CTA Case No. 5311 (Decision)

REPUBUC OF THE PHIUPPINES COURT OF TAX APPEALS QUEZO CllY ELMAS DRUG CORPORATION, Petitioner, C.T.A. CASE NO. 1311 CO MIS 10 ER OF INTERNAL Promulgated: REVENUE, AUG 27 1998 Respondent. x-----���--�-------------------------------�---- x � DECISION This s invoiY a cl m for refund of lleged ov rpaid corporate income tax in the mount of P52.215.00 for the~ r 1993 and P334,750.00 for y r 1994. ri �ng from petitioners in rp~~eumon of Republic Ad. 7432, mor commonly known s the Senior Citizen Act The of the Petitioner i a domestic corporation duly organized nd exi �ng by virtue of the laws of Ph 'ppi . is r � of pharmaceutical products nd oper a drug~ in City under the name and busi style of MERCURY nd licen from local government un� nd oth go ment agencies. Pu nt to provision of R.A. 7432, otherwi known as "AN ACT TO MAXI IZE THE CONTRIBUTION OF SEN OR CITIZENS TO NATION

DECISION CTACA E NO. 6311 2 BUILDING, GRANT BENEFITS AND SPECW. PRMLEGES AND FOR OTHER PURPOSES" nd R Y nu Regulations No. 2-94. petitioner granted 20% I ior citizen on their purcha of medicines covering the period of July 19. 1993 to Decem r 31, 1994. On April15, 1994, petitioner filed� 1993 Corporation Annual Income Tax Return and c imed, among others, the mount of P80.330.00 repf 20% les discounts granted by the petitioner to senior citiz on th �r pure of medicines a d uction from gross income (Exh. J). On April17, 1995, petitioner fi � 1994 Corporation Ann I Income Tax 20% discounts granted by the petitioner to ior citiz n on their purcha of medici a deduction from gf income (Exh. K). On ch 28, 1995, petitioner filed a im for refund or cred' of overpaid income for 1993 in the moun of P52.215.00, arising from the a 7432 (Exh. M). The o rpayment � computed as follows: Income tax of tax credit 100% Income benefit of tax deduction 35C)(, Oil . I 651J6 20 discount gra in 1993 P80,330.00 65% M ply by 65CW. P52,215.00 Overpaid~ income tax

DECISION CTACASE NO. 6311 3 Likewise. on December 15. 1995, pe � � fited a claim for refund or credit of overpaid incom tax for the taxable y r 1994 in the mount of P334.750.00, provided for und r RA. 7432 (Exh. N). The O� rpayment is computed as follows: 20% discount granted tn 1994 P515.000.00 M plyby~ 65" Overpaid corpoti Income tax To pport � documen ry evidence: ye rs ended December 31,1993 nd 1994 (Exh. "I"); 2. The Corporation Ann I Income Tax R ms for 1993 and 1994 (Exhs. J nd K); 3. The Apri115. 1994 (Exh. "L"); w 4. claim for refundJdated F bru ry 13. 1995) nd Decem r 15, 1995 (Exh . M nd N); 5. The certification of the inde ndent c rtifi public accountant, August 30, 1996. r lating to the accuracy of the Summari of Sales nd

DECISION CTACASE NO. 6311 4 Discounts to Senior Citiz ns and the Qmin tion of the Spec� I Record Books (Exh. "R"); 6. The Summaries of S nd Discounts to Senior Citizens in 1993 and 1994 (Exhs. "R-1� and "R-2); and 7. Pre-marked cash slip . On December 29. 1995, pe tioner led the Instant petition for review with this Court n order to toll the running of two- r prescriptive period under Section 230 of the Tax Code. The case bar focuses on the proper lnterpr tton of Section 4(a) of purch of medicine afforded to senior cltlzens nd the Udity of Revenue Regu confonn the provision of the said law. To be speclftc, We re ked to resolve the i sue of whether or not the 20CM. discou hould be deductible from gr0$8 sa for v lue-added tax or other percen tax purposes prescribed under Revenue Regulations No. 2-94 or as a tax credit ded ble from the tax due. nted to enlor citizens may be fmed as tax credit nd

