Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.

SPECIAL THIRD DIVISION [CA-G.R. SP No. 67667. June 29, 2004.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . MICHEL J. LHUILLIER PAWNSHOP, INC. , respondent . D E C I S I O N ABDULWAHID , J p : This is a petition for review filed by petitioner Commissioner of Internal Revenue under Rule 43 of the 1997 Rules of Civil Procedure, assailing the Court of Tax Appeals' decision dated October 24, 2001. 1 Undisputedly, respondent Michel J. Lhuillier Pawnshop, Inc. is engaged in the pawnshop business. On December 9, 1999, the respondent received two notices of assessment, to wit: (1) Assessment Notice No. 81-VAT-13-97-99-12-118; and (2) Assessment Notice No. 81-DST-13-97-99-12-119, notifying the respondent of its deficiency in the payment of Value-Added Tax in the amount of P19,961,636.09, and Documentary Stamp Tax in the amount of P3,142,986.02, for the year 1997. The assessment included surcharge and interest. 2 On January 6, 2000, the respondent filed a motion for reconsideration of the assessment notices with the petitioner. 3 In response through a letter dated May 24, 2000, petitioner Commissioner of Internal Revenue denied the respondent's motion for reconsideration. 4 Disagreeing with the decision of petitioner Commissioner of Internal Revenue, the respondent filed on July 14, 2000 a petition for review with the Court of Tax Appeals. 5 Later, the respondent amended its petition with leave in order to correct the typographical errors therein. 6 On October 24, 2001, the Court of Tax Appeals rendered a decision 7 granting the respondent's petition, thus: 8 WHEREFORE, in view of all the foregoing the instant Petition for Review is hereby GRANTED. Accordingly, Assessment Notices Nos. 81-VAT-13-97-99-12-118 and 81-DST-13-97-99-11-119 are hereby CANCELLED and SET ASIDE. SO ORDERED. Aggrieved, petitioner Commissioner of Internal Revenue questions the decision of the Court of Tax Appeals through the following issues: 9 1. Whether respondent is liable for the amount of P19,961,636.00 [should be P19,961,636.09] 10 as deficiency VAT for the year 1997, and 2. Whether respondent is liable for the amount of P3,142,986.00 [should be P3,142,986.02] 11 as deficiency DST for the year 1997. This Court finds merit in the petition. "Taxes are the lifeblood of the nation." 12 Thus, the power to tax is inherent in the sovereignty, taxes being essential to its existence. Yet, the power to tax is not without limitations. Being a burden, a tax cannot be imposed unless provided so under the clear and express language of a statute. 13 Thus, adhering to the well-settled rule in statutory construction, where the language of the statute imposing a tax is plain and there is no room for construction, any claim for exemption must be clearly shown and based on the express intent of the law. 14 Otherwise stated, "taxation is the rule, exemption therefrom is the exception." 15 Under Section 102 (a) of the National Internal Revenue Code, as amended by Republic Act No. 7716, and further amended by Republic Act No. 8241, 16 the law in effect when the deficiency of taxes herein accrued, provides: SECTION 102. Value-added Tax on Sale of Services and Use or Lease of Properties . (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross of receipts derived from the sale or exchange of services , including the use or lease of properties. " The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration , including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators and keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land, air and water relative to their transport of goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 117 of this Code; services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurance), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physic or mental faculties. . . (Italics Ours for emphasis.) The law is clear. The Value-Added Tax is imposed on all kinds of transactions, among which are the "sale and exchange of services." Pawnshops, as correctly observed by Associate Judge Juanito C. Castaeda, Jr. in his dissenting opinion attached to the decision of the Court of Tax Appeals, 17 are engaged in the sale of services for a fee, hence, subject to the Value-Added Tax. The respondent insists that pawnshops are not covered by the Value-Added Tax because "it does not fall under the coverage of the type of services as contemplated by said provision of the law." In other ,words, the respondent argues that since the law's enumeration does not include pawnshops, it is not covered by the Value-Added Tax, relying on the rule in statutory construction inclusio unius est exclusio alterius (the inclusion of one thing is the exclusion of another or the enumeration of particular things excludes the idea of something else not mentioned). 18 The respondent's interpretation is erroneous. Such interpretation disregards the fundamental rule earlier mentioned. To repeat, where the language of the statute imposing a tax is plain and there is no room for construction, any claim for exemption must be clearly shown and based on the express intent of the law. It is clear that from the phrases "the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration," "including those performed or rendered by" and "similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties," that the coverage of the Value-Added Tax includes pawnshops since it is engaged in the performance of a service for a fee. The enumeration in the provision was merely to provide for examples of "all kinds of services." It was not meant to exclude services that were not mentioned in the enumeration. The maxim inclusio unius est exclusio alterius is not a rule of law. It cannot be applied when the enumeration as merely by way of example, 19 or when the statute does not explain why those not mentioned should be excluded. 