Commissioner of Internal Revenue v. Trustworthy Pawnshop, Inc.

NINETEENTH DIVISION [CA-G.R. SP No. 68593. December 5, 2005.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . TRUSTWORTHY PAWNSHOP, INC. , respondent . D E C I S I O N MAGPALE , J p : The instant petition challenges the Decision 1 dated December 6, 2001 of the Court of Tax Appeals (CTA) in CTA Case No. 6236. The facts are as follows: On July 4, 2000, Trustworthy Pawnshop, Inc., (hereinafter respondent) a domestic corporation and engaged in the pawnshop business, received from the Chief of the Assessment Division of Revenue Region No. 13, Cebu City a Formal Letter of Demand (Assessment No. 81-vat-13-97-2000-6-122) for unpaid deficiency value-added tax (VAT) computed therein as follows: Gross Receipts subject to VAT (2nd, 3rd and 4th Qtrs.) P55,892,148.66 Output Tax due P5,589,214.87 Less: Input tax claimed 216,732.82 VAT due 5,372,482.05 Less: tax paid per return 18,903.23 Deficiency tax due P5,353,578.82 Add: 20% interest from 7-25-97 to 7-31-00 3,506,212.45* TOTAL AMOUNT DUE P8,859,791.27* * Please note that the interest and the total amount due will have to be adjusted if paid beyond 7-31-00. Respondent protested the said assessment by filing a motion for reconsideration with the petitioner. Unable to obtain affirmative response from the petitioner, respondent elevated its case to the CTA. In its petition with the CTA, respondent argues that Section 102(a) of the National Internal Revenue Code (NIRC), as amended by R.A. 7716 [now Section 108 (A) of the 1997 NIRC, as amended by R.A. 8424], which is the basis of the petitioner in issuing the aforestated assessment notice, does not include pawnshop business as subject to VAT. Since pawnshop business is not included among those expressly enumerated in the said section, thus, there is no legal basis to subject or assess it for deficiency VAT. In answer thereto, petitioner asserted the correctness of its assessment and interposed the following special and affirmative defenses: '4. Petitioner [herein respondent], as a pawnshop operator, performs services for (sic) others for a fee, remuneration or consideration. Its services consist of lending money at interest on the security of personal property, and the interest is the fee, remuneration or consideration for such services. Hence, it is engaged in the sale of services subject to value-added tax (VAT) under Section 102(a) of the Tax Code, as amended by R.A. 7716. 5. Under Section 102 (a) of the Tax Code, as amended by R.A. 7716, the VAT is equivalent to 10% of the gross receipts derived from the sale or exchange of services. 6. Interest on pledge loans and past due loans and liquidated damages are part of petitioner's gross receipts subject to VAT. 7. The assessment was issued in accordance with law and regulations. 8. All presumptions are in favor of correctness of tax assessments.' ITScAE On December 6, 2001, the CTA rendered the assailed Decision striking down the assessment issued by petitioner against respondent as the same lacked legal basis. The dispositive portion of the assailed judgment reads: WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby GRANTED. Accordingly, Assessment Notice No. 81-VAT-13-97-2000-6-22 is hereby CANCELLED and SET ASIDE. SO ORDERED. Not in agreement with the above-finding of the CTA, petitioner brought forth the instant petition. Again, this Court has to tackle the issue of whether or not pawnshop businesses are subject to VAT. In a number of cases 2 , this Court had already answered the said query in the affirmative. Section 99 (now Section 105) of the NIRC, among others, provides: "Sec. 99. Persons Liable . Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services , and any person who imports goods shall be liable to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code." Section 102 (now Section 108) of the NIRC in part reads: "Sec. 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 10% of gross 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 or 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; operators of taxicabs; utility cars for rent or hire driven by the lessees (rent-a-car companies), tourist buses; and other common carriers by land, air, and sea 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 insurances) including surety, fidelity and indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties . . . . (Emphases supplied) Obviously, the afore-quoted provisions subject to VAT any sale of or exchange of service to others for a fee, remuneration or consideration. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject VAT. 3 Section 3 of Presidential Decree (PD) No. 114, otherwise known as the Pawnshop Regulation Act, defines pawnshop as a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawnshop. Unmistakably, the business of pawnshops of lending money at an interest, to the general public, with personal property placed to secure the payment of the loan, is a service. Since such transaction is undoubtedly a service, it follows that the same be subject to VAT under Section 102 (now Section 108). Although pawnshop is not one of the entities listed under Section 102 (now Section 108), the phrase "performance of all kinds of services" is broad enough to include the transaction of pawnshop in lending money at an interest. The enumeration of entities subject to VAT in the said provision is not exclusive, it serves only as example of entities which are subject to VAT. To limit the applicability of Section 102 (now Section 108) to the listed entities would run contrary to the clear meaning of the phrase "performance of all kinds of services". Basic is the rule in statutory construction, that when the laws or rules are clear, application and not interpretation is imperative. The provision of Section 102 (now Section 108) is crystal clear as to its purpose of subjecting sales of all kinds of services to VAT. Furthermore, Section 103 (now Section 109) of the NIRC, which provides for exempt transactions from VAT, does not include the pawnshop transaction of lending money at an interest. Exemptions from taxation are construed strictissimi juris against the taxpayer and liberally against the taxing authority. A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption is the exception. Considering that Section 102 (now Section 108) subjects to VAT sales of all kinds of services and the exemption from VAT under Section 103 (Section 109) does not include the pawnshop transaction of lending money at an interest, then it follows that such transaction is subject to VAT. In the case of Commissioner of Internal Revenue vs. Court of Appeals, et al ., 4 the Highest Tribunal held: "Section 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of services" as the "performance of all kinds of services for others for a fee, remuneration or consideration". . . . . . . As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT. At any rate, it is the rule that because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of tax must be clearly stated in the language of the law; it can not be merely implied therefrom. In the case of VAT, Section 109, Republic Act 8424 clearly enumerates transactions exempted from VAT. " (Emphasis Supplied) WHEREFORE, premises considered, the petition is hereby GRANTED, the challenged Decision is REVERSED and SET ASIDE, and a new one entered DISMISSING C.T.A. Case No. 6236. Accordingly, the respondent is hereby ORDERED to pay the assessed deficiency VAT for the year 1997 in the amount P8,859,791.27, inclusive of 20% interest from July 25, 1997 to July 31, 2000, plus delinquency 25% surcharge and 20% interest per annum for failure to pay the deficiency tax on the due date appearing on the Assessment Notice that is on July 31, 2000, based on the unpaid amount of P8,859,791.27, until fully paid pursuant to Sections 248 and 249 of the NIRC. IAcDET SO ORDERED. Yap and Bruselas, Jr., JJ., concur. Footnotes 1. Penned by Associate Judge Amancio Q. Saga and concurred by Presiding Judge Ernesto D. Acosta. Associate Judge Juanito C. Castaeda dissented from the majority opinion. 2. Commissioner of Internal Revenue vs. Agencia Exquisite Bohol, Inc ., CA-G.R. SP No. 68180, February 10, 2003; Commissioner of Internal Revenue vs. Exquisite Pawnshop and Jewelry, Inc ., CA-G.R. SP 70319, May 13, 2003; and Commissioner of Internal Revenue vs. Prime Asia Pawnshop and Jewelry Shop, Inc ., CA-G.R. SP No. 70318, November 6, 2003. 3. Commissioner of Internal Revenue vs. Court of Appeals , G.R. No. 125355, March 30, 2000. 4. G.R. No. 125355, March 30, 2000.