Commissioner of Internal Revenue v. Philippine Long Distance Telephone Co.

TWELFTH DIVISION [CA-G.R. SP No. 47895. September 17, 1999.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . PHILIPPINE LONG DISTANCE TELEPHONE COMPANY , respondent . D E C I S I O N AGNIR, JR ., J p : This is a petition for review of (a) the Decision 1 of the Court of Tax Appeals dated 18 February 1999 in CTA Case No. 5178 entitled "Philippine Long Distance Telephone Company vs. The Honorable Commissioner of Internal Revenue". ordering the Commissioner of Internal Revenue "to refund or to issue in favor of PLDT a Tax Credit Certificate in the amount of P223,264,276.00 representing erroneously paid value added taxes compensating taxes and other BIR taxes on its importation of equipments, machineries and spare parts for the period covering the taxable years 1992 to 1994" and (b) the Resolution 2 of the same court dated 07 May 1998 denying petitioner's motion for reconsideration. The facts of this case are undisputed. Respondent is a corporation duly organized and existing under Philippine laws and is a grantee of a legislative franchise under Republic Act No. 7682 to carry on the business of providing basic and enhanced telecommunications services in and between provinces, cities and municipalities in the Philippines and between the Philippines and other countries and territories." For the period covering 01 October 1992 to 31 May 1994, respondent PLDT imported various equipment, machinery and spare parts it needed for its operation and paid taxes on these importations to the Bureau of Internal Revenue (BIR) totaling P164,510,953.00 broken down as follows. Compensating Tax P126,713,037.00 Advance Sales Tax 12,460,219.00 Other BIR Taxes 26,337,697.00 For the period covering 01 March 1994 to 31 May 1994, respondent PLDT likewise paid value-added (VAT) taxes in the amount of P116,041,333.00 on similar importations. Respondent's legislative franchise defines and enumerates the taxes it is liable to pay, as well as those which it is exempt from paying. Thus, Section 12 of Republic Act 7082 provides: "Sec. 12. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings, and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof. Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Sec. 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto." In a letter dated 23 November 1994, 3 respondent sought a confirmatory ruling from the BIR regarding its tax exemption under the above quoted provision. On 19 April 1994, the BIR issued Ruling No. 140-94, 4 a pertinent portion of which reads as follows. cdll "The 'in lieu of all taxes' provision under Section 12 of RA 7082 clearly exempts PLDT from all taxes including the 10% value-added tax (VAT) prescribed by Section 101 (a) of the spare parts necessary in the conduct of its business covered by the franchise, except the aforementioned enumerated taxes for which PLDT is expressly made liable. xxx xxx xxx In view thereof, this Office confirms your opinion, as it hereby holds that PLDT is exempt from VAT on its importation of equipment, machineries and spare parts, including but not limited to cellular phones, needed in its franchise operations." On the basis of the above ruling, respondent filed with the BIR on 02 December 1994 a claim for the refund of the above-mentioned taxes. No action having been taken by the petitioner and to avoid its claim for refund of payments made in 1992 from prescribing, respondent filed on 16 December 1994 a petition for review with the Court of Tax Appeals docketed as CTA Case No. 5178 5 seeking the refund or issuance of a Tax Credit Certificate in the amount of P280,552,266.00 representing compensating taxes, advance sales taxes, value-added taxes and other BIR taxes paid by respondent to the BIR on its importations for the period covering October 1992 to May 1994. On 18 February 1998, the Court of Tax Appeals issued a decision, the dispositive portion of which reads as follows: "WHEREFORE, in view of the foregoing, this Court finds the instant petition meritorious and in accordance with law. Accordingly, respondent is hereby ordered to REFUND or ISSUE in favor of petitioner a Tax Credit Certificate in the reduced amount of P223,265,276.00 representing erroneously paid value-added taxes, compensating taxes, advance-sales taxes and other BIR taxes on its importation of equipments, machineries, and spare parts for the period covering the taxable years 1992 to 1994. SO ORDERED." Petitioner filed a motion for reconsideration which the CTA denied in its resolution dated 07 May 1998. prLL Hence, this petition for review. The issue in this case involves the proper interpretation of the phrase "in lieu of all taxes on this franchise or earnings thereof" found in Section 12 of RA 7082, respondent's legislative franchise. It is the submission of the respondent that by virtue of said phrase, its payment of the franchise tax equivalent to 3% of gross receipts exempts it from payment of all other taxes except those enumerated in Section 12 such as income tax and taxes on real estate, buildings and personal property, and that such exemption includes compensating, advance sales and value-added taxes. On the other hand, it is the contention of petitioner that the exemption extends only to direct taxes and not to indirect taxes, arguing that compensating, advance sales and value-added taxes are indirect taxes because the payment of said taxes was initially saddled upon the manufacturers or firms from whom the respondent purchased the imported equipment, machinery and spare parts. Petitioner also contends that the phrase "on this franchise as earnings thereof" qualifies or limits the immediately preceding phrase "in lieu of all taxes" and therefore respondent is liable to pay taxes that do not pertain to its franchise or earnings, such as the subject taxes. The petition has no merit. The operative word in the phrase "in lieu of