Antam Pawnshop Corp. v. Commissioner of Internal Revenue

SEVENTEENTH DIVISION [CA-G.R. SP No. 79363. February 18, 2004.] ANTAM PAWNSHOP CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N VILLARAMA , JR. , J p : This is a petition for review filed under Rule 43 of the 1997 Rules of Civil Procedure , as amended, from the decision dated May 14, 2003 of the Court of Tax Appeals (CTA) which partially granted petitioner's appeal from the assessment notices issued by respondent Commissioner of Internal Revenue for deficiency value-added tax, minimum corporate income tax and documentary stamp tax for the year 1998. The factual antecedents are as follows: Petitioner Antam Pawnshop Corporation is a domestic corporation engaged in pawnshop business and with business address at 1658 Espaa Street, Sampaloc, Manila. Upon authority of respondent Commissioner of Internal Revenue, Ma. Angeles Rosales/Remedios Yorobe of the BIR/RDO-32, Quiapo, Manila examined petitioner's book of accounts and other accounting records for all internal revenue taxes for the period covering January 1, 1998 to December 31, 1998. On October 2, 2001, respondent through Regional Director Ruperto Somera, issued a Pre-Assessment Notice for deficiency Value-Added Tax (VAT), Documentary Stamp Tax (DST) and Minimum Corporate Income Tax (MCIT) for taxable year 1998. Consequently, on November 23, 2001, respondent issued Assessment Notices and corresponding Demand Letters for the following deficiency taxes: (1) VAT with compromise penalties in the total amount of P382,445.01; (2) MCIT plus interest up to November 29, 2001 in the amount of P687.69; and (3) DST in the amount of P78,590.00, for the taxable year 1998. BIR records show that petitioner had paid on November 15, 2001 the sum of P451.24 for MCIT for the taxable year 1998. 1 On December 21, 2001, petitioner filed a written protest to the aforementioned assessment notices but due to the failure of respondent to act thereon, it filed a petition for review with the Court of Tax Appeals (CTA) on July 19, 2002. Respondent filed an Answer asserting the validity and correctness of the disputed assessment. It contended that pursuant to Revenue Memorandum Circular No. 45-2001, unless expressly exempt from VAT, any person engaged in the sale of goods, property or services in the course of trade or business shall be liable to the 10% VAT. As to liability for DST, BIR Ruling No. 221-91 provides that pawnshop tickets are subject to DST because it virtually evidences a pledge, and since petitioner lent money at interest and requires a pledge of personal property as security, the essence of its operation is lending money and hence petitioner's pawnshop tickets shall likewise be subject to DST pursuant to Sec. 195 of the 1997 Tax Code . Furthermore, respondent pointed out that under Sec. 222 (a) of the said Code, in case of false or fraudulent return with intent to evade tax or failure to file return, the tax may be assessed, or a proceeding in court for its collection may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission; and where there is failure to file VAT and DST returns, the period to assess is clearly within ten (10) years after the date of discovery of the omission to file such returns. 2 On May 14, 2003, the CTA rendered its Decision 3 sustaining the assessment for deficiency VAT but cancelling and setting aside the assessment notices for deficiency DST and MCIT for the taxable year 1998. The CTA ruled that under Sec. 102 (a) [now renumbered as Sec. 108 (A)] of the Tax Code , the "sale or exchange of services" encompasses the performance of all kinds of services for others for a fee and that said section does not limit its application to those enumerated therein because the law speaks of "all kinds of services," the phrase "including" should be construed merely as an enlargement and not of limitation. Hence, pawnshop services should a fortiori be subject to VAT. Some recent rulings of this Court were cited in the decision which categorically declared that pawnshops are subject to the 10% VAT imposed under Sec. 108 (A) of the 1997 Tax Code ( Commissioner of Internal Revenue vs. Agencia Exquisite of Bohol, Inc ., CA-G.R. SP No. 59282, March 23, 2001; Commissioner of Internal Revenue vs. Exquisite Pawnshop and Jewelry, Inc ., CA-G.R. SP No. 59401, September 30, 2002; and Commissioner of Internal Revenue vs. Agencia Exquisite Bohol, Inc ., CA-G.R. SP No. 68180, February 10, 2003). Moreover, pawnshop transactions are not among those exempt transactions enumerated