H. TAMBUNTING PAWNSHOP, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPeALS QUEZON CITY H. TAMBUNTING PAWNSHOP, INC., Petitioner, - v e r s us - C.T.A. CASE NO. 6366 COMMISSIONER OF INTERNAL Promulgated: REVENUE, MAR 18 200~ Respondent. ?flO# ~ X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION This is a petition for review seeking for the cancellation and setting aside of petitioner' s deficiency Value-Added Tax (VAT) and Documentary Stamp Tax (DST) assessments for taxable year 1997. Petitioner is a duly organized domestic corporation engaged in the pawnshop business with address at 822 M. dela Fuente St., Trabajo , Sampaloc, Manila (par. no. 1, Admitted/Stipulated Facts). On March 5, 2001 , respondent, through Regional Director Teodorica R. Arcega of Revenue Region 6, Manila, issued Pre-Assessment Notices against petitioner for deficiency documentary stamp and value-added taxes and compromise penalties for taxable year 1997 as follows:

DECISION C.T.A. Case No. 6366 Page 2 Deficiency DST Tax Base - Pledge Loan P25,445,61 0.00 Deficiency DST (excluding increments) ~ ' p 50.910.00 Deficiency VAT P17,664,410.27 1,766,441.03 Taxable Sales per Return 441,610.26 Deficiency VAT Add: Surcharge- 25% (non-filing & non-payment) p 2.208.051.29 Deficiency VAT (excluding increments) (Annex "A", Petition for Review,� par. no. 3, Admitted/Stipulated Facts) On March 29, 2001 , petitioner filed its written protest to respondent's Pre- Assessment Notice (Annex "B", Petition for Review,� par. no. 4, Admitted/Stipulated Facts) claiming that the assessment has no legal basis. On April 11, 2001, respondent, through Regional Director Teodorica R. Arcega, issued two Assessment Notices, both bearing the number 32-97, with attached demand letters, for the payment of deficiency DST and VAT in the amounts of P50,91 0.00 and P3 ,347,405 .75, inclusive of surcharge and interest, respectively (par. no. 5, Admitted/Stipulated Facts). On even date, demand lette'"S were likewise issued requiring petitioner to pay compromise penalties in the amounts of P25,000.00 and P12,000.00 (Annexes "G " and "H ", Petitionfor Review). 2

DECISION C.T. A. Case No. 6366 Page 3 On May 16, 2001 , petitioner filed with Revenue Region No. 6 of the Bureau of Internal Revenue (BIR), a written protest assailing the assessment notices issued by respondent (Annex "!", Petition for Revie w, par. no. 6, Admitted/Stipulated Facts). In said protest letter, petitioner likewise argued that res�� . \dent's assessment notices have no legal bases. It averred that it is not subject to the documentary stamp tax under Section 195 of the Tax Code because the said section pertains to pledge and no pledge ever exists in the case of a pawnshop business. To support its contention, petitioner cited BIR Ruling No. 325-88 dated July 13 , 1988, pertinent portion of which reads as follows: "In the case of the pawnshop business, the pawnee (pawnshop or pawn broker) issues a "pawn ticket " to the pawner (borrower from a p awnshop). The pawn is the personal property delivered by the pawner to the pawnee as security for a loan. The "pawn ticket" is the pawnbroker 's receipt for a pawn. It is neither a security nor a printed evidence of indebtedness. (Sec. 3 PD 114 on the Pawnshop Regulatory Act). Accordingly, considering that the doc , :_. �1t taxable under Section 195 of the Tax Code must show the existence of debt and inasmuch as, under the law, a pawn ticket cannot be considered as a document subject to the documentary stamp tax imposed by Section 195 ofthe Tax Code." On the VAT assessment, petitioner argued that it is not subject to the value-added tax since there is no provision in the Tax Code which subjects pawnshops to VAT. Specifically, pawnshops are not lending investors whose services can be the subject of VAT. Again, in support of its argument, petitioner cited various BIR rulings on the matter. Furthermore, petitioner alleged that the issu' . pertaining to the taxability of pawnshops insofar as VAT and DST are concerned have already been decided by the Court of Appeals in the case of Commissioner of Internal Revenue vs. Hon. Andres Reyes, Jr., et.al., CA-G.R. SP No. 28824, which declared null and void the rulings and 3 �.: ..

