Commissioner of Internal Revenue v. H. Tambunting Pawnshop, Inc.

SEVENTH DIVISION [CA-G.R. SP No. 79116. June 30, 2005.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . H. TAMBUNTING PAWNSHOP, INC. , respondent . D E C I S I O N ROXAS, V . Q . , J p : Legal Principle in this Case : A pawn ticket issued by a pawnshop is subject to documentary stamp tax because it is the pawn transaction , not the pawn ticket per se that is taxed the pawn transaction being indicative of a pledge transaction between pawner (borrower from a pawnshop) and a pawnee (the pawnshop or pawnbroker) under Section 195 of the National Internal Revenue Code, as amended. The documentary stamp tax is not intended to be a tax on a pawn ticket document per se . Rather, the law intends to tax the pawn transaction itself rather than merely the pawn ticket document collectible and payable at the time a transaction is had. EaTCSA Moreover, only those instruments, documents, and papers of transactions that are enumerated will be considered as exempt from documentary stamp tax under Section 199 of the National Internal Revenue Code, as amended because laws granting exemption from tax are construed strictissimi juris . Taxation is the rule and exemption is the exception burden of proof imposed upon the party claiming exemption. The Case Is the pawnshop ticket that is issued by a pawnshop subject to the payment of documentary stamp tax under Section 195 of the National Internal Revenue Code? The Facts This is a Petition for Partial Review under Rule 43 of the Revised Rules of Court, filed in the Court of Appeals long before the Court of Tax Appeals was elevated to an appellate court whose decisions are appealable to the Supreme Court, assailing the March 18, 2003 Decision 1 of the Court of Tax Appeals (CTA), which cancelled the 1997 deficiency documentary stamp tax (DST) assessment against respondent H. Tambunting Pawnshop, Inc. (TAMBUNTING). The controversy arose from a March 5, 2001 Pre-Assessment Notice 2 issued by the petitioner Commissioner of Internal Revenue (CIR) against respondent TAMBUNTING for deficiency documentary stamp tax (DST) and value-added tax (VAT), as well as compromise penalties for taxable year 1997, to wit : Deficiency DST Tax Base Pledge Loan Php25,445,610.00 Deficiency DST (excluding increments) Php50,910.00 Deficiency VAT Taxable Sales per Return Php17,664,410.27 Deficiency VAT 1,766,441.03 Add: Surcharge 25% (non-filing & non-payment 441,610.26 Deficiency VAT (excluding increments) Php2,208,051.29 Deficiency VAT (excluding increments) Php2,208,051.29 Respondent TAMBUNTING filed its written protest 3 to the Pre-Assessment Notice on March 29, 2001. On April 11, 2001, petitioner CIR issued assessment notices 4 for the deficiency DST and VAT, together with the corresponding demand letters 5 therefor in the amounts Php50,910.00 for DST and Php3,347,405.46 for VAT, alongside the demand 6 for the payment of deficiency compromise penalties in the amounts Php25,000.00 for DST and Php12,000.00 for VAT. On May 16, 2001, respondent TAMBUNTING filed its written protest 7 to the assessment notices, alleging that the same had been issued without legal basis; that it was not subject to documentary stamp tax under Section 195 of the National Internal Revenue Code (NIRC) because documentary stamp taxes were applicable only to pledge contracts, and that the pawnshop business did not involve contracts of pledge; nor that pawnshop transactions were subject to VAT because allegedly nowhere in the NIRC was there mention that pawnshop transactions were subject to VAT; that neither is it subject to VAT since there is no express provision in the NIRC which subjects pawnshops to VAT; and that the DST and VAT assessments were invalid for having been issued beyond the three-year prescriptive period. When respondent TAMBUNTING's written protest had not been acted upon by Commissioner of Internal Revenue, it filed a petition 8 with the Court of Tax Appeals (CTA) on December 11, 2001, appealing the assessments issued by petitioner. On January 8, 2002, petitioner Commissioner of Internal Revenue filed its Answer 9 . Assailed Decision of the Court of Tax Appeals On March 18, 2003, the Court of Tax Appeals (CTA), in CTA Case No. 6366, gave due course to respondent's petition for review and rendered a Decision, 10 the dispositive portion of which read as follows: "WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, petitioner is hereby ORDERED to PAY deficiency VAT assessment in the amount of Php3,347,405.75, inclusive of 25% surcharge and 20% deficiency interest, plus 20% delinquency interest from May 11, 2001 until fully paid pursuant to Sections 248 and 249 (B) of the Tax Code. However, finding that petitioner is not subject to the documentary stamp tax under Section 195 of the Tax Code, Assessment Notice No. 32-97 dated April 11, 2001 for deficiency documentary stamp tax is hereby CANCELLED and SET ASIDE. SO ORDERED." Petitioner CIR's April 11, 2003 Motion