CTA Case No. 5449 (Decision)

REP BLIC OF THE Pr-iiLlPPJ.i'lft:.S COURT OF TAX APPEALS QUEZON CI Y ACESITE <PHILIPPINES> HOTEL ~.T.H. CASt NO. 54~9 CORPORATION l..:'et 1 t 1 oner~, - s - ve-r~st DEC: I S Ut~ 1111"' lS d .)UD1Clal Clalffi ne of r t!l..;r�~St!llt.J.Il!::l expc:~.nueu value-- aaaed "Gaxes ( 'EV AT " , to WI11Ch to 1~e s pond en~;~ s t::�Ut'edU fr::JIII 1ts ear'n1ngs on iea:.e r�etit.dJ.:, anu \lcl(".L uus no-ce1 se-r�v1ces ana cnar~ges WJ.l.l1 cne 1-�n 1 1 i p p 1 n e Lorpora-c1on ~ ~Hb~u~ I 0 t S fl 0 I' l. ) � Facts show t hat Pet 1 t 1 on e t~ to t'ecovet~ the purstant ~o Kepuol1c Ac-e ~o. 7~15 i\iu. lllc:i.y, ciS J.t::.Sur�, �;:,11111.. Ull I..U l.ll~ .Lessee, sa1d amount 1t nas pc.u a � t-'AbCOR, 1 Pet1t1oner 1s a duly organ1zed pr1vate oomest1c co-r��po-r��atlon ano 1s r.ne owner� a11ci uper�at.or� or t.loe riU.Lluay lnn Manlld t-��'c:~.v1l1on rior.ei, w1cn adar'e:.::. a~.; un1teu i\ldt;lon�"' Hvenue ~.:or 11er� L.Jt~osa ~~t'ee~;., l'ldlll.t.a.

tne payment of franch1se tax as prov1dec 1n tiec~1on I �. .... ....J ot ~rLs1cen~La1 uecree payment of all ~1nos of ~aKes. 1-��lrte��- celn!;! convlnCPD �cr1at: 1no~eD ~HbLUk iS exemp~eo TTom ~ne payment 1t 1s en"~;;l "Lleo a r~etuno or the amoun-c or h.3,CJ � ao vc.~nceo" for�� t-�AGCOt-<. p. on J.�:~'So, 1t I:.J.eo a Tne de"Lalls or tne amount are snown as tallow s: Jllontil Date Total A;aunt 10~ EVAT on 10~ EVAT on F1ieo1i='aw i1e11;;;;ec Total Sales to Advance Rent or PAGCDK January 2-26-% r- 1,155,307.9'3 ? 't75,5'tii.28 f eoruar�y 3-22-% 2,357,368.60 i,185,286.28 f!!at�ch 4-22-% 2,923,891.30 1,840,51&.63 Marcn t.-0'r5b !i5J,8<t3.b1 pi 7,327,3L:l.s.: (Amenaeo Re1;urn> 5-27-% 7, -lc:/13B. '::12 11 35t1 4ct.oi Aprli 5-2'1-% c1;)C:41 I c:tJ. 'tO iipn i Aprll 5-27-% 932,332.99 i,308,318.21 41 0lt.,S5t..80 (Add1 l. Pay1entl 6-25-% 416211955.44 3111150.90 May 7-22-% P2713571 6 9 l . l 3 Pf.l478124&. 11 June p 71927l3iJ.92 Tot al A;ount Ciaimeo <1"&,4781 24�.11 + ii7, '127~":,:3, 921 i"t<t,'!05,560.03 W1 th ~:;he J.nac:;;1on or� cne t<esponoeni:; on r�e r uno, was r�e~ l"tlo ner~ cons"tr~.:nnea "GO r1.te "the oercwe �cn1 s on J.b, allegedly in to stop the of the