DECISION C.T.A. Case No . 6366 Page4 circulars which have been relied upon by the BIR m 1mposmg the VAT and DST assessments. Finally, petitioner raised the argument that the deficiency VAT and DST assessments dated April 11 , 2001 are invalid for having been issued beyond the three- year prescriptive period. Since respondent Bureau failed to act on the protest, petitioner filed the instant petition for review on December 11 , 2001. In his Answer, respondent raised the following special and affirmative defenses: "8. The subject assessments are valid and correct and the petitioner has the burden of proof to impugn their validity (Behn Meyer & Co. vs. Collector of Internal Revenue, 27 Phil 647). Thus, similarly held, tax assessments by examiners are presumed correct and made in good faith and the taxpayer has the duty to prove otherwise (Commissioner of Internal Revenue vs . Construction Resources of Asia, Inc. , 145 SCRA 671) 9. The burden of proof is on the taxpayer contesting the validity or correctness of an assessment to prove not only that the Commissioner of Internal Revenue is wrong but also that the taxpayer is right (Tan Guan vs. Court of Tax Appeals, et.al. 19 SCRA 903[1967]; Collector of Internal Revenue vs. Bohol Land Transportation, Co., 107 Phil 967 [1960]. 10. The inclusion of pawnshops in the coverage of lending investors in Revenue Memorandum Order No. 15-91 has not amended any provision of the Tax Code. It merely applied the definition to the reality that pawnshops are indeed engaged in the business of lending money at interest. The contention that essence of pawnshop operation is the "pawn" is only one way of looking at their two-sided operations. The other way of looking at it is that since pawnshoJ.. operators lend money at interest and require a pledge of personal property as security (an accessory contract), the essence oftheir operation is lending money. 11 . The principal activity of pawnshops is lending money at interest and incidentally accepting "pawn" of personal property delivered by a pawner to the pawnee as security of loan. Thus, this makes pawnshop business akin to lending investor's activity which is broad 4

DECISION C.T.A. Case No. 6366 Page 5 enough to encompass the business of lending money at interest by any person whether natural or juridical. 12. Under Section 3 of Republic Act NC?. 7716, lending investors are subject to 10% VAT beginning January 01, 1996 as implemented by Revenue Regulations No. 06-95 , as amended by Revenue Regulations Nos. 07-95 and 06-97. Since pawnshop business is akin to lending investor business, then respondent is correct in subjecting petitioner to 10% VAT. 13 . BIR Ruling No. 221 -91 provides that pawnshop tickets are subject to Documentary Stamp Tax (DST) because a pawnshop ticket virtually evidences a pledge. Since petitioner lent money at interest and requires a pledge of personal property as security, the essence of its operation is lending money. Thus, petitioner's pawnshop tickets shall likewise be subject to DST pursuant to Section 195 of the Tax Code, as amended. 14. Under Section 223 of the Tax Code, as amended (now Section 222 of the 1997 Tax Code), in case of false or frC~ndulent return with intent to evade tax or offailure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (1 0) years after the discovery of the falsity, fraud or omission. 15. Where there is failure to file VAT and DST returns, the period to assess is clearly within ten (1 0) years after the date of discovery of the omission to file said returns." The parties have jointly stipulated on the following issues: 1. Whether or not the VAT and DST assessment against petitioner were issued beyond the prescriptive period. 2. Whether or not petitioner is subject to VAT. 3. Whether or not pawn tickets are subject to DST under Section 195 of the Tax Code. 4. Whether petitioner is liable for deficiency VAT in the amount of P3 ,347,405.75 and DST in the amount of P50,910.00 for taxable year 1997. 5

DECISION C.T.A. Case No . 6366 Page 6 Before we delve into the first stipulated issue, it is necessary to determine foremost whether or not petitioner is subject to value-added tax and whether or not pawn tickets are subject to the documentary stamp tax imposed under Section 195 of the Tax Code, for if petitioner is not subject to both taxes, the subject assessments have no legal bases and, therefore, the prescriptive periods under Sections 203 and 222 of the Tax Code will not apply. Petitioner insists that there is no basis for the imposition of VAT because there is no provision in the Tax Code of 1997 which subjects pawnshops to VAT. We do not agree. Section 102(a) [now renumbered as Section 108(A)] of the Tax Code provides in pertinent part: "SEC. 102. Value-added Tax on Sale of Services and Use or Lease ofProperties. - "(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 contractO"'S: stock, real estate, commercial, customs and immigration brokers; lessors or 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 house, 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 6