under Sec. 103 (now Sec. 109) of the Tax Code , as amended by R. A. No. 7716, and thus in accordance with the basic rule that tax exemptions are strictly construed against the taxpayer, in the absence of any clear provision of law exempting pawnshops from VAT, the CTA ruled that pawnshops are subject to VAT on their gross receipts since they are clearly engaged in the performance of services Petitioner's failure to file the corresponding VAT returns within the prescribed period gave respondent the right to assess it for deficiency VAT within ten (10) years from date of discovery, and therefore when the subject VAT assessment was issued on November 23, 2001 for the year 1998, the same was not time-barred. As to the liability of petitioner for DST, the CTA ruled that inasmuch as the document taxable under Sec. 195 of the Tax Code must be the document evidencing the indebtedness, and considering that under the Pawnshop Regulation Act , a pawn ticket is not a printed evidence of indebtedness, consequently, such pawn ticket cannot be considered as a document subject to DST. The CTA decision thus decreed: "WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, petitioner is hereby ORDERED to PAY the following: "1. Deficiency VAT assessment in the amount of P382,445.01, inclusive of 20% deficiency interest, plus 20% delinquency interest from December 28, 2001 until fully paid pursuant to Sections 248 and 249(B) and (C) of the Tax Code; "2. Deficiency interest of P233.74 for late payment of MCIT pursuant to Section 249(B) of the Tax Code, plus 20% delinquency interest from December 28, 2001 until fully paid pursuant to Section 249(C) of the Tax Code; and "3. Deficiency documentary stamp tax assessment on subscribed capital stock in the amount of P15,000.00. "However, finding that a pawnshop ticket is not subject to the documentary stamp tax under Section 195 of the Tax Code, Assessment Notice No. 32-1-98 dated November 23, 2001 for deficiency documentary stamp tax in the amount of P63,590.00 is hereby CANCELLED and SET ASIDE. Moreover, Assessment Notice No. 32-1-98 dated November 23, 2001 for Deficiency Income Tax-Unpaid MCIT in the amount of P451.24 is hereby CANCELLED and SET ASIDE on account of payment made by petitioner on November 15, 2001. Lastly, the assessment notices dated November 23, 2001, also numbered 32-1-98, issued by respondent against petitioner for compromise penalty for late payment/late filing in the amounts of P16,000.00, P200.00 and P12,000.00 are hereby CANCELLED and SET ASIDE as there is no compromise to speak of in the instant case. "SO ORDERED." 4 Respondent and petitioner filed their respective motions for reconsideration, the former questioning the ruling that petitioner's pawn tickets are not subject to DST tax, while the latter assailed the decision upholding the VAT assessment and deficiency DST on subscribed capital stock. Both motions were denied by the CTA in its Resolution promulgated on August 28, 2003. 5 Hence, this petition raising the following errors allegedly committed by the CTA: "I "THE HONORABLE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE ENUMERATION UNDER SECTION 108 OF THE TAX CODE ON THE TRANSACTIONS SUBJECT TO VAT IS NOT EXCLUSIVE. "II "THE HONORABLE COURT OF TAX APPEALS ERRED IN HOLDING THAT PAWNSHOPS ARE ENGAGED IN SERVICES SIMILAR TO THOSE OF LENDING INVESTORS. "III "THE HONORABLE COURT OF TAX APPEALS ERRED IN HOLDING THAT PAWNSHOPS ARE ENGAGED IN THE SALE OF SERVICES FOR A FEE, REMUNERATION OR CONSIDERATION. "IV THE HONORABLE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONER IS SUBJECT TO DOCUMENTARY STAMP ON DEPOSITS ON FUTURE SUBSCRIPTIONS." 6 The petition has no merit. The value-added tax or VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. 7 VAT is imposed on services rendered in the course of trade or business, as provided in Sec. 108 (A) of the Tax Reform Act of 1997 : "SEC. 