Commissioner of Internal Revenue v. Prime Asia Pawn & Jewelry Shop, Inc.

EIGHTH DIVISION [CA-G.R. SP No. 70318. November 6, 2003.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . PRIME ASIA PAWN & JEWELRY SHOP, INCORPORATED , respondent . D E C I S I O N VASQUEZ , JR. , J p : This is a Petition for Review of the Decision of the Court of Tax Appeals dated April 4, 2002, in CTA Case No. 6304. The facts of the case are ably stated in the said decision. We quote: "Petitioner is a corporation organized and existing under the laws of the Republic of the Philippines, with principal office at 154156 Lim Chin Building, Colon Street, Cebu City. It is engaged in the pawnshop business. On March 2, 2000, respondent through Regional Director Crispino B. Vallejo, Jr., Revenue Region No. 13, Cebu City, issued a Preliminary Assessment Notice with Details of Discrepancies for alleged deficiency VAT and withholding tax for the year 1997, in the amounts of P2,035,822.98 and P20,350.72, respectively. Respondent averred that beginning 1996, pawnshop operators became subject to VAT pursuant to Section 102 (a) of the Tax Code, as amended by Republic Act No. 7716, as further amended by R.A. 8241. Further, respondent based the assessment for deficiency VAT on a BIR Ruling dated September 1, 1997 which ruled that pawnshop operators are subject to the 10% VAT (Exhibits A and A-1). On March 29, 2000, petitioner filed its letter protest assailing the Preliminary Assessment Notice issued by respondent on March 2, 2000, covering its 1997 deficiency VAT but agreed to settle the deficiency withholding tax for the same year (Exhibit 'B'). On May 23, 2000, respondent denied petitioner's protest and reiterated its demand for payment of the latter's tax liabilities in the total amount of P2,114,596.33 (Exhibit 'C'). On even date, respondent issued Assessment Notice No. 81-vat-13-97-2000-5-106 with Formal Letter of Demand with a total deficiency VAT of P2,082,173.64 (pp. 396 and 397, BIR Records) . On July 25, 2000, petitioner filed a second letter protest reiterating its claim that its pawnshop business is not subject to the 10% VAT and that the assessment for deficiency VAT for the year 1997 should be cancelled and set aside for lack of legal basis. In a letter dated March 29, 2001, which was received by petitioner on April 25, 2001, respondent denied petitioner's request for the second time which constituted the former's final resolution on the issue involved in this case (Exhibit 'E'). . . . . " (CTA Decision, pp. 12; Rollo , pp. 2324) On the basis of the foregoing facts, the Court of Tax Appeals rendered its decision, the dispositive portion of which reads: "WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby GRANTED. Assessment Notice No. 81-vat-13-97-2000-5-106 dated May 23, 2000, is hereby CANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT. SO ORDERED. (CTA Decision, p. 10; Rollo , p. 32.) The Commissioner of Internal Revenue now challenges the said decision and implores Us to resolve whether: "The Tax Court erred in holding that pawnshops are not subject to VAT on sale of services imposed under Section 102 (a) [now Section 108 (A)] of the Tax Code, as amended by R.A. 7716." (Petition, p. 5; Rollo , p. 12) The petition is meritorious. Well-entrenched in our jurisprudence is the doctrine that a tax cannot be imposed unless it is supported by clear and express language of a statute (Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, 295 SCRA 721 [1998]) . The reason for this is: Taxes, being burdens, are not to be presumed beyond what the applicable statute expressly and clearly declares, tax statutes being construed strictissimi juris against the government. (Province of Bulacan vs. Court of Appeals, 299 SCRA 442 [1998]) . Equally settled, too, is the rule that tax statutes are to receive a reasonable construction with a view of carrying out their purposes and intent. They should not be construed as to permit the taxpayer to easily evade the payment of the tax (Commissioner of Internal Revenue vs. Court of Appeals, 242 SCRA 289 [1995]) . Guided by the foregoing principles, We now determine whether pawnshops are subject to the Value Added Tax (VAT). Section 102(a) of the National Internal Revenue Code, as amended by Republic Act No. 7716 and further amended by Republic Act No. 8241 , (which was then in effect in 1997 when the subject deficiency VAT accrued) provides: "There shall be levied, assessed and collected, a value-added tax equivalent to 10% of the 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 or service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic film; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators and 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 ; transportation contractors on their transport of goods and 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 insurances) 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 physical and mental faculties. . . . ." (now Section 108(A) of the National Internal Revenue Code of 1997 ; Emphasis and Italics ours). Evident from the import of the foregoing provisions is that the law intended to impose and levy the Value Added Tax on all transactions involving the "sale or exchange of services" otherwise it would not have defined the same as the performance of all kinds of services in the Philippines for others either for a fee, remuneration or consideration if such was not its intention. The law fittingly went on to define the phrase "all kinds of services" by enumerating examples of the kinds of services which are intended to be covered by the VAT. Private