Commissioner of Internal Revenue v. Elmas Drug Corp.

THIRTEENTH DIVISION [CA-G.R. No. 49946. October 19, 1999.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . ELMAS DRUG CORPORATION , respondent . D E C I S I O N SABIO, JR., J.L. , J p : This is a petition for review filed by the Commissioner of Internal Revenue seeking the reversal of: (a) the Decision of Tax Appeals dated August 27, 1998 in CTA Case No. 5311, entitled "Elmas Drug Corporation vs. Commissioner of Internal Revenue" which ordered petitioner to refund or issue tax credit certificate in favor of respondent Elmas Drug Corporation in the amounts of P45,574.63 and P135,906.48 representing its alleged overpaid income tax for the years 1993 & 1994, respectively; and (b) the Resolution dated December 7, 1998 denying the motion for reconsideration filed by petitioner. dctai The antecedents of this case: Respondent is a domestic corporation duly organized and existing by virtue of the laws of the Philippines. It is a retailer of pharmaceutical products and operates a drugstore in Naga City under the name and business style of MERCURY DRUG. It is duly licensed by the Bureau of Food & Drugs, with proper permits and licenses from local government units and other government agencies. Pursuant to the provisions of R.A. 7432 and Revenue Regulations No. 2-94, respondent granted 20% sales discounts to qualified senior citizens on their purchases of medicines covering the period of July 19, 1993 to December 31, 1994. On April 15, 1994, respondent filed its 1993 Corporation Annual Income Tax Return and claimed, among others, the amount of P80,330.00 representing the 20% sales discount granted by the respondent to senior citizens on their purchases of medicines as deduction from gross income. On March 25, 1995, respondent filed with the petitioner a claim for refund or credit of overpaid income tax for the taxable year 1993 in the amount of P52,215.00, arising from the alleged error committed by respondent in claiming 20% sales discounts as a deduction from gross income instead of as tax credit as provided under R.A. 7432. On April 17, 1995, respondent filed its 1994 Corporate Annual Income Tax Return and claimed among others, the amount of P515,000.00 representing the 20% sales discounts granted by respondent to senior citizens on their purchases of medicines as deduction from gross income. Likewise, on December 15, 1995; respondent filed with the petitioner a claim for refund or credit of overpaid income tax for the taxable year 1994 in the amount of P334,750.00, arising from the alleged error committed by the respondent in claiming the 20% sales discounts as a deduction from gross income instead of as tax credit as provided for in the same law cited above. Respondent submitted certain documents to support its claim. On December 29, 1995, respondent filed a petition for review with the Court of Tax Appeals in order to toll the running of the two-year prescriptive period under Section 230 of the Tax Code. Petitioner filed her answer to the petition. On August 27, 1998, the Court of Tax Appeals rendered the assailed decision, the dispositive portion of which read as follows: "WHEREFORE, in view of all the foregoing, petitioner's claim for refund is hereby partially GRANTED. Respondent is hereby ORDERED to REFUND, or in the alternative, to ISSUE a credit certificate in favor of the petitioner the amounts of P45,574.63 and P135,906.48, representing overpaid income tax for the years 1993 and 1994, respectively. dctai SO ORDERED." Petitioner and private respondent filed their respective motions for reconsideration. Petitioner's motion was denied while that filed by private respondent was granted by the CTA in a resolution promulgated on December 7, 1998, the dispositive portion of which read as follows: "ACCORDINGLY, the petitioner's Motion for Partial Reconsideration is hereby GRANTED. Respondent is hereby ORDERED to ISSUE tax credit certificate in favor of petitioner the amounts of P45,906.48 and P135,906.48, representing overpaid income tax for the years 1993 and 1994, as prayed for in the motion. On the other hand, the Respondent's Motion for Reconsideration is DENIED for lack of merit. SO ORDERED." Hence, the instant petition for review. LibLex There is only issue raised by the petitioner: "WHETHER OR NOT RESPONDENT IS ENTITLED TO THE REFUND OF THE AMOUNT OF P45,574.63 AND P135,900.48 AS ALLEGED OVERPAID INCOME TAX FOR THE YEARS 1993 AND 1994, RESPECTIVELY." Petitioner anchored its petition on three grounds. The first ground raised by petitioner is that the Court of Tax Appeals erred in ruling that the 20% discount granted to qualified senior citizens may be claimed as tax credit pursuant to Section 4 of R.A. 7432 notwithstanding that Section 204 (3) of the Old Tax Code speaks only of refund or credit of taxes erroneously or illegally received. Petitioner argued that the refund or tax credit that may be granted to respondent should be limited to the taxes it had actually paid and not the entire amount representing the cost of the 20% discount. Petitioner cited Section 204 (3) of the Old Tax Code and Section 204 (c) of the Tax Reform Act of 1997 which partly provides as follows: "Section 204 (3). Authority of the Commissioner to compromise, abate, and refund/credit taxes. The Commissioner may - 1. . . . 2. . . . 3. Credit or refund taxes erroneously or illegally received, or penalties imposed without authority . . . ." "Section 204 (c). Credit or refund taxes erroneously or illegally received or penalties imposed without authority . . . . Provided, further, that in no case shall a tax refund be given resulting from equivalent of incentive granted pursuant to special laws for which no actual payment was made." WE DISAGREE. Petitioner Commissioner erred in citing Section 204 (c) of the 1997 Tax Reform Act of 1997 as applicable in this case considering the fact that the alleged overpayment of income taxes made by respondent were for the years 1993 and 1994. The proviso cited by petitioner takes away vested rights and therefore, should not be given retroactive effect as correctly pointed out by respondent. "It is a settled rule in statutory construction that a statute operates prospectively only and never retroactively, unless the legislative intent to the contrary is made manifest either by the express terms of the statute or by necessary implication. In every case of doubt, the doubt must be resolved against the retrospective effect." (Cebu Portland Cement Co. vs. Collector of Internal Revenue. 25 SCRA 789). cdll "Indeed, like other statutes, tax laws operate prospectively, whether they enact, amend or repeal, unless, as aforesaid, the purpose of the Legislature to give retrospective effect is expressly declared or may clearly be implied from the language used." (Cebu Portland Cement Co. vs. Collector of Internal Revenue, supra, citing Lorenzo vs. Posadas, 64 Phil. 353). There is no showing that the 1997 Tax Reform Act should be applied retroactively, hence, the same cannot be made applicable in the case at bench. Where the law is very clear, there is no room for interpretation. Section 4 of Republic Act 7432 clearly provides that the cost of the 20% discount may be claimed by respondent as tax credit and there is nothing more to interpret. The Court of Tax Appeals, in its decision dated August 27, 1998 correctly ruled that the direct cost or the cost of sales of the 20% discount given to senior citizens is deductible as tax credit. The second ground raised by petitioner is that the Court of Tax Appeals erred in relying on the legislative deliberations in allowing private establishments to claim tax credit instead of deduction from gross income. Petitioner argued that when the law speaks in clear and categorical language, there is no room for interpretation as ruled in the case of Land Bank of the Philippines vs. Court of Appeals (258 SCRA 404). Therefore, extrinsic aids such as legislative deliberations in ascertaining legislative intent are resorted to only when the law is ambiguous and not when the provisions are crystal clear as to admit of no further interpretations. Petitioner further argued that Section 4(a) of R.A. 7432 provides that private establishments may claim the cost of the 20% discount as tax credit. However, if the "real intention" of our legislators was to treat the full amount of the 20% discount as tax credit, it could have done so. Sadly, the final wordings of R.A. 7432 still mention the term "cost" as tax credit. llcd Thus, the cost of the 20% discount represents the actual amount spent by drug corporations in complying with the mandate of R.A. 7432. Working on this premise, it could not have been the intention of the lawmakers to grant these companies the full amount of the 20% discount as this would be extending to them more than what they actually sacrificed when they gave the 20% discount to senior citizens. In this regard, WE AGREE with the petitioner. As pointed out by Associate Judge Amancio Saga in his dissenting opinion in the Resolution dated December 7, 1998, when a law speaks in clear and categorical language, there is no room for interpretation as ruled by the Supreme Court in the case of Land Bank of the Philippines vs. Court of Appeals (258 SCRA 404). Extrinsic aids such as legislative deliberations are resorted to only WHEN THE LAW IS AMBIGUOUS and not when the provisions are clear as to admit of no further interpretations. To quote Judge Saga in his concurring and dissenting opinion in the assailed decision of August 27, 1998: " . . ., the refund or tax credit to be granted to petitioner in cases of this nature, should be limited to the taxes it had actually paid for this particular period and not the entire amount representing the cost of the 20% discount. Section 204 (3) of the old Tax Code and Section 204 (c) of the Tax Reform Act of 1997 provides as follows: . . . A reading of the aforequoted provisions of law as applied to the instant case gives rise to the conclusion that any excess or unapplied portion of the cost of the 20% sales discount is not refundable for the Tax Code speaks only on refund or credit of taxes erroneously or illegally received . In the instant case, no such 'cash' was ever received by herein respondent. The right of the taxpayer to tax credit the cost of the 20% sales discount against income tax is a mere privilege which can be availed of only if the income tax per return is sufficient to absorb the same. Consistent with this theory is that no tax credit or carry over to the next taxable year shall be allowed." (pp. 1-3 of the Concurring and Dissenting opinion of the Decision dated August 27, 1998). However, in its Resolution dated December 7, 1998, the said Court resolved to grant the partial motion for reconsideration of respondent and consequently computed the refundable amount on the basis of the TOTAL AMOUNT of the 20% discount given to senior citizens. Perusal of the provisions of the law provides for the term "cost" without any distinction and therefore, shall be interpreted as such. As a general rule, the intent of the legislature to be ascertained and thereafter given effect is the intent expressed in the language of the statute. If a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. Section 4 (a) of R.A. 7432 clearly provides that private establishments, like the respondent in this case may claim the cost of the 20% discount as tax credit. If indeed the real intention of the legislators was to treat the full amount of the 29% discount as tax credit as argued by the respondent, why then would the final wordings of the law be "Provided, that private establishments may claim the COST as tax credit ." (Emphasis supplied). Hence, the Court of Tax Appeals erred in granting the partial motion for reconsideration when it resorted to legislative deliberations of R.A. 7432 and in considering the full amount of the 20% sales discount as tax credit. The Court of Tax Appeals erred in granting the partial motion for reconsideration filed by respondent considering the fact that the law (R.A. 7432) specifically and clearly mandates that private establishments may claim the cost of the 20% discount given to senior citizens as tax credit. To quote Judge Amancio Q. Saga, in his dissenting opinion in the Resolution promulgated on December 7, 1998: "The answer is simple. The cost of the 20% discount represents the actual amount spent by these drug companies in complying with RA 7432. To grant them the full amount of the 20% discount would be extending to them more than what they actually 'sacrificed' when they gave the 20% discount to senior citizens which could not have been the intention of the lawmakers." (p. 3, Dissenting opinion, Resolution dated December 7, 1998 in CTA Case No. 5311) The third ground raised is that the Court of Tax Appeals erred in ruling that Republic Act 7432 should prevail over the subordinate regulation issued by petitioner under Revenue Regulations No. 2-94 and argued that the construction given to a statute by administrative agencies charged with the interpretation and application of the statute is entitled to great respect and should be accorded great weight by the courts, unless such construction is clearly shown to be in sharp conflict with the governing statute or the constitution and other laws (Nestle Philippines, Inc. vs. Court of Appeals (203 SCRA 504). Thus, in interpreting the phrase "tax credit" to mean that the 20% discount granted to qualified senior citizens as an amount deductible from the establishments' gross sales, petitioner was acting within the scope of its power of subordinate legislation and that respondent's claim for tax refund partakes the nature of an exemption from taxation. Respondent, on the other hand, argued that the term "tax credit" means an amount deductible from the tax itself rather than a deduction from the gross income in determining the taxable income. A tax credit entitles respondent to a 100% tax benefit because a tax credit is credited directly against the income tax liability while a deduction from gross income merely entitles petitioner to a 35% tax benefit because the amount of the discounts is deducted from gross income in arriving at the taxable income to which the 35% corporate income tax rate is then applied. WE DISAGREE with petitioner's contention. Section 2 (i) of Revenue Regulations No. 2-94 provides: "i. Tax credit refers to the amount representing the 20% discount granted to a qualified senior citizen by all establishments relative to their utilization of transportation services, hotels and similar lodging establishments, restaurants, drugstores, recreation centers, theaters, cinema houses, concert hall, circuses, carnivals and other similar places of culture, leisure and amusement, which discount shall be deducted by the said establishments from their gross sales for value-added tax and other percentage tax purposes." The Court of Tax Appeals, in resolving the issue ruled: "It is true that respondent has the power of subordinate legislation effected by her issuance of implementing rules and regulations such as R.R. 2-94 in the case at bar, but said power is not without limit. The administrative regulation must not be in sharp conflict with the governing statute it seeks to implement (Nestle Philippines Inc. vs. Court of Tax Appeals, et al., 203 SCRA 504). Revenue Regulations No. 2-94 gave a new meaning to the phrase 'tax credit', interpreting it to mean that the 20% discount granted to qualified senior citizens is an amount deductible from the establishment's gross sales, which is completely contradictory to the literal or widely accepted meaning of the said phrase, as an amount subtracted from an individual's or entity's tax liability to arrive at the total tax liability (Black's Law Dictionary). In view of such apparent discrepancy in the interpretation of the term 'tax credit', the provisions of the law under R.A. 7432 should prevail over the subordinate regulation issued by the respondent under Revenue Regulations No. 2-94. In fact, this Court has already settled the same issue in the cases of Sto. Rosario Drug Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5367, February 16, 1998; Del Rosario Drug Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5357, April 6, 1998; and Baliuag Drug Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5365, May 13, 1998, wherein We ruled in favor of the petitioner and declared that the word 'tax credit' should not be given any other meaning." (p. 7 of the assailed Decision) In the case of Commissioner of Internal Revenue vs. Court of Appeals (240 SCRA 368), the Supreme Court had the occasion to rule that "(A)administrative issuances must not override but must remain consistent and in harmony with the law they seek to apply and implement." (Emphasis supplied) In Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd. (244 SCRA 332), the Highest Tribunal ruled that "A claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer." dctai WHEREFORE, in view of the foregoing premises, the petition is hereby GRANTED IN PART. The resolution issued by the Court of Tax Appeals dated December, 1998 is SET ASIDE and the DECISION rendered by the latter is AFFIRMED IN TOTO. No costs. SO ORDERED. Hofilena and Amin, JJ ., concur.