Commissioner of Internal Revenue v. Cebu Rosver Pawnshop, Inc.

FIRST DIVISION [CA-G.R. SP No. 67621. April 11, 2003.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . CEBU ROSVER PAWNSHOP, INC. , respondent . D E C I S I O N BELLO, E.R. JR. , J p : For consideration is a Petition for Review assailing the decision rendered by the Court of Tax Appeals (CTA) on August 16, 2001 over C.T.A. Case No. 6154, and the Resolution dated October 26, 2001 which denied respondent's Motion for Reconsideration to the first mentioned decision. The following are the facts of the case. On April 14, 1998, petitioner Commissioner of Internal Revenue issued Audit Notice No. OCN 2AN000000164 to Revenue Officers Elizabeth Concha and Lolie Blando. Purpose of said notice was to conduct an examination on the books of account and other records of respondent Cebu Rosver Pawnshop, Inc. for the taxable period 1996. After the conduct of an examination, respondent was made to execute an agreement form. On the basis of this form, respondent paid a total amount of P23,488.94, broken down as follows: a) Deficiency Income Tax P19,064.18 b) Deficiency Registration Fee 4,424.76 TOTAL P23,488.94 On June 21, 1999, petitioner issued a preliminary assessment notice directed towards respondent informing the latter of its alleged Deficiency Percentage Tax in the amount of P208,467.50. On March 10, 2000, respondent received a Post Reporting Notice issued by petitioner informing the former of its alleged deficiency value added tax amounting to P627,350.02, inclusive of surcharge, interest and penalty. Respondent questioned the said Post Reporting Assessment on March 24, 2000 through a letter protest. Another Preliminary Assessment Notice was issued by petitioner on April 18, 2000, assessing the respondent of alleged deficiency value added taxes for 1996 in the amount of P632,929.22. On May 30, 2000, respondent received petitioner's assessment notice of the former's alleged value added tax liability in the amount of P640,313.42, inclusive of surcharge, interest and penalty. On June 6, 2000, respondent filed another letter protest with petitioner, incorporating and bringing to the attention of the Regional Director its earlier protest to the Post Reporting Notice dated March 9, 2000. Due to petitioner's denial of respondent's request for reconsideration of its assessed 1996 VAT liability, the latter filed a petition for review before the Court of Tax Appeals on August 18, 2000. In said petition for review, respondent asserted that there is no provision in the Revised Internal Revenue Code nor in the successive amendatory laws which include pawnshops as among those who are liable to pay value added tax. It would, thus, follow that there is not valid and legal basis for petitioner to assess and collect 10% value added tax from pawnshops and/or pawnshop operators. In addition, respondent maintained that Revenue Memorandum Order No. 15-91 and Revenue Memorandum Circular No. 43-91 are null and void because the same expanded the provisions of the Tax Code when it declared that pawnshops are subject to value added tax. Petitioner, on the other hand, raised the following contentions as its special and affirmative defenses: "8. Under Section 102(a) of the Tax Code, as amended by R.A. No. 7716, the sale of services rendered by lending investors and services similar thereto is subject to 10% VAT on gross receipts derived from said sale. Section 4.102-1 of Revenue Regulations No. 7-95 defines a "lending investor" as including "all persons, other than banks, non-banks financial intermediaries, finance companies and other financial intermediaries not performing quasi-banking functions, who make a practice of lending money for themselves or others at interest." Since the services of pawnshop are similar to those of lending investors, the sale of said services is subject to 10% VAT. 9. The assessment was issued in accordance with law and regulations. 10. In "Commissioner of Internal Revenue vs. Antonio Tuason, Inc.", 173 SCRA 397 (1989) the Supreme Court declared, viz: "All presumptions are in favor of the correctness of the assessment made by the Commissioner of Internal Revenue, and the taxpayer must prove the contrary." 11. In "Molina vs. Rafferty." 37 Phil. 546 (February 1, 1918), the Supreme Court affirmed the decision in Farrington v. Tennessee, 95 US 679, 686 (1877), which is quoted hereunder, viz: "When exemption from taxation is claimed, it must be shown indubitably to exist. The presumption is always against any surrender of the taxing power." 12. The Court of Appeals' ruling in "Commissioner of Internal Revenue v. Hon. Andres Reyes, et al., "CA-G.R. SP No. 28824, which declares that RMO No. 15091 and RMC No. 43-91 are null and void for being a "taxation by implication," is still under appeal before the Supreme Court (G.R. No. 113459). As such, said ruling is not yet final and executory. Clearly, the questioned Revenue Memorandum Circular/Order are still in full force and effect. 13. Section 218 of the 1997 National Internal Revenue Code provides, viz : 'Sec. 218. Injunction not Available to Restrain Collection. No court shall have the authority to grant an injunction to restrain the collection of any internal revenue tax, fee or charge imposed by this Code." 14. The Supreme Court in "Obillos Jr. vs. Commissioner of Internal Revenue," 139 SCRA 441, ruled that: 'Taxes being the chief source of revenue for the government to keep it running must be paid immediately and without delay." ( Collector of Internal Revenue vs. Yuseco, 3 SCRA 313 ). 