for Reconsideration, 11 as well as that of respondent TAMBUNTING's dated April 15, 2003, 12 was denied by the CTA in a Resolution 13 dated August 28, 2003. This Petition for Partial Review 14 under Rule 43 of the Revised Rules of Court was filed on October 8, 2003 with the Court of Appeals. Assignment of Errors Petitioner Commissioner of Internal Revenue assigned this lone error: THE COURT OF TAX APPEALS GRAVELY ERRED IN DECLARING THAT PAWNSHOP TICKETS ISSUED BY THE RESPONDENTS ARE NOT SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 195 OF THE TAX CODE. The Ruling of This Court Petition for Partial Review is impressed with merit . We do not agree with the argument of respondent TAMBUNTING in alleging that no documentary stamp tax is due on a pawn ticket because a pawn ticket is neither a security nor a printed evidence of indebtedness. A pawn ticket issued by a pawnshop is subject to documentary stamp tax because it is the pawn transaction , not the pawn ticket per se that is taxed the pawn transaction being indicative of a pledge transaction between pawner (borrower from a pawnshop) and a pawnee (the pawnshop or pawnbroker) under Section 195 of the National Internal Revenue Code, as amended. The documentary stamp tax is not intended to be a tax on a pawn ticket document per se . Rather, the law intends to tax the pawn transaction itself rather than merely the pawn ticket document collectible and payable at the time a transaction is had. The documentary stamp tax is not intended to be a tax on a pawn ticket document per se . Rather, the law intends to tax the pawn transaction itself rather than merely the pawn ticket document collectible and payable at the time a transaction is had. Under Section 195 of the National Internal Revenue Code (NIRC), a pawn transaction is indicative of a pledge transaction between pawner (borrower from a pawnshop) and a pawnee (the pawnshop or pawnbroker). Whenever "pawn ticket" is used in Presidential Decree (PD) 114, otherwise known as the Pawnshop Regulation Act, it means the whole "pawn transaction" . PD 114 defines "pawnshop" 15 as "any person or entity engaged in the business of lending money on personal property delivered as security for loans . . .," and a "pawn" as "the personal property delivered by the pawner to the pawnee as security for a loan " (emphasis ours). Article 2123 of the Civil Code also defines pawnshops in a similar way as PD 114 that: "Art. 2123. With regard to pawnshops and other establishments, which are engaged in making loans secured by pledges , the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions of this Title." (emphasis ours). This reference to PD 114 is in line with the New Civil Code's definition of a pledge transaction to secure the fulfillment of a principal obligation where the pledgor is the absolute owner of the thing pledged having free disposal thereof, where the thing pledged, having been placed in the possession of the creditor or of a third person by common agreement, may be alienated when the principal obligation becomes due for payment to the creditor. 16 Court takes judicial notice of the Rules and Regulations for Pawnshops (CB Circular No. 374) enacted pursuant to the authority given to the Central Bank to issue rules and regulations to implement the provisions of PD 114, where it provides the following: "Sec. 11. Powers of Pawnshop . A duly organized and licensed pawnshop has, in general, the power to engage in the business of lending money on the security of personal property within the framework and limitations of P.D. No. 114 and this circular, subject to the regulatory and supervisory powers of the Central Bank." 17 Verily, in the pawnshop business, the pawn ticket which represents the whole pawn transaction connotes that personal property is delivered by the pawner to the pawnshop which same property serves as security for the loan obtained . The pawn ticket is not an evidence of indebtedness, but is merely an evidence of the whole transaction between pawner (borrower from a pawnshop) and a pawnee (the pawnshop or pawnbroker). It is described in Section 12 of P.D. No. 114 as follows: "Sec. 12 Pawn ticket Every pawnbroker shall, at the time of every such loan or pledge, deliver to each person pawning or pledging any article or thing a memorandum or ticket signed by such pawnbroker and containing the substance of the record required to be kept in such pawnbroker's memorandum book in section eleven hereof, excluding the description of the person so pawning or pledging such article or thing, and no compensation of any kind whatsoever shall be received by any pawnbroker for any such memorandum or ticket." (emphasis ours) Considering that a pawn ticket is evidence of a pledge transaction involving personal property, Section 195 subjects pledge of personal property to documentary stamp tax, to wit: "Sec. 195. NIRC. Stamp Tax on Mortgages, Pledges, and Deeds of Trust On every mortgage or pledge of lands, estate, or