Republic of the
Supreme Court
SECOND DIVISION
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TFS, INCORPORATED, |
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G.R. No. 166829 |
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Petitioner, |
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Present: |
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CARPIO, J., Chairperson, |
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- versus - |
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NACHURA,* |
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ABAD, and |
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PEREZ, JJ. |
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COMMISSIONER OF INTERNAL |
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REVENUE, |
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Promulgated: |
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Respondent. |
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April 19, 2010 |
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D E C I S I O N
Only in highly meritorious cases, as in the instant
case, may the rules for perfecting an appeal be brushed aside.
This Petition
for Review on Certiorari under Rule 45 of the Rules of Court seeks to
set aside the November 18, 2004[1]
Resolution of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 29 which
dismissed petitioner’s Petition for
Review for having been filed out of time.
Also assailed is the
Factual
Antecedents
Petitioner TFS,
Incorporated is a duly organized domestic corporation engaged in the pawnshop
business. On January 15, 2002, petitioner received a Preliminary Assessment
Notice (PAN)[3]
for deficiency value added tax (VAT), expanded withholding tax (EWT), and
compromise penalty in the amounts of P11,764,108.74, P183,898.02 and P25,000.00,
respectively, for the taxable year 1998. Insisting that there was no basis for the
issuance of PAN, petitioner through a letter[4]
dated
In a
letter-reply[5]
dated
On
There being no
action taken by the CIR, petitioner filed a Petition for Review[8]
with the CTA on
During trial, petitioner
offered to compromise and to settle the assessment for deficiency EWT with the
BIR. Hence, on
Ruling of the
Court of the Tax Appeals
On April 29,
2004, the CTA rendered a Decision[9]
upholding the assessment issued against petitioner in the amount of P11,905,696.32,
representing deficiency VAT for the year 1998, inclusive of 25% surcharge and
20% deficiency interest, plus 20%
delinquency interest from February 25, 2002 until full payment, pursuant to
Sections 248 and 249(B) of the National Internal Revenue Code of 1997
(NIRC). The CTA ruled that pawnshops are
subject to VAT under Section 108(A) of the NIRC as they are engaged in the sale
of services for a fee, remuneration or consideration.[10]
Aggrieved,
petitioner moved for reconsideration[11]
but the motion was denied by the CTA in its Resolution dated
Ruling of the
Court of Appeals
On
Ruling of the
Court of Tax Appeals En Banc
Realizing its
error, petitioner filed a Petition for Review[17]
with the CTA En Banc on
Hence, this petition.
Issues
In its Memorandum,[18] petitioner interposes the
following issues:
WHETHER THE HONORABLE COURT OF TAX APPEALS EN
BANC SHOULD HAVE GIVEN DUE COURSE TO THE PETITION FOR REVIEW AND NOT
STRICTLY APPLIED THE TECHNICAL RULES OF PROCEDURE TO THE DETRIMENT OF JUSTICE.
WHETHER OR NOT PETITIONER IS SUBJECT TO THE 10%
VAT.[19]
Petitioner’s
Arguments
Petitioner
admits that it failed to timely file its Petition for Review with the proper
court (CTA). However, it attributes the
procedural lapse to the inadvertence or honest oversight of its counsel, who
believed that at the time the petition was filed on August 24, 2004, the CA
still had jurisdiction since the rules and regulations to implement the newly
enacted RA 9282 had not yet been issued and the membership of the CTA En Banc was not complete. In view of these circumstances, petitioner
implores us to reverse the dismissal of its petition and consider the timely
filing of its petition with the CA, which previously exercised jurisdiction
over appeals from decisions/resolutions of the CTA, as substantial compliance
with the then recently enacted RA 9282.
Petitioner also
insists that the substantive merit of its case outweighs the procedural
infirmity it committed. It claims that
the deficiency VAT assessment issued by the BIR has no legal basis because
pawnshops are not subject to VAT as they are not included in the enumeration of
services under Section 108(A) of the NIRC.
