Commissioner of Internal Revenue v. Exquisite Pawnshop and Jewelry, Inc.

SPECIAL SECOND DIVISION [CA-G.R. SP No. 70319. May 13, 2003.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . EXQUISITE PAWNSHOP AND JEWELRY, INC. , respondent . D E C I S I O N TOLENTINO , A.G. , J p : Are pawnshops subject to the value-added tax (VAT)? This question is answered by the Court in the affirmative as it resolves this petition assailing the decision 1 dated April 4, 2002 of the Court of Tax Appeals in CTA Case No. 6319, entitled "Exquisite Pawnshop & Jewelry, Inc., vs. Jaime B. Santiago, in his capacity as Revenue Regional Director, Revenue Region No. 13 of the Bureau of the Internal Revenue and the Commissioner of Internal Revenue" canceling the assessment issued against herein respondent for deficiency value-added tax (VAT) in the amount of P1,607,114.28 for the year 1997. The respondent is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines. On May 4, 1994, Republic Act (RA) No. 7716, otherwise known as The Expanded Value-Added Tax Law, was enacted amending certain provisions of the National Internal Revenue Code (NIRC). 2 Under the said Act, a value-added tax (VAT) is imposed on any person, who in the course of trade or business, sells, barters or exchange goods, or properties, renders services and any person who imports goods. Republic Act No. 8241 took effect on January 1, 1997 which further amended certain provisions of R.A. 7716. The said Act made some additions to those transactions exempt from the VAT. On September 1, 1997, Sixto S. Esquivas IV issued the questioned DA-297-97, subjecting pawnshop operators to the 10% value-added tax pursuant to Section 102-A of the Tax code, as amended by R.A. No. 7716, and further amended by R.A. No. 8241, beginning 1996. On January 1, 1998, R.A. No. 8424, otherwise known as the Tax Reform Act of 1997, took effect, to which were incorporated all the aforementioned amendments. 3 Thus, on September 5, 2000, pursuant to Section 108 of the NIRC, as amended by R.A. No. 8424, and by virtue of the DA-297-97 issued by Sixto E. Esquivias IV, Regional Director Jaime B. Santiago sent the herein petitioner a formal Letter of Demand demanding payment of the sum of P1,607,114.28, inclusive of interest, surcharge, and compromise penalty. 4 The respondent, then filed as administrative protest with the Office of the Regional Director, BIR Regional Office No. 13, Cebu City. Upon the denial of the administrative protest, the respondent filed CTA Case No. 6319 with the Court of Tax Appeals. On April 4, 2002, the Tax Court rendered a decision in favor of the respondent, canceling the assessment issued by the petitioner. Hence, this recourse by the Commissioner of Internal Revenue. Both the petitioner and the respondent in this case, ventured to construe the pertinent provisions of the National Internal Revenue Code, to wit; "Section 105. 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 subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. xxx xxx xxx Section 108. 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 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; 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 119 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 physical or mental faculties (Emphasis Ours) Elementary is the rule in statutory construction, that when laws or rules are clear, application and not interpretation thereof is imperative. In the instant case, the law is clear and leaves no room for its interpretation. Section 105 of the National Internal Revenue Code (NIRC) subjects "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 to a value-added tax (VAT). While 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." 5 It includes the services enumerated in the aforementioned section and similar services regardless of whether or not the performance thereof calls for the exercise or use of physical or mental faculties. The wordings of the definition of the phrase "sale or exchange of services" is unambiguous. It encompasses the performance of all kinds of services for a fee, remuneration or consideration. Thus, the sale or exchange of services is subject to 10% VAT. Indeed, for as long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT. 6 Section 3 of Presidential Decree No. 114 defines a pawnshop thus: "Pawnshop shall refer to a person or entity engaged in the business of lending money on personal property delivered as security for loans . . ." From the foregoing definition, the fact that, the principal activity of a pawnshop is lending money at interest on the security of personal