proviso in
P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR
in casino operations, is clearly to proscribe any indirect tax, like VAT, that
may be shifted to PAGCOR.
Acesite paid VAT by mistake
Considering
the foregoing discussion, there are undoubtedly erroneous payments of the VAT
pertaining to the effectively zero-rate transactions between Acesite and
PAGCOR. Verily, Acesite has clearly
shown that it paid the subject taxes under a mistake of fact, that is, when it
was not aware that the transactions it had with PAGCOR were zero-rated at the
time it made the payments. In UST
Cooperative Store v. City of Manila,[6] we
explained that “there is erroneous payment of taxes when a taxpayer pays under
a mistake of fact, as for the instance in a case where he is not aware of an
existing exemption in his favor at the time the payment was made.”[7] Such payment is held to be not voluntary and,
therefore, can be recovered or refunded.[8]
Moreover,
it must be noted that aside from not raising the issue of Acesite’s compliance
with pertinent Revenue Regulations on exemptions during the proceedings in the
CTA, it cannot be gainsaid that Acesite should have done so as it paid the VAT
under a mistake of fact. Hence,
petitioner’s argument on this point is utterly tenuous.
Solutio
indebiti applies to the Government
Tax
refunds are based on the principle of quasi-contract or solutio indebiti
and the pertinent laws governing this principle are found in Arts. 2142 and
2154 of the Civil Code, which provide, thus:
Art.
2142. Certain lawful, voluntary, and
unilateral acts give rise to the juridical relation of quasi-contract to the
end that no one shall be unjustly enriched or benefited at the expense of
another.
Art.
2154. If something is received when
there is no right to demand it, and it was unduly delivered through mistake,
the obligation to return it arises.
When
money is paid to another under the influence of a mistake of fact, that is to
say, on the mistaken supposition of the existence of a specific fact, where it
would not have been known that the fact was otherwise, it may be
recovered. The ground upon which the
right of recovery rests is that money paid through misapprehension of facts
belongs in equity and in good conscience to the person who paid it.[9]
The Government comes within the scope of solutio
indebiti principle as elucidated in Commissioner of Internal Revenue v.
Fireman’s Fund Insurance Company,
where we held that: “Enshrined in the basic legal principles is the
time-honored doctrine that no person shall unjustly enrich himself at the
expense of another. It goes without
saying that the Government is not exempted from the application of this
doctrine.”[10]
Action for refund
strictly construed; Acesite discharged the
burden of proof
Since
an action for a tax refund partakes of the nature of an exemption, which cannot
be allowed unless granted in the most explicit and categorical language, it is
strictly construed against the claimant who must discharge such burden
convincingly.[11] In the instant case, respondent Acesite had
discharged this burden as found by the CTA and the CA. Indeed, the records show that Acesite proved
its actual VAT payments subject to refund, as attested to by an independent
Certified Public Accountant who was duly commissioned by the CTA. On the other hand, petitioner never disputed
nor contested respondent’s testimonial and documentary evidence. In fact, petitioner never presented any
evidence on its behalf.
One
final word. The BIR must release the
refund to respondent without any unreasonable delay. Indeed, fair dealing is expected by our
taxpayers from the BIR and this duty demands that the BIR should refund without
any unreasonable delay what it has erroneously collected.[12]
WHEREFORE, the
petition is DENIED for lack of merit
and the
SO ORDERED.
PRESBITERO
J. VELASCO, JR.
Associate Justice
WE CONCUR:
LEONARDO A.
QUISUMBING
Associate Justice
ANTONIO T.
CARPIO CONCHITA
CARPIO MORALES
Associate Justice
Associate Justice
DANTE O. TINGA
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the
above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
LEONARDO A. QUISUMBING
Associate
Justice
Chairperson
C E R T I F
I C A T I O N
Pursuant to Section 13, Article VIII of the
Constitution, and the Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
[1] Rollo, pp. 7-18.
[2]
[3]
[4] Supra note 2, at 30-32.
[5]
G.R. No. L-31092,
[6]
G.R. No. L-17133,
[7] 51 Am. Jur. 1023.
[8] Supra note 6.
[9] 4 Am. Jur. 514.
[10]
G.R. No. L-30644,
[11] See
Commissioner of Internal Revenue v. S.C.
Johnson and Son, Inc., et al., G.R. No. 127105, June 25, 1999, 309 SCRA 87;
Philex Mining Corporation v. Commissioner
of Internal Revenue, et al., G.R. No. 120324, April 21, 1999, 306 SCRA 126;
Commissioner of Internal Revenue v. Court
of Appeals, et al., G.R. No. 122161, February 1, 1999, 302 SCRA 442; Davao Gulf Lumber Corporation v.
Commissioner of Internal Revenue, et al., G.R. No. 117359, July 23, 1998,
293 SCRA 76; Commissioner of Internal
Revenue v. Tokyo Shipping Co., Ltd., G.R. No. 68282, May 26, 1995, 244 SCRA
332.
[12] Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd., supra note 11.