CTA Case No. 4283 (Decision)

REPUBLIC OF THE PHILIPPIR�8 COURT OF TAX APPEALS QUEZOR CITY KAWILIHAN PASTRIES & C.T.A. CASE NO. 4283 TAKE HOME COUNTER, INC., Petitioner, versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - X DEC I S I 0 N This is a judicial claim for the refund/or tax credit of sales taxes and penalties erroneously paid to the Commissioner of Internal Revenue amounting to P101~419.28. Petitioner operates a small chain of eating and take-out counters. It bakes the bread, pastries and other bakery products which it sells through said eating and take-out counters. For the years 1986 and 1987~ petitioner paid the 10% manufacturer's sal~s tax on the sales of its bakery products under former Section 165(a) (3) of the NIRC. It also paid the 4% caterer's tax under former Section 172 (1) of the NIRC on the sales of other food items. On July 4 ~ 1988 ~ petitioner wrote to respondent Commissioner of Internal Revenue requesting an opinion a s to whether its operations 215 )

J DECISION CTA CASE NO. 4283 - 2- are subject to the 10 % value added ta x (VAT). In response~ respondent issued BIR Ruling No. 114~ Series of 000 -00-01 2-88~ dated January 28~ 1988 (E x hibit A)~ advising petitioner that it is not subject to the 10% VAT. Furthermore~ respondent advised that petitioner as operator of a refreshment parlor or eating places~ its "gross receipts are subject to the 4% caterer ' s (ta x ) under Section 114 (formerly Section 172) of the Tax Code," and that "the take-out counter is not ordinarily taxed as an independent busines s ~ in which case~ the sales in said counter form s (sic) part of the gross receipts of the operator with the eating place SLtbj ect to the 4% caterer � s tax." In view of the ruling of respondent Commissioner of Internal Revenue~ petitioner Kawilihan Pastries & Ta ke Home Counter, Inc. wrote to respondent on April 8~ 1988 requesting for a refund of sales taxes paid in excess of the amount computed at the rate of 4%. Respondent Commissioner of Internal Revenue never acted on petitioner ' s request. Considering the provisions of Section 230 of the NIRC~ that a suit for refund must be filed within two (2) years from the date of payment of the tax or penalty~ petitioner was constrained to file the instant 216

DECISION CTA CASE NO. 4283 - 3- petition for review~ without waiting for the decision of respondent so as not to be barred from prescription. The only issue to be decided is whether or not petitioner is entitled to the refund of the sum of P101~419.28 paid for sales taxes and penalties for the years 1986 and 1987. Under BIR Ruling No. 114~ dated January 28~ was further declared that as an operator of a refreshment parlor or eating place, petitioner's gross receipts are subject to the 4/. caterer ' s (tax) under Section 114 (formerly Section 172) of the Tax Code," and that ".the take Q!::\..t___c;_Q!.Jnt._~r is. This ruling has been settled with the BIR Ruling No. 202, dated July 13, 1987, stating that bakery products sold through outlets consisting of sit-in ) services and take- out counters are subject only to 4/. caterer's tax. Considering the aforesaid BIR ruling~ petitioner alleged that i t is properly !.!.~Q..!.g__O.!J_},_Y-, 217

DECISION CTA CASE NO. 4283 - 4- As shown by the Quarterly Percentage Tax Returns filed by petitioner for the second to the fourth quarters of 1986~ and for all quarters of 1987 (Exhibits petitioner declared for payment of the 10% manufacturer's tax its gross receipts for the sales of its bakery products. Petitioner had actually paid the said amounts~ as shown by the confirmation receipts issued by the BIR for the corresponding years 1986 and 1987. It appears that petitioner filed the quarterly percentage tax returns for the 2nd quarter of 1986 to the 4th quarter 1986; and for the 1st to the 4th quarters of 1987~ as follows: ~CJ?.S ~�.!P..t ~.!:Q?JL8�ce_],g_1;._~� ~terer/.fcx:::d ~.!Jf.W:tM~r ...9.1 ~k~r CJ9Lw;.!?. Seccr1d P69,740.65 P379,619.88 p 2,789.6.3 37,961.99 Third 66~651.20 401,133.85 2,666.02 40,113.~ Fo..trth 61,547.94 345,353.52 2,461.95 � ~.1.~~~..!'-~ Caterer Tax p 79,176.00 Manufacturer sales Tax 112.610.72 ) 21&