property is instantly recognizable. Needless to state, the act of lending money at interest constitutes a performance of a service for a fee, remuneration or consideration. The phrase "all kinds of services" as stated in the second paragraph of Section 108(A) of Republic Act No. 8424 is broad enough to cover the kind of service which is provided by pawnshops to their borrowers, that is, lending money in consideration of personal property delivered as security. Hence, a pawnshop is engaged in the sale of services that is subject to VAT under Section 108(A) of the Tax Code, although it is not specifically mentioned in the law. Clearly then, pawnshops are subject to value-added tax . . . The respondent argues that pawnshop is not among those entities enumerated as subject to VAT, hence it is excluded from VAT coverage under the principle of " expressio unius est exclusio alterius ". However, the rule of "expressio unius est exclusio alterius" does not apply in the instant case. The said maxim should be applied only as a means of discovering legislative intent and should not be permitted to defeat the plain indicated purpose of the legislature. It does not apply when words are mentioned by way of example or to remove doubts. 7 From the wordings of Section 108(A) of the NIRC, the legislative intent is not to limit the application of the law to those enumerated therein, nor, exclude other kinds of services performed for a fee, remuneration or consideration, because the law speaks of "all kinds of services". To limit its application to the enumeration would contradict the very clear meaning of the phrase "all kinds of services". The word "including" used in the law should be construed as a term of enlargement, and not of limitation. 8 "A term whose statutory definition declares what it 'includes' is more susceptible to extension of meaning by construction than where the definition declares what a term 'means'. Thus, it has been said that 'the word 'includes' is usually a term of enlargement, and not of limitation. It, therefore, conveys the conclusion that there are other items includable, though not specifically enumerated . . ." (Sutherland Statutory Construction, 4th ed., Vol. 24, p. 82, Sec. 47.08) 9 Even assuming that the VAT is imposable only on services performed by persons enumerated in Section 108(A), pawnshops would still be subject to VAT pursuant to the last portion of the said Section 108(A) which included "similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties", in those which are imposed a 10% VAT. The services of pawnshops would fall under "similar services" inasmuch as their services are similar to those of a lending investor. Both lending investor and pawnshops make a practice of lending money at interest. Moreover, the transactions of pawnshops are not among those enumerated in Section 109 of the Tax Code as exempt from VAT under Section 108(A). If it was indeed the intention of the legislature, as respondent claims, to exclude pawnshops from the imposition of VAT, why was it not included in the enumerated exemptions? Contrary to the claim of the respondent, the legislative intent is to subject pawnshop to VAT, otherwise, it could have included pawnshops among those exempted from VAT. The respondent stresses that it is claiming exclusion and not exemption from the coverage of the value-added tax law. However, it is important to note, that there are no exclusions from VAT, as it is imposed on all kinds of services. There are exemptions, though, under Section 109 of the NIRC. Pawnshop transactions, as earlier stated, are not among those exempted. Tax exemptions must be expressly granted in a statute. Here, there is nothing in the statute which explicitly exempts pawnshops from payment of the VAT. WHEREFORE, premises considered, the appealed decision of the Court of Tax Appeals in CTA Case No. 6319 is hereby REVERSED and SET ASIDE, and a new one is entered ORDERING the respondent Exquisite Pawnshop & Jewelry, Inc. to pay the amount of P1,607,114.28 as deficiency value-added tax for the year 1997. cIDHSC SO ORDERED. Guerrero and * Del Castillo , JJ . , concur. Footnotes * Per Office Order No. 63-03-CG dated March 31, 2003. 1. Rollo , pp. 2142, Annex "A" of the Petition for Review. 2. Rollo, p. 22. 3. Rollo, p. 22. 4. Rollo, p. 23. 5. Commissioner of Internal Revenue vs. Court of Appeals, 329 SCRA 237. 6. Commissioner of Internal Revenue vs. Court of Appeals, 329 SCRA 237. 7. Agpalo, Ruben E., Statutory Construction, Fourth Edition, 1998, p. 229, (Citing the case of Gomez v. Ventura , 54 Phil. 726.) 8. Rollo, p. 32. 9. Rollo. p. 33.