15. Section 11 of the Republic Act No. 1125 provides, viz : 'Sec. 11. Who may appeal; effect of appeal. . . . No appeal from the decision of the Commissioner of Internal Revenue . . . shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law. . . " ( rollo , pp. 2123) On August 16, 2001, the challenged decision which resolved the issue of whatever or not pawnshops are subject to the payment of the 10% value added tax was promulgated by the Court of Tax Appeals. In granting respondent's petition for review, the CTA made the following pronouncement: "We do not however agree with the Respondent and find that the pawnshops are not subject to the 5% lending investor's tax and this has been well-settled by this Court in the case of Agencia Exquisite of Bohol, CTA Case No. 5990 promulgated on March 14, 2001 and Trustworthy Pawnshop, Inc. vs. Collector of Internal Revenue, CTA Case No. 5691 promulgated on March 7, 2000. In CTA Case No. 5691 entitled Trustworthy Pawnshop, Inc. vs. Collector of Internal Revenue promulgated on March 7, 2000, this Court ruled: 'If we go by the contention that pawnshop are lending investors, then Congress would not have been mistaken in treating the two separately under paragraphs ( dd ) and (ff) of Section 161 of the Tax Code, as amended, supra . Logic simply dictates that if by prior definition under Section 157 (u) of said Code pawnshops and lending investors are of the same class, then there is no rational basis for differentiating them under one heading later, except for the fact that they are dissimilar as tax subjects. Further analyzing said Section 161, supra , it appears that lending investors were imposed a graduated type of fixed taxes depending on the class of the city or municipality involved while pawnshops are differently levied a flat amount of tax. This particular observation bolster Our position that pawnshops are not similarly situated as lending investors. Congress would not have intended otherwise, because the act of segregating and imposing upon them unequal amount of taxes would transgress the fundamental rule on taxation on uniformity or equality enshrined under par. I, Section 28 of Article VI of our Constitution. The rule requires that all subject or objects of taxation, similarly situated, are to be treated alike or put on equal tooting both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). It has also been interpreted to mean that all taxable articles or kinds of property of the same class shall be taxed at the same rate (City of Baguio vs. de Leon, 25 SCRA 938). Verily, Congress is presumed to have acted in full knowledge of this particular constitutional limitation when it classified pawnshops apart from lending investors." The Court of Appeals also had the occasion to rule on the validity of RMO No. 15091 and RMC No. 43091 in the case of Commissioner of Internal Revenue vs. Hon. Andres B. Reyes, Jr., et al., CA-G.R. SP No. 28824 when it ruled, thus: ' . . . Revenue Circular Nos. 1591 and 4391 are not implementing rules but are new and additional measures which only Congress is empowered to impose. Section 245 of the Tax Code has limited or confined petitioner's power to issuing rules and regulations to implement or carry into effect the provision of the Code in the enforcement of taxes therein, and petitioner cannot impose additional taxes not provided therein. Under the Constitution, the power to tax is solely vested in Congress. In issuing subject Revenue Circulars imposing new taxes against pawnshops, petitioner arrogated unto himself legislative powers, with grave abuse of discretion and in excess of jurisdiction.' We do not see any valid or cogent reason to depart from the wisdom of the aforequoted decision of the Court of Appeals insofar as it declares the invalidity of RMO No. 1591 and RMC No. 43091 in the light of clear constitutional provisions. And since the deficiency VAT assessment issued against the Petitioner is hinged on Respondent's conclusion that the former is a lending investor thus also subject to VAT, this Court's contrary ruling as discussed above, effectively strikes down the said assessment as being null and void for lack of legal basis. WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby GRANTED. Revenue Memorandum Circular No. 83-91 and Revenue Memorandum Order No. 15-91, classifying pawnshops as lending investors, are hereby declared NULL and VOID. Accordingly, Assessment Notice No. 81-VAT-13-96-2000-5-104 is hereby CANCELLED AND SET ASIDE. SO ORDERED. ( rollo, pp. 2527) Petitioner then filed a Motion for Reconsideration to the above decision, but the same was denied on October 26, 2001. Aggrieved by the CTA's actions, petitioner came to Us seeking the resolution of this lone issue, to wit: "WHETHER RESPONDENT IS LIABLE FOR THE AMOUNT OF P640,313.42 AS DEFICIENCY VAT FOR THE YEAR 1996." We find the instant petition to be devoid of merit. Although merely persuasive in nature, weight must be given to the rulings of the Court of Tax Appeals in CTA Cases Nos. 5990 and 5691. In the latter case, the tax court declared that pawnshops are not similarly situated as lending investors. Thus, while lending investors are specifically declared under Section 102(a), now Section 108(A) of the Tax Code as liable to pay a value added tax equivalent to 10% of gross receipts derived from the sale or exchange of services, pawnshops like respondent should not be subjected to such tax. In the absence of a clear provision of law, an entity should not be subjected to additional taxes. As mandated in the case of Lincoln Philippine Life Insurance Co., Inc. vs. Court of Appeals (293 SCRA 92), settled is the rule that, in case of doubt, tax laws must be construed strictly against the state and liberally in favor of the taxpayer. Another factor which led us to the conclusion that the business of pawnshops is not similar to that of a lending investor is the finding of the Supreme Court in the case of Pilipinas Loan Company vs. Securities and Exchange Commission, et al. (G.R. No. 104720, April 4, 2001). In said case, petitioner was a lending corporation whose primary purpose, as appearing in its Articles of Incorporation, was to act as lending investor. Upon complaint that it was operating as a pawnshop, its business operations were investigated. Finally, the Highest Tribunal declared that, when it held itself out to the public as a pawnshop, Pilipinas Loan Company contravened its articles of incorporation. Such finding is tantamount to a declaration that the nature of a pawnshop business, and that of a lending investor, are inherently different. Lastly, it must be remembered that, as a matter of principle, the Supreme Court itself will not set aside the conclusion 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. Court Appeals, 271 SCRA 605 ) TcICEA IN VIEW OF THE FOREGOING, the assailed decision and resolution are hereby AFFIRMED. Accordingly, the instant petition is hereby DISMISSED for lack of merit. SO ORDERED. Garcia and Del Castillo, JJ . , concur.