Commissioner of Internal Revenue v. Agencia Exquisite of Bogo, Inc.

FORMER FOURTEENTH DIVISION [CA-G.R. SP No. 69590. January 26, 2004.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . AGENCIA EXQUISITE OF BOGO, INC. , respondent . D E C I S I O N GUEVARA-SALONGA , J p : Before us is a Petition for Review of the Decision dated 20 February 2002 rendered by the Court of Tax Appeals in C.T.A. Case No. 6303, entitled "Agenda Exquisite of Bogo, Inc. vs. Jaime B. Santiago, in his capacity as Revenue Regional Director, Revenue Region No. 13 of the Bureau of Internal Revenue and the Commissioner of Internal Revenue" , which cancelled the assessment issued against the respondent corporation for deficiency value-added tax (VAT) for the year 1997 in the amount of One Hundred Twenty Three Thousand Three Hundred Sixty Two Pesos and Eighty Centavos (P123,362.80). The dispositive portion of the assailed decision reads in this wise: "WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby GRANTED. Revenue Memorandum dated September 1, 1997 issued by Commissioner Sixto Esquivas, IV is declared NULL and VOID. Accordingly, Assessment Notice No. 80-VAT-13-97-2000-12-178 issued against Petitioner is CANCELLED and SET ASIDE. SO ORDERED." 1 The Facts The pertinent facts and antecedent proceedings in this case, as borne by the records, are undisputed. Respondent Corporation Agenda Exquisite of Bogo, Inc. ("Respondent Corporation") is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines. It is the owner and operator of Agenda Exquisite of Bogo, Inc., which is located at Juan Luna St., Bogo, Cebu. On December 18, 2000, the respondent corporation received a formal letter of Demand and Details of Discrepancy from the Bureau of Internal Revenue (BIR). Attached therewith was Assessment Notice No. 80-VAT-13-97-2000-12-178. Due its purported failure to pay the Value-Added Tax for the taxable year 1997, respondent corporation was required to pay the assessed amount in the sum of One Hundred Twenty Three Thousand Three Hundred Sixty Two Pesos and Eighty Centavos (P123,362.80) which included the total output tax and the 25% surcharge for late payment and 20% interest. The assessment was issued by the BIR under the authority of Republic Act No. 8424 (R.A. 8424) which imposes Value-Added Tax on the sale, barter, exchange and lease of goods and services made in the ordinary course of business. On January 16, 2001, the respondent corporation filed a Formal Tax Protest with the Revenue Regional Director of Revenue Region XIII of the BIR questioning the validity and propriety of the said assessment. In the said tax protest, it likewise impugned the validity of the unnumbered Revenue Memorandum dated 1 September 1997 2 issued by Sixto S. Esquivas IV, then OIC Assistant Commissioner of the BIR, which imposes a 10% value-added tax on pawnshop operators. In his letter dated 29 March 2001, 3 Regional Director Jaime B. Santiago denied the tax protest of the respondent corporation. In said letter of denial, it was opined that contrary to the assertion of the respondent corporation, pawnshops are subject to the payment of value-added tax considering that they are not specifically and expressly exempted from the subject tax imposition under the provisions of Republic Act No. 7716, as amended (R.A. 7716). Aggrieved, the respondent corporation filed a Petition for Review of the denial of its tax protest before the Court of Tax Appeals. 4 On 20 February 2002, the Court of Tax Appeals rendered the assailed decision finding in favor of the respondent corporation in the manner as aforequoted. Hence, the petitioner filed the instant recourse. The Issue The main issue to be resolved in this case is whether the Court of Tax Appeals erred in finding that pawnshops are not subject to the imposition of value-added tax. The Court's Ruling We find the instant petition meritorious. Petitioner asserts that the enumeration of persons performing services under Section 102 (a) of the Tax Code, as amended by R.A. 7716 [now Section 108 (A)] is not exclusive but merely intended to give examples of businesses subject to value-added tax on sale or exchange of services. Contrastingly, the enumeration of transactions exempt from value-added tax under the code is exclusive. Thus, the respondent's conduct of business as a pawnshop, being engaged in the sale of services not expressly exempt by law, is subject to value-added tax. Petitioner likewise contends that the services rendered by pawnshops are similar to those of a lending investor and thus taxable under the VAT law. 5 The respondent interprets the law differently. It Insists that the enumeration of those transactions subject to value-added tax is exclusive and all-inclusive. It argues that the absence of pawnshops in the enumeration of "vatable" entities alone creates doubt on the propriety of the assessment of the BIR. 6 It further avers that it is not claiming exemption under the law but rather an exclusion therefrom. We agree with the petitioner. Section 102 (a) [now Section 108 (A)] of the Tax Code, as amended by R.A. 7716, provides in part: "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 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, rest houses, 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 insurance) 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 . . . . " 7 Succinctly, value-added tax is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property and on the performance of services, even in the absence of profit attributable thereto. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to value added tax. 8 By and large, the respondent, being in the service of lending money to the general public with interest and security, is subject to value-added tax. Contrary to its contention that the classification of pawnshops as one of the business entities subject to value-added tax is merely derived by implication, the law which directs the levy, assessment and collection of the said tax on all kinds of services for others for a fee, remuneration or consideration was enacted to comprehensively include all kinds of transactions involving the sale or exchange of services, unless otherwise stated. A fortiori , with the admission of the respondent that it is engaged in the business of rendering service to others for a fee, by way of interest payments, it cannot be gainsaid that its conduct of business is covered by the provisions of the law on value-added tax. A reading of the enumeration in the aforesaid section of the law bespeaks of the intention of the legislature to cover all transactions involving the sale and exchange of services. The nomenclature of the said provision is explicit, especially so since it minced no words in depicting the extent of its coverage. The use of the phrase "all kinds of services" clearly denotes that all transactions, as long as there is the rendering of services, regardless of its classification and profitability, should be subject to value-added tax. In the same vein, the insertion in the enumeration of the phrase "similar services" indicates the intention to include all transactions and services not categorically listed but all the same contemplated by the law. It is beyond cavil that the act of lending money at interest constitutes the performance of a service for a fee, and thus "vatable . " As defined, pawnshops refer to a person or entity engaged in the business of lending money on personal property delivered as security for loans. 9 We are likewise not impressed with the differentiation made by the respondent between its business and that of lending investors. The conduct of a pawnshop business is akin to that of a lending investor. If at all, the only difference that pawnshops and lending investors have is the nature of the security that they respectively require in their business transactions. Significantly, the stance of the respondent that it is not engaged in the sale or exchange of goods or services in the course of its trade and business but rather in a transaction that partakes of the nature of a contract of pledge is illusory, if not utterly obtuse. The fact that it enters into a contract of pledge does not negate the assertion that it engages in the exchange of services. As it is, all the transactions contemplated by the law as subject to the payment of said tax involves a contract, may it be a contract of lease, sale, barter, or such other contract. Indeed; regardless of the nature of the contract involved in its transactions, the respondent undeniably is rendering service to the general public for a fee, and should thus be made liable to pay the subject tax. Respondent also argues that before the application of the rule providing for the strict interpretation of laws granting exemption from tax, 10 there must be a prior resort or submission to the rule which enunciates that in case of doubt, tax laws are to be construed most strongly against the government and in favor of the taxpayer. 11 However, this argument is untenable under the antecedents of this case considering that in the first place, there is no doubt in the law which would require further consideration or interpretation thereof. Neither is there merit in respondent's claim that although it is not exempted under the law, it should be excluded from the payment of value-added tax. Irrespective of whatever word that it may opt to use to justify its refusal to pay value-added tax, the fact remains that it seeks an exemption therefrom. Unfortunately for the respondent, its entreaty deserves scant consideration. Well-entrenched is the legal precept that tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power 12 and must be expressed in the statute in clear language. 13 Any claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. It cannot be merely implied therefrom. 14 For this reason, there being no provision, express or implied, under the Tax Code, as amended, exempting pawnshops from the imposition and payment of value-added tax, respondent shall be liable for the payment of the same. WHEREFORE, the foregoing considered, the instant petition is hereby GRANTED and the assailed decision is REVERSED and SET ASIDE. Accordingly, the respondent is hereby ORDERED to pay assessed deficiency value-added tax (VAT) for the year 1997 in the amount of One Hundred Twenty Three Thousand Three Hundred Sixty Two Pesos and Eighty Centavos (P123,362.80). No costs. SO ORDERED. Barrios and Bersamin, JJ . , concur. Footnotes 1. Rollo , p. 26. 2. Rollo , pp. 8991. 3. Rollo , pp. 5759. 4. Rollo , pp. 4156. 5. Rollo , pp. 1014. 6. Rollo , p. 104106. 7. Emphasis ours. 8. Commissioner of Internal Revenue vs. Court of Appeals , 329 SCRA 237. 9. Section 3 of Presidential Decree No. 114. 10. Commissioner of Customs vs. Court of Appeals , 328 SCRA 822. 11. Commissioner of Internal Revenue vs. Fireman's Fund Insurance Company , 148 SCRA 315. 12. Sea-Land Service, Inc. vs. Court of Appeals , 357 SCRA 441. 13. Philippine Long Distance Telephone Company, Inc. vs. City of Davao , 363 SCRA 840. 14. Davao Gulf Lumber Corporation vs. Commissioner of Internal Revenue , 293 SCRA 76.