DECISION CTA CASE NO. 4283 - 5- Gr.Q�E._~~]:Qt �rQ?E_~~.~-~~ TaK.�'~.!.9 ~t~rer/F~ ~uf~~-g1 ~k~E!:._@ct� First p 92, 9"..S.32 F~92,573.75 P 3 ,713.92 39,257.36 Secend 105,740.00 ..$/3.103.6.3 4,229.60 37 ,310.36 Third 81,113.40 454,108.19 3 ,244.54 45,410.82 Fcurth 129,066.12 413,793.20 5,162 .65 -.1lsR9..!'.9~ Caterer Tax p 16,3~).71 Manufacturer sales Ta:.: 16.3,357.86 It paid the caterer/fCXJd tax and the manufacturer's sales tax abovestated. This Co..trt finds, based en the receipts of sales of petitic:ner for the years 1986 to 1987, that petitic:ner i s IT'Ore of a manufacturer of bakery products than an operator of a refreshnent parlor or eatery place. We! can say, therefore, that petitic:ner is a bakery and that it is the operatic:n of the eating place which is merely incidental to the main bLtsiness and not the other way aroLnd, as ruled by respc:ndent Ccmnissic:ner of Internal Revenue in BIR Ruling 1\b. 012-88 and 17, 1991. The pertinent portic:n of cur decisic:n is quoted: ">:x:.: the ultimate issue presented before this Co..trt is whether or not petitic:ner as Operator of a chain of eating and take-o...tt ca..nters is liable to the 10".1. manufacturers sales 219

DECISION CTA CASE NO. 4283 - 6- ta:< en i ts sales of bake ry prcx:lucts ins pite its being 1iable to the normal caterers tax . "The provisiens of the Natienal Internal Revenue Code involved are as fall~: "Sec:. 165 Sales Taxes A en original sales of artic les there shall be levied~ assessed-collected ence enly en every original sale~ barter~ exchange~ or s imilar transaction intended to transfer o.-nership of~ or title to, the articles herein belON enLunerated, a sales ta>: to be pai d by the manufacturer, prcx:lucer, or importer: 11 (3) Essential Articles lOY. of the gross selling price or gross valLie in no1ey of the follONing articles as sold, bartered, exchanged or transferred: "(F) Bread and ordinary bakery products and "Sec:. 172 (nOAJ Sec:. 114) - Caterers - A caterer ' s Ta>: is hereby imposed as follONS: 11 ( 1) en proprietors or operators of restaLtrants~ refreshment parlors and other eating plac es~ includi ng clubs and caterers~ four (4%) percentum of their gross receipts; "From the varia..1s evidences presented particLilarly the quarterly percentage tax returns filed by petitioner for taxable y~rs 1986 and 1987, the follOAJing facts were gathered by this Cc:urt: ''O..J~r...!?..r: g.LQ?.�___Rt;'!;~iP-.t �LQ?.�.....I3���_;i._Qj;_~� ~-~~r:LF@ ~'=-lf~ty_~_g_f ~.ke_ry_Pr:_c;x:fuc;_ta Sec:end P185,269.99 p 605,070.02 F' 7,410.B) j 60,r;:;:J7 .00 220

DECISION CTA CASE NO. 4283 - 7- Third 103~555.60 424~739.26 4~142 .20 42~473.92 Fo...trth 98,218.26 458~Z!R.18 3,928.74 Total P387 ,043 .85 P1,488,048.46 45,823.91 Caterer Tax p 15,481.74 Manufacturer sales Ta>: 148,8">4.83 "~\~rtgr: f2.r0��.....8?c ~.!P-.1; �.r:R?.2.-~J?JQ.t....~� I~x. J:~ig Cate....r~r- /FCJC1Q ~f ac:tu.~..r:_gf ~Y.,~_ ry_ Pr-od.l::~t.� Firs t P151 ,36.3.60 .p 429,201.39 p 6,054.62 42 ~92(1.11 Sec end 210,790.83 389,38).27 ::!8' 9?..:.8 �0 3 8,43 1.64 Third 231,918.48 461,072.26 46,107 .22 9,276. 7 4 Fo...trth 179 '26.3 . 95 460,341.02 46,034.10 7,170.56 Total P773 ':'r":.6.86 P1, 739,995.14 Caterer Tax p 30,933. 56 Manufacturer sales Tax 173,999.46 "Clearly, from the above gross receipts of sales by pe titioner for the years 1986 and 1987 we can conclude that actually petitioner is more of a manufacturer of bakery products than as an operator of a refreshment parlor or eatery place. We can safely s ay that mainly petitioner is a Baker and that it is the operation of the eating place which is merely inc idental to the main bus iness and not the other way around as ruled by the respondent in his BIR Ruling No. 012- 88. However, respondent may not be blame for the ruling as the above facts may not have been presented to him by the petitioner when it requested for the said ruling. 221

