Commissioner of Internal Revenue v. Philippine Global Communications, Inc.

FIFTH DIVISION [CA-G.R. SP No. 46628. August 21, 2000.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . PHILIPPINE GLOBAL COMMUNICATIONS, INC. , respondent . D E C I S I O N AGNIR, JR . , J p : This is an appeal by petition for review under Rule 43 of the 1997 Rules of Civil Procedure from the decision rendered by the Court of Tax Appeals in C.T.A. Case No. 5400 ( Rollo , pp. 32-46) ordering petitioner Commissioner of Internal Revenue to refund to private respondent Philippine Global Communications, Inc. the amount of P70,795,150.51 which the latter erroneously paid as 3% franchise tax for three quarters in 1994 and four quarter in 1995. The antecedent facts are summarized in the assailed decision as follows: "Petitioner is a corporation duly organized and existing by virtue of Philippine laws with office address at 8755 Paseo de Roxas, Makati City. It is a telecommunication company operating under a legislative franchise granted by Republic Act No. 4617. Its main business activities are in the construction, maintenance and operation of communication systems by radio, wire, satellite and other means between any point in the Philippines to points exterior thereto. As a franchise, it is subject to the payment of the 3% franchise tax prescribed under Section 117(b) of the National Internal Revenue Code, as amended ('Tax Code' for brevity). The present controversy all started when Republic Act No. 7716, otherwise known as the 'Expanded Value-Added Tax Law', took effect on May 28, 1994. Petitioner posits the view that Section 12 of the latter law expressly amended said Section 117(b) of the Tax Code by removing its liability for the 3% tax on franchise. It further asseverates the following ratiocination. '10. The restraining order in the implementation of Republic Act No. 7716 issued by the Supreme Court in the cases of 'Tolentino, et al.' (G.R. Nos. 115455; 115525; 115543; 115544; 115754 and 115781) cannot have the effect of extending petitioner's liability for the 3% franchise tax for the following reasons: (a) the grant of such tax exemption, or removal of the liability for such tax, was not an issue in said cases; and (b) the Supreme Court restrained the implementation but not the effectivity of Republic Act No. 7716. Hence, with the effectivity of said law on May 24 (sic), 1994, petitioner was already benefited by such tax exemption, which is self-operative and requires no implementation to take effect. (Petition, p. 4)' Consequently, on May 20, 1996, petitioner filed the requisite administrative written claim for refund together with the aforesaid justifications with the Appellate Division of respondent's Bureau, on the hereinbelow listed amounts of franchise taxes it cumulatively paid even after the effectivity of Republic Act No. 7716, to wit: 'Quarter Total per Covered Date Paid machine validation Exh. 2nd, 1994 20 July, 1994 P9,380,243.00 "D" 3rd, 1994 20 October, 1994 10,892,806.80 "E" 4th, 1994 20 January, 1995 14,645,196.78 "F" 1st, 1995 20 April, 1995 9,512,684.78 "G" 2nd, 1995 20 July, 1995 9,870,148.49 "H" 3rd, 1995 20 October, 1995 8,586,305.90 "I" 4th, 1995 22 January, 1996 7,907,764.76 "J" P70,795,150.51' Despite such written claim, however, respondent failed to act on the same. Petitioner was therefore constrained to institute the instant appeal due to the near expiry of the prescriptive period of two-years within which a judicial claim for refund may be filed in accordance with Section 230 of the Tax Code." ( Rollo, pp . 32-34 ). On 02 October 1997, the Court of Tax Appeals rendered the assailed decision. Petitioner moved for its reconsideration but the same was denied. Hence, this appeal, anchored on the following assignment of errors: 1. THE TAX COURT ERRED IN ORDERING THE REFUND TO HEREIN RESPONDENT HOLDING THAT ONLY THOSE PROVISIONS IN R.A. 7716 WHICH NEED TO BE IMPLEMENTED BY THE BIR WERE RESTRAINED BUT THOSE PROVISIONS WHICH ARE SELF-OPERATIVE SUCH AS THE GRANT OF TAX EXEMPTION OR REMOVAL OF A TAX LIABILITY WERE ALREADY ENJOYED BY THOSE ENTITLED THERETO UPON THE EFFECTIVITY OF R.A. 7716. 2. THE TAX COURT ERRED IN HOLDING THAT THE TEMPORARY RESTRAINING ORDER ISSUED BY THE SUPREME COURT DID NOT HAVE THE EFFECT OF SUSPENDING THE EXCLUSION OF PETITIONER FROM THE FRANCHISE TAX UNDER RA 7716" ( Rollo, pp . 17-18 ). Petitioner's position is that the 10% Value Added Tax under R.A. 7716 replaced the 3% franchise tax under Section 117(b) of the National Internal Revenue Code (Tax Code) and that, therefore, when the enforcement and implementation of R.A. 7716 was restrained/suspended by the Supreme Court, respondent's tax liability reverted back in the meantime to the 3% franchise tax. On the other hand, it is the submission of respondent that R.A. 7716 repealed/removed, not replaced, the 3% franchise tax and that from the time R.A. 7716 was signed into law, said respondent became exempt from the 3% franchise tax. Respondent argues that the restraining order issued by the Supreme Court did not suspend respondent's exemption from the 3% franchise tax because the suspension referred not to the effectivity of R.A. 7716 but only to the implementation of certain provisions of R.A. 7716 which needed enforcement through rules and regulations to be issued by petitioner. In a nutshell, therefore, the issue is whether or not respondent continued to be liable to pay the 3% franchise tax while the implementation of the 10% Value Added Tax was under suspension. To resolve the issue, it is necessary to determine the effect or import of R.A. 7716 on Section 117 of the Tax Code which, before the passage of R.A. 7716, reads as follows: "Sec. 117. Tax on Franchises . Any provision of general or special law to the contrary notwithstanding, there shall be levied, assessed and collected in respect to all franchises, upon the gross receipts from the business covered by the law granting the franchise, a tax in accordance with the schedule prescribed hereunder: 'a) On electric utilities, city gas and water supplies Two (2%) percent 'b) On telephone and/or telegraph systems, and radio broadcasting stations Three (3%) percent 'c) On other franchises Five (5%) percent "The grantee shall file the return with, and pay the tax due thereon to the Commissioner of Internal Revenue or his duly authorized representative in accordance with the provisions of Section 125 of this Code, and the return shall be subject to audit by the Bureau of Internal Revenue, any provision of any existing law to the contrary notwithstanding" ( Rollo, p . 