DECI ION CTA CASE NO. 6311 6 Sec. 4 of R.A. 7432, thus, it is null and void for being inconsistent with the very Respond nt, on the other hand, subm -uutt the provision under Republic Ad 7432, which s tes that the 20% sales discounts on purcha of mecfecines by senior citizen to be tr ted as tax credit i a misnomer a it runs counter to the solemn duty of the goy, mm nt to conect taX< s." R spond nt adds "that it is likewi important to not that th leg I provi �on in question mploys the word �may-, implying the vai bility of the remedy of credit i not absolut and mancl tory and it does not confer n bsol right on the taxpay r to il of the x cr it scheme if it so chooses n ither doe it impose a duty on the part of the go mment to � baok and allow an important facet of tax coUection to be the sole control and disc tion of th taxpay81' (SIR Ruling 067-95 d.ted Aprl/11, 1995)." And I stly, respond nt cont nd th t "in Statutory Con uction, th principle th the contempor neous construction of a statute by executive officers of the government whose duty i to ~ it is entitled to gl"i respect nd should ordinarily controJ th construction is so firmly embedded in our jurisprudenc that no uthoritie need be cited to support it (Phil. Aaoclation of FreeL bor Union ~ � Buruu of L bor Relation , 12 SCRA 396)~" Nter a thorough and care I exam tion of all the evidence, jurlsprud ce,l r, th Court rules in favor of

DECISION CTA CASE NO. 6311 6 For clarity. quoted h rounder re the provisions of w and regul tions apropos to the in nt case: A) Section 4 of R public Act No. 7432: "Sec. 4. Privileges for the Senior Citiz n . - The nior citizens shan be entitled to the following: a) the grant of twenty percent (2()4t(,) d scount from all stablishments 11 tiv to uti � tion of transportation rvice , hotels and slmil r lodging establishments, fl urants and rect~ASUII"' cent rs nd pure se of medic' anywhel'i in th country: Pfovk;led. Ibat IH'JY]iD!Q_-~�tlmflmLJDilt.�1illm...mt..JmlB..II! crecrtt. (underscoring supplied) B) R ul tions No. 2-94: {underscoring supplied). Th provision of Section 4 of R. A. 7432 i crystal clear. The 20 cfascounts to qualified senior citizens m y be cl 'med as tax credit The of the law i cle r and unequivocal. law must be k to me n exactly what � ys (A� rtin vs. N�ciMceno, 19 Phil. 238). Construction nd i rp11 �on come only r it h s been demonstrated th pplication is impo$Sible or inadeq without them

DECISION CTA CASE NO. 5311 7 It is tru that the respondent has the power of ubordinate legislation effected by her issuance of impl menting ru and regulations uch a R.R. 2-94 in the ca at bar. but said power is not without limit. The administrative regulation must not be in sh rp confrld with the governing statute it seeks to implement (Nestle Philippi,. , Inc. vs. Court of Appe I , et al., 203 SCRA 504). R venue Regulation No. 2-94 gav a new meaning to the phra "tax credit", interpreting it to mean that th 20% discount gran ed to q lified nior citiz ns is an amount deductible from the establishm nfs gross Hits, which is compf ty contradictory to the � I or widely accepted meaning of th said phra � s an amount tubtracted from an indMdyal's or eotitv's tax ljabflitv to In view of uch ppar: nt discrepancy in the int rpr �on of the term cr � , th provisions of the w under RA. 7432 should prevail o� r ubordi regula 'on issued by the respond nt under Revenue Regul 'ons No. 2�94. In fact, thi Court ha already ttfed the same issue in th c s of Sto. Ro rio Drug Corporation vs. Commissioner of In m I Revenu , CTA Case No. 6367, February 16, 1998; Del Rosario Drug Corporation vs. Commissioner of Intern I Revenu , CTA Case No. 6367, pril6, 1998; and i g Drug Corpor tion vs. Commissio r of lnt m I R v nu , CTA C se No. 6366, y 13, 19 8, wher � We ruled in vor of the petitioner and decl red ttheword Cf'i should not be given ny other m ning.