DEClS10N - C. T.A. CAS~ NO. 544~ or ~wo years WI~n1n wn1cn to 111e c.i.a1m aa'te or as paymen~ 1n Sec~1on ~~u or "the 1ax Looe. Mence, tn:..s appec\1. At PetitIoner' It 5 s"Gance quo. the otner nano, con'tenas 1n net' Hnswer'~ among O'thers, tna~ nere1n ~e~l"Clon aoes no~ s-ca-ce a cause "tax sougn't 'CO oe r'e r und eo was ac-cually pald t;O "tne Bur'eau of Inter'nal Revenue 1n accot'dance tax Code; that Pet 1t 1oner' has failecl to establish that the tax s '.I D.) ec"t or was er-'r'OnE.'O'JSlY Or' ll.Legally collected; and that a c1a1m 15 5 "C t' 1 C"C 1 y cons.., r�ur:u ana Cdnno"L 2\l J. u~"Vea un1ess proven expi1c1-c1y and categor1cal1y. -cna-c ~et1t1oner torma1ly offered l t s evidence wn1le riesponoen-c deemed 1-c proper not to suom1t any ev1uence oue ~o n1s obset' va.-;lon 1:;ncn onJ.y on a purely legal 1ssue. In its memor"andum, Pet1t1oner' contended, among others, that 1t pa1d to ~espondent's Bureau the amount oi EVAT eq1.t1valent to lOY. of 1ts "gr'oss tnat under pertinent .Law, 1-c may as seJ.iertlessor, or' pass on SalO EVt-11 paymenr;s "CO "tne ouyer/1essee; e~nd accor L.tnyJ.y '=>lllrLeo Ot' pass eo on to PAGCOR the EVAT due on 1ts gross 1ncome by o1li1ng

ut:.L 1;;:; .L ui-.i -� L . i.A. C~SE Nu. 5449 - "+ - ~HbLuri ~nereror, ou~ ~ne lcl~~er a1iegeo 1y �� oe ouc~eo� sucn EVAT from 1ts payments. Respondent deemed tne preceo1ng contentions as devo1d of He as s e t't e d 1n h1s memorandum that on the bas1s of the Supreme Court 's oec1510n 1n Ph1l1ppine Acetylene Co. vs. Commissioner of Internal Revenue, SCRA 1036, an 1n01rec~ ~ax may oe sn1f~eo ~o the ouyer or goods and once snifcE�o, 1t 1s no 1onger a ~ax ou~ an additional cost which the purchaser has to pay ~o oota1n the good!~. In errl"~c �c~ f<espondent is ra1s1ng tne argumen~ tnat the �JAI, be1ng an 1ndirec~ ~ax, could nave been sn1tteo �co ~ne l'or �m or an dUOI"GJ.Ul'lcl! cos~ or !;he lease of petitioner~s property and since the VAT woulcl no l on get' be a tax, PAGCOR could no longer invoke its tax-exempt status In order to avoid shifting of the Dissat1sf1ed witn Respondent�s preceo1ng s~a-cemen1..s which 1t 1abe11eo as oase1ess ano fa11ac1ous, suom1~~ed a reply memorandum wherein It clarified that Respondent pr-esence of cleat' ancl ev iden ce ~:o ~ne effect tnat it �'sn1n:;ed the EVAT ~:o :::;;_t._:�,l ev 1wence, 1 s es~ab11sneo oy ~ne paymen-c summaries prepared by PAGCOH <Exhibit M, item no. 3), which were duly ver1f1ed and certitleo oy Syc 1 p, Got'l�'es, Velayo & Co. ("SGV", for' shor��t> , showing the non- payment or Wl~nno1D1ng ot -cne 1u~ VAl. �

