Philippine Supreme Court Resolutions > Year 2010 > July 2010 Resolutions > [A.M. No. 01-8-493-RTC : July 06, 2010] QUERY OF CLERK OF COURT GRACE C. BELVIS, RTC-PASIG CITY AS TO THE PETITION OF THE PROVINCE OF RIZAL FOR EXEMPTION FROM PAYMENT OF FILING/DOCKET FEES :

Please take notice that the Court en banc issued a Resolution dated JULY 6, 2010, which reads as follows:

'A.M. No. 01-8-493-RTC - QUERY OF CLERK OF COURT GRACE C. BELVIS, RTC-PASIG CITY AS TO THE PETITION OF THE PROVINCE OF RIZAL FOR EXEMPTION FROM PAYMENT OF FILING/DOCKET FEES.


This Resolution responds to the query^[1] of Atty. Grace C. Belvis, Clerk of Court, Regional Trial Court, Pasig City, regarding the requested exemption of the Province of Rizal (the Province) from the payment of filing/docket fees in the civil case for specific performance the Province (represented by Gov. Casimiro M. Ynares, Jr.) filed against LKS Construction and Development Corporation (construction company). The Province sought to compel the construction company to pay value-added tax (VAT) and withholding tax due to the national government, equivalent to 8.5% and 1% of the contract price of the project between the Province and the construction company.

Atty. Belvis refused to grant the exemption based on Section 21, Rule 141 of the Revised Rules of Court, which provides:

Sec. 21. Government exempt. - The Republic of the Philippines, its agencies and instrumentalities are exempt from paying the legal fees provided in this rule. Local governments and government-owned or controlled corporations with or without independent charters are not exempt from paying such fees.

The Court referred the query to the Office of the Court Administrator (OCA) and to the Office of the Chief Attorney (OCAT) for comments and recommendations. The OCA rendered the opinion that the Province is exempted from paying docket fees, based on Section 280 of Republic Act (R.A.) No. 7160 (The Local Government Code of 1991), which reads:

All court actions, criminal or civil, instituted at the instance of the provincial, city or municipal treasurer or assessor under the provisions of this Code, shall be exempt from the payment of court and sheriff's fees.

The OCA also recommended that the Court clarify the matter of payment of fees by local government units, pursuant to Section 280 of R.A. No. 7160.

While the OCAT^[2] agreed with the OCA that the Province is entitled to an exemption, it also opined that the exemption is based on the first paragraph of Section 21, Rule 141 of the Revised Rules of Court since the Province is an agent of the national government in collecting taxes accruing to the latter:

Republic Act No. 7649^[3] that was approved into law on 6 April 1993, required the government or any of its political subdivisions, instrumentalities or agencies including government-owned or controlled corporations (GOCCs) to deduct and withhold the value- added tax due on gross payment for the purchase of goods and on receipts for services rendered by contractors. The law added a "new paragraph" to Section 110 of the National Internal Revenue Code, as amended by Republic Act No. 7643. When Republic Act No. 8424 (Tax Reform Act of 1997) took effect on 1 January 1998, the "new paragraph" was amended anew and became Section 114 [that reads] as follows:

"(c) Withholding of Creditable Value-Added Tax. - The government or any of its political subdivisions, instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before making payment on account of its purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor: Provided, however, That in the case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be considered as the withholding agent."

x x x x

As a result thereof, the Province of Rizal, as the payor under the contract and the agent of the national government, is authorized by law to impose, levy and collect VAT on the construction of the Multi-Purpose Coliseum. Although the law provides that the action that is exempt from court fees should be filed by the provincial treasurer, the fact that the Province of Rizal itself filed the action through its Provincial Legal Officer would not derail the application of Section 280 of the Local Government Code. The main purpose of the complaint is to collect the VAT and the withholding tax, a task additionally originally imposed by Republic Act No. 7649 and reiterated by Republic Act No. 8424, upon provincial governments in the exercise of their taxation powers.

