Commissioner of Internal Revenue v. Philippine Health Care Providers, Inc.

FIFTEENTH DIVISION [CA-G.R. SP No. 76449. February 18, 2005.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . PHILIPPINE HEALTH CARE PROVIDERS, INC. , respondent . D E C I S I O N CARANDANG , R. , J p : This is a petition for review of the Resolution 1 of the Court of Tax Appeals in CTA Case No. 6166 entitled "Philippine Health Care Providers, Inc. vs. Commissioner of Internal Revenue" , the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, the instant Motion for Partial Reconsideration filed by petitioner is GRANTED. Accordingly, the VAT assessment issued by herein respondent against petitioner for the taxable years 1996 and 1997 is hereby WITHDRAWN and SET ASIDE. SO ORDERED." 2 Respondent PHILIPPINE HEALTH CARE PROVIDERS, INC. is a corporation that maintains and operates "prepaid group practice health care delivery system or a health maintenance organization to take care of the sick, diseased and disabled persons who are enrolled in the health care program" 3 . On December 10, 1987 respondent wrote the Commissioner of Internal Revenue requesting for confirmation that the medical and/or hospital services it provided to the participants in its health care program are exempt from the value added tax. On June 8, 1988, the VAT Review Committee issued VAT Ruling No. 231-88 4 , which confirmed that petitioner is a provider of medical services and is exempt from VAT under Section 109 of the Tax Code. This was confirmed in a Letter dated April 22, 1994 5 by then Regional Director Osmundo Umali of Revenue Region No. 8. HCSDca However, on October 1, 1999, respondent received a Preliminary Assessment Notice 6 from the Bureau of Internal Revenue (BIR) on the alleged deficiency VAT and DST for taxable years 1996 and 1997. Respondent filed a protest letter on October 20, 1999. On January 27, 2000, without resolving the issues raised by respondent, the Commissioner of Internal Revenue sent a Formal Letter of Demand 7 together with four separate assessment notices demanding from respondent an alleged deficiency value added tax (VAT) and documentary stamp tax (DST) for taxable years 1996 and 1997 in the total amount of P224,702,641.18, computed as follows: Value Added Tax 1996 1997 TOTAL Gross Receipts P238,870,544.00 P328,562,029.00 VAT Rate 10% 10% Basic 23,887,054.40 32,856,202.90 Surcharge 5,971,763.60 8,214,050.73 Interest 15,908,778.23 13,668,180.41 TOTAL 45,767,596.23 54,738,434.03 P100,505,030.26 Documentary Stamp Tax 1996 1997 TOTAL Premium Received P232,761,387.00 P328,692,719.00 Rate (Section 185) Basic 29,095,173.38 41,086,589.88 Less: Payment Surcharge 7,273,793.34 10,271,647.47 Interest 19,377,385.47 17,092,021.39 TOTAL 55,746,352.19 68,450,258.73 P124,196,610.92 Alleged Deficiency Tax Payable P224,702,641.18 Respondent assailed the assessment notices in a protest letter dated February 23, 2000. In due course, the matter was elevated to the Court of Tax Appeals (CTA) by way of Petition for Review on September 21, 2000. On April 5, 2002, the CTA rendered a Decision 8 partially granting the petition that in effect cancelled the DST assessment and ordered respondent to pay deficiency VAT. Respondent moved for partial reconsideration with regard to its liability on the VAT. In the assailed Resolution, the CTA granted the Motion for Partial Reconsideration. The case is now before this Court on the sole issue of WHETHER OR NOT THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE FACTS OF THE CASE DO NOT SHOW RESPONDENT DELIBERATELY COMMITTED MISTAKES OR OMITTED MATERIAL FACTS WHEN IT OBTAINED A RULING FROM THE BIR. Respondent was assessed the value-added tax deficiency based on the examiners' findings that it is a "service contractor" and therefore its gross receipts should be subject to the 10% VAT under Section 108 of the Tax Code. The assessment was based on VAT Ruling No. 18-98 dated June 23, 1998 which states that a health maintenance organization is subject to VAT under Section 108 of the Tax Code, thus, revoking the previously issued VAT Ruling No. 231-88 dated June 8, 1988. ITEcAD In granting the Motion for Partial Reconsideration, however, the CTA held that the present VAT Ruling No. 18-98 could not be applied to respondent pursuant to the principle of non-retroactivity of rulings stated under Section 246 of the Tax Code, to wit: "Sec. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayer, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue; (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith. Petitioner, on the other hand, asserts that the instant case falls under the exceptions to the non-retroactivity rule. A health maintenance organization is subject to VAT under Section 108 of the Tax Code, thus, respondent's failure to disclose the material fact that it is a health maintenance organization when it sought a BIR ruling indicates bad faith and misrepresentation on its part. The petition is without merit. We find it speculative on the part of petitioner to claim that if respondent had properly referred to itself as a health maintenance organization in its request for ruling, the BIR would have arrived at a different conclusion and would not have declared respondent VAT-exempt. This is considering that the BIR came out with the present rule only in 1998 with VAT Ruling No. 018-98, issued in response to a request by Aetna Health Care, Inc., declaring that a health maintenance organization is subject to VAT under Section 108 of the Tax Code. We find that the failure of respondent to refer to itself as a health maintenance organization is not an indication of bad faith or a deliberate attempt to make false representations. When respondent sought a ruling from the BIR in 1988 concerning its taxability under the VAT, the term health maintenance organization did not as yet have any particular significance for tax purposes. The Tax Code contained no specific provision on the value-added tax liability of health maintenance organizations while VAT rulings in 1988 covering the same nature of services had declared establishments engaged therein to be exempt from VAT 9 . Thus, respondent's failure to include a term that had yet to acquire its present definition and significance cannot be equated with bad faith. Neither could it be argued that there was a deliberate misstatement or omission of a material fact since respondent adequately disclosed in its request that it operates a prepaid group practice health care delivery system and stated in detail the manner by which it delivers medical services to its members 10 . As the CTA observed, the request for ruling "sufficiently described the business of petitioner [respondent]" and that "there is no way BIR could be misled by the said representations to the real nature of petitioner's [respondent's] business" 11 . It cannot be logically asserted that respondent made a deliberate omission so as to avoid the payment of VAT. No motive of profit can be attributed to respondent for seeking a confirmation of its status as VAT-exempt. The value-added tax is an indirect tax the burden of which respondent would have easily shifted to its members had the BIR rendered an adverse ruling and declared respondent's services subject to the VAT. As pointedly argued, respondent would have simply charged its members the value-added tax imposed by the government had it been so required. In sum, the facts herein presented do not show that the case falls under one of the exceptions to the applicability of the non-retroactivity rule. VAT Ruling No. 18-98 dated June 23, 1998 cannot be applied retroactively as it would be prejudicial to respondent. To allow the imposition of the value-added tax upon services offered by respondent covering the years 1996 and 1997 when it can no longer at present pass on the economic burden to its members would be to penalize respondent's reliance in good faith on the BIR's previous ruling. Thus, VAT Ruling No. 231-88 is still the applicable ruling in the instant case. WHEREFORE, the petition is DENIED. The Resolution dated March 26, 2003 of the Court of Tax Appeals is AFFIRMED. SO ORDERED. Salazar-Fernando and Arevalo-Zenarosa, JJ., concur. Footnotes 1. Annex "A" of the Petition. 2. Rollo , p. 30. 3. Rollo , p. 104. 4. Attachment to Annex "C" of the Petition, Rollo , p. 119. 5. Attachment to Annex "C" of the Petition, Rollo , p. 120. 6. Attachment to Annex "C" of the Petition, Rollo , pp. 121-122. 7. Attachment to Annex "C" of the Petition, Rollo , pp. 80-87. 8. Annex "B" of the Petition, Rollo , pp. 40-61. 9. VAT Ruling No. 112-88 (April 21, 1988) and VAT Ruling No. 272-88 (June 24, 1988). 10. Annex "G", Rollo , pp. 164-166. 11. Rollo , p. 30