L'tL .i 0 1 Uf\1 L. 1.~ . C~ o E NU. 5449 Like~v1se~ PetitionE�T assailed f{esponuenL- s v1ew that here1n amo u nt of EVAl should h ave oeen Sh i T~ed ~ 0 1-'HL"lLUK an cidded rental or cost . contended tha t unoe\�' Section ~~ of the lax Cooe, EvHl may o e sh if~eo o r pass e o on to tne o~' iessee or pt'Opet't i es or�� s et' Vices and tnat to sustain Respond e nt would render said section nugatory. the aforementioned at' g urn ent s of tne pat'~Ies, the tol1owing Issues contront us, to Wlt: i. Wn e ther or no~ EVHl may oe shif ~e d Ot' passeo on a �~,;o s u c n ~ax-exempt en~l�Gy i-�AGLUR; ana, Whether' Ot' not Petit I onet' is entitl e o to Its cl a i m for reruno cased on �~,;ne ev Ioence on t'ecot'o. the fi t'S~ Issue , Sec~Ion ~~ o�i� the Ta x amenoed, SLdt..es J.rl no uncertain terms ~hdt tne amount of VAf, be i ng an Indirect tax, may be passeo on Ot' sn1fteo by the i:;u the of goods Ol'' ser'vi c es, thus: Sec. 99. Persons 1 iab l e . wno, 1 n t..ne course of trade or business, sells, oat'~ er's or excnanges goods , or properties, t' en u e r' s s e r � v J. c e s , an o an y person who Imports gooos sha11 be l1ab1e to ~ne value-ad d e d tax (VAT) imposed in Sections 100 to 1�.)2 or 1', () 1 s Code. The value-added tax is an indi r ect tax and th e amount or tax may be sh i r ted 01'' passed o n the b u yer, trans ret�ee or lessee of t h e goods, pt�o p e t�t i es ot' set�v i ces . 11115 r' u .t e snail iJ.Kewise app1y ~o existing contr'a ct s of sale of

DECISION - C. T.A. CASE NO. 5449 gooas, pr��op!:'r~ties or~ �:;el--�vices at t11e t11ne of ~ne effectivity of tnis Act. XXX XXX }( }( >< {italics a no emphas 1s suppi1ed) ~3uch amount l.S clet ey�m 1 neo uy imposition of either 10% or 0% rate on the g r��oss sell1ng value in money of the goods sold, bartered or exchanged; on the total value or�� land ea cos�c plus exc1se ta><, 11 any , 111 case o'l lmpot~G.::n;ion of goods; or, on the gross receipts derived from th e sale or e>-:change of set-�vices, J.ncluding the use lease of properties . <Sections 100 - 102, Ta x Code, as amended) receipts d e rived b y the Petit1oner from tne sale ot~ of -co PHbLur<, 1n accordance w1tn Sect1on 102 (b) (3) of the Tax Code , as amended, which states , thus: Sect 1 o n l (!2 ( i:J) : ~3> Set'vic::es t' end e r ed to pet' Sons Ot' e nt i t ie s who se e x e mption under speci a l laws 01.-. 1nternat1onal agreements to which the Phillppi n e':; is a sJ.gnatOl�''y' e Ffectively subjects the supply of such set'vices to zero t'at e . (~~ai1cs and emphas1s supplled) l-'el.1t1oner� has presen1;ed convinc1ng evid e nce showing an n a m e l v ' Pr'es1dent ial Decr��ee ' No. 18b�:3, Whlch categorically maKes 1t exempt from the payment o f all ta><es, after pay1ng a

L�EC 1 S J.tJI\1 - L.T.A. C~d~ NG. ~~43 Dll !;;woss or~ eat'nings I' J ' and U. Hence, by said the services rendered by the Petitioner ~o PAGCOR are effectively subject to zero rate. to 'tne above pr�'oVISions Petit1oner mistakenly oelieveo tnat 1ts ~ransact1ons wi~n ~AGCUR were subJect to tne 10~ ra~e. ~e~1t1oner suppor~s GillS oi::Jser�vat ion by its alleged "advanced " payment of nerein amount or ~VHf 1n ques~1on ~o the Respondent's accot'o 1ng 1y prays for the refund of sa1o raiilng ~o snift ana collect ~ne same lnexplicaoly no~ know1ng ~nat the transactions 1nvo lved are subj ect to zero rate. We now therefore go 1nto a br1ef d1scuss1on of the �::;econd 1ssue on wne~ner Petit1oner 15 enti~led to 1 t s claim for' r'efund based on the ev1oence pt'esenteo. we part1a11y rule In its ravor. lui~ EVAT on Pet 1 t i oner'' s we can only Income from PAGCOR amounting to ~7,927,313.92. ~er s~a~emen~ o f Accoun~ ~b-0~1, .t ';1 :1b basic rental cnarges to PAGCOR 1U, 1 '::1':3 6 to (-i~wi l l u, l '3'37 amounted to P79,273, 139.18 of which 10~ EVAT was paid to "esponuent. ~ s Bur'ea'-' on iYJay 21, 1'3':36 ttlt'ough a separ'ate unJ.y F'Ti, 2':3J., 310.55 (net 2.5~ w1thholding tax) was paid by PAGCOR for said rental