all taxes" is the word "all" The Philippine Law Dictionary defines the word to mean "the whole collectively considered, the complete totality; as an adjective, every individual component of . . . ." Thus, as correctly argued by the respondent in its very lucid and enlightening Comment, it is clear that when the legislature used the word "all", it intended to exempt the respondent from every individual tax, or from the totality of taxes, collectible under the National Internal Revenue Code, except those explicitly mentioned in its franchise to be still payable by the said respondent, i.e., income tax and taxes on real and personal property. There is nothing in the language of respondent's legislative franchise that can justify petitioner's interpretation that respondent's exemption extends to direct taxes only and does not include indirect taxes. As held by the Supreme Court in Manila Lighter Trans Inc. vs. Marcos 6 cited by respondent in its Comment, "the word 'all' is the most comprehensive word in the English language, and the legislature should not have used the word 'all' when it intended to include only a small part." LLphil As pointed out by the respondent, it is a well-settled rule that statutory provisions should not be given a restricted meaning where no restriction is indicated, and no distinction should be made where none is intended. Thus, respondent's exemption from taxes expressly set forth in its legislative franchise should not be confined or restricted to direct taxes only as no such restriction appears to be indicated therein. In support of its contention that respondent's exemption extends only to direct taxes and not to indirect taxes as well, petitioner cites the Dissenting Opinion of Judge Amancio Saga 7 that "in order for indirect taxes to be included in the exemption, the law must specifically state that such indirect taxes are included in the exemption." The principle of expressio unius est exclusio alterius (The expression of one thing is the exclusion of another not mentioned) negates this contention. Under this principle, the enumeration of the taxes for which respondent is liable to pay in addition to the franchise tax of 3% gross receipts i.e., income tax and tax on real and personal property, excludes all other taxes, whether direct or indirect. The phrase "in lieu of all taxes" grants the respondent exemption from all other taxes not specified in the enumeration. Thus, there was no need for the legislature to specifically state that indirect taxes are included in the exemption. The record shows that the taxes sought to be refunded were directly paid by the respondent to the BIR, acknowledged and receipted for in the name of the respondent. On the other hand, there is nothing in the record to show that the taxes subject of the CTA decision under review consist in whole or in part of taxes paid for by others, the incidence of which was merely shifted to the respondent. Petitioner failed to offer any proof that the taxes in question are indirect taxes which were actually paid by other parties and are thus not covered by the exemption clause in respondent's franchise. It is clear therefore that petitioner's contention that the taxes subject of this case are indirect taxes which were only shifted by other taxpayers to respondent PLDT, has no leg to stand on. For there is no dispute that the taxes sought to be refunded are taxes directly paid by the respondent. There is likewise no merit in petitioner's contention that the taxes which respondent paid on its importations of equipment and machinery are not taxes on its "franchise or earnings thereof" and are therefore not included in the exemption. Under its franchise, respondent is expressly authorized to purchase and import all types of telecommunications systems, equipment, machinery, and spare parts necessary for it to exercise the right, privilege and authority to carry on the business of providing basic and enhanced telecommunication services in the Philippines and elsewhere. The taxes payable on such authorized franchise acts are therefore clearly within the ambit of respondent's tax exemption. As if in desperation, petitioner contends that the interpretation of the phrase "in lieu of all taxes" enunciated under the BIR Ruling No. UN-140-94 which "gave the impression that (respondent) is exempt from the payment of compensating taxes, advance sales taxes, value added taxes and other taxes on its importation of machineries equipment and spare parts was an unfortunate mistake on the part of authorities who rendered the said ruling." Firstly, it is not true that the above BIR Ruling merely gives an "impression" of exemption. On the contrary, it categorically states that "the 'in lieu of all taxes' provision . . . clearly exempts the PLDT from all taxes including the 10% value-added tax. . . ." The word "including" means that there are other taxes respondent is exempt from paying, including compensation taxes and advance sales taxes. Secondly, if the BIR Ruling was really such an unfortunate mistake, why hasn't it been withdrawn by the petitioner? But the more telling reason why the petition should be dismissed is the principle of stare decisis . In the previous case between the same parties and involving the same issue entitled "Commissioner of Internal Revenue vs. Philippine Long Distance Company" 8 the Sixteenth Division of this Court interpreted in the meaning of the phrase "in lieu of all taxes" found in Section 12 RA 7082. In that case, respondent PLDT sought the refund of value-added taxes it paid on its importations of equipment and machinery for the period 03 May 1992 to 29 February 1994. In ruling that the phrase "in lieu of all taxes on this franchise of earnings thereof" exempts the respondent from the payment of all other taxes, including the value-added tax, save only the taxes specified to be still payable by respondent in addition to the franchise tax of 