Commissioner of Internal Revenue v. Court of Tax Appeals

SEVENTEENTH DIVISION [CA-G.R. SP No. 20909. August 14, 1990.] (C.T.A. Case No. 3158) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . HON. COURT OF TAX APPEALS and DCCD ENGINEERING CORPORATION , respondents . D E C I S I O N GONZAGA-REYES , J p : This petition seeks for a review of the decision of the Court of Tax Appeals dated December 27, 1984, in C.T.A. Case No. 3158, entitled "DCCD Engineering Corporation vs. the Commissioner of Internal Revenue" ordering petitioner to refund to respondent DCCD Engineering Corp. the sum of P96,342.52 representing deficiency contractor's tax from 1976, allegedly erroneously collected. The petition was originally filed in the Supreme Court and was referred to this Court for consideration and adjudication on the merits in the Resolution dated May 28, 1990 of the First Division of the Supreme Court. The facts are substantially as found by the respondent Court of Tax Appeals as follows: "Petitioner, a domestic corporation engaged in business as general contractor and as design and consultant engineers, entered into an 'Agreement for Supervision of Construction Services' with the Philippine Government, thru the Ministry of Public Highways, for the Tarlac-Lingayen Road, Dagupan-Damortis Road and Urdaneta-Dagupan Road. After investigation of the business tax liability of petitioner for 1976, respondent Commissioner of Internal Revenue assessed and demanded from the company the amount of P96,342.52 as deficiency contractor's tax when it found that the 3% contractors tax on the gross receipts derived by petitioner from its construction supervision services of the above-mentioned projects was neither paid nor withheld by the Ministry of Public Highways. Petitioner paid the said tax to the Bureau of Internal Revenue on October 25, 1978 per Revenue Tax Receipt No. 36789535. (Annex "B", p. 5, CTA records). In view of Section 6.03 and 6.04 of Article VI of the aforesaid "Agreement', petitioner billed on November 6, 1978 the Ministry of Public Highways the amount of P96,342.52 which it paid to the Bureau of Internal Revenue, enclosing therewith the 'Certification' of Tax exemption issued by the Secretary of the then Department of Public Highways to support its claim. (Annexes "C" and "D", pp. 6-7, CTA records). As no fund was provided for the payment of said contractor's tax, the Ministry of Public Highways requested the Ministry of Finance in a letter dated November 14, 1978 to intercede on its behalf for the refund of the sum of P96,342.52 to petitioner DCCD Engineering Corporation, citing Letter of Instructions No. 128 dated September 14, 1973 as authorizing the Ministry of Public highways to grant tax exempt status to consultancy agreements similar to that of petitioner's. (Annex "E", p. 8, CTA, records). On February 12, 1979, respondent Commissioner of Internal Revenue informed petitioner that its claim for refund was referred to the Chief, Services and Miscellaneous Tax Division of his office for study, but since then no action or decision was seasonably taken or rendered by respondent on the matter. Hence this petition for review. The case was submitted for decision on the basis of the pleadings and the records of the Bureau of Internal Revenue in this proceeding, and no memoranda were filed by the parties." Presiding Judge Amante Filler and Associate Judge Constante Roaquin of the Court of Tax Appeals ruled that the Commissioner of Internal Revenue should issue the refund. Associate Judge Alex Z. Reyes dissented. The Solicitor General, as counsel for petitioner, the Commissioner of Internal Revenue, defines the controversy as hinging on who should issue the refund: the Ministry of Public Highways of the Commissioner of Internal Revenue. In arguing that it is the Ministry of Public Highways that should grant private respondent's claim for reimbursement, petitioner submits that neither Letter of Instructions No. 128 and Section 4-1 of Republic Act No. 4860 nor the Agreement for Supervision of Construction Services grants any exemption to private respondent from payment of contractor's tax, as the tax burden is merely shifted to the Ministry of Public Highways. We are unable to sustain the merits of the instant petition. Both parties, petitioner Commissioner of Internal Revenue, and the private respondent DCCD Engineering are agreed, that the latter is not liable to pay contractor's tax under the Agreement for Supervision of Construction Services, particularly Sections 6.03 and 6.04 of Article VII thereof, which respectively reads as follows: '"Section 6.03. Any and all compensation payments, reimbursements or expenses undertaken to be paid or assumed by the Government in favor of the Consultant under this Agreement are understood to have been determined to be net of the Contractor's Tax, Joint Venture Tax, duties and other forms of government levy attributable to the services under this Agreement. The government, for and in behalf of the consultant shall assume the burden of such taxes whether National or Local, duties or levies, if any, payable on any and all compensations, payments, reimbursements or expenses undertaken to be paid or assumed by the Government in favor of the Consultant." (Emphasis supplied).' '"Section 6.04. If notwithstanding the assurances of the preceding paragraph, the Consultant is, for any reason, compelled to pay the Contractor's Tax, Joint Venture Tax, duties or other levies, in that event, the Government will anticipate payment to or immediately reimburse the Consultant for such taxes, duties or levies mentioned in Sec. 6.03 assessed and collected against him in connection with the services."' The authority of the then Bureau of Public Highways to enter into the afore-quoted stipulations is granted in Section 4-A of Republic Act No. 4860, as amended, which provides that: 'xxx xxx xxx "Sec. 4-A. Upon recommendation of the Secretary of Finance, in consultation with the National Economic and Development Authority and approval of the President of the Philippines loan agreements as well as contracts involving the availment of or utilization of the proceeds of loans, credits or indebtedness obtained under the provisions of this Act, may provide for the exemption from taxes, charges or other levies."' and in Letter of Instructions No. 128 