DEC 1 S H.li\1 - C. i.~. LRSE NO. ~449 - 8- ollJ.lny Rece 1 pl.: !\IO -::;. l/43 dated Apr~ i l 10, 19':36 and 11' 1 '396, respec~ively <Exhib1ts G and H). As regards Petitioner's refund cla1m for-� the EVAT p;:1.yment s on i t s other sales ~o ~AGCOR of ~6,~78,~~6. 11, additional source documents neec1 to oe ::>UOITll�cteO to validate such particular portion of its claim, namely: ~on~n1y total sales summary ror room occupancy, rood, bever~age, minibat~ and other~ cnar~ges \to be suppor�teLI by "::><::ues i!tvo.i.cl:-!s/SGaGemen~:;s o �r- accoun �cs, guests folios) in order to confirm the fact that the amount being refunded by Petit1oner corresponds only to the sales from PAGCOR. b) i"lOtl"Ghly PAoLUR sales �;:;ummar�"l for room occupancy, food, bever~age, m1n1bar~ and other cnarges with a r..n�ea.Kciown ot �cne tJas1c cnar�ges, ser~vlce cnar-�ges, local tax, d1scounts and the 10~ EVAT per PAGCOR customers (to be suppported by sales Invoices/statements of accounts, gues1.:s folios). Based on tne exam1na~ion ot tne eVldence on 1. e. , PRGCGR's payment sutnmat'.tes, s Pet1t1oner~~ receipts and bta.tement of Accounts and Schedules ~-~ (Exhibit IYJ, Hlclusive), this Cour~t could nut de~erm1ne wnether PAGCOR has already paid Petitioner tne 10~ ~VAT on notel charges for food~ beve~~age, mi.nibar�� and otner-� cnar�yes~ except fo~~ r�oom occupancy ci���;ay�ges. -c:ne lacK of afor~ement 10neo documents has pl�~event ed t h i s Couy��t knowing altogether, inclus1ve of room occupancy charges, serv1ces oy the ~etit1oner were spec1�flca11y

Di:::.C L:3 i G ~~ C. 1.A. CASE NO. 5449 - '::3 - made to PAGCOR clients or whether the alleged EVAT payments from PAGCOR were indeed included in the payments mach~ by tile J.n eacn of monthly EVAT l n sum, there is a need to ver1fy tne alleged EVAT payments with the abovestated source documents ~"'i1 ich, unfol�~tunately, Petitioner f a iled to submit before tnis Lour�t. Such inaovertence proves fatal ~o hereln of 1~s claim. Pr��esci nd i n g aoove , We no~e tna~ Respondent's contention in -~~he /��.if"/ l l l ppllll;:' f.h::.�t:�t y lene c�ompany case is inapplicable .::~t bar�. We simply observe that the fax Code , as amended, clearly make~; t:he par~t icular� tr ar1~~act J.ons be~ween Pe~itioner and PAGCOR as Thus , to adhere to Respondent's view ~hat tne amount of 10% E~A1 cannot b e refunoed oecause it i1ad become a par~t of uy PAGCOR and not as a t:ax is manifestly wrong no oc-~cause matt el�' h o~'\1 at i i.:, a 10% EV~H has ueen imposed on the ~ransactions wh i ch tne law only a11ows a zer�u-rat~. Besi d es , insofar~ as the pOl�~t ion of Petitioner's cla1m is concerned, it has been proven that PAGCOR has n o t made any payment of the iO't. EVAT to the Hence, any d1scuss1on on tne EVAf becomJ.ng a part of the cost is simply illogical ano unavail1ng .