DECISION C.T .A. Case No. 6366 Page 7 relative to their transport of goods or cargoes; services of franchise grantees except those under Section 119 of this Code: services of banks, non-life insurance companies (except their crop insurances), including surety, fide lity,. 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. 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 the value-added tax." [Underscoring ours] From the foregoing, it is clear that the sale or e~,~change of services is subject to VAT. The phrase "sale or exchange of services" encompasses the performance of all kinds or services for others for a fee, remuneration or consideration. The enumeration of persons performing services for a fee, such as, construction and service contractors, stock, real estate, commercial, customs and immigration brokers, etc., is merely intended to give examples of businesses performing services for a fee that are subject to VAT. The enumeration is not exclusive, which means that other persons performing services for a fee, who are not expressly mentioned in the enumeration, are also subject to VAT. As held in Gomez vs. Ventura, (54 Phil. 726): "x x x 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 plain indicated purpose of the legislature. It does not apply when words are mentioned by way of example, or to remove doubts. (See Cyc., 1122) x x x." [Underscoring ours] 7

DECISION C.T.A. Case No. 6366 Page 8 The said Section 102(a) [now 108(A)] does not limit its application to those enumerated therein because the law speaks of "all kinds of services." To limit its application to the enumeration would contradict the very clear meaning of the phrase "all kinds of services". The phrase "including" should be construed merely as an enlargement and not of limitation. "The intention of an act will prevail over the literal sense of its terms. Thus, limited words in one part of an act may be r:-xpanded by general words in another part, if the general words more nearly express the legislative intent. A term whose statutory definition declares what it 'includes ' is more susceptible to extension of meaning by construction than where the definition declares what a term 'means'. Thus, it has been said that 'the word 'includes ' is usually a term of enlargement, and not of limitation... It, therefore, conveys the conclusion that there are other items includable, though not specifically enumerated ... " Sutherland, Statutory Construction, 41h Ed., Vol. 2A, p. 82, Sec. 47.07 citing United States Argosy Ltd. v. Hennigan, 404 F2d 14 (CA 5th, 1968); See United States v. Gertz, 249 F2d 662 (CA 9th' 1957); Federal Land Bank of St. Paul v. Bismarck Lumber Co., 314 US 95 , 86 LEd 65 , 62 S Ct1 (1941 ). (Emphasis supplied.) Hence, the terms "includes" and "including" do not exclude items otherwise within the scope of the defined term. The terms "includes" and "including" when used in the Code are not deemed to exclude items otherwise within the meaning of the term defined. Thus, where Section 1(e) applies to the taxable income of estates "including" and thereafter lists four types of income from trusts or estates that are taxable, other types of estates may also be subject to taxation under Section 1(e). To hold differently would, in effect, substitute the term "limited to" for "including". Mertens, Law of Federal Income Taxation, 1995 Ed., Section 3.37, Chap. 3, pp. 55-56, citing In re Joplin, Jr., 882 F2d 1507 (CAlO 1989), applying IRC & 7701(c). 8

DECISION C.T.A. Case No. 6366 Page 9 In the cases of Genato Commercial Corporation vs. The Court of Tax Appeals, et al. , 104 Phil. 615 and Philippine-American Drug Co. vs. Collector ofInternal Revenue and Court of Tax Appeals, 106 Phil. 161, general words were harmonized with specific words found in the statute in question so as not to limit the coverage of the taxing statute. In determining that the bank charge in question formed part of the charges enumerated in Art. 183-(B) ofthe then Tax Code, the Supreme Court held: As may be seen, an importer is required to pay in advance the necessary percentage tax on the articles imported "based on the import invoice value thereof, certified to as correct by the Philippine Consul at the port of origin if there is any, including freight, postag~, insurance, commission, customs duty, and all similar charges." In other words, the law requires that it be included in the assessment not only the import invoice value of the merchandise, which includes freight, postage, insurance, commission and customs duty, but all other similar charges which would necessarily increase the landed cost of the merchandise imported, which, in our opinion, should include the difference of Php 0.15 paid by petitioner to a local bank in the purchase of foreign exchange to carry out the importation. Indeed, the intention of Congress in enacting the above-quoted provision is to include in the assessment all charges, whether specified or otherwise, which an importer has to pay to complete his importation. Invoking the rule of ejusdem generis which provides that "where, in a statute, general words follow a designation of a particular subjects or classes of persons, the meaning of the general words will ordinarily be presumed to be restricted by the particular designation, and to include only things or persons of the same kind, class or nature as thos~ specifically enumerated," petitioner contends that the difference of Php 0.15 which it paid to a local bank in the purchase of foreign exchange to cover the importations in question cannot be included in the assessment for the purpose of determining the advance sales tax because they are not similar to the charges specifically enumerated in the law. With this we disagree, for it cannot be denied that the intention of the law is to include all charges, that may be paid by the importer to bring the importation into the country. In other words, all items of expense that may be incurred by the importer in bringing the importation into the country and which would necessarily increase the landed cost must be deemed included in the phrase "all similar charges" mentioned in the law. The doctrine of 9