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 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 or mental faculties . The phrase 'sale or exchange of services' shall likewise include: "xxx xxx xxx "The term ' gross receipts ' means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax. "xxx xxx xxx" [EMPHASIS SUPPLIED] Petitioner argues that pawnshops cannot be subject to the 10% VAT for the simple reason that pawnshops are not included in the above enumeration of entities or transaction subject to VAT. Given its nature and consequences, tax burdens cannot be presumed and it is manifest error for the CTA to say that the enumeration is "not exclusive" and should necessarily include pawnshops. Such construction defeats the basic rule of strict interpretation of tax statutes in favor of the taxpayer. The legislature in enacting the Tax Code is presumed to be aware that in enumerating what are covered, it is deemed to consciously limit the application of the tax statute to those which are listed and to exclude those which are not , pursuant to the rule expressio unius est exclusio alterius . Said rule proceeds from the premise that the legislature would not have made specified enumerations in a statute had the intention been not to restrict its meaning and confine its terms to those expressly mentioned (citing Agpalo , Statutory Construction ). The argument is untenable. Indeed, it is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio alterius . 8 Thus, if a statute enumerates the things upon which it is to operate, everything else must necessarily, and by implication, be excluded. 9 However, We agree with the position taken by the CTA that the enumeration contained in Sec. 108 (A) is not intended to be exclusive and neither is the word "including" preceding the enumeration effect a limitation on the transactions expressly mentioned as subject to the VAT. "The rule of expressio unius est exclusio alterius is not a rule of law. It is a mere tool of statutory construction or a means of ascertaining the legislative intent. It is not of universal application. Like other rules of statutory construction, it cannot be used to defeat the plainly indicated purpose of the legislature. The rule, not being inflexible nor a mechanical or technical tool, must yield to what is clearly a legislative intent . "The maxim, expressio unius est exclusio alterius , is no more than an auxiliary rule of interpretation to be ignored where other circumstances indicate that the enumeration was not intended to be exclusive . . . . "Nor does the maxim, expressio unius est exclusio alterius , apply where the enumeration is by way of example or to remove doubts only . . . . The maxim expressio unius est exclusio alterius should be applied only as a means of discovering legislative intent and should not be permitted to defeat the plainly indicated purpose of the legislature. It does not apply when words are mentioned by way of example or to remove doubts . . . . "xxx xxx xxx "In the last analysis, the question as to whether the express enumeration of things, persons or consequences excludes all others not mentioned depends upon legislative intent. The maxim is resorted to as a guide in ascertaining the probable intention of the lawmaker. Where the legislative intent shows that the enumeration is not exclusive, the maxim does not apply ." 10 [EMPHASIS SUPPLIED] The CTA in this case has interpreted the enumeration in the subject provision as not exclusive by the use of the word "including", citing Sutherland, and precedents in American jurisprudence, and consequently declared that the clear intent of the Tax Code is to cover the business of pawnshops further taking into consideration the wordings "all kinds of services" rendered in the Philippines in the course of trade or business which are henceforth made subject to VAT. We agree with respondent court. While pawnshops are not expressly mentioned in the transactions enumerated in Sec. 108 (A), they are deemed covered because pawnshops are clearly entities performing services for a fee, remuneration or consideration in the course of trade or business . This is plainly evident from the definition of a pawnshop under the Pawnshop Regulation Act : "Pawnshop" shall refer to a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage." 11 Thus, a pawnbroker is a person who makes business or occupation of lending money at interest on the security of personal property deposited in his keeping. 12 On the other hand, the term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity regardless of whether or not the entity is profit-oriented. VAT 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. Sec. 