3% on gross receipts such as income taxes and taxes on real and personal property, this Court said: llcd "It is a basic rule of statutory construction that a meaning that does not appear nor is intended or reflected in the very language of the statute cannot be placed therein (Masikad vs. Tanodbayan, 127 SCRA 724, Chang Yung Fa, et al vs. Gianzon, etc. 97 Phil 913). It is worth noting that the exempting clause or the in lieu provision in Sec. 12 of RA 7082 which reads shall be in lieu of all taxes on this franchise or earnings thereof is couched in a general term and all encompassing that it is safe to say that respondent PLDT is likewise exempted from paying the Value-Added Tax (VAT) on its importation of equipment machineries and spare parts for the use of its telecommunication system. If the intention of the law were to delimit the extent of the exemption the legislative authority could have enumerated the kinds of taxes and assessments which shall not be collected and restrict the exemption by specific words. It is a principle of statutory construction that general terms may be restricted by specific words, with the result that the general language will be delimited by the specific language which indicates the statutes object and purpose (Manila Electric Company vs. Vera 57 SCRA 352, 360; Statutory Construction by Crawford 1940 ed., p. 324-325) xxx xxx xxx "It also bears stressing that the Bureau of Internal Revenue and the Department of Finance are in second in interpreting the phrase "in lieu of all taxes and one in saying that petitioner is exempt from the 10% value added tax under Section 101 of the Tax Code. In BIR Ruling UN-140-94 the Bureau of Internal Revenue, through Assistant Commissioner Jaime M. Maza, ruled that (t)he 'in lieu of all taxes provision under Section 12 of RA 7082 clearly exempts PLDT from all taxes including the 10% value-added tax (VAT) prescribed by Section 101(a) of the same Code on its importations of equipment, machineries and spare parts necessary in the conduct of its business covered by the franchise, except the aforementioned enumerated taxes for which PLDT is expressly made liable (Rollo, p. 98) in reply to a letter of PLDT dated 29 July 1994 and supplemental memorandum dated November 23, 1994 requesting a ruling by the Department of Finance on the matter of the payment of taxes and duties on PLDT's importation of equipment, machineries, and spare parts to be used in the operation of its business pursuant to its franchise Acting Secretary Romeo L. Bernardo wrote. (t)hus, when Congress provided in Section 12 of RA 7082 for the taxes for which PLDT shall be liable and that payment of the franchise tax shall be in lieu of other taxes the lawmakers must have intended to include the import duties and taxes, which is not included in the enumeration of taxes PLDT shall pay in the term taxes of the in lieu of clause to which PLDT shall not be subject. To hold otherwise would make the obvious preferential tax treatment of the franchise holder nugatory." (Rollo p. 109). The Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. As a matter of principle, Courts will not set aside conclusions reached by the Court of Tax Appeals which is by the very nature of its function dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority (Commissioner of Internal Revenue vs. The Court of Appeals; The Court of Appeals and Ateneo de Manila University, G.R. No. 115349, promulgated April 18, 1997, acting Commissioner of Internal Revenue vs. Wander Philippines, Inc., et al 160 SCRA 573)." It is true that the previous case between the same parties involved the refund of value-added taxes only. It can easily be seen, however, that by using the same reasoning, one will come to the inevitable conclusion that the word "all" in the phrase "in lieu of all other taxes" includes compensating taxes and advance sales taxes as well. As stated by the Court of Tax Appeals in the decision under review: LLpr "While we ruled in said case that petitioner is entitled to tax credit for erroneously paid value-added tax, our pronouncement in the said decision is not limited to petitioner's exemption from payment of taxes other than franchise tax, income tax, and real property tax. Otherwise stated, the petitioner is exempt from paying not only value-added tax but also compensating tax, advance sales tax and other BIR taxes because its franchise expressly made it to pay only three kinds of taxes mentioned earlier. Moreover, we agree with petitioner in its memorandum that effective January 1, 1998, when Executive Order 273 introduced the Value-Added Tax System, it replaced, among others, the numerous privilege taxes, the advance sales tax and compensating tax on importations. These taxes were clearly erroneously collected by the Bureau of Customs during the period October 1, 1992 to May 31, 1994." This Court has already spoken on the issue of what taxes are referred to in the phrase "in lieu of all taxes found in Section 12 of RA 7082. There are no reasons to deviate from the ruling and the same must be followed pursuant to the doctrine of stare decisis As the Supreme Court said in a recent case, "It is a very desirable and necessary judicial practice that when a Court has laid down a principle of law applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases where the facts are substantially the same. Stare decisis et non quieta movere . Stand by the decision and disturb not what is settled." 9 WHEREFORE, the foregoing premises considered, the petition is DENIED DUE COURSE and is hereby DISMISSED SO ORDERED Mabutas, Jr . and Aquino, JJ . , concur. Footnotes 1. Rollo, pp. 14-24. 2. Ibid, pp. 34-40. 3. Ibid, pp. 50-52. 4. Ibid, pp. 46-49. 5. Ibid, pp. 41-45. 6. G.R. 30605-R, 29 March 1962. 7. Rollo, pp. 25-33. 8. CA-G.R. SP No. 40811, 16 February 1998, Rollo, pp. 86-99. 9. Luzviminda de la Cruz et al. vs. CA et al., G.R. Nos. 126183 and 129221, 25 March 1999.