[G.R. NO. 140230 December 15, 2005]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Respondent.
D E C I S I O N
In this Petition for Review on Certiorari, the Commissioner of Internal Revenue (Commissioner) seeks the review and reversal of the September 17, 1999 Decision1 of the Court of Appeals (CA) in CA-G.R. No. SP 47895, affirming, in effect, the February 18, 1998 decision2 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5178, a claim for tax refund/credit instituted by respondent Philippine Long Distance Company (PLDT) against petitioner for taxes it paid to the Bureau of Internal Revenue (BIR) in connection with its importation in 1992 to 1994 of equipment, machineries and spare parts.
PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to install, operate and maintain a telecommunications system throughout the Philippines.
For equipment, machineries and spare parts it imported for its business on different dates from October 1, 1992 to May 31, 1994, PLDT paid the BIR the amount of
On March 15, 1994, PLDT addressed a letter to the BIR seeking a confirmatory ruling on its tax exemption privilege under Section 12 of R.A. 7082, which reads:
Sec. 12. The grantee - shall be liable to pay the same taxes on their real estate, buildings, and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In addition thereto, the grantee, - shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee - shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Sec. 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto. (Emphasis supplied).
Responding, the BIR issued on April 19, 1994 Ruling No. UN-140-94,3 pertinently reading, as follows:
PLDT shall be subject only to the following taxes, to wit:
x x x
7. The 3% franchise tax on gross receipts which shall be in lieu of all taxes on its franchise or earnings thereof.
xxx xxx xxx
The "in lieu of all taxes" provision under Section 12 of RA 7082 clearly exempts PLDT from all taxes including the 10% value-added tax (VAT) prescribed by Section 101 (a) of the same Code on its importations of equipment, machineries and spare parts necessary in the conduct of its business covered by the franchise, except the aforementioned enumerated taxes for which PLDT is expressly made liable.
x x x
In view thereof, this Office - hereby holds that PLDT, is exempt from VAT on its importation of equipment, machineries and spare parts - needed in its franchise operations.
Armed with the foregoing BIR ruling, PLDT filed on December 2, 1994 a claim4 for tax credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes it had been paying "in connection with its importation of various equipment, machineries and spare parts needed for its operations". With its claim not having been acted upon by the BIR, and obviously to forestall the running of the prescriptive period therefor, PLDT filed with the CTA a Petition for Review ,5 therein seeking a refund of, or the issuance of a tax credit certificate in, the amount of
On February 18, 1998, the CTA rendered a decision6 granting PLDT's petition, pertinently saying:
This Court has noted that petitioner has included in its claim receipts covering the period prior to December 16, 1992, thus, prescribed and barred from recovery. In conclusion, We find that the petitioner is entitled to the reduced amount of
Total amount claimed
a) Amount already prescribed: xxx
b) Waived by petitioner
ADVANCE SALES TAX
Total amount claimed
Less amount already prescribed:
OTHER BIR TAXES
Total amount claimed
Less amount already prescribed: 11,187,740.00
VALUE ADDED TAX
Total amount claimed
Less amount waived by petitioner
(unaccounted receipts) 1,599,436.00
TOTAL AMOUNT REFUNDABLE
and accordingly disposed, as follows:
WHEREFORE, in view of all the foregoing, this Court finds the instant petition meritorious and in accordance with law. Accordingly, respondent is hereby ordered to REFUND or to ISSUE in favor of petitioner a Tax Credit Certificate in the reduced amount of
Noticeably, the CTA decision, penned by then Associate Justice Ramon O. de Veyra, with then CTA Presiding Judge Ernesto D. Acosta, concurring, is punctuated by a dissenting opinion7 of Associate Judge Amancio Q. Saga who maintained that the phrase "in lieu of all taxes" found in Section 12 of R.A. No. 7082, supra, refers to exemption from "direct taxes only" and does not cover "indirect taxes", such as VAT, compensating tax and advance sales tax.
Unable to accept the CTA decision, the BIR Commissioner elevated the matter to the Court of Appeals (CA) by way of Petition for Review , thereat docketed as CA-G.R. No. 47895.
As stated at the outset hereof, the appellate court, in the herein challenged Decision10 dated September 17, 1999, dismissed the BIR's petition, thereby effectively affirming the CTA's judgment.
Relying on its ruling in an earlier case between the same parties and involving the same issue - CA-G.R. SP No. 40811, decided 16 February 1998 - the appellate court partly wrote in its assailed decision:
This Court has already spoken on the issue of what taxes are referred to in the phrase "in lieu of all taxes" found in Section 12 of R.A. 7082. There are no reasons to deviate from the ruling and the same must be followed pursuant to the doctrine of stare decisis. xxx. "Stare decisis et non quieta movere. Stand by the decision and disturb not what is settled."