property, real, or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable, and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, whether by express stipulation or otherwise, there shall be collected a documentary stamp tax at the following rates: . . . ." (emphasis ours) Moreover, only those instruments, documents, and papers of transactions that are enumerated will be considered as exempt from documentary stamp tax under Section 199 of the National Internal Revenue Code, as amended because laws granting exemption from tax are construed strictissimi juris . Taxation is the rule and exemption is the exception burden of proof imposed upon the party claiming exemption. Respondent TAMBUNTING's pawn transactions are subject to documentary stamp taxes because they do not fall under Section 199 of the NIRC as amended, which enumerates the transactions of instruments, documents, and papers which are exempt from documentary stamp tax, to wit: "Sec. 199. NIRC. Documents and Papers not Subject to Stamp Tax The provisions of Section 173 notwithstanding, the following instruments, documents, and papers shall be exempt from the documentary stamp tax: 1) Policies of insurance or annuities made or granted by a fraternal or beneficiary society, order, association, or cooperative company, operated on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive benefit of each member and not for profit. SDTaHc 2) Certificates of oath administered to any government official in his official capacity or of acknowledgement by any government official in the performance of his official duties; written appearance in any court by any government official, in his official capacity; certificates of the administration of oaths to any person as to the authenticity of any paper required to be filed in court by any person or party thereto, whether the proceedings be civil or criminal; papers and documents filed in courts by or for the national, provincial, city, or municipal governments; affidavits of poor persons for the purpose of proving poverty; statements and other compulsory information required of persons or corporations by the rules and regulations of the national, provincial, city, or municipal governments exclusively for statistical purposes and which are wholly for the use of the bureau or office in which they are filed, and not at the instance or for the use or benefit of the person filing them; certified copies and other certificates placed upon documents, instruments, and papers for the national, provincial, city, or municipal governments, made at the instance and for the sole use of some other branch of the national, provincial, city, or municipal governments; and certificates of the assessed value of lands, not exceeding two hundred pesos (Php200.00) in value assessed, furnished by provincial, city, or municipal Treasurer to applicants for registration of title to land." The rule of statutory construction with regard to enumerations made in a law provides that the express mention of one person, thing, act, or consequence is construed to exclude all others. Laws granting exemption from tax are construed strictissimi juris against the taxpayer, and liberally, in favor of the taxing power. Taxation is the rule and exemption is the exception. 18 The burden of proof rests upon claiming exemption to prove that it is, in fact, covered by the exemption so claimed, a burden which respondent TAMBUNTING here has failed to discharge. 19 The Fallo WHEREFORE, premises considered, Petition for Partial Review by the Commissioner of Internal Revenue is hereby GRANTED and the assailed March 18, 2003 Decision of the Court of Tax Appeals, before its elevation to an appellate court whose decisions would be reviewable only by the Supreme Court, in so far as it cancelled the deficiency documentary stamp tax assessment of Php50,910.00 against respondent TAMBUNTING, is hereby MODIFIED in that respondent TAMBUNTING is hereby ordered to pay petitioner Commissioner of Internal Revenue, the amount of Php50,910.00 as 1997 deficiency documentary stamp tax assessment, plus 25% surcharge, 20% deficiency interest, and 20% delinquency interest thereon from May 11, 2001 until fully paid pursuant to Section 248 and 249 (B) of the Tax Code. HASTCa SO ORDERED. Hormachuelos and Enriquez, Jr., JJ., concur. Footnotes 1. Rollo . Page 33. 2. Rollo . Page 81. 3. Rollo . Page 82. 4. Rollo . Pages 85-86. 5. Rollo . Pages 87-88. 6. Rollo . Pages 89-90. 7. Rollo . Page 91. 8. Rollo. Page 72. 9. Rollo . Page 94. 10. Rollo . Page 33. 11. Rollo . Page 132. 12. Rollo . Page 136. 13. Rollo . Page 53. 14. Rollo . Page 5. 15. Section 3, PD 114. 16. Articles 2085, 2087, 2093, New Civil Code. 17. Pilipinas Loan Company, Inc. vs. SEC , G.R. No. 104720, April 4, 2001, GR#356 SCRA 193. 18. Cyanamid Philippines, Inc. vs. Court of Appeals , CTA, and CIR, GR#108067, January 20, 2000, 322 SCRA 639. 19. Cyanamid Philippines, Inc. vs. Court of Appeals, CTA, and CIR GR#108067, January 20, 2000, 322 SCRA 639.