20 To rule otherwise would create an absurdity where the law intends to subject "all kinds of services" to the Value-Added Tax, yet limits the scope of the to only those enumerated. Is the respondent likewise subject to Documentary Stamp Tax? The answer is in the affirmative. The pertinent provisions of the National Internal Revenue Code, as amended, are as follows: SECTION 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers . Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following Sections of this Title, by the person making, signing issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. SECTION 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust . On every mortgage or pledge of lands , estate, or property , real or personal , heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable, and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall be collected a documentary stamp tax. xxx xxx xxx [Rates omitted. Emphasis and Italics Ours.] Pawn tickets per se are not subject to Documentary Stamp Tax. Rather, it is the transaction involved that is being taxed. In the case of the property pawned, or pledged, is transferred to the pawnshop as security for the payment of money lent. This is where the Documentary Stamp Tax is imposed. True, the pawn ticket is not an evidence of indebtedness as expressly provided under Presidential Decree No. 114. 21 However, reliance on the pawn ticket to be subject to the Documentary Stamp Tax is erroneous. The law is clear. On every pledge of personal property, " where the same shall be made as a security for the payment of any definite and certain sum of money lent ," a documentary stamp tax is imposed, based on the amount involved. Again, adhering to the fundamental rule in construction regarding taxation, any claim for exemption must be shown and based on the express provision of the law. Pawnshops are not included in the exemption provided by the National Internal Revenue Code, as amended. 22 WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Tax Appeals dated October 24, 2001 is REVERSED and SET ASIDE. In lieu thereof, respondent Michel J. Lhuillier Pawnshop, Inc., is ORDERED TO PAY: (1) P19,961,636.09, as deficiency Value-Added Tax, inclusive of surcharge and interest; and (2) P3,142,986.02, as deficiency Documentary Stamp Tax, inclusive of surcharge and interest, for the year 1997. No pronouncement as to cost. SO ORDERED. Asuncion * and Del Castillo, ** JJ ., concur. Footnotes * Vice J . E. G. Verzola, who is on leave, per Office Order No. 158-04-CG dated May 28, 2004. ** Acting Senior Member, per Office Order No. 158-04-CG dated May 28, 2004. 1. Rollo, pp. 2231. 2. Rollo, pp. 4649. 3. Rollo, pp. 5056. 4. Rollo, pp. 5758. 5. Rollo, pp. 4145. 6. Rollo, pp. 5968; 7. Decision penned by Associate Judge Amancio Q. Saga, and concurred by Judge Ernesto D. Acosta, Rollo , pp. 2231; See also dissenting opinion by Associate Judge Juanito C. Castaeda, Jr., Rollo , pp. 3240. 8. CTA Decision, Rollo , p. 30. 9. Rollo , p. 10. 10. Assessment Notice No. 81-VAT-13-97-99-12-118. Rollo , p. 71. 11. Assessment Notice No. 81-DST-13-97-99-12-119. Rollo , p. 69. 12. Ferdinand R. Marcos II v. Court of Appeals, et al. , 273 SCRA 47, 57, (1997) 13. Commissioner of Internal Revenue v. Court of Appeals, et al. , 271 SCRA 605, 613 (1997) 14. Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue , 293 SCRA 76, 88 (1998). 15. Mactan Cebu International Airport Authority v. Hon. Ferdinand J. Marcos , 261 SCRA 667, 680 (1996). 16. Now, Section 108 of the Tax Reform Act of 1997 (Republic Act No. 8424). 17. Dissenting Opinion, Rollo , p. 36. 18. R. G. Martin, Statutory Construction, p. 78, 6th Ed., (1984) 19. Binay v. Sandiganbayan , 316 SCRA 65, 86 (1999). 20. Manabat v. De Aquino, et al. , 92 Phil 1025, 1027 (1953). 21. Section 3 of Presidential Decree No. 114 states: SECTION 3. Definitions. . . . "Pawn ticket" is the pawnbrokers' receipt for a pawn. It is neither a security nor a printed evidence of indebtedness. 22. Section 199 of the National Internal Revenue Code, as amended, states: SECTION 199. Documents and papers not subject to stamp tax . The provisions of Section 173 to the contrary notwithstanding, the following instruments, documents, and papers shall be exempt from the documentary stamp tax: (1) Policies of insurance or annuities made or granted by a fraternal or beneficiary society, order, association, or cooperative company, operated on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive benefit of each member and not for profit. (2) Certificates of oaths administered to any government official in his official capacity or of acknowledgment by any government official in the performance of his official duties, written appearance in any court by any government official, in his official capacity; certificates of administration of oaths to any person as to the authenticity of any paper required to be filed in court by any person or party thereto, whether the proceedings be civil or criminal; papers and documents filed in courts by or for the national, provincial, city, or municipal governments; affidavits of poor persons for the purpose of proving poverty; statements and other compulsory information required of persons or corporations by the rules and regulations of the national, provincial, city or municipal government exclusively for statistical purposes and which are wholly for the use of or for the use or benefit of the person filing them; certified copies and the bureau or office in which they are filed, and not at the instance or for the use or benefit of the person filling them; certified copies and other certificates placed upon documents, instruments, and papers for the national, provincial, city or municipal governments, made at the instance and for the sole use of some other branch of the national, provincial , city or municipal governments; and certificates of the assessed value of lands, not exceeding two hundred pesos in value assessed, furnished by provincial, city, or municipal treasurer to applicants for registration of title to land.