CTA Case No. 4284 (Decision)

RE P UBLI C OF THE PHIL I P P INES COURT OF TAX APPEALS QUEZ ON CIT Y AP P LE II PASTRIES & TA KE HOME COUNTER, INC., Petitioner, C.T . A. CASE NO. 4284 COMMISSIONER OF INTERNAL REVENUE, Respdndent. X- - - - ------ X DEC I I 0N This case involves a claim for refund of sales taxes and pen a 1 ties en- oneous 1 y paid by petitioner fat- the second~ third and fourth quartet-s for the years 1986 and 1987 amounting to P44, 466 . 35 and P60~775.37~ respectively~ totalling P105,241.72. Petitioner is a domestic cot-poration engc=~. e~ed in business as an operatot- of a small chain of eating and take-out counters. Petitioner bakes its own bread, pastries and other bakery products which it sells through said eating and take-out counters. For the second , third and fourth quarters for the years 1986 and 1987, petitioner fi l ed its quartet- I y percentage ta:-: returns and paid the 10/. sa 1 e s t a:�: as manu fa c t LW e r ( E >: h s . B ~ E ~ G ~ I ~ K ~ M~ and 0~ pages 64, 67, 69~ 71, 73, 75~ and 77,

DECISION CTA CASE NO. 4284 2 res pee ti ve 1y ~ CTA t- ee. ) under former Section 165 (A) ( 3) of the National Internal Revenue Code (NIRC) on the sales of its baket- y products. It also paid the 4% caterer's tax under former 172(1) of the NIRC on the sale of other food items. On January 14~ 1988~ petitioner wrote to respondent requesting for an opinion as to whether its operations subject to the 10% VAT. Respondent in its t-eply to said letter issued Blk Ruling No. 114~ Series No. 000 - 00 - 012 - 88~ dated January 28~ 1988 ( E:�: h. A~ p. 63~ CTA rec.~). Reproduced below is the said ruling. Gentlemen: This refers to your letter dated January 14~ 1988 r-equesting a ruling as to whether or not you are subject to the 10% value-added ta x . You have presented that you are operating a small group of eating and take out counters in Legaspi Village~ selling sandwiches and pastries to office employees; that to save on raw material costs~ you bake your own bread together with other bakery products which you sell. In reply~ please be informed that under the foregoing facts~ you are an operator or proprietor of a refreshement parlor or eating place; hence~ your gross receipts are subject to the 4% caterer's ta:-: under Section 114 (formerly Section 171) of the Tax Code~ as amended by Executive Order No. 273. However~ a take out counter is considered incidental to the operation of an eating place which i s

DECISION CTA CASE NO . 4 2 84 3 the main l i ne of busines s. In other words~ the take out counter is not ordinarily taxed as an independent bu s iness~ in which case~ the sales in s aid counter forms part of the gross receipts of the operator of the eating place subject to the 4~�~ catet-er ' s ta :-: . Su e: h being the case~ the sa 1es in the take out counter are not subject to the 10/. va 1ue added ta :-: pursuant to Section 103 ( j ) of the Ta:-: Code~ as amended by Executive Order No . 273. (SBD.) BIENVENIDO A. TAN, JR. Commissioner of In�ernal Revenue In view of said letter / ruling~ i t appears that an exces s payments arose on account of the e r ror of petitioner in paying the 10/. s a 1es ta:-: instead of pa ying only caterer's tax at 4/. on the total gross t- ecei pt s . Henc e ~ the issue of this case. Petitioner in its lettet- dated 8 Apr-il .1988 filed with the respondent on Apr i 1 11 ~ 1988 a c 1aim for refund o f sales ta x e s and penalties e rrone c = ~ Jy paid (E :-: h s . Q and R~ p. 7 9- 87~ CTA rec . ~ ) � Respondent~ however~ never acted upon petitioner's request~ hence this petition for review. Respondent in its answer ar�gued that "judicial in the instant case is F'eti tionet- has not yet fully exhau s ted all admini s tt- ative remedies as provided by law . Perforc e ~ the rule on primary jurisdiction bar s the instant petition". Since no action was taken "by