DECISION C.T.A. Case No. 6366 Page 10 ejusdem generis is but a rule of construction adoptd as an aid to ascertain and give effect to the legislative intent when that intent is uncertain or ambiguous, but the same should not be given such wide application that would operate to defeat the purpose of the law. In other words, the doctrine is not of universal application. Its application must yield to the manifest intent of Congress (State vs. Prather, 21 L.R.A. 23, 25). In this particular case, the law is not only clear in its intent but also in its wording that "all kinds of services" should be subject to VAT. Hence, pawnshop services should a fortiori be subject to VAT. Furthermore, Section 105 ofthe 1997 Tax Code provides: "Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code." Inasmuch as pawnshops are engaged in the sale of services for a fee, remuneration or consideration, they are subject to VAT under Section 108(A) of the Tax Code, as amended. This conclusion finds support in recent decisions laid down by the Court of Appeals (Commissioner ofInternal Revenue vs. Agencia Exquisite ofBohol, Inc. , CA. G.R. SP No.59282, March 23, 2001 and Commissipner of Internal Revenue vs. Exquisite Pawnshop and Jewelry, Inc. , CA . G.R. SP No. 59401, September 30, 2002), the latest of which is the case of Commissioner of Internal Revenue vs. Agencia Exquisite of Bohol, Inc. , CA . G.R. SP No. 68180, promulgated on February 10, 2003, where the Court of Appeals categorically ruled that pawnshops are subject to the 10% VAT imposed under Section 108 (A) ofR.A. 8424, thus: 10

DECISION C.T.A. Case No. 6366 Page II "A value-added tax 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. In the case at bar, it has been the contention of respondent Agencia Exquisite of Bohol, Inc. that the business of a pawnshop is not similar to that of a lending investor. A pawnshop, according to respondent is principally engaged in the business of delivering money to another, secured by personal property, upon the condition that the latter shall pay the former, otherwise, the thing pawned shall be sold for the payment of the principal obligation. Hence, a pawnshop operator engages in a pledge transaction. We are not convinced. The business of pawnshops are akin to that of lending investors. Respondent itself admitted that a lending investor is a person who makes a practice of lending money fv~� themselves or others at interest. It seems that respondent forgotten that the business of a pawnshop is also to lend money for others at interest. The difference between lending investors and pawnshops lies only on the security given, that is, a lending investor may require both real and personal property as security for the loan; whereas a pawnshop can require only personal property as security for the loan. But in the end, a lending investor and a pawnshop both engage in the business of lending money for others at interest. Accordingly, a lending investor and a pawnshop are both subject to VAT, pursuant to the provision of the National Internal Revenue Code of 1997 which provides that "there shall be levied, assessed and collected, a value-added tax equivalent to ten percent (1 0%) 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 x x x lending inves~ors x x x. " Even assuming arguendo that we do not classify pawnshops as lending investors, still pawnshops are subject to the 10% VAT imposed under Section 108(A) of R.A. 8424. Pawnshops refer to persons or entities engaged in the business of lending money on personal property delivered as security for loans. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to value added tax. The personal properties delivered by clients of pawnshops as security for the loans which the former obtained from the latter are in the form of remuneration or consideration, for without such personal properties, pawnshops will not extend any loan to a borrower. Furthermore, the payment of interest imposed on a borrower by a pawnshop is equivalent to a fee in exchange of the service provided by the pawnshop in lending money to such borrower. Thus, the phrase "all kinds of services" as stated in the II