L�i::.L 1 ;::> 1 ul'>i C.l.~ . CASE NO. 5449 - 10 �- c.Vt=ll 1r We assume , e .li� gr'at 1 c:1 ar'gt.tmenr, J. 'J tnat -cne 0Jlllpplne Hce~ylene Cumpc~ny ::.:c.~se 1s ;-�e1evanc to n er e 1 n Ita�"' ueen mooJ.J 1eu anu q u.::1. J. 1 r 1 eo 1 n t.11t' suosequen~ case or Mac e da vs. Macaraig, Jr., 197 SCRA 771 at p. 779, when the Supr��eme Lour't, en bane, declared tnat the rule on str1ct construct1on ot statutes tdx exemp,;1ons does not. arJply 1n cne case o. exempt1ons 1n favor or a governmen"C poJ.l"CJ.caJ. suoo1vJ.s1on Mor~eover~, it i 5 a recogn1zed pr1nc1ple -c;ne e r~uJ. Interpretation does not apply 1n -che case ot exempt1ons 1n favor~ or a y u v er�n ment poi1>.;1Lci.t SUOU1>/J.SJ.Ull Ut' fhe UaS1S for app1y1n~ -cne rule or strict constr'uct ion to sLcHtd;or�y pr��ov1sions gr~ant ing tax exempt1ons or deduct1ons, even more obvious "Chdn w1tn reference to tne affirmative or levy1ng pr�ov1s1ons of tclx s1.atuces, 1s to mlnlmlze d1rrerent.1cil treatment and foster lffipcirt1aiJ.cy, rairness, and equa11"Cy of �tt~eatment among tax pctyet�s. The r~eason for~ the rule does not apply 1n t.Jil: case ui exelllJ..!t.lons r��unn1ng -co tne oenef1t ur cne governmen"C 1tself or 1t.s ayenc1es. In SUL"II cci�=>e 1.11<= 1-n�at.:"tJ.CciJ. efrec"C or an ex<::nq:Jc1on 1s met'eJ.y 1.0 r~educe �t.ile amoun~. ui money -cnat has to tJe handleu uy government 1n the com~se of its operat1ons. For these reasons, provisions grant 1ng exempt1ons to government agenc1es may be construeG 11berally, in favor or non �;,clx--J.J.db111ty ol S�..tch agenc1es." in tne ca~e ut pt�operty owneo oy tne s�ca-c; e or~ a c1cy ur� uti-H�!r' publl.c c:or pur�at.J.UTI'=>, 1,i1e express exemption should not be construed with Li1e same ueyr-�ee of set'J.ctne�"'�"' t;Jtctt applies ~;o exemptJ.ons con~;rary -c;o tne poli c y of -c;ne state, '=>l. flt..:t::" a:. t. u such pr��oper��t. y � exemp.:; 1 on 1 s tne r�u1e and t.axac1on tne excepo.1on. 1'

Lit:.\.., .L .::i 1 01\1 - t... I.A. C~St:. ~0. 5449 - 11 - wHEREFORE, .1.n v::ew or Gne ins-cant I-'<: L J. �c. J. on ru~�� KevJ.<:W .l.S ner�euy PARTIALLY GRANTE �. ORDERED t: o REFUND �c 11 t:. amount of P7 , 927 , 313. 92 to tne ~et1t1oner 1mmed1ate1y. S ORDERED. Hssoc1ate Jud� WE LuNCl.JR: G - o~~ ERNES 0 D. ACUS"A Pt~es1ding Judge CE J. nereuy cert:1fy t:nat ~ne auuve oeclslon was reach<:u a r " <::: t' o u e c.: u 1 1 "' ~_, J. t. d. t- J. o n w J. t. 1 1 ~. lit: 111 e mu e r �;:, u 1 t. ' 1e t.. u u ,.. t. u1 tax Appeals 1n accordance w1th Sect1on 13, Art1cle VII! ot the Const:1tution. G . &(~ ERNESTO D. ACOSTA i-'t��es .Ld 1 ng Judge