DECISION CTA CASE NO. 4 2 84 --� 4 -�- the respondent on the alleged claim for tax refund~ pet.i tioner was compe 11 ed to f i 1e a petition for� r eview to this Court without awaiting the decision of the respondent Commissioner of Internal Revenue s o a s not to bar its claim and in order to prevent the tol l ing of the statute of limitation. It wa s r�uled that "if~ however , the Collector t a ke s time in deciding the claim~ and the period of b'io ye .:u - s is about to end~ t h e s uit or� pr�oceed ing mu s t be s tarted in the Co urt of Ta x Appeals before the end of the two-year period without awaiting the dec ision of the Col l ector. Thi s is s o because of thE? po s itive requirements of Section 3 06 and the doc tr i ne that de l ay of the Collector rendering dec ision d oes not extend t he peremptory period f .i:-: ed by statute". (U.S . v. Michel 2 82 U.S. 656~ 5 1 8 . Ct. 284; P.J. Ki e n e r & Co.~ Ltd . ~ v . David~ L.. - 516 3 ~ April 22~ 1953 ; Col l ege of Oral 8< ':: . . �__, 1. Surgery v. C.T.A . G.R . No . L - 10446~ January 28~ 1958/ 1 r(y v (Howe v er~ the u l timate issue pt- esented before this Court is whet h e t- or not peti tionet- as Operator�\..,.. of a chain of eating and take- out c ounters is liable to the 10/. manufactu t- ers sales ta :�: on its s a 1 e s of bakery pro d uc: t s in s pi. te it s being 1 ia b 1 e to th e normal ~aterer s tax .

DECISION CTA CASE NO. 4 2 84 -- 5 -� The pt-ovisions of the National Internal Revenue Code involved are as follows: Sec. ~65 Sales Taxes A on original sales of articles - t here shall be levied~ assessed-col l ected once only on every original sale~ barter~ exchange~ or similar transaction intended to transfet- ownership of~ or t i t 1e to~ the ;.~rti c les hereinbelow enumer- ated~ a sales tax to be paid by the manufacturer~ producer~ or importer: (3) Essential Articles - 10% of the gross sel l ing price or gross value in money of the following articles as sold~ bartered~ exchanged or transferred : (F) Bread and m- d inary bake t-y pt-oduc ts and Sec. 172 (now Sec. 114) -- Caterers - A cate t-er's Tax is het- eby imposed as follows: (1) on proprietors or operators of restaurants . refresh ment parlors and other eating places~ including c l ubs and caterers~ four (4%) percentum of their gross receipts; t he vat- ious evidences presented par-ticu l .:H- 1y t h e quartet- I y per-centage ta:.: returns filed by Petitioner for taxable years 1986 and 1987 ~ thl:: following facts were gathered by this Court : 4 () .1

DECISION CTA CASE NO. 4284 -� 6 -- Gross Receif)t Gt:_os s Receipt a-s Ta>: Paid Ca et- er /Food Manufacturet- of F'185~269.99 Baket-y - Pro-ducts Second F' 7~410.80 60 ~ 5(.. . � '- ' Thi r� d 10 3 ~555.60 424~739.26 4 ~ 142.20 42~47 3 .9 2 Fourth 458~239.18 ~) ~ 9 2 8.74 45 ~ 82 ~::. 9.1 Total F' 3 87~04 3 .85 P1~488~048 .4 6 Cat e rer Ta >: P 15~481.74 Manufacturer sales Ta x 148~804.83 Qu a rter Gr: os s Receipt as First Gross Receipt Manu f...a c.._tLtt- er of Ca erer / Food Baket-y F'roduc ts Tax Paid Second P151~36 3 .60 p 429~201. 3 9 p 6~054.62 42~920.11 2 10~790.8 3 3 89~380.27 38~ 93 8.0 3 8 ~ 4 ... � Third 231~918 .4 8 461~072.26 46~107.2 2 460~341.02 9~276 . 74 Fourth 179~26 3 .95 46~034.10 Total 7~1 7 0.56 Caterer Ta :�: F' 30 ~ 933 . 56 Manufacturer sales Ta >: 173~999 .4 6 Clearly~ from the above gross receipts of s ales by petitioner for the years 1986 and 1987 we can conclude that actually petitioner is more of a 40 ?