DECISION CTA CASE 0. 6311 8 Having settled th legal issue involved in the case at bar, We are now tasked to 11 lv the factual issue of wheth r or not petitioner is entitled to the claim for refund of � overp id income taxes for the y rs 1993 and 1994 based on the evidence at h nd. Contr ry to the findings of the independent CPA, askle from th unv rifiable 20% discounts in the mount of P18,653.70 (Exh. R-3), the Court noted some ma ri I discrepanci s. Not II the details listed in the 1994 ..Summary of Sale and Discounts Giv n to Senior Citizens" con spond with the cash slips presented. There af'! v rious s les discounts granted which Wei\ not properly computed and there were also some cash slips I ft unsigned by the buy rs. Th observations contr v n the findings of th independent CPA who certified th except forth amount of P18,653.70, the r m ining cash lips listed in the summ ry pre red by th petitio r re properly repres nted. After r ful scrutiny of the documents pr sented, the Court allows only the moun of I s discoun duly upported by the pr marked cash ips: For they r 1993 P80,33Q.34 Forth y r 1994: SUMMARY PER PER 2,332.43 PAGE NO. SUMMARY EXHIBIT 3,48958 2,332.43 2,432.49 Exb. R-2 2,332.43 3,489.58 3,526.46 3,489.58 2,432.49 2,549.64 1 2,446.49 3,526. 3,203.30 3,676.34 2,549.64 3,638.98 2 2,549.64 3,227.76 3,992.04 3 3,203.30 3,638.98 3,469.03 4 3,638.98 3,992.04 5 3,992.04 3,469.03 6 3,470.23 7 8 9

DECISION 9 3,056.31 3,037.59 CTA CASE NO. 6311 3,310.83 3,310.83 3,037.59 4,011 .88 10 3,310.83 ~011.68 3,080.3e 11 4,019.88 3,731 32 12 3,080.36 3,080.36 3,808.77 13 3,733 32 3,731 .32 2,794.26 14 3,863.13 3,808.n 2,919.75 15 2,794.26 2,794.26 3,517.99 16 2,919.75 2,919.75 3,205.80 17 3,517.99 3,520.49 2,364.59 16 3,205.60 3.205.80 2,90815 19 2,364.59 2,379.19 4,187.56 20 2,900.15 2,920.15 2,941 .01 21 4 ,1 8 7.5 6 4,187.56 3,006.26 22 3,304 73 2,9.t1 01 3,146.41 23 3,006.26 3,046.28 2,645.22 24 3,146.41 3,153.21 2,689.76 25 2,645.22 2,645.22 3,518.01 26 2 ,6 8 9. 78 2,689.76 3, 197.98 27 3,518.01 3,651 .19 3,171 . 8 28 3,197. 3,197.98 3,962.89 29 3,17518 3 ,1 7 1 9 8 3,648.45 30 3,962.89 3,962.89 2,773.61 31 3, .34 3,648.45 3, 2.00 32 2,783.17 2,773.61 3,585.96 33 3,577.96 3,552.90 2,880.87 34 3,654.98 3,585.98 3,301 .13 35 3,041.59 2,880.87 2,622.85 36 3,325.67 3,301 .13 2,446.67 37 2,665.56 2,622.85 3,449.14 38 2,450.12 2.446.67 3,222.46 39 3,703.82 3,449.14 3,662.43 40 3,283.68 3,222.46 2,610.35 41 3,662.43 4,205.56 42 2,676.82 2,610.35 955.77 43 1,135.81 1,724.67 44 955.77 1,724.67 1,437.98 45 2,264.72 1,437.96 2,56469 46 3,210.00 2,56469 1,992.37 47 2,57469 1,992.37 2,857.34 48 3,385.00 2,857.34 4,390.12 49 4,088.50 4,390.12 3,106.96 50 4.390.12 3,106.96 3,216.48 51 3,157.63 3.216.48 3 ,270.67 52 3,270.67 3.10210 53 3,40.'~. 74 3,10210 2,864.58 54 2,864.58 55 3,592.15 575.63 56 3, .55 575.83 3,036.97 4,117.74 3,036.97 4,154.91 57 5,145.62 4,154.91 4,482.31 5,400.66 4,718.&4 58 3,501 .70 59 4,291.56 60 4.~. 31

