COMMISSIONER OF INTERNAL REVENUE v. PROFESSIONAL SERVICES,INC.

REPUBLIC OF THE PHILIPPINES COURT OFTAX APPEALS QUEZON CITY ENBANC COMMISSIONER O F INTERNAL R EV EN U E, Petitioner, C.T.A. EB N o. 409 (C.T.A. Case No. 7381) Present: -versus- Acosta, P.J. Castaneda, Jr. Bautista, Uy, Casanova, and Palanca-Enriquez, JJ. PROFESSIONAL SERVICES, INC., Respondent. Promulgated: . JAN 0 8 2009 tJrJ/t�~ ;. /l t,(:~~- x -------------------------------- ----- -------------- ----- -- ~:!."Z_j:!f._ !J:::_ _ ;_ _______________ X DECISION BAUTISTA, [. : The Cqse Before Us is a Petition for Review1 filed on August 14, 2008, praying for the reversal of: ' ,. .. 1 Rollo, C.T.A. EB No. 409 (C.T .A. Case No. 7381), pp. 7-16 with Annexes. ~ ... - ' 1

r' DECIS IO N CT A EB No. 409 (CTA Case N o. 7381) 1. the Decision dated March ,,17, 2008 of the Second Division of the Court ("Court in Division") in C.T.A. Case No. 7381, withdrawing and canceling the assessment for deficiency income and value-added taxes CVAT") for the taxable year 2001 against herein responden t; and 2. the Resolution dated July 11, 2008, denying the "Motion for Reconsideration" of herein petitioner. Antecedent Facts As recapitulated by the Court in Division, the following facts are undisputed: "Professional Services, Inc. (petitioner)2 is a corporation whose primary purposes are ' [t] o establish, operate, manage, own and maintain a hospital or hospitals, medical and chemical clinics or laboratories and such other enterprises w hich may have si milar or analogous undertakings or dedicated services in connection therewith, and to do any and all things and to enter into any and all kinds of h�ansactions that will achieve the purposes so n1.entioned, provided that pui-ely professional n1edical or surgical services in connection therewith shall be performed by duly qualified physicians or surgeons who may or may not be connected with the corporation and who shall be freely and individually conh�ac ted by p a t i e n t s .' Pe titioner owns and operates the New Medical City hospilal; a licensed tertiary hospital located at The Medical City Complex, Ortigas Avenue, Pasig City. I 2 Herein Responde nt. - �-. - ..:.. 2

DECISION O "A EB No. 409 (C f A Case No. 7381) On March 4, 2005, petitioner received from respondent3 a Preliminary Assessment Notice (PAN) for deficiency income and value-added taxes for the taxable year 2001, computed as follow s: Kind of Ta x Basic Surcha rge Interes t Co mpromise Total Income Ta x 4,468,700.22 000 2,568,584 .40 25,000.00 7, 062,284.62 Va lu e Added Tax 20,326,211 .80 0.00 12,574,407.19 25,000. 00 32,925,618.99 TOTAL 24,794,912.02 0.00 15,14 2,991 .59 50,000.00 39,987,903.61 On March 18, 2005, respondent received petitioner's letter- protest dated March 17, 2005, to the PAN for the taxable year 2001. On April 15, 2005, petitioner r eceived from respondent a Formal Letter of Demand dated March 17, 2005, demanding payment of deficiency income and value-added taxes computed as follows: Inco me Tax P2,867,313.95 P4,468,700 .22 25,000.00 Basic Ta x Due (unsuppo rt ed CWT per audi t) 2,892,313 .95 Add : 20 % Interest 7,361,014 .17 Co mpromise Pena lty Total Amount Still Due Value Add ed Tax 000 203,262,118.00 0.00 -20,326,211 .80 Taxable sa les pe r audit Ou tput tax due 13,933,200.53 0.00 Less: C reditable input tax 25 000. 00 20,326,:m .8o Tax withhe ld / paid pe r return 13,958,200.53 Basic Tax Due 34,284,412.33 Add : 20 % Interest 41.645,426.50 Co mpromise Pena lty Total Amount Still Due TOTAL Further, in two Audit Result/ Assessn}ent Notices INC No. 01-000144 and VT No. 01-000165, both dated April 15, 2005, respondent informed petitioner of its deficiency incom e ta x in the amount of P7,361,014.17 arising from the tax credits granted to senior citizens under Section 4 of Republic Act (RA) 7432 and Revenue Regulations (RR) 2-94 and deficiency value-added ta x in the amount of P34,284,412.33 arising from its sales of pharmacy medicines under RR No. 10-94. Petitioner filed its Formal Protest to the Final Demand Letter, with supporting documents, to strengthen its claim that it is not liable for any deficiency tax assessment. As the one hundred eighty (180)-day period within which to render decision on the protest expired on November 9, 2005, 3 H erein Pe titi o ner. / 3