Hence, this recourse by the BIR Commissioner on the lone assigned error that:
THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT IS EXEMPT FROM THE PAYMENT OF VALUE-ADDED TAXES, COMPENSATING TAXES, ADVANCE SALES TAXES AND OTHER BIR TAXES ON ITS IMPORTATIONS, BY VIRTUE OF THE PROVISION IN ITS FRANCHISE THAT THE 3% FRANCHISE TAX ON ITS GROSS RECEIPTS SHALL BE IN LIEU OF ALL TAXES ON ITS FRANCHISE OR EARNINGS THEREOF.
There is no doubt that, insofar as the Court of Appeals is concerned, the issue petitioner presently raises had been resolved by that court in CA-G.R. SP No. 40811, entitled Commissioner of Internal Revenue v. Philippine Long Distance Company. There, the Sixteenth Division of the appellate court declared that under the express provision of Section 12 of R.A. 7082, supra, "the payment [by PLDT] of the 3% franchise tax of [its] gross receipts shall be in lieu of all taxes" exempts PLDT from payment of compensating tax, advance sales tax, VAT and other internal revenue taxes on its importation of various equipment, machinery and spare parts for the use of its telecommunications system.
Dissatisfied with the CA decision in that case, the BIR Commissioner initially filed with this Court a motion for time to file a Petition for Review , docketed in this Court as G.R. No. 134386. However, on the last day for the filing of the intended petition, the then BIR Commissioner had a change of heart and instead manifested11 that he will no longer pursue G.R. No. 134386, there being no compelling grounds to disagree with the Court of Appeals' decision in CA-G.R. 40811. Consequently, on September 28, 1998, the Court issued a Resolution12 in G.R. No. 134386 notifying the parties that "no petition" was filed in said case and that the CA judgment sought to be reviewed therein "has now become final and executory". Pursuant to said Resolution, an Entry of Judgment13 was issued by the Court of Appeals in CA-G.R. SP No. 40811. Hence, the CA's dismissal of CA-G.R. No. 47895 on the additional ground of stare decisis.
Under the doctrine of stare decisis et non quieta movere, a point of law already established will, generally, be followed by the same determining court and by all courts of lower rank in subsequent cases where the same legal issue is raised.14 For reasons needing no belaboring, however, the Court is not at all concluded by the ruling of the Court of Appeals in its earlier CA-G.R. SP No. 47895.
The Court has time and again stated that the rule on stare decisis promotes stability in the law and should, therefore, be accorded respect. However, blind adherence to precedents, simply as precedent, no longer rules. More important than anything else is that the court is right,15 thus its duty to abandon any doctrine found to be in violation of the law in force.16
As it were, the former BIR Commissioner's decision not to pursue his petition in G.R. No. 134386 denied the BIR, at least as early as in that case, the opportunity to obtain from the Court an authoritative interpretation of Section 12 of R.A. 7082. All is, however, not lost. For, the government is not estopped by acts or errors of its agents, particularly on matters involving taxes. Corollarily, the erroneous application of tax laws by public officers does not preclude the subsequent correct application thereof.17 Withal, the errors of certain administrative officers, if that be the case, should never be allowed to jeopardize the government's financial position.18
Hence, the need to address the main issue tendered herein.
According to the Court of Appeals, the "in lieu of all taxes" clause found in Section 12 of PLDT's franchise (R.A. 7082) covers all taxes, whether direct or indirect; and that said section states, in no uncertain terms, that PLDT's payment of the 3% franchise tax on all its gross receipts from businesses transacted by it under its franchise is in lieu of all taxes on the franchise or earnings thereof. In fine, the appellate court, agreeing with PLDT, posits the view that the word "all" encompasses any and all taxes collectible under the National Internal Revenue Code (NIRC), save those specifically mentioned in PLDT's franchise, such as income and real property taxes.
The BIR Commissioner excepts. He submits that the exempting "in lieu of all taxes" clause covers direct taxes only, adding that for indirect taxes to be included in the exemption, the intention to include must be specific and unmistakable. He thus faults the Court of Appeals for erroneously declaring PLDT exempt from payment of VAT and other indirect taxes on its importations. To the Commissioner, PLDT's claimed entitlement to tax refund/credit is without basis inasmuch as the 3% franchise tax being imposed on PLDT is not a substitute for or in lieu of indirect taxes.
The sole issue at hand is whether or not PLDT, given the tax component of its franchise, is exempt from paying VAT, compensating taxes, advance sales taxes and internal revenue taxes on its importations.
Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden of taxation, taxes may be classified into either direct tax or indirect tax.
In context, direct taxes are those that are exacted from the very person who, it is intended or desired, should pay them;19 they are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in.20
On the other hand, indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in the expectation and intention that he can shift the burden to someone else.21 Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or services rendered.
To put the situation in graphic terms, by tacking the VAT due to the selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax.22 Stated differently, a seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or services, is not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or end-user of such goods or services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of the tax.23
There can be no serious argument that PLDT, vis - à-vis its payment of internal revenue taxes on its importations in question, is effectively claiming exemption from taxes not falling under the category of direct taxes. The claim covers VAT, advance sales tax and compensating tax.
The NIRC classifies VAT as "an indirect tax - the amount of [which] may be shifted or passed on to the buyer, transferee or lessee of the goods".24 As aptly pointed out by Judge Amancio Q. Saga in his dissent in C.T.A. Case No. 5178, the 10% VAT on importation of goods partakes of an excise tax levied on the privilege of importing articles. It is not a tax on the franchise of a business enterprise or on its earnings. It is imposed on all taxpayers who import goods (unless such importation falls under the category of an exempt transaction under Sec. 109 of the Revenue Code) whether or not the goods will eventually be sold, bartered, exchanged or utilized for personal consumption. The VAT on importation replaces the advance sales tax payable by regular importers who import articles for sale or as raw materials in the manufacture of finished articles for sale.25
Advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods for sale or of raw materials to be processed into merchandise can shift the tax or, to borrow from Philippine Acetylene Co, Inc. v. Commissioner of Internal Revenue,26 lay the "economic burden of the tax", on the purchaser, by subsequently adding the tax to the selling price of the imported article or finished product.
Compensating tax also partakes of the nature of an excise tax payable by all persons who import articles, whether in the course of business or not.27 The rationale for compensating tax is to place, for tax purposes, persons purchasing from merchants in the Philippines on a more or less equal basis with those who buy directly from foreign countries.28
It bears to stress that the liability for the payment of the indirect taxes lies only with the seller of the goods or services, not in the buyer thereof. Thus, one cannot invoke one's exemption privilege to avoid the passing on or the shifting of the VAT to him by the manufacturers/suppliers of the goods he purchased.29 Hence, it is important to determine if the tax exemption granted to a taxpayer specifically includes the indirect tax which is shifted to him as part of the purchase price, otherwise it is presumed that the tax exemption embraces only those taxes for which the buyer is directly liable.30
Time and again, the Court has stated that taxation is the rule, exemption is the exception. Accordingly, statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.31 To him, therefore, who claims a refund or exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted.32
As may be noted, the clause "in lieu of all taxes" in Section 12 of RA 7082 is immediately followed by the limiting or qualifying clause "on this franchise or earnings thereof", suggesting that the exemption is limited to taxes imposed directly on PLDT since taxes pertaining to PLDT's franchise or earnings are its direct liability. Accordingly, indirect taxes, not being taxes on PLDT's franchise or earnings, are outside the purview of the "in lieu" provision.
If we were to adhere to the appellate court's interpretation of the law that the "in lieu of all taxes" clause encompasses the totality of all taxes collectible under the Revenue Code, then, the immediately following limiting clause "on this franchise and its earnings" would be nothing more than a pure jargon bereft of effect and meaning whatsoever. Needless to stress, this kind of interpretation cannot be accorded a governing sway following the familiar legal maxim redendo singula singulis meaning, take the words distributively and apply the reference. Under this principle, each word or phrase must be given its proper connection in order to give it proper force and effect, rendering none of them useless or superfluous.33
Significantly, in Manila Electric Company [Meralco] v. Vera,34 the Court declared the relatively broader exempting clause "shall be in lieu of all taxes and assessments of whatsoever nature - upon the privileges earnings, income franchise ... of the grantee" written in par. # 9 of Meralco's franchise as not so all encompassing as to embrace indirect tax, like compensating tax. There, the Court said:
It is a well-settled rule or principle in taxation that a compensating tax - is an excise tax - one that is imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. A tax levied upon property because of its ownership is a direct tax, whereas one levied upon property because of its use is an excise duty. '.
The compensating tax being imposed upon - MERALCO, is an impost on its use of imported articles and is not in the nature of a direct tax on the articles themselves, the latter tax falling within the exemption. Thus, in International Business Machine Corporation v. Collector of Internal Revenue, - which involved the collection of a compensating tax from the plaintiff-petitioner on business machines imported by it, this Court stated in unequivocal terms that "it is not the act of importation that is taxed under section 190 but the uses of imported goods not subjected to a sales tax" because the "compensating tax was expressly designated as a substitute to make up or compensate for the revenue lost to the government through the avoidance of sales taxes by means of direct purchases abroad.
x x x
xxx If it had been the legislative intent to exempt MERALCO from paying a tax on the use of imported equipments, the legislative body could have easily done so by expanding the provision of paragraph 9 and adding to the exemption such words as "compensating tax" or "purchases from abroad for use in its business," and the like.