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." Our Supreme Court has ruled that for the purpose of determining liability for VAT on services rendered, as long the as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT. 13 Considering the principal activity of pawnshops as lending money at interest on the security of personal property, the CTA ruled that petitioner is liable for VAT for such service rendered by it and also for the reason that the business of pawnshop is not among those expressly exempted from the VAT under Sec. 109 of the Tax Code thus: "Judicial notice may be taken of the fact that the principal activity of pawnshops is lending money at interest on the security of personal property. The act of lending money at interest constitutes the performance of a service for a fee, remuneration or consideration for such service. In other words, the liability of pawnshop operators to pay the VAT no longer depends on the classification of their business but on the services they rendered. As a consequence thereof, rulings or decisions declaring that pawnshops are not lending investors have lost their bearing for as long as pawnshops are engaged in the sale of services like lending money on the security of personal property. Hence, petitioner cannot escape liability to pay the 10% VAT under Section 102 (A) [now Section 108 (A)] of the Tax Code. "Transactions which are exempt from VAT are enumerated under Section 103 [now Section 109] of the Tax Code, as amended by R.A. No. 7716. Pawnshop transactions are not among the exempt transactions. Neither are there any express provisions of law exempting pawnshops from VAT . Since the transactions of pawnshops are not among those enumerated in Section 103 [now Section 109] of the Tax Code or any other express provision of law as VAT-exempt, the same are subject to VAT under Section 102(A) [now Section 108(A)]. In this regard, tax exemptions are strictly construed against the taxpayer . In the absence of any clear provision of law exempting pawnshops from VAT, our conclusion is that pawnshops are subject to VAT on their gross receipts since they are clearly engaged in the performance of services . "xxx xxx xxx" 14 [EMPHASIS SUPPLIED] In view of the clear legislative intent, petitioner cannot invoke previous rulings or decisions holding that pawnshops cannot be considered lending investors and the consequent difference in their treatment as to the applicability of tax laws. Neither would its contentions as to the distinctive nature and operation of the pawnshop business, as expressed in earlier BIR rulings, convince this Court that it could not have been the intent of Congress to include pawnshops under the coverage of Sec. 108 (A) of the Tax Code . Far from imposing the VAT by implication, it is actually the petitioner who would seek exemption under the aforesaid tax provision by implication , with its argument that it cannot be subject to VAT for the sole reason that pawnshops are not expressly mentioned thereunder. The proper construction of Sec. 108 (A) as far as the taxability of persons or entities engaged in the sale of services is concerned had already been laid down by the Supreme Court which likewise accords respect to the interpretation and conclusions of respondent and quasi judicial agencies like the CTA, 15 thus: "Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT . At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law ; it cannot be merely implied therefrom . In the case of VAT, Section 109, Republic Act 8424 clearly enumerates the transactions exempted from VAT. The services rendered by COMASERCO do not fall within the exemptions. "Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled that the services rendered by COMASERCO to Philamlife and its affiliates are subject to VAT. As pointed out by the Commissioner, the performance of all kinds of services for others for a fee, remuneration or consideration is considered as sale of services subject to VAT. As the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight . Also, it has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax cases and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority . "xxx xxx xxx" 16 [EMPHASIS SUPPLIED] Petitioner assails the CTA in applying the rule on strict construction of the subject tax law with regard to exemptions without first making a determination as to its coverage, as held in the case of Commissioner of Internal Revenue vs. Court of Appeals (271 SCRA 605). This contention deserves scant consideration. In the afore-cited case, the Supreme Court ruled that it is error to apply the principles of tax exemptions without first applying the well-settled doctrine of strict interpretation in the imposition of taxes. The imposition involved the contractor's tax under Sec. 205 of the NIRC which the Commissioner of Internal Revenue claimed as applicable to the Institute of Philippine Culture of the Ateneo de Manila University. Here, the CTA in upholding the deficiency VAT assessment against the petitioner, had made a categorical interpretation of the covered transactions under Sec. 108 (A) based on legislative intent and nature of pawnshop business, as well as the succeeding provision enumerating the transactions exempted from VAT. Hence, no such reversible error or grave abuse of discretion can be ascribed to the CTA which correctly ruled that petitioner's claim for VAT exemption has no legal basis. We thus reiterate the well-settled rule that tax exemption must be expressed in the statute in clear language. The exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. 