DECIS IO N CfA EB No. 409 (CfA Case No. 7381) � Page4of19 petitioner filed before this Court th~ present Petition on December 9, 2005. Respondent raised the following counterarguments in his Answer: 1. The assessment issued by respondent has becom e final and executory; 2. The term ' tax credit' as u sed in RA 7432 is n o t th e literal ' ta x credit' as used in the National Internal Revenue Code; and 3. The sale of drugs to in-patients is subject to VAT on sales of goods. Trial proceeded and only petitioner presented its testimonial and documentary evidence after the Court declared respondent to have waived his right to present evidence. The case was submitted for decision on July 4, 2007 after bo th parties filed their respective Memorandum. The issu es as stipula ted by the parties are as follows: '1. W h e ther or no t the Fo r111al Protest to tire Final Denmnd Leiter was fil ed on lime by Petitioner via registered mail on May 13, 2005. Corollary there to, w he ther o r no t the assessment has become final, exec utory, a nd d e m a n d a b le. 2. Whethe r or n o t 'the sa le of pnarmacy drugs / m edicine to in-patients are VAT-able receipts; or s tated otherwise, whether or not the sale of pharmacy drugs/ medicine to in-patients fa ll w ithin th e purview of Sec ti on 109(1) of the Nationa l Interna l Revenu e Cod e (NIRC), as amended. 3. Whether or not the 20% discount on purchase of medicine gra nted by Pe titioner in year 2001 to senio r citizens should be treated as a deduction from gross sa les/ income as interpre ted in l~eve nu e Regulation No. 2-94, or as a tax credit unde r Republic Ac t 7432 a nd as d efin ed under the NIRC."' � (Citations onJilled) 4 Rollo, pp . 28- 31.

D EC ISIO N . CfA EB No. 409 (CfA Case No. 7381) The Ruling of the Court in Division At first, the Court in Division resolved the issue of whether or not the "Protest on the Formal Letter of Demand" of herein respondent was timely filed. Citing the case of Gold Line Tran sit: Inc. v. Luisa Ramos,5 and applying the pertinent provisions of the Revised Rules of Court ("ROC"), particularly Section 3 of Rule 13, and Section 3(v) of Rule 131, the Court in Division found that: f I "Basic is th�e rule that when a mail matter was received by registered mail, there exists a presumption that it was received in the regular course of mail as provided in Section 3(v), Rule 131 of the Revised Rules of Court. And in order to raise this presumption, it must be proven that: (1) the letter was properly addressed with postage prepaid; and, (2) it was mailed. To prove that it filed a protest within the reglementary period, petitione:r6 presented the following exhibits: I 1. Exhibit 'K' Affidavit of Mr. June B. Rojas, paralegal of The Bengzon Law Firm, stating that he filed the Protest on the Formal Letter of Demand by registered mail, with Registry Receipt No. 22224, on May 13, 2005 at the Makati Cenh�al Post Office; 2. Exhibi t ' L' Affidav it of Ms. Candelaria A. Ponciano, employee of petitioner, statir1g that she received copy of the Protest on the Formal Letter of Demand on May 12, 2005; 3. Exhibit T Makati CenLTal Post Office Regishy Receipt No . 22224; and 4. Exhibit 'J' M akati CenLTal Post Office Certification, dated A pril 11, 2006, with an atlach ed Inquiry Form on Domestic Recorded Mail. s G.R. No. 144813, Aug us t 15, 2001, 363 SCRA 262. I 6 Herein Respond ent.