DECISION CTA CASE NO. 4283 - 8- "As held in the case of !;X:.i�.P.!:\J._Q Ma 1 i c;_~~..ll Pet i t i q_n er____. Y..?...!'__C..p_l_!.�.!;;SQ_'=-._ Q_t J...o..!;g_rn_~!_.ftig.Y.!E.flh\..'E..Jl._R~g�J?.P.D..f.ien t.ll.. (G. R. L - 7578 Philippine Reports Vol. 99, July 24, 1956}, the facts of the petitioner in paying three (3/.) percent of gross receipts as hotel keeper of Palo Alto Hotel and Restaurant and for his business as keeper of a restaurant where wines of liquors are served, he paid five (51.) percent percentage tax prescribed in Section 191 of the Tax Code are in order. The Supreme Court dismissed the ) contentions of the petitioner, that the operation of said restaurant is merely incidental to and necessarily connected with the hotel business and as such his receipts from said restaurant should be considered receipts of his hotel business subject to the 3/. percentage tax due him as hotel keeper. Furthermore, contrary to the contention of the petitioner that Section 191 applies only to purely drinking establishments, the Supreme Court agrees with the Solicitor General that "if the theory is sustained, it would be easy for taxpayers to evade the payment of the 5 percent percentage tax prescribed in Section 191 on bars and cafes where wines or liquors are served by simple expedient of not maintaining a purely drinking establishment and keeping just a sort of an eating establishment but at the same time serving therein wines or liquors which could not have been the intentions of the legislators". The same ruling was held by the Supreme Court in the case of ~~.~_y_;_g~tlQ.t..~1__ln_c;_!._ �'JJ_Q____.t!.~.r.::J.~.D.Q.___.l,_~.!Jl o L~.s___._Q.�.j;_j,_j;_j,_Q.D..~r::.?.._._. _Y._?._.~- ~.Q.L!..!E..�.t..Q.C_.Q.f._____.J..n .t..!E..r::.D.E.\..L_.8.~.Y.!E..OJ:.!!E._..._~.IJ..g_!;:;.Q.~.r::..t.. P .f_ _I~.f.1.__._BQ.Q~E.\.l.?...ll�..�..r::.~.?.J?..QJJ..c;t~JJ.:t...5_ G � R � No � L - 11116 June 30, 1959, Vol. 109 Philippine Reports, pp. 1357 - 1358. "Similarly in the case at Bar, the acts of the petitioner in paying the 4/. caterers tax as an operator of a refreshment parlor or eating place and at the same time paying 10/. as manufacturer of Bakery products & selling them to the public are in order. To rule otherwise, will open the gate for possible evasion 222

DECISION CTA CASE NO. 4283 - 9- of the payment of the higher ten (10/.) percent manufacturer sa les tax by the simple expedient of maintaining a refreshment parlor or any eating place inside the bakery establishments and treat the selling of the bakery products as incidental to its operation of the eating place. This court believes that the most equitable manner of interpreting the l a w is to give force and effect to each and every prov isions of the law. A ) statute must be read or construed as a whole or in its entire ly. All parts~ provisions or sections must be read~ considered or construed together and each must be read, considered with respect to all others a nd in harmony with the whole. (Ch artered Bank vs. Imperial~ 48 Phil. 931; Lopez et al vs. El Hogar Filipino~ No. L-23800 Dec. 2 1~ 1965). In the instant case~ this Court believes Sections 165 and 172 of the National Internal Revenue Code may be given equal force and effect as ther e appears no conflict at all. If the business establishment manufactures and se lls its bakery products to the public~ i t is liable to the 10/. manufac ture sales tax and if it maintains at t he same time an eating place inside the e s tablis hment it is liable to the 4/. catere r s tax for the food and drinks it serves . This manner of paying tax es~ the petitioner has correctly followed as s hown in its quarterly percentage ta>: returns." WHEREFORE, the instant Petition for Review is hereby dismissed, and the amount sought to be refunded is consequently DENIED. With costs against petitioner. SO ORDERED. Quezon City, Metro Manila, CON AN~'lEtjJC:'RDAOUIN soc iate Judge 223

DECISION CTA CASE NO. 4283 - 10 - WE CONCUR: ,.., .. ~ Q.. ~ ERNESTO D. ACOSTA Presid i ng Judge ST~DADIVA;:-FAR~LE. Acting Associate Judge CERTIFICA.TI<>H I hereby certify that this decision was reached a fter due consultation among the members of the Court of Ta x Appeal s in accor dance with Section 13, Article VIII of the Constitution . ~~lQ .. ~ ERNESTO D. ACOSTA Presiding Judge 224