DECISION 10 3,696.83 3,696.83 CTACASE NO. 6311 3,163.07 3,183.07 4,857.30 3.429.14 3,429.14 61 3,701.96 2,399.68 2,399.68 62 4,314.51 2,851 .93 2,851 .93 63 2,468.55 2,290.58 2,200.11 64 2,900.41 2,260.22 2,260.22 65 2,200.11 2,756.77 2,756.77 66 2,394.27 67 2,846.01 318.88 318.88 68 2,295.29 69 2,243.08 1,343.78 1,343.78 70 2,518.05 71 4,085.18 1,345.13 1,345.13 72 8,104.13 1,470.82 1,470.82 2,949 46 73 2,172.53 87.37 87.37 2,975.95 1,231 .73 1,231 .73 74 2,907.93 1,369.00 1,369.00 2,910.72 2,586.91 2, 91 75 2,513.98 2,840.71 2,840.71 2,791.03 2,451 .95 2,451 .95 76 3,232.67 2,88731 2,887 31 77 2,595.92 2,513.46 2,513.46 3,468.32 3,468.32 18 3, .63 2,695.60 2,695.60 79 2,958.94 2,952.50 80 2,479.25 3,021 .88 3,021.88 3,450.81 2,64'3.04 2,643.04 81 4,506.42 2,692.19 2,69219 82 4,086.15 2,Q80.57 2,980.57 83 3,024.28 3,552.00 3,552.08 84 3,498.22 2,844.93 2,804.93 85 3,174.38 2,747 .3 3 2,747.33 86 3,325.16 1,211 .19 1,211.19 87 2,001 .36 1,669.06 1,669.06 88 1,398.81 89 1,459.77 90 3,434.61 91 4,156.23 92 2,544.84 93 3,274 28 94 2,652.39 95 3,468.32 96 2.735.71 97 2,952 50 98 3,102.14 00 2,645.61 100 2,9758.'5 101 3,047.78 102 3,552.08 103 2,804.93 2,763.66 104 4,928.11 2,718.00 105 106 107 108 1~ 110 111

DECISION 11 2,441 .47 2,337.00 CTA CA E NO. 6311 3,097.44 3,097.44 2,337.00 2,530.39 112 3,281 .50 2,974.79 2,530.39 113 2,533.28 2,412.47 2,910.67 114 2,910.67 2,178.96 2,406.63 115 2,406.63 2,74188 2,157.35 116 2,157.35 2,662.34 2,741.68 3,256.66 2,177.29 2,662.34 117 2,944.98 2,074.47 2,004.59 2,004.59 2,065.45 116 2,074.47 4,074.92 2,074.47 119 3,963.91 3,162.99 2,065.45 120 2,475.93 2,611 .24 2,475.93 121 3,914.40 2,737.35 3,162.99 122 4,698 54 2,636.75 2,611 24 123 4,931 .04 3,002.24 2,737.35 124 4,251.20 2,820.54 2,636.75 125 5.445.84 3,00202 3,002.24 126 7,218.00 2,445.51 2,620.54 127 14,458 71 3,01019 3,062.02 128 19,056.85 2,445.51 129 5,59321 679.27 3,010.19 9.467.00 2,371.24 130 5,894.24 3,567.55 679.27 6,542.39 2,35023 2,371 .24 131 2,594 .69 3,567.55 132 4 .~.44 3,099.65 2,350.23 133 2,030.74 2,537 78 134 2,537 78 2,005.56 2,523.06 135 2,523.06 2,57273 2,030.74 136 3,367.08 3,244.52 2,905.56 137 3,004.65 2,800.92 2,572 73 138 2,74212 2,703.69 3,2 4.52 139 3,302.70 2,800.92 140 2,800.92 1.362.Z~ 2,703.69 141 2,926.36 1.362.72 142 5.138.64 34].499,50 143 3-Q 74938 144 516 Q41 74 145 TOTAL Hence, only the bove mounts which re properly documented n be u ed s base in computing for th cost of 20" di$COUnt a.s tax credit. The overpaid income tax the ~ is computed follows: For1993: Net P31