DEC ISION C.T.A. Case No. 6366 Page 12 second paragraph of Section 108(A) of R.A. 8424 is broad enough to cover the kind of service, that is, lending money in consideration of personal property delivered as security, which is provided by pawnshops to their borrowers. And the enumeration of sale or exchange of services under Section 108(A) of R.A. 8424 does not limit nor exclude other kinds of services performed for a fee, remuneration or consideration. Rather, such enumeration even expanded the meaning of the phrase "all kinds of services" . Besides, pawnshops do not merely engage in the service of lending money to pawners. Rather, pawnshops also sells, at public auction, personal properties pawned to them, in the event that the pawner fails to redeem the pawn within ninety days from the date of maturity of the obligation, the pawnbroker may sell or otherwise dispose of any_article taken or received by him in pawn. Thus, by selling properties, pawnshops shall be subject to VAT. Finally, respondent Agencia Exquisite ofBohol, Inc. reiterates that it is claiming exclusion from the coverage of the value-added tax law and it is not claiming exemption from payment thereof. We are not persuaded. When a taxpayer claims exclusion from payment of the VAT, he is thereby claiming exemption from payment thereof. For what is the effect of exclusion from the VAT other than exemption from payment thereof? They have the same effect. That is, when a taxpayer claims exclusion or exemption from payment of the VAT, he is in effect claiming that he is not liable to pay a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services. It is settled that tax exemptions should be strictly construed against those claiming to be qualified thereto. Any exemr~ion from the payment of a tax must be clearly stated in the language of the law. Pawnshops are not clearly stated in the National Internal Revenue Code of 1997 to be exempted from payment of the VAT. Hence, pawnshops shall be liable to pay ten percent (10%) of their gross receipts derived from sale or exchange of services as value-added tax." It bears stressing that Section 3 of Presidential Decree No. 114, otherwise known as the "Pawnshop Regulation Act", defines a pawnshop as follows : "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 12

DECISION C.T.A. Case No. 6366 Page 13 be synonymous, and may be used interchangeably with, pawnbroker or pawnbrokerage." 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. 13

DECISION C.T.A. Case No. 6366 Page 14 In the recent case of Commissioner of Internal Revenue vs. Court of Appeals and Commonwealth Management and Services Corporation, G.R. No. 125355, promulgated on March 30, 2001 , the Supreme Court ruled that the taxpayer, not falling within the exemptions mentioned under Section 109 [formerly 103] of the Tax Code, is subject to VAT, thus: "Section 108 of the National Internal Rc.venue 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." x x x XXX 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." Prescinding from the foregoing, pawnshops are subject to the VAT, and as such, petitioner is required to file the corresponding VAT returns and pay the VAT for the taxable year 1997. Section 222 (a) of the Tax Code provides, viz: "(a) In the case ofa false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be fi! �d without assessment, at any time within ten (I 0) years after the discovery of the falsity, fraud or omission: xxx " (Underlining supplied) 14

DECISION C.T.A. Case No. 6366 Page 15 Petitioner' s failure to file the corresponding VAT returns within the prescribed period gave respondent the right to assess petitioner for deficiency VAT within ten (1 0) years from date of discovery pursuant to Section 222 of the Tax Code. Therefore, when the subject VAT assessment was issued on April 11 , 2001 for the year 1997, the same was not time-barred. Anent the issue on the validity of the imposition of the documentary stamp tax, we agree with petitioner that pawn ticket is not subject to the documentary stamp tax. Section 195 of the Tax Code is at point, thus : "SEC 195. Stamp tax on mortgages, pledges and deeds oftrust.- 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 ofany definite and certain sum ofmoney 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, either by expres.. stipulation or otherwise, there shall be collected a documentary stamp tax at the following rates: x XX The foregoing provision declares that a document evidencing a pledge of personal property which is made as a security for payment of a loan is subject to the documentary stamp tax. Corollarily, Section 3 ofP.D. No. 114 (Pawnshop Regulation Act) defines a pawn ticket as the pawnbroker' s "receipt" for a pawn. It is neither a security nor a printed evidence of indebtedness. Thus, inasmuch as the document taxable under Section 195 must be the document evidencing the indebtedness l;lnd 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 15

