Commissioner of Internal Revenue v. Court of Tax Appeals

FORMER SPECIAL FOURTH DIVISION [CA-G.R. SP No. 29994. February 5, 2001.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . COURT OF TAX APPEALS, MAGSAYSAY LINE, INC., BALIWAG NAVIGATION, INC., FIM LIMITED OF THE MARDEN GROUP (HK) & NATIONAL DEVELOPMENT COMPANY (NDC) , respondents . R E S O L U T I O N CALLEJO , SR. , J p : The Private Respondents filed a "Motion for Reconsideration" of the Decision of the Court on the following cogent grounds: "I. THE SALE OF NATIONAL MARINE CORPORATION IS NOT A SALE 'IN THE ORDINARY COURSE OF TRADE OR BUSINESS' AS WOULD SUBJECT THE SAME TO VAT PURSUANT TO THE PROVISIONS OF SECTION 99, IN RELATION TO SECTION 100(a) OF THE NATIONAL INTE RNAL REVENUE CO DE. II. NEITHER IS THE SALE OF NATIONAL MARINE CORPORATION A 'DEEMED SALE' WITHIN THE PURVIEW OF SECTION 100 (b) OF THE NATIONAL INTE RNAL REV ENUE CODE (N IR C), AS IMPLEMENTED BY SECTION 4 OF REVENUE REGULAT IONS NO. 5-6 7, BECAUSE THERE WAS NO CHANGE OF OWNERSHIP OF THE NATIONAL DEVELOPMENT COMPANY, AND NEITHER DID THE LATTER RETIRE FROM OR CEASE BUSINESS. III. RESPONDENTS NEVER CLAIMED THAT THE SALE OF THE VESSELS WAS EXEMPT FROM VAT, BUT THAT IT WAS NOT SUBJECT TO THE VAT UNDER THE FACTUAL AND LEGAL CIRCUMSTANCES OF THIS CASE." (at page 292, Rollo .) In his Comment on the Motion, the Petitioner posits that the grounds mustered by the Respondents in their motion and their articulations in support thereof are but a rehash of Respondents' Comment on the Petition at bench. We took a hard look at our Decision in the light of the "Motion for Reconsideration " of the Private Respondents and the Comment thereon of the Petitioner and We found and so declared that said motion impressed with merit. We erred in our Decision. It behooved the Court to rectify the same. We do so with the following disquisitions. Under the VAT Law, the sale of the vessels to the subject to VAT must fall within the coverage of Sections 99 and 100 of the NIRC, which specify and enumerate the persons or transactions that are liable to the VAT. We affirm our finding, under our Decision, that the sale of the subject five (5) vessels not a "sale" contemplated under Section 99 of the NIRC which was subject to the 10% VAT precisely because the sale was one not made in the course of NDC's regular trade or business, or, for that matter, necessary to carry out such trade or business as it was an isolated transaction. TCaAHI We, however, erred in affirming Petitioner's claim that, while not considered a VAT taxable " sale " under Section 99 of the NIRC, the subject transaction is considered a " sale " within the purview of Section 100(b) of the NIRC, as implemented by Section 4(E)(i) of Revenue Regulations of 5-87, which enumerates the transactions " deemed sale " subject to the 10% VAT, hereinbelow reproduced, to wit: "SEC. 100. Value-added tax on sale of goods. (a) Rate and base of tax. . . . (b) Transactions deemed sale. The following transactions shall be deemed sale: (1) Transfer, use, or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business. (2) Distribution or transfer to: (A) Shareholders or investors as share in the profits of the VAT-registered persons; or (B) Creditors in payment of debt. (3) Consignment of goods of actual sale is not made within 60 days following the date of such goods were consigned. (4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation. xxx xxx xxx 'SEC. 4. Transactions 'deemed sale. ' The following transactions are 'deemed sale' pursuant to Section 100(b). (A) Transfer, use, or consumption, not in the course of business. Transfer of goods not in the course of business can take place when the VAT-registered person withdraws goods from his business for his personal use; (B) Distribution or transfer to shareholders or investors as share in the profits of the business; (C) Transfer to creditors in payment of debt or obligation; (D) Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned. Consigned goods returned by the consignee within the 60-day period is not deemed sold; and (E) Retirement from or cessation of business or death of an individual with respect to all goods on hand, whether capital goods, stock-in-trade; supplies or materials as of the date of such retirement or cessation, whether or not the business is continued by the new owner or successor, estate or heir. The following circumstance shall, among others, give rise to transactions 'deemed safe' for purposes of this Section: (i) Change of ownership or business or incorporation of the business in the case of a single proprietorship; (ii) Dissolution of a partnership and creation of a new partnership which takes over the business; and (iii) Death of an individual who is VAT-registered person, even if the estate or heirs of the decedent shall continue to operate the business." We agree to the finding of the Respondent Court that: " . . . in the first place, the sale of public bidding is definitely a sale, not a 'deemed sale' transaction by operation of law. Neither is it a 'transfer, use or consumption' as explained in Section 4(a) of the Regulation quoted above, that is, 'transfer of goods not in the course of business can take place when the VAT-registered person withdraws goods from his business for his personal use.' Neither is it a 'distribution or transfer' to shareholders, investors or creditors, nor a 'consignment of goods.' Neither do these vessels constitute 'inventories of taxable goods' existing at the time of the retirement or cessation of business. It should be emphasized that NDC, by the sale of these vessels, has not retired from nor ceased business." We agree with the Respondents' pose that the " change of ownership of business, " contemplated under Section 4(E)(i) of Revenue Regulations No. 5-87 as will give rise to transaction " deemed sale " subject to the 10% Value-Added Tax (VAT), must be a consequence of the " retirement from or cessation of business " by the owner of the goods. In the instant case, the NDC, or the owner of the subject five (5) vessels sold to the other Private Respondents, did not retire from nor cease business. Neither was there a change in the ownership of the business of the NDC. Consequently, while the subject sale by NDC of the five (5) vessels to herein other Private Respondents involved in a change of ownership of NDC as business entity; and neither did NDC, by the sale of the five (5) vessels, retire from nor cease business. Moreover, as correctly, ratiocinated by the Respondent Court, Section 100(b), as implemented by Section 4(E)(i) of Revenue Regulations No. 5-87, which outlines and enumerates the instances of transactions ' deemed sale ' that are subject to VAT, is a classification statute, citing the landmark case of " Commissioner of Internal Revenue versus Ledesma, No . L-17509, January 30, 1970, 31 SCRA 95, 111 ," where the Supreme Court made a significant distinction between a " classification statute " and an " exemption statute" vis-a-vis the statutory construction to be accorded to the two distinct types of statutes, to wit: "A classification statute, or one which specifies the persons or property subject and not subject to a tax, is not an exemption statute and the general rule . . . that a tax statute will be construed in favor of the taxpayer applies. Any doubt as to the person or property intended to be included in a tax statute will be resolved in favor of the taxpayer." We find and declare that the Respondent Court did not err in applying the doctrine that: "It bears stressing that tax burdens are not to be imposed, nor presumed to be imposed beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government." ( Commissioner of Internal Revenue versus Court of Appeals, G . R . No . 107135, February 23, 1999, 303 SCRA 508, 517) . IN THE LIGHT OF ALL THE FOREGOING, Respondents' " Motion for Reconsideration ", dated March 25, 1997, is hereby GRANTED . The Respondent Court's April 27, 1992 Decision, as well as its December 9, 1992 Resolution, both issued in CTA Case No. 4353, are hereby AFFIRMED IN TOTO. CTEaDc SO ORDERED. Mabutas, Jr . and Reyes, JJ . , concur.