DISSENTING OPINION

EN BANC

G.R. No. 158885 – FORT BONIFACIO DVELOPMENT CORPORATION, Petitioner, versus COMMISSIONER OF INTERNAL REVENUE, ET AL., Respondents.

G.R. No. 170680 – FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, versus COMMISSIONER OF INTERNAL REVENUE, ET AL., Respondents.

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CONCURRING OPINION

YNARES-SANTIAGO, J.:

After a careful review of the actual effects of the tax measures involved herein, and with due regard to the intent of the framers of the law and the real benefits thereof on the taxpayer, I vote to grant the herein consolidated petitions.

It is an undisputed fact that when petitioner acquired the lands within the Fort Bonifacio military reservation from the national government, the latter did not have to pay any tax, be it sales or value-added. This notwithstanding, my reading of the applicable tax laws is that petitioner may still claim transitional input tax credit.

Prior to January 1, 1996, sales of real properties were not subject to VAT. On the said date, Republic Act No. 7716 took effect amending portions of the National Internal Revenue Code. It was only then that the value-added tax was imposed on the sale of real properties. Section 100 of the NIRC was amended to read:

“Sec. 100. Value-added tax on sale of goods or properties. – (a) Rate and base of tax. - There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

“(1) The term ‘goods or properties’ shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include:

“(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; x x x.”

As can be seen, any sale that petitioner entered into before the effectivity of RA 7716 was not subject to VAT. Beginning January 1, 1996, petitioner’s transactions became subject to VAT in the full amount of 10% of the gross selling price. This imposed an unexpected burden on petitioner, and other real property developers for that matter. Petitioner would not be able to claim creditable input tax since its purchase of the lands from the national government was not subject to VAT. This is not in accord with the spirit and intent of the law as will be demonstrated hereunder.

The amendatory provision of Section 105 of the NIRC, as introduced by RA 7716, states:

“Sec. 105. Transitional input tax credits. – A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.”

To reiterate, the rate of the input tax shall be “8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher.”[1] If the intent of the law were to limit the input tax to cases where actual VAT was paid, it could have simply said that the tax base shall be the actual value-added tax paid. Instead, the law as framed contemplates a situation where a transitional input tax credit is claimed even if there was no actual payment of VAT in the underlying transaction. In such cases, the tax base used shall be the value of the beginning inventory of goods, materials and supplies.

More importantly, the benefits of Section 105 are made available to “a person who becomes liable to value-added tax or any person who elects to be a VAT-registered person.” In other words, the provision is made to apply to persons not theretofore subject to VAT. In this manner, the law seeks to alleviate the situation where a taxpayer who becomes liable to value-added tax may not claim the input tax credit available to other taxpayers who are subject to the value-added tax. In other words, Section 105 was not meant to give credit for taxes previously paid, if any, on a taxpayer’s inventory, but to mitigate the burden of paying value-added tax when he sells the goods in his inventory in the future without the benefit of an input tax.

The transitional input tax credit provided for by the above Section 105, as the name implies, was intended to apply to a situation where a taxpayer, in the course of trade or business, transits from a non-VAT status to a VAT status. The provision of a transitional input tax credit, even to those whose transactions were not previously subject to VAT, was meant to soften the blow, so to speak, of having to pay the new tax to the full extent of 10% of the gross selling price.

Pertinently, Section 104 of the NIRC, as amended by RA 7716, defines input tax in this wise:

“The term ‘input tax’ means the value-added tax due from or paid by a VAT-registered persons in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person. It shall also include the transitional input tax determined in accordance with Section 135 of this Code.”[2]

On the basis of the foregoing considerations, I submit that petitioner may avail of the transitional input tax credit provided by law notwithstanding that its purchase of the lands within Fort Bonifacio from the government was not subject to value-added tax.

I come now to the issue of whether the inventory on which to base the transitional input tax credit includes lands or only the improvements on lands.

Here, a plain reading of the law, specifically the statutory definition of the term “goods”, is all that is necessary to see the merit in petitioner’s position.

“Sec. 100. Value-added-tax on sale of goods or properties. - (a) Rate and base of tax. - There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods, or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

“(1) The term ‘goods or properties’ shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include:

“(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; x x x.”

In this connection, petitioner cites the case of Victorias Milling Company, Inc. vs. Social Security Commission,[3] where it was held:

“While it is true that terms or words are to be interpreted in accordance with their well‑accepted meaning in law, nevertheless, when such term or word is specifically defined in a particular law, such interpretation must be adopted in enforcing that particular law, for it can not be gainsaid that a particular phrase or term may have one meaning for one purpose and another meaning for some other purpose.”[4]

Hence, petitioner maintains that the term “goods” as used in the above-quoted Section 105 must include “[R]eal properties (not “improvements”) held primarily for sale to customers,” as defined in Section 100.

On December 9, 1995, the Commissioner of Internal Revenue issued Revenue Regulations No. 7-95. Section 4.105-1 thereof states, in pertinent part:

“Sec. 4.105-1. Transitional input tax on beginning inventories. – Taxpayers who became VAT-registered persons upon effectivity of RA No. 7716 who have exceeded the minimum turnover of P500,000.00 or who voluntarily register even if their turnover does not exceed P500,000.00 shall be entitled to a presumptive input tax on the inventory on hand as of December 31, 1995 on the following: (a) goods purchased for resale in their present condition; (b) materials purchased for further processing, but which have not yet undergone processing; (c) goods which have been manufactured by the taxpayer; (d) goods in process and supplies, all of which are for sale or for use in the course of the taxpayer’s trade or business as a VAT-registered person.