DEC ISION C. T.A. Case No . 6366 Page 16 documentary stamp tax. (Commissioner ofInternal Revenue vs. Hon. Andres B. Reyes, Jr., CA-G.R. SP No. 28824, promulgated on December 23, 1993). 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 P3 ,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. ~(&?. ~ ERNESTO D. ACOSTA Presiding Judge WE CONCUR: (Concurring and Dissenting Opi::1ion) JUANITO C. CASTANEDA, JR. Associate Judge Associate Judge 16

DECISION C.T.A. Case No. 6366 Page 17 CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~~.~ ERNESTO D. ACOSTA Presiding Judge 17

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY H. TAMBUNTING PAWNSHOP, INC., Petitioner, -versus- C.T.A. CASE NO. 6366 COMMISSIONER OF INTERNAL Promulgated: REVENUE, MAR ~18#2/00f3 }tr~ Respondent. x----------------------------------------------------------- x CONCURRING AND DISSENTING OPINION I concur with the conclusion reached by my respected colleagues that inasmuch as pawnshops are engaged in the sale of services for a fee, remuneration or consideration, they are subject to VAT under Section 108(A) ofthe Tax Code, as amended. However, I am unable to agree with their finding that a pawn ticket is not subject to the documentary stamp tax since it is not a printed evidence of indebtedness. Section 195 ofthe Tax Code provides in pertinent part: SEC. 195. Stamp Tax on Mortgages, Pledges, and Deeds or 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, either by express stipulation or otherwise, there shall be collected a documentary stamp tax at the following rates:

CONCURRING and DISSENTING OPINION CTA CASE NO. 6366 PAGE2 "(a) When the amount secured does not exceed Five thousand pesos (PS,OOO), Twenty pesos (P20.00). "(b) On each Five thousand pesos (PS ,OOO) or fractional part thereof in excess of Five thousand pesos (PS ,OOO), and additional tax of Ten pesos (P10 .00) . "On any mortgage, pledge, or deed of trust, where the same shall be made as a security for the payment of a fluctuating account or future advances without fixed limit the documentary stamp tax on such mortgage, pledge or deed of trust shall be computed on the amount actually loaned or given at the time of the execution of the mortgage, pledge or deed of trust. However, if subsequent advances are made on such mortgage, pledge or deed of trust, additional documentary stamp tax shall be paid which shall be computed on the basis of the amount advanced or loaned at the rates specified above: Provided, however, That if the full amount of the loan or credit, granted under the mortgage, pledge or deed of trust is specified in such mortgage, pledge or deed of trust, the documentary stamp tax prescribed in this Section shall be paid and computed on the full amount of the loan or credit granted." [Underscoring ours] Pawnshops lend money on the security of personal property, that is, a pledge. The pledge is evidenced by a pawn ticket. Hence, the pawn ticket is the logical document subject to documentary stamp tax on pledges under Section 195 of the Tax Code (Revenue Memorandum Circular No. 43-91 , May 27, 1991 ). In this regard, it should be noted that the pawner presents the pawn ticket to redeem the pawned or pledged item. The pawn ticket is thus document evidencing the pledge. Section 173 of the Tax Code provides : SEC. 173 . Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. - Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transactions so had or accomplished, the corresponding documentary stamp taxes prescribed in the following Sections of this Title, by the person making, signing, issuing, accepting or transferring the same wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time

CQNCURR.lNG and ~ISSt:NTIN G OPINION CT~ CASt: NO. 6366 Pi\(fE 3 such act is done or tpmsaction had : Provided, That whenever on~ p~rtY to the taxable qocument enjoys exemption from the tax ~erein imposeq, the rr otper party thereto wt10 is not exempt shall be the one directly liable for the tax. nderscoring ours] In Cruz vs. Clwa, G.R. No. 31013, November 6, 1929, 54 Phil.JQ, Q\.lr Supreme Court refers to the pawn ticket as a contract of pledge as follows : As the perspn accepting the pawn ticket, which is the evidence of the pledge, the pawnshop i~ H~Pl~ for qoc4rnentary stamp tax thereon. In Ylew of the forqgoing, I vote to hold petitioner liable not only for deficiency value-addep tax PI�H also fqr deficie11cy documentary stamp tax.