x x x x

On its [Section 21, Rule 141] face, the rule is clear: the government, its agencies, and instrumentalities are exempt from legal fees but local government units are not. It does not offer any qualification or condition that may exempt local governments from the coverage of the second sentence thereof. However, because Republic Act No. 8424 expressly imposes the VAT upon "government public works contractors" and considers the payor such as the Province of Rizal as the "withholding agent," the first sentence of Section 21, not its second sentence, applies x x x

Similarly, the OCAT agreed with the OCA's recommendation of referring the present administrative matter to the Committee on Revision of the Rules of Court:

It must be clarified, however, that the Administrative Code definition of "Government of the Republic of the Philippines" does not in any way render the second sentence of Section 21 functus officio or inapplicable in all cases. The first sentence granting exemption from legal fees to a local government unit as an agent or instrumentality of the government applies in this instance because another law, Republic Act No. 8424, must likewise be applied. In other words, in other cases where there are no legal impediments to the applicability of the second sentence of Section 21, it shall be applied. Put differently, when collection of the VAT is the subject of an action filed by a local government unit, the second sentence of Section 21 of Rule 141 shall not apply and hence the local government unit shall be exempt from legal fees.

x x x x

We thus respectfully submit that to avert the similar situation whereby the Clerk of Court is in a quandary as to whether or not to exempt a local government unit from payment of legal fees, Section 21 should be amended. It should cover the situation where a local government unit acts for and in behalf of the national government in compliance with law. The second sentence of Section 21 may read as follows:

"x x x. Local governments and government-owned or controlled corporations with or without independent charters are not exempt from paying such fees EXCEPT WHEN THEY ACT AS AGENTS OF THE NATIONAL GOVERNMENT AS MAY BE PROVIDED FOR BY LAW."^[5]

The Court approves the recommendations of the OCA and the OCAT on the basis of the first sentence of Section 21, Rule 141 of the Revised Rules of Court which expressly exempts the Republic of the Philippines, its agencies and instrumentalities from paying legal fees.

The term "Republic of the Philippines" includes within its meaning the "Government of the Philippines," defined under Section 2(1) of the Administrative Code of 1987 as:

[T]he corporate governmental entity through which the functions of government are exercised throughout the Philippines, including, save as the contrary appears from tire context, the various arms through which political authority is made effective in the Philippines, whether pertaining to the autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms of local government.

Section 2(10) of the same Code defines an "instrumentality" of the government as follows:

"Instrumentality" refers to any agency of the National Government, not integrated within the department framework vested within special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations.

The underlying facts of the query show that the Province had contracted with the construction company for the construction of a Multi-purpose Coliseum. In the course of paying the contract price, the Province sought to collect from the construction company the VAT and withholding tax due to the national government; thus, it filed the collection case to enforce compliance by the construction company.

As pointed out by the OCAT, the collection of VAT and withholding tax is a duty and responsibility on the part of the Province under Section 114 of Republic Act No. 8424 (Tax Reform Act of 1997). As a withholding agent, the Province merely seeks to collect taxes accruing to the national government.

Thus, under the attendant facts, the Province, as a local government unit acting as a collecting agent, is exempted from the payment of legal fees because it is legally authorized by law to institute action in behalf of the national government - an exempt entity under the first sentence of Section 21, Rule 141 of the Revised Rules of Court.

IN LIGHT OF THE FOREGOING, the Court resolves to GRANT the Province of Rizal exemption from the payment of filing/docket fees in the civil case for specific performance it filed against LKS Construction and Development Corporation for the collection from the latter of 8.5% and 1% of their contracted price, representing the value-added and withholding taxes due to the national government."

Endnotes:

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^[1] Dated July 23, 2001.

^[2] Through Atty. Edna E. Di�o.

^[3] An Act Requiring the Government or Any of its Political Subdivisions, Instrumentalities or Agencies including Government-owned or Controlled Corporations (GOCCS) to Deduct and Withhold the Value-Added Tax Due at the Rate of Three percent (3%) on Gross Payment for the Purchase of Goods and Six percent (6%) on Gross Receipts for Services Rendered by Contractors.

^[4] Rollo, pp. 95-97.

^[5] Id. at 97-98.