DECISION CfA EB No. 409 (CfA Case No. 7381) The Certification issued by Ms. Emily A. Gianan, Chief of the Administrative Unit of the Philippine Postal Corporation, and the Inquiry Form on Domestic Recorded Mail show that the counsel for petitioner sent a letter to the Bureau of Internal Revenu e (BIR) by registered mail on May 13, 2005. Petitioner's witness, Mr. June B. Rojas, attes ted to the fa cts tha t the letter-protest was filed by registered mail before th~ lapse of the prescribed p eriod and that no return card was received. As the Revised Rules of Court shall apply by analogy or in a suppletory character, the date of the mailing of pleadings, motions, and other papers, as shown by the post office stamp on the envelope or the registry receipt, shall be considered as the date of their filin g and the en velope shall be attached to the record of the case. Hence, the Protest OIL the Formal Letter of Demand was deem ed to have been filed on May 13, 2005. In Gold Line Transit, Inc. v. Luisa Ramos, the Supreme Court ruled that 'xxx postal officials enjoy the presumption, without clear and convincin g evidence to the conh�ary, to ha ve regularly performed their official duty and that they have acted in good faith. 0 111nia praesu muntur rite et sole1:11niter esse actrz donee probetur in contrarium. All things are presumed to have been d one correctly and with due formality until the contrary is proved . For another reason, mails are presumed to have been properly delivered and received by the addressee "in the regular course of the mail." These juris trzntum presumptions stand even against the most well-reasoned allegations 1 pointing to some possible irregularity or anomaly.' 1 As the presumption exis ts in favor of petitioner, respondent? has the burden of proving that p e titioner's protes t to the FAN was actually mailed after the prescriptive period by presenting the mail envelope u sed by p etition er duly stamped by the Philippine Postal Corporation showing the date when the protest was sent by registered mail. And, this Court finds that respondent fail ed to discharge the burden as there appears to be no conh�overtin g evidence to prove his assertion that petitioner fail ed to file its protes t on time."S 7 Herein Petitioner. I B Rollo, pp . 33 - 35.

DECIS ION CTA EB No. 409 (CTA Case No. 7381) ' Page 7 of 19 The Court in Division then proceeded to determine whether the sale of pharmacy drugs/medicines to in-patients falls within the purview of Section 109 (I) of the National Internal Revenue Code of 1997 ("NIRC"), which exempts medical, dental, hospitaJ and veterinary services subject to the provisions of Section 17 of Republic Act No. 7716, as amended, from the payment of VAT. In the case of St. Luke's Medical Cen ter, In c. v. Court of Tax Appeals and The Commissioner of Internal Revenue, 9 the Court of Appeals construed the phrase "hospital services" to include the sale of pharmaceutical items to in-patients. Finding no reason to depart from this interpretation, the Court in Division ruled that the sale of medicines, drugs and pharmaceutica l items to in-patients is part of the "hospital service", and thus, exempt from VAT, as provided by Section 109 (I) of the NIRC, as amended.1o Finally, in keeping with the prevailing jurisprudence, the Court in Division declared that the 20 % sales discounts granted to qualified senior citizens must be treated as tax credi ts pursuant to Republic Act No. 7432 ("RA 7432"), not deductions from gross income. as provided in Revenue Regulations No. 2-94 ("RR 2-94").11 In view of the foregoing, the Court in Division disposed of the case in this w ise: 9 CA-G .R. SP No. 45892, Ma rch 13,1998. ! 10 Rollo, p. 37. 11 !d., p . 40. - "' . ~. ...