DECISION CTA CASE NO. 4284 �- 7 - manufacturer of bakery products than as an oper t~r o �f a r�efreshment parlor or� eatet- y place. We can s afe 1 y say that main 1 y peti tionet- is a Baker and that it is the operation of the eating place which is mer�el y incidental to the main bus iness and not the other way around as ruled by the respondent in hi s 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 peti tionet- when it requested for the said ruling. As held in the case of G.I::.t?.P1!J9._________!1~.~.J.!:.=.?g__,__ . ..... f::.~..t..!J:._ j,qo~r... . Y.? .~ ............G..9.J...l~.!;_1:._qr:: .... .. ....P.L ___l.o...t..~ r..o..~J -.B.f:::'.Y.go..!::U:~. , . R~.?.P9.D..Q.f:::'.O...t..,._ (G. R. L - 7:'::.78 Phi 11 ippine Reports �../ol. 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 hi~; bu s iness as keeper of a restaurant where wines of liquors are served, he paid five (5%) percent percentage ta x 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 i s merely inc iden ta 1 to and necessar i 1y connected with the hotel business and as such hi ~:; receipts from sa:i.d restaurant should be considered receipts of his

DECISION CTA CASE NO . 4 2 84 - 8- hotel business subject to the 3% percentage tax due him as hotel keeper. Furthermore~ contrary to the contention of the petitioner that Section applies only to purely drinking establishments~ the Supreme Cou r t agrees with the Solicitor General that "if the theor�y is su s tained~ i t ~>.Jou 1d be easy for taxpayers to evade the payment of the 5 percent per�centc::1.ge ta )-( pt- e s cribed in Section 191 on bars a nd ca fes where wines or liquors are served by s imple e >,pedient of not maintaining a drinking t-?s tab 1 ishmen t and ke'eping jus t a sm- t of an eating establishment but at the same time set- v ing therein ~""ines or 1 iquot-- s which could not have been the intentions of the legislators" . The s ame ruling wa s held by the Supreme Court in L�� ~=� !~ ps,.,_t_r:.t .. 9...f..... .I.~.1L.JH:>. P.E::?~L?.. , .... r::~g_;;pq.o .9. �?.0t.. ,.. G. R. No. L -11116 June 30, 1959, Vol. 109 Philippine Reports, pp � .1357 -- 1358. Similarly in the cas e at Bar~ the acts of the petitioner in paying the 4% caterers tax as an opet- atot- of a r-efreshment pat- lot- or eating place a nd at the s ame time paying .10% as manufacturer of Bakery products & selling them to the public are in order . To rule otherwise, will open the gate fnr

DECISION CTA CASE NO. 4284 - 9- possible evasion of the payment of the highet- ten (10%) percent manufacturer sales tax by the simple e:{ped ien t of maintaining a ref t- eshmen t par lor or any eating place inside the bakery establishments and treat the selling of the bakery products as inc iden ta 1 to its operation of the eating place. This court believes that the most equitable manner of interpreting the law is to give force and effect to each and every provisions of the law. A statute must be t- ead or construed as a whole ot- in its � entir� el y. All parts~ pt- ovisi'ons or sections must be read~ considered or construed together and ~ - -~ � must be read~ considered with respect to all others and in harmon y with the whole. (Chat- tered Bank vs. � Imperial~ 48 Phil. 931; Lopez et al vs. El Hogar Filipino~ 47 Phil. 2 49; Almeda vs. Florentino~ G.R. No. L-2 3 800 Dec. 21~ 1965). In the instant case~ thi s Court believes Sections 165 and 172 of the National Internal Revenue Code may be given equal force and effect as there appears no conf 1 ict at all. If the business establishment manufactures and sel ls its bakery products to the public~ i t is liable to the 10/. manufacture sales ta:-: and if i t maintains at the same time an eating place insiae the esta blishment i t is liable to the 4/. cateret- s

DECISION CTA CASE NO. 4 2 84 - 10 - tax for the food and drinks it serves. This manner of paying the petitioner has correctly fo l lowed /:)s s ho~ its quarter! y percentage tax (J5 r�eturns. ~ WHEREFORE , the instant Petition for- Revie~'-1 is hereby dismissed. The amoun t sought to be refunded is consequent l y DENIED . No pronouncement as costs. SO ORDERED. Quezon City, Metro Manila, September 17, 1991. ~~Q.. ~ ERNESTO D. ACOSTA Associate Judge WE CONCUR: Z~ PrA-LeEsXidi~ f?J R~%l. '--- ROAQUIN Judge

DEC ISION CTA CASE NO. 4 2 84 -- 11 - CERT I F I CAT I 0 N I hereby certify that this decision was reac hed after due consultation among the memb : . , f the Court of Ta x Appeals in accordance lo'Ji th Sect ion 1 3~ Arti c le VIII of the -Constitution. ~~ Court of Tax Appeals �,;� '� ' -:-. 407