“However, in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity of EO 273 (January 1, 1988).

“The transitional input tax shall be 8% of the value of the inventory or actual VAT paid, whichever is higher, which amount may be allowed as tax credit against the output tax of the VAT-registered person. x x x.”

Petitioner assails the validity of the Revenue Regulations insofar as it runs counter to the statutory definition of “goods” discussed above.

Article 7 of the Civil Code provides that “[a]dministrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitution.” Simply put, an administrative rule or regulation cannot contravene the law on which it is based. Thus, Rev. Regs. 7-95 cannot distinguish between land and improvements in regard to the computation of the transitional input tax credit which a taxpayer may claim under Section 105. Where the law does not distinguish, courts should not distinguish.[5]

Rules and regulations issued by administrative agencies in the implementation of laws they administer shall not in any way modify, or be inconsistent with, explicit provisions of the law. While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations to implement statutes, they are without authority to limit the scope of the statute to less than what it provides, or extend or expand the statute beyond its terms, or in any way modify explicit provisions of the law.[6] Where there is a discrepancy between the basic law and a rule or regulation issued to implement said law, what prevails is the basic law.[7]

Rev. Regs. 7‑95 is inconsistent with Section 105 insofar as the definition of the term “goods” is concerned. This is a legislative act beyond the authority of the Commissioner of Internal Revenue and the Secretary of Finance. The rules and regulations that administrative agencies promulgate, which are the product of a delegated legislative power to create new and additional legal provisions that have the effect of law, should be within the scope of the statutory authority granted by the legislature to the administrative agency. It is required that the regulation be germane to the objects and purposes of the law, and be not in contradiction to, but in conformity with, the standards prescribed by law. They must conform to and be consistent with the provisions of the enabling statute in order for such rule or regulation to be valid. Constitutional and statutory provisions control with respect to what rules and regulations may be promulgated by an administrative body, as well as with respect to what fields are subject to regulation by it. It may not make rules and regulations which are inconsistent with the provisions of the Constitution or a statute, particularly the statute it is administering or which created it, or which are in derogation of, or defeat, the purpose of a statute. In case of conflict between a statute and an administrative order, the former must prevail.[8]

Furthermore, it is significant to note that, on January 1, 1997, Revenue Regulations No. 6‑97 was issued by the Commissioner of Internal Revenue. Pertinently, Section 4.105‑1 of Rev. Regs. 6-97 is a basic reiteration of the same Section 4.105-1 of Rev. Regs. 7-95, except that the later issuance deleted the following paragraph:

It is clear, therefore, that under Rev. Regs. 6-97, the allowable transitional input tax credit is no longer limited to improvements on real properties. The particular provision of Rev. Regs. 7‑95, on which respondent Commissioner as well as the CTA and the CA relied in denying petitioner’s claim for transitional input tax credit, has effectively been repealed by Rev. Regs. 6‑97. In a sense, the new regulation is now in consonance with Section 100 of the NIRC, insofar as the definition of real properties as goods is concerned.

While the events subject of G.R. No. 158885 took place before the issuance of Rev. Regs. 6‑97, this regulation must be given retroactive application, it being beneficial to the taxpayer. This is more in keeping with fairness and equity, which this Court is bound to observe in its decision. Conversely, it is important to note that rulings or circulars promulgated by the Commissioner of Internal Revenue which are prejudicial to taxpayers are not given retroactive effect.[9]

On the other hand, the transactions involved in G.R. No. 170680, occurred within the third quarter of 1997, when Rev. Reg. 6‑97 was already in effect.

In sum, petitioner should be allowed to base the computation of its transitional input tax credit on the value of its lands and improvements; and not only on the improvements.

To grant petitioner the full benefits of the transitional input tax credit would not only inure to its own benefit. As petitioner points out in its Memorandum, it will also benefit the general buying public, who will then enjoy lower prices for properties sold within the Global City.

Likewise, it must be borne in mind that petitioner is a partner of government in the implementation of the national policy of converting idle or non‑productive government lands into effective instruments of economic development.[10] Moreover, investments in the construction and real estate industry have catalyzed the Philippine economy and put it in high gear. They have created thousands of job opportunities. Petitioner plays an important role in this area.

ACCORDINGLY, I vote to GRANT both petitions in these consolidated cases.

CONSUELO YNARES-SANTIAGO

Associate Justice

[2] Republic Act No. 7716, Sec. 5; emphasis added.

[5] Agpalo, Statutory Construction, 1998 Edition, at 194.

[6] Republic v. Court of Appeals, G.R. No. 109193, February 1, 2000, 324 SCRA 237, 241; Philippine Bank of Communications v. Commissioner of Internal Revenue, G.R. No. 112024, January 28, 1999, 302 SCRA 241, 252-253.

[8] Smart Communications, Inc. (SMART) v. National Telecommunications Commission (NTC), G.R. No. 151908, August 12, 2003, 408 SCRA 678, 686-687.

[9] See National Internal Revenue Code, Sec. 246.