DECISION CT A EB No. 409 (C fA Case No. 7381) � Pa ge 8 of 19 "WHEREFORE, p etitioner's Petition for Review is hereby GRANTED. Accordingly, the assessment for deficiency income and value-added taxes for the taxable year 2001 against p e titioner is hereby WITHDRAWN and CANCELLED. SO ORDERED."12 On April 9, �2008, h erein petitioner filed a "Motion for Reconsideration" I3 to which herein respondent filed an Opposition.14 On July 11, 2008, the Court in Division d enied the "Motion for Recon sidera tion" for lack of merit.15 The Issues Hence, the instant Petition anchored upon the following grounds: " I. THE SECOND DIVISION OF THE HONORABLE CTA ERRED WHEN IT HELD THAT THE PROTEST OF RESPONDENT TO THE ASSESSMENT WAS FILED ON TIME. II. THE SECOND DIVISION OF THE HONORABLE CTA ERRED WHEN IT HELD THAT THE TERM 'TAX CREDIT' AS USED IN REPUBLIC ACT NO. 7432 SHOULD BE LITERALLY CONSTRUED AS A 'TAX CREDIT' AS USED IN THE NIRC OF 1997. III. THE SECOND DIVISION OF THE HONORABLE CTA ERRED WHEN IT HELD THAT THE SALE OF PHARMACY DRUGS/ MEDICINE TO IN-PATIENTS IS COVERED BY THE EXEMPTION FROM VAT UNDER SECTiON 109 (L) OF THE 12 Rollo, p. 40. I 13 Records, C.T.A. Case No . 7381, pp. 264- 2S2. 14 lrl., pp. 289- 295. 15 Rollo, pp . 42-43. 8

DECISION C f A EB No. 409 (CTA Case No. 7381) � Page 9 of ] 9 NATIONAL INTERNAL REVENUE CODE OF 1997 (NIRC OF 1997)."16 The Ruling of the Court En Bane The Petition must fail as all the grounds raised by petitioner are bereft of merit. We shall discuss each one of them in the order they are presented. The Protest on the Formal Letter of Demand was filed on time Petitioner contends that respondent failed to prove the timely filing of its "Protest on the Formal Letter of Demand." He reasons that the presumption under Section 3 (v), Rule 131 of the ROC, used by the Court in Division is inapplicable, as it pertains to situation s where receipt of mail matters coursed through the official post is denied. In this case, petitioner does not deny receipt of the protest but only that it was filed out of time. Hence, petitioner claims that w h at should exist is a burden on the respondent to prove by independent a!ld competent evidence, the timely filing of its protest by registered mail. Petitioner insists that the best evidence to prove the date of filing is the Return Card of the registered mail. Furthermore, petitioner avers that the Certification,}? issu ed by the Makati Central Post Office and submi tted as eviden ce by respondent, is ' " 16 Rollo, pp. 9 -10. I 17 Records, p. 165, Exhibit"]."

DECISION CT A EB No. 409 (CT A Case No. 7381) inadmissible, given th a t no witness was presented to properly identify the said letter. In its Comment,1s respondent coun:ter-argues that under Section 13, Rule 13 of the ROC, if service is made by registered mail, proof shall be made by such affidavit and the registry receipt issued by the mailing office. Also in the case of Domingo v . De Leorz,1 9 if service is made by mail, proof of service of a pleading shall consist of the affidavit of the person serving, together with the registry receipt, if registered. Thus, respondent ma intains that the Registry Receipt No. 2222420 issued by the Makati Central Post Office and the Affidavi t executed by Mr. June B. Rojas21, a paralegal of respondent's counsel, are sufficient to prove that respondent timeiy filed its protest on May 13, 2005. As to th e Certification issued lD' y the Makati Central Post Office, respondent asserts that it is an official public document and, therefore, considered as prima facie evidence of the facts stated therein. Accordingly, there is no n eed for the person who issued the Certification to testify in Court. Moreover, respondent points out that since petitioner refuses to present the envelope containing the "Protest on the Formal Letter of 1s Ro/lo, pp . 50 - 63. 19 G .R. No. L-17686, Novem ber 29, 1961, 3 SCJ{A 586. 2o Records, p. 70, and Ex hibit 'T' of du plica te docke t. 21 Ed., pp. 168 -169, Exhibit "K" 10