It may be so that in Maceda v. Macaraig, Jr.35 the Court held that an exemption from "all taxes" granted to the National Power Corporation (NPC) under its charter36 includes both direct and indirect taxes. But far from providing PLDT comfort, Maceda in fact supports the case of herein petitioner, the correct lesson of Maceda being that an exemption from "all taxes" excludes indirect taxes, unless the exempting statute, like NPC's charter, is so couched as to include indirect tax from the exemption. Wrote the Court:
xxx However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.D. 380, made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 [NPC's amended charter) amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties fees '."
The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax exemptions it has been enjoying before. '.
x x x
It is evident from the provisions of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of taxes including indirect taxes as provided under R.A. No. 6395 and P.D. 380 if it is to attain its goals. (Italics in the original; words in bracket added)
Of similar import is what we said in Borja vs. Collector of Internal Revenue.37 There, the Court upheld the decision of the CTA denying a claim for refund of the compensating taxes paid on the importation of materials and equipment by a grantee of a heat and power legislative franchise containing an "in lieu" provision, rationalizing as follows:
xxx Moreover, the petitioner's alleged exemption from the payment of compensating tax in the present case is not clear or expressed; unlike the exemption from the payment of income tax which was clear and expressed in the Carcar case. Unless it appears clearly and manifestly that an exemption is intended, the provision is to be construed strictly against the party claiming exemption. xxx. crvll
Jurisprudence thus teaches that imparting the "in lieu of all taxes" clause a literal meaning, as did the Court of Appeals and the CTA before it, is fallacious. It is basic that in construing a statute, it is the duty of courts to seek the real intent of the legislature, even if, by so doing, they may limit the literal meaning of the broad language.38
It cannot be over-emphasized that tax exemption represents a loss of revenue to the government and must, therefore, not rest on vague inference. When claimed, it must be strictly construed against the taxpayer who must prove that he falls under the exception. And, if an exemption is found to exist, it must not be enlarged by construction, since the reasonable presumption is that the state has granted in express terms all it intended to grant at all, and that, unless the privilege is limited to the very terms of the statute the favor would be extended beyond dispute in ordinary cases.39
All told, we fail to see how Section 12 of RA 7082 operates as granting PLDT blanket exemption from payment of indirect taxes, which, in the ultimate analysis, are not taxes on its franchise or earnings. PLDT has not shown its eligibility for the desired exemption. None should be granted.
As a final consideration, the Court takes particular stock, as the CTA earlier did, of PLDT's allegation that the Bureau of Customs assessed the company for advance sales tax and compensating tax for importations entered between October 1, 1992 and May 31, 1994 when the value-added tax system already replaced, if not totally eliminated, advance sales and compensating taxes.40 Indeed, pursuant to Executive Order No. 27341 which took effect on January 1, 1988, a multi-stage value-added tax was put into place to replace the tax on original and subsequent sales tax.42 It stands to reason then, as urged by PLDT, that compensating tax and advance sales tax were no longer collectible internal revenue taxes under the NILRC when the Bureau of Customs made the assessments in question and collected the corresponding tax. Stated a bit differently, PLDT was no longer under legal obligation to pay compensating tax and advance sales tax on its importation from 1992 to 1994.
Parenthetically, petitioner has not made an issue about PLDT's allegations concerning the abolition of the provisions of the Tax Code imposing the payment of compensating and advance sales tax on importations and the non-existence of these taxes during the period under review. On the contrary, petitioner admits that the VAT on importation of goods has "replace[d] the compensating tax and advance sales tax under the old Tax Code".43
Given the above perspective, the amount PLDT paid in the concept of advance sales tax and compensating tax on the 1992 to 1994 importations were, in context, erroneous tax payments and would theoretically be refundable. It should be emphasized, however, that, such importations were, when made, already subject to VAT.
Factoring in the fact that a portion of the claim was barred by prescription, the CTA had determined that PLDT is entitled to a total refundable amount of
WHEREFORE, the petition is partially GRANTED. The Decision of the Court of Appeals in CA-G.R. No. 47895 dated September 17, 1999 is MODIFIED. The Commissioner of Internal Revenue is ORDERED to issue a Tax Credit Certificate or to refund to PLDT only the of
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