19 ). On the other hand, Section 12 of R.A. 7716 provides" "Sec. 12. Tax on franchise . Section 117 of the National Internal Revenue Code, as amended, is hereby further amended as follows: "Sec. 117. Tax on franchise . Any provision of general or special law to the contrary notwithstanding, there shall be levied, assessed and collected in respect to all franchise on electric, gas and water utilities a tax of two percent (2%) on the gross receipts derived from the business covered by the law granting the franchise' ( Rollo, p . 20 ). As can be seen, the 2% franchise tax on gross receipts of gas and water utilities was retained while the 3% franchise tax on "telephone and/or telegraph systems, and radio broadcasting stations", to which category respondent belongs, was removed. R.A. 7716 took effect on 28 May 1994 and would have been enforced on 01 July 1994 but its enforcement was stopped because the Supreme Court issued a temporary restraining order on 30 June 1994. R.A. 7716 was finally implemented on 01 January 1996. Petitioner contends that "respondent is still subject to 3% franchise tax under Section 117(b) of the Tax Code, as amended, considering that the law which amended the same (R.A. 7716) was restrained by the Supreme Court" ( Petition, p . 9 , Rollo, p . 21 ). We do not agree. As aptly observed by the CTA, the TRO issued by the Supreme Court "cannot be interpreted as having suspended the exclusion of petitioner (now herein respondent) from franchise tax in view of the subsisting operation, validity and effectivity of RA 7716" ( CTA Decision, Rollo, p . 42 ). It is undisputed that RA 7716 took effect on 28 May 1994. Hence from that day onwards, the provisions of RA 7716 became effective. While these provisions were in effect, they could not be implemented beginning 30 June 1994 because of the TRO issued by the Supreme Court. It does not mean however that the effectivity of these provisions or of RA 7716 for that matter is negated. Rather, it is only the implementation of the law that is being withheld by the issuance of the TRO but not the effectivity thereof. Sec. 12 of RA 7716 amended Sec. 117 of the NIRC by expressly removing the 3% franchise tax previously imposed on telephone and/or telegraph systems and radio broadcasting stations. As the law presently stands, respondent Philippine Global Communications, Inc. is no longer liable to pay the 3% franchise tax inasmuch as the amendatory law expressly omitted telephone and/or telephone systems and radio broadcasting stations from the enumeration of those which are presently subject to the franchise tax. Whether or not Sec. 12 of RA 7716 amending Sec. 117 of the NIRC can be implemented in view of the restraining order on 30 June 1994 is of no moment. What is significant is that said Sec. 12 has already became operative by virtue of the effectivity of the law on 28 May 1994. Thus, respondent ceased to be liable to pay the 3% franchise tax even before the issuance of the restraining order by the high tribunal. The issuance of Revenue Memorandum Circular No. 27-94 directing the enforcement of the NIRC prior to its amendment by RA 7716 in the interim that the restraining order of the Supreme Court remains in force, does not and can not have the effect of reviving the provisions of the NIRC that were already superseded or abrogated by the amendatory law. Stated otherwise, a departmental regulation can not alter the operative provisions of a law passed by Congress, approved by the President and ultimately upheld by the courts. It is next argued that the value-added tax under RA 7716 replaced the 3% franchise tax on telephone and/or telegraph systems and radio broadcasting stations previously imposed by Sec. 117(b) of the NIRC. Since petitioner can't impose the value-added tax in view of the restraining order issued by the high tribunal, it posits that it can collect on the 3% franchise tax of respondent otherwise a hiatus or a vacuum would be created in the enforcement of tax laws. Furthermore, since respondent denies its liability to the 3% franchise tax, it is petitioner's theory that, in effect, respondent has admitted to the value-added tax. The argument is misplaced. Again, as correctly observed by the CTA, the issue here is whether or not respondent is liable to pay the 3% franchise tax under RA 7716 ( CTA Resolution, Rollo, p . 52 ). Whether or not the value-added tax replaced the franchise tax must be resolved elsewhere and not in the present forum. Similarly, the question of whether or not respondent is liable to the value-added tax under RA 7716 must be likewise determined in a separate proceeding specifically commenced for the purpose. WHEREFORE, premises considered, the instant Petition is hereby DISMISSED and the Decision dated 2 October 1997 of the CTA ordering the Commissioner of Internal Revenue to refund the amount of P70,795,150.51 to the Philippine Global Communications, Inc. representing its erroneously paid franchise tax is AFFIRMED. SO ORDERED. Sandoval-Gutierrez and Agcaoili, JJ., concur.