DECISION CTA EB No. 409 (CT A Case No. 7381 ) Demand" to show the date of filing, it is presumed that the date stamped on the envelope is adverse to the case of petitioner based on Section 3 (e), Rule 131 of the ROC, which provides that evidence willfully suppressed would be adverse if produced. As We see it then, the crux of the controversy is the date of filing of the "Protest on the Formal Letter of Demand." Section 228 of the NIRC states that: "SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases: XXX XXX XXX The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findin gs. : Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is d enied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) ll

DECISION CTA EB No. 409 (CT A Case No. 7381) days from receipt of the said decision, or from the lapse of th e one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable." (Emphnsis supplied) Applying suppletorily the provisions of the RQC,22 particularly Section 3, Rule 13 of the ROC, if the pxotest is filed by registered mail, the date of the mailing as shown by the post office stamp on the envelope or the registry receipt shall be considered as the date of its filing. As proof of service, Section 13 of the same Rule states that, if service is made by registered mail, proof shall be made by the registry receipt issued by the l ,.~ mailing office. In the instant case, respondent is resolute in saying that it filed its protest by registered mail on May 13, 2005. To prove its claim, respondent presented the followin g: 1. Affidavit of Mr. June B. Rojas, paralegal of The Bengzon Law Firm, stating that he filed the " Protes t on the Formal Letter of Demand" by registered mail, with Registry Receipt No. 22224, on May 13, 2005 at the Makati Central Post Office (Exhibit "K"); 2. Affidavit of Ms. Candelaria A. Ponciano, employee of respondent stating that she received a copy of the "Protest on the Formal Letter of Demand" on May 12, 2005 (Exhibit i/L"); 3. Makati Central Post Offiqe Registry Receipt No. 22224 (Exhibit " I"); and 4. Makati Central Post Office Certification, dated April 11, 2006, with an attached Inquiry Form on Domestic Recorded Mail (Exhibit '']"). 22 Section 4, Rule 1 of th e Revised Rul es of Court.

DECISION CT'A EB No. 409 (CT'A Case No . 7381) Page 13 of19 Petitioner, on the other hand, alleges that respondent filed its protest only on May 25, 2005 or after a lapse of forty (40) days from receipt of the Final Assessment Notice and Formal Letter of Demand. No evidence was presented by petitioner to prove his claim. As between the two, We are inclined to rule that the evidence preponderates in favor of the respondent. Contrary to the view of petitioner, the Certification issued by the Makati Central Post Office is admissible in evidence. Having been issued by a government office, and certified to by an authorized personnel clothed with authority and duty to issue such Certification, it is an exception to the hearsay rul~ as provid~d in Section 44, Rule 13023 of the ROC, which should be read in conjunction with Section 23, Rule 13224 of the same Rules. Simply put, a certification, without the testimony of the person giving the certification, is sufficient and competent evidence. 25 Furthermore, it is well settled that the evidentiary nature of public documents must be sustained in the absence of strong, complete, and conclusive proof of its nullity.26 In this case, petitioner did not present any evidence to show that the contents of the Certification issued by the 23 SEC. 44 . Entries in official records.-Entri es in o ffi cial records mad e in th e perform ance o f hi s duty by a public officer of th e Philippines, or by a person in the p erformance o f a dut y sp ecially enj oined by la w, are pri111afacie ev idence of the fa cts therein s ta ted . (38 ) 24 SEC. 23. Public dow //I ents as evide 11ce .- DLK um ents consis ting o f entries in public record s mad e in th e performance of a duty by a public offi cer are prilllrt .{tl cie evidence of the facts therein sta ted . All o ther public documents are evidence, even against a third person, ot the fac t which ga ve rise to the ir execution a nd o f th e date of the Ia tter. (24a) 1 25 Escobar v. Luna, G .R. No. 169204, March 23, 2007, 51 9 SC RA 1. 26 Sierra v. Court of Appeals, et. a!., G.R. No. '.!0270, July 2-�, 1992, 211 SCRA 785. 13