17 For taxes, being the lifeblood of the government, are meant to be paid without delay and often oblivious to contingencies or conditions. 18 The tax exemption cannot arise by mere implication and any doubt about whether the tax exemption exists is strictly construed against the taxpayer and in favor of the taxing authority . 19 As to the issue of liability for documentary stamp tax (DST) on the subscribed capital stock amounting to P15,000.00, petitioner contends that the CTA erred in upholding the assessment thereon made by respondent since there is no showing of a subscription agreement or that shares were issued on those deposits. We find this contention equally bereft of merit. Petitioner points out that the General Information Sheet (GIS) submitted by petitioner to the Securities and Exchange Commission (SEC) on April 22, 1999 indicated that it had only a subscribed capital stock of P500,000.00, for which P125,000.00 had been paid up. According to petitioner, this declaration which is certified by petitioner's corporate secretary indubitably shows that the P1,500,000.00 alleged subscribed/issued shares are merely advances by the stockholders for which no shares had been subscribed or issued. CaASIc Unfortunately, however, save for its bare assertions, petitioner had not presented such documentary evidence to refute the respondent's finding regarding the subscribed capital stock for which it was assessed unpaid DST for the taxable year 1998. No proof of such payment was submitted by it before the CTA and therefore the said court did not err in upholding such assessment upon the established rule that tax assessments made by tax examiners are presumed correct and made in good faith. As taxpayer it was incumbent on the petitioner to prove the contrary and failure to prove any such error on the part of respondent justifies CTA's affirmance thereof. Indeed, all presumptions are in favor of the correctness of tax assessments. The burden of proof is upon the complaining taxpayer to show clearly that the assessment is erroneous in order to relieve himself from it. It has been held that more weight should be given to the findings and assessments of the revenue examiners rather than the mere certification of the taxpayer's corporate secretary that it has not issued the certificates of stock yet. 20 WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE and accordingly DISMISSED for lack of merit. The challenged Decision dated May 14, 2003 of the Court of Tax Appeals in CTA Case No. 6510 is hereby AFFIRMED and UPHELD. With costs against the petitioner. SO ORDERED. Guaria III and Veloso, JJ . , concur. Footnotes 1. pp. 13 of CTA Decision, Annex "A" of Petition, Rollo , pp. 3537. 2. Ibid ., pp. 3738. 3. Annex "A" of Petition, Rollo , pp. 3553, with Concurring and Dissenting Opinion by Associate Judge Juanito C. Castaeda, Jr., pp. 5456. 4. Ibid. , pp. 5152. 5. Annexes "B" and "C" of Petition, Rollo , pp. 5778. 6. Rollo , p. 13. 7. Sec. 105, R. A. No. 8424 ("Tax Reform Act of 1997"), effective January 1, 1998. 8. RUBEN E. AGPALO, Statutory Construction , 1995 Edition, p 173, citing several cases. 9. Ibid. , p. 177, citing Central Barrio vs. City Treasurer of Davao , 23 SCRA 6. 10. Ibid. , pp. 179182, citing cases. 11. Sec. 3, P. D. No. 114 issued on January 29, 1973. 12. 70 C.J.S. 1, 186. 13. Commissioner of Internal Revenue vs. Court of Appeals , 329 SCRA 237. 14. Rollo , pp. 4647. 15. Commissioner of Internal Revenue vs. Court of Appeals, supra. 16. Ibid. , pp. 245246. 17. Philippine Long Distance Telephone Company, Inc. vs. City of Davao , 363 SCRA 522. 18. Vda. de San Agustin vs. Commissioner of Internal Revenue , 364 SCRA 802. 19. China Banking Corporation vs. Court of Appeals and Commissioner of Internal Revenue , G. R. Nos. 146749 and 147938, June 10, 2003. 20. Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc. , 145 SCRA 671 and Marcos II vs. Court of Appeals , 273 SCRA 47.