Respondent’s Arguments
The CIR, on the other hand,
maintains that since the petition was filed with the CTA beyond the
reglementary period, the Decision had already attained finality and can no
longer be opened for review. As to the
issue of VAT on pawnshops, he opines that petitioner’s liability is a matter of
law; and in the absence of any provision providing for a tax exemption, petitioner’s
pawnshop business is subject to VAT.
Our Ruling
The petition is
meritorious.
Jurisdiction to
review decisions or resolutions issued by the Divisions of the CTA is no longer
with the CA but with the CTA En Banc. This rule is embodied in Section 11 of RA
9282, which provides that:
SECTION
11. Section 18 of the same Act is
hereby amended as follows:
SEC.
18. Appeal
to the Court of Tax Appeals En Banc. – No civil proceeding involving matters
arising under the National Internal Revenue Code, the Tariff and Customs Code
or the Local Government Code shall be maintained, except as herein provided,
until and unless an appeal has been previously filed with the CTA and disposed
of in accordance with the provisions of this Act.
A party
adversely affected by a resolution of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA en banc. (Emphasis supplied)
Procedural rules may be relaxed
in the interest of substantial justice
It is settled
that an appeal must be perfected within the reglementary period provided by law;
otherwise, the decision becomes final and executory.[20] However, as in all cases, there are
exceptions to the strict application of the rules for perfecting an appeal.[21]
We are aware of
our rulings in Mactan Cebu International
Airport Authority v. Mangubat[22]
and in Alfonso v. Sps. Andres,[23]
wherein we excused the late filing of the notices of appeal because at the time
the said notices of appeal were filed, the new rules[24]
applicable therein had just been recently issued. We noted that judges and lawyers need time to
familiarize themselves with recent rules.
However, in Cuevas v. Bais Steel Corporation[25]
we found that the relaxation of rules was unwarranted because the delay
incurred therein was inexcusable. The
subject SC Circular 39-98 therein took effect on
In the instant
case, RA 9282 took effect on
filed its
Petition for Review on Certiorari
with the CA on
Petitioner
likewise cannot validly claim that its erroneous filing of the petition with
the CA was justified by the absence of the CTA rules and regulations and the
incomplete membership of the CTA En Banc
as these did not defer the effectivity[26]
and implementation of RA 9282. In fact,
under Section 2 of RA 9282,[27]
the presence of four justices already constitutes a quorum for En Banc sessions and the affirmative votes
of four members of the CTA En Banc are sufficient to render judgment.[28] Thus, to us, the petitioner’s excuse of
“inadvertence or honest oversight of counsel” deserves scant consideration.
However, we will
overlook this procedural lapse in the interest of substantial justice. Although a client is bound by the acts of his
counsel, including the latter’s mistakes and negligence, a departure from this
rule is warranted where such mistake or neglect would result in serious
injustice to the client.[29] Procedural rules may thus be relaxed for
persuasive reasons to relieve a litigant of an injustice not commensurate with
his failure to comply with the prescribed procedure.[30] Such is the situation in this case.
Imposition of VAT on pawnshops
for the tax years 1996 to 2002 was deferred
Petitioner
disputes the assessment made by the BIR for VAT deficiency in the amount of P11,905,696.32 for taxable year
1998 on the ground that pawnshops are not included in the coverage of VAT.
We
agree.
In First Planters Pawnshop, Inc. v. Commissioner of Internal Revenue,[31]
we ruled that:
x
x x Since petitioner is a non-bank financial intermediary, it is subject to 10%
VAT for the tax years 1996 to 2002; however, with the levy, assessment and
collection of VAT from non-bank financial intermediaries being specifically
deferred by law, then petitioner is not liable for VAT during these tax
years. But with the full
implementation of the VAT system on non-bank financial intermediaries starting
Guided by the foregoing, petitioner is not
liable for VAT for the year 1998.
Consequently, the VAT deficiency assessment issued by the BIR against
petitioner has no legal basis and
must therefore be cancelled. In the same
vein, the imposition of surcharge and interest must be deleted.[32]
In fine, although strict compliance with the
rules for perfecting an appeal is indispensable for the prevention of needless
delays and for the orderly and expeditious dispatch of judicial business,
strong compelling reasons such as serving the ends of justice and preventing a
grave miscarriage may nevertheless warrant the suspension of the rules.[33] In the instant case, we are constrained to
disregard procedural rules because we cannot in conscience allow the government
to collect deficiency VAT from petitioner considering that the government has
no right at all to collect or to receive the same. Besides, dismissing this case on a mere
technicality would lead to the unjust enrichment of the government at the
expense of petitioner, which we cannot permit.
Technicalities should never be used as a shield to perpetrate or commit
an injustice.
WHEREFORE, the Petition is GRANTED. The
assailed November 18, 2004 Resolution of the Court of Tax Appeals En Banc in C.T.A. EB No. 29 which
dismissed petitioner’s Petition for Review for having been filed out of time,
and the January 24, 2005 Resolution which denied the motion for
reconsideration, are hereby REVERSED and SET ASIDE. The
assessment for deficiency Value Added Tax for the taxable year 1998,
including surcharges, deficiency interest and delinquency interest, are hereby CANCELLED and SET ASIDE.
SO ORDERED.
MARIANO C.
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
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ANTONIO
EDUARDO B. NACHURA Associate Justice |
ROBERTO A. ABAD Associate Justice |
JOSE
Associate Justice
ATTESTATION
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.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
C E R T I F I C A T I O N
Pursuant
to Section 13, Article VIII of the Constitution, and the Division Chairperson's
attestation, it is hereby certified that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
* In lieu of Associate Justice Arturo D. Brion, per Raffle dated April 12, 2010.
[1] Rollo, p. 50.
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12]
[13]
[14]
[15]
[16] An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose Sections of Republic Act No. 1125, otherwise known as the Law Creating the Court of Tax Appeals, and for Other Purposes.
[17] Rollo, pp.162-189.
[18]
[19]
[20] Nationwide Security and Allied Services, Inc. v. Court of Appeals, G.R. No. 155844, July 14, 2008, 558 SCRA 148, 155-156.
[21] Monreal v. Court of Appeals, 204 Phil. 395, 401 (1982).
[22] 371 Phil. 393, 398-399 (1999).
[23] 439 Phil. 298, 306-307 (2002).
[24] On the alternative modes of service of pleading and the Revised Rules of Civil Procedure, respectively.
[25] 439 Phil. 793, 805-806 (2002).
[26] SECTION 19. Effectivity Clause. – This Act shall take effect after fifteen (15) days following its publication in at least two newspapers of general circulation.
[27] Now Amended by RA 9503, “An Act Enlarging
the Organizational Structure of the Court of Tax Appeals, Amending for the
Purpose Certain Sections of the Law Creating the Court of Tax Appeals, and For
Other Purposes,” Approved
[28] Section 2 of the same Act is hereby amended to read as follows:
“SEC. 2. Sitting En Banc or Division; Quorum; Proceedings. — The CTA may sit en banc or in two (2) Divisions, each Division consisting of three (3) Justices.
Four (4) Justices shall constitute a quorum for sessions en banc and two (2) Justices for sessions of a Division: Provided, That when the required quorum cannot be constituted due to any vacancy, disqualification, inhibition, disability, or any other lawful cause, the Presiding Justice shall designate any Justice of other Divisions of the Court to sit temporarily therein.
The affirmative votes of four (4) members of the Court en banc or two (2) members of a Division, as the case may be, shall be necessary for the rendition of a decision or resolution.”
[29] Meneses
v. Secretary of Agrarian Reform, G.R. No. 156304,
[30] Spouses Ello v. Court of Appeals, 499 Phil. 398, 411 (2005), citing Sebastian v. Morales, 445 Phil. 595, 605 (2003).
[31] G.R. No.
174134,
[32] See Tambunting Pawnshop, Inc. v. Commissioner of
Internal Revenue, G.R. No. 179085,
[33] Villanueva
v. Court of Appeals, G.R. No. 99357,