DECISION CTA EB No. 409 (CT A Case No. 7381) Page14of19 Makati Central Post Office are false. Neither did petitioner present any evidence to prove that the person who issued the Certification was not authorized to do so, nor did he present evidence to show that the person who issued the same acted beyond her authority. Under the circumstances, We find Registry Receipt No. 22224, the affidavit of Mr. June B. Rojas, and the Certification issued by the Makati Central Post Office sufficient to show that the "Pro test on the Formal Letter of Demand" was timely filed. The 20% discount on purchase of -. medicines granted by respondent to senior citizens in the year 2001 should be treated as a tax credit Petitioner is of the view that the term "tax credit" under RA 7432 means a d eduction from the establishment's gross income and not from its income tax liability pursuai1t to RR '2-94. To support his position, petitioner alludes to the enac tment of Republic Act No. 9257 ("RA 9257"), w hich amended RA 7432. Under Section 4 of the new law, an establishment may claim the discounts granted as " tax deductions" based on the net cost of the goods sold or services rendered; provided that, the cos t of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. In view of this development, petitioner believes that there is a need to revisit the jurisprudence ci ted by Court in Division in its Decision. I

DECISION CTA EB No. 409 (CTA Case No. 7381) We are not persuaded. Indeed, with the effectivity of RA 9257 on 21 March 2004, there is now a new tax treatment of senior citizens' discount granted by all covered establishments. The discount is now considered as a deductible expense from gross income and no longer as a tax credit.27 However, since the present case covers the taxable year 2001, the old law (RA 7432) should I apply and not RA 9257, as it cannot be applied retroactively. Section 4 (a) of the old law states that: "SECTION 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following: a) the grant of twenty percent (20rYo) discount from all establishments relative to utilization of transportation services, hotels and similar lodging establishment, restaurants and recrea tion cen ters and purchase of medicine anywhere in the country: Provided, That private establishments may claim the cost as tax credit;" (Emp!Jnsis supplied) It is clear from the wordings of the law that the 20% discount required by the RA 7432 to be given to senior citizens is a tax credit, not a deduction from the gross sales of the establishment concerned as petitioner wants it to be. RR 2-94 from which petitioner draws its definition of the term "tax credit" may not prevail over the clear provision of the law. In a string of cases,28 the Supreme Court has declared RR 2-94, which considers 27 Commissioner of Internal Revenue v. Ce,ntra l Luzon Drv,g Corporation, G.R. No. 159610, June 12, 2008, 554 SCRA 398. 28 Commissioner of Interna l Revenu e v. Central Lu zo n Drug Corpo ration, supra, at note 27; M.E. Holding Corporation v. Court of Appea ls, G.R. No. 160193, March 3, 2008, 547 SCRA 389; Commissioner of Internal Revenue v. Bicolandia Drug Corporati o n, G.R. No. 148083, July 21 , 2006, 496 SCRA 176; Commi ssioner of Internal Revenue v. Central Lu zon Drug Corpora ti o n, G.R. No. 1485 12, June 26, 2006, 492 SCRA 575; and 1S I

DECISION C f A EB No . 409 (CfA Case No. 7381) Page 16 of1 9 such discount as mere deductions to the taxpayer's gross income or gross sales, null and void for failing to conform to the law it sought to implement. To quote the Suprem e Court, " If the words of the law are clear, plain, and free of ambiguity, it must be given its literal meaning and applied without any interpretation. Hence, the senior citizens' discount may be claimed as a tax credit and not as a refund." 29 Premises considered , We affirm the ruling of the Court in Division tha t the 20% sales discounts granted to qu alified senior citizens should be treated as tax credits and not as m ere tax d eductions from gross income.3� The sale of phannacy dntgs/medicines to in-patients is exempt from VAT under Section 109 (l) of the NIRC I I Petitioner is adamant that the sale of drugs and medicines to in- patients is not exempt from VAT because said transaction does not fall under the phrase "h ospital services." Relying on Section 106 (A) (1) of the NIRC, petitioner argues that drugs are considered goods and not services, as they are tangible items subject to pecuniary estima ti on. For this reason, the sale of pharmacy drugs/medicines to in-patients should not be included in the exemption Commissioner of Interna l Revenu e v. Ce ntra l Lu:wn Drug Corpora ti on, G. R. No. 159647, Apri l l 5, 2005, 456 SCRA414 . 29 Co mmissioner of Interna l Revenu e v. Central Lu zon Drug Co rpora ti on, ,;uprn, a t no te 27. 30 Rollo, p. 38. 16 I