respondent Prime Asia Pawn and Jewelry Shop, Incorporated (PAPJSI, for brevity) insists, though, that the law did not specifically mention pawnshops in the enumeration it made. Applying the rule in statutory construction that "inclusio unius est exclusio alterius" , it argues that by making the said enumeration, the statute intended to limit the coverage of the VAT to the transactions enumerated therein thereby making it exclusive. It is not. The phrase " including those performed or rendered by " after the phrase " the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration " necessarily conveys the very idea of non-exclusivity of the enumeration (Binay vs. Sandiganbayan, 316 SCRA 65 [1999]) , especially if we reckon the catchall phrase "and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical and mental faculties" at the end of the enumeration. The principle of inclusio unius est exclusio alterius does not apply where the circumstances indicate that the enumeration is by way of example only, as is the case here (Binay vs. Sandiganbayan, ibid.) . It would be impractical, if not impossible, for Congress to list down all the included transactions subject to VAT and the law clearly did not intend said enumeration to be an exhaustive list considering the catchall phrase added at the end of the enumeration cited earlier. Indeed, no statute could be enacted that can provide all the details involved in its application. There is always an omission that may not meet a particular situation. What is thought of at the time of enactment to be all-embracing legislation may be inadequate to provide for the unfolding events of the future. So-called gaps in the law develop as the law is enforced. One of the rules of statutory construction used to fill in the gap is the "doctrine of necessary implication" . Under this doctrine, what is implied in a statute is as much a part thereof as that which is expressed. Every statute is understood, by implication, to contain all such provisions as may be necessary to effectuate its object and purpose, or to make effective rights, powers and subsidiary consequences as may be fairly and logically inferred from its terms. Ex necessitate legis . And every statutory grant of power, right or privilege is deemed to include all incidental power, right or privilege. This is so because the greater includes the lesser, expressed in the maxim, in eo plus sit, simper inest et minus (Chua vs. Civil Service Commission, 206 SCRA 65 [1992]) . Even assuming that the enumeration cited earlier was intended to limit the application of the statute in question, the doctrine of inclusio unius est exclusio alterius is still not applicable. The principle of ejusdem generis is more appropriate. The latter prescript, dictates that where general words like the phrase " and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical and mental faculties " follow an enumeration by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same kind or class as those specifically mentioned (United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of Land Problems, 353 SCRA 782 [2001]) . The purpose of the rule on ejusdem generis is to give effect to both the particular and general words, by treating the particular words as indicating the class and the general words as including all that is embraced in the said class, although not specifically named by the particular words (National Power Corporation vs. Angas, 208 SCRA 542 [1992]) . Thus, in determining the meaning of the phrase " and similar service ," one must refer to the prior enumeration. Verily, one of the covered persons cited in the enumeration is a lending investor . A lending investor is defined as one who makes a practice of lending money for himself or others at interest (Siao Tiao Hong vs. Commissioner of Internal Revenue, 213 SCRA 164 [1992]) . Upon the other hand, a pawnshop refers to a person or entity engaged in the business of lending money on personal property delivered as security for loans at an interest (Sections 3 and 10, Presidential Decree No. 114) . Clearly, pawnshops fall under the same category as lending investors since both are fundamentally engaged in the lending of money in exchange for the payment of interest by the borrower. Aptly so, We hold that pawnshops are subject to Value Added Tax. IDScTE In light of the fact that the imposition of the VAT on pawnshop services has already been established, private respondent's claim of exemption from tax payments must clearly be shown and based on language in the law too plain to be mistaken (Davao Gulf Lumber Corporation vs. Commissioner of Internal Revenue, 293 SCRA 76 [1998]) . PAPJSI failed to show any provision in the Tax Code which clearly grants its entreated exemption. Ironically for private respondent, the services provided by pawnshops are not included as one of the transactions exempted from the VAT as listed under Section 103 of the said code. Had Congress intended to exempt pawnshops from the imposition of the Value Added Tax, then it should have included the latter in the list of exempted taxpayers or transactions. Evidently, the law was not designed to exempt pawnshops from the VAT but indeed considers them as persons or entities engaged in the performance of "all kinds of services in the Philippines for other for a fee, remuneration or consideration." IN VIEW OF ALL THE FOREGOING, the petition is hereby GRANTED, the assailed decision of the Court of Tax Appeals is REVERSED and SET ASIDE and a new one entered DISMISSING C.T.A. Case No. 6304. No pronouncement as to cost. SO ORDERED. Reyes and Magpale, JJ ., concur.