which provides that: 'xxx xxx xxx "1. Approval of projects proposed by Government agencies shall prescribe the condition that in negotiating tax provisions in consultancy contracts entered into by such agencies in the implementation of the foreign loan and involving utilization of loan proceeds, the agency concerned shall agree to provisions exempting consultants from taxes and duties unless otherwise indicated by the consultants." xxx xxx xxx.' In arguing that the above-quoted provisions did not grant any tax exemption but merely allowed for the assumption by the government the burden of paying such tax liability, petitioner seeks to justify the proposition that in the event that private respondent is made to pay the tax, and it did pay the tax, as in this case, the Ministry of Public Highways is duty bound to reimburse the amount paid (p. 18 of Brief). Petitioner's ratiocination of the principle involved is this: "xxx xxx xxx Each agency has its respective function in the governmental set-up operation. Thus, it is imperative that government Ministries and agencies should limit their spending budgets. And if the Bureau of Internal Revenue is to be held liable for obligations of other Ministries and agencies, projection of government income would be jeopardized." (at p. 12) Thus, on the premise that the collection of the tax by petitioner is legal and valid, the refund is not within the purview of the petitioner's authority to credit or refund erroneously or illegally collected taxes as found in Section 295 of the Tax Code. We are not persuaded. Section 4-A of RA 4860 clearly provides the legal basis for the tax exemption to the contractor for contracts entered into with government agencies involving the availment of, or utilization of foreign loans, upon the recommendation of the Secretary of Finance, in consultation with the National Economic and Development Authority and approval of the President of the Philippines. LOI 128 specifically mandates that the government agency concerned, in negotiating tax provisions in consultancy contracts over the implementation of said foreign loan-assisted projects, " shall agree to provisions exempting consultants from taxes and duties, unless otherwise indicated by the consultants". The Agreement for Supervision of Construction Services which was entered into with the Philippine Government, through the Ministry of Public Highways, in connection with the construction of the Tarlac-Lingayen Road, specifically stipulated that all compensation payments in favor of the consultants are "net of Contractor's Tax among other forms of government levy, and the Government, for and in behalf of the Consultant shall assume the burden of such taxes (Section 6.03) and if the Consultant is, for any reason, compelled to pay the Contractor's Tax, the Government shall immediately reimburse the consultant for for such taxes (Section 6.04). The exemption from contractor's tax was therefore conferred pursuant to the pertinent law and agreement, and We see no further need for finding a legal justification for the tax exemption. While the laws may not have provided for a "direct" tax exemption, i.e., one which is self-executing, the inclusion of the tax exemption in the agreement is no less binding. As an Agreement duly approved by the President and the agencies concerned pursuant to law, the stipulation is a valid and binding obligation of the Republic in accordance with its terms. Respondent DCCD Engineering states in its Brief that respondent DCCD was issued a certificate of tax exemption by the Ministry of Public Highways on December 20, 1976, which certificate was duly filed with the Bureau of Internal Revenue in connection with the filing of its corporate tax liabilities for the ensuing year. However, after an investigation of the business tax liability of respondent corporation, and over its protestations, the latter was assessed the deficiency contractor's tax of P96,342.52 and was compelled to pay (pp. 94-95). The issuance of such a certification of tax exemption issued by the Secretary of the then Department of Public Highways is not disputed (See p. 2, Decision, CTA; p. 2, Petitioner's Brief). The Court of Tax Appeals, therefore, correctly held that the deficiency contractor's tax in question was "erroneously, if not illegally collected from petitioner", and since it is the respondent Commissioner of Internal Revenue who collected from petitioner, it follows that respondent Commissioner of Internal Revenue, and not the Ministry of Public Highways should issue the refund. We do not agree with the statement expressed in the dissenting opinion that the petitioner is "barking at the wrong tree". While it may be true that the Ministry of Public Highways has "not reneged in its commitment", as shown by the fact that it is requesting the Budget Commission for the release of funds to cover the reimbursement in case the reconsideration is denied (See Letter of the Minister of Public Highways to the Minister of Finance on November 14, 1978), it bears emphasis that DCCD's legal claim is enforceable against the Government, and not merely its agency, the Ministry of Public Highways, which is only the part of, and has no personality distinct from, the Philippine Government. We may add that petitioner's insistence that the Ministry of Public Highways, rather than the Collector of Customs, should reimburse the tax admittedly refundable to the private respondent, fails to take into account the fact that both agencies are an integral part of the government of the Republic, and loses sight of the fundamental principle that the government is exempt from the burden of its own tax because it adds nothing to the revenues of the government to take money from one pocket and put it in another. Assumption of tax burdens in government contracts necessarily involve book entries in the government accounts but We fail to see ho these bookkeeping procedures, which are internal to the government, should pose a legal obstacle to the payment of the DCCD's claim, which has been pending since it was filed in November, 1978. Since the Collection was made by the Bureau of Internal Revenue, the refund can properly be authorized for the erroneous collection. WHEREFORE, the petition is dismissed for lack of merit. SO ORDERED. Francisco and Vailoces, JJ ., concur.