DECISION CfA EB No. 409 (CfA Case No. 7381) Pa ge 17 o f 19 provided for in Section 109 (l) of the NIRC as this pertains to "hospital services" only. In response to this argumen t, respondent cites BIR Ruling dated April 6, 2005,31 issued by then BIR Commissioner Jose Mario Bufiag, the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, this Office holds that the pharmacy sales by PSI to in-patients are exempt from VAT pursuant to Section 109 (l) of the Ta x Code of 1997. Accordingly, being a VAT exemp t transaction, PSI need not reflect in its VAT return the aforesaid sales to in-patients. But the same should nevertheless be properly accounted for and declared as part of patients' services inc01ne in computing the income tax of PSI and in the preparation of its audited financial sta tements." The said ruling cited the d ecision of the Court of Appeals in St. Luke's Medical Center v. Court of Tax Appeals and Commissioner of Internal Revenue.32 In that case, the Court of Appeals ru~ed that the item "hospital services" in Section 103 (1)33 should include the sale of drugs to in-patients of the hospital because the maintenance and operation of a pharmacy or drugstore by a hospital is a necessary and essential service or facility I rendered by any hospital for its patients. The Court of Appeals further explained that, "a person who resorts to the hospital for medical treatment can reasonably expect that the hospital would make available to its patients immediate and prompt access not only to the services of doctors, nurses and allied medical personnel, but also to n ecessary laboratory 31 Records, pp. 159- 161, Exhibit " G. " I 32 Supra, at note 9. 33 Presently Section 109 (!) of the NIRC. 11

DEC ISION CTA EB No. 409 (C TA Case No. 7381 ) services as well as medicines, drugs and pharmaceutical items which are dispensable aids in practically any form of medical treatment and care of patients." It went on to say that, "the sale of drugs or pharmaceutical items to in-patients of the hospital should be exempted from VAT because unlike the sale of retailing of drugs or .medicines by drugstores in general, the procurement of medicines and pharmaceutical items from the hospital dru gs tore or pharmacy amounts to t_he availment of service rendered or mad e available by the hospital for its in-patients and not simply the buying of such goods." Based on the foregoing disquisition, We hold that the sale of p harmacy drugs/medicines to in-patients is included in the phrase " hospital service," and thus, exempt from VAT pursuant to Section 109 (I) of the NIRC, as amended. All told, We find no reversible error that can be ascribed to the Court in Division. WHEREFORE, the instant Peti tion for Review IS hereby DISMISSED. Accordingly, the Decision dated March 17, 2008 and the Resolution dated July 11, 2008 are hereby AFFI~M E D . SO ORDERED. 1S

DECIS IO N CTA EB No. 409 (CTA Case No. 73.81) WE CONCUR: \J~� � c~ ERNESTO D. ACOSTA Presiding Justice Q~f':; c . ~~~ S).. E~~'.UY Cj'UANITO C. CASTANEDA;fR. Ass � ustice Associate Justice CAESAR A. CASANOVA ~l~~ Associate Justice OLGA PALANCA-ENRIQUEZ Associate Justice C E R T I F I C ,A . .. T ION : Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the above Decision has been reached in consultation w ith the Inembers of the Court En Bnnc before the case was assigned to the writer of the opinion of this Court. G - ,., L '(._.........._ "'t"~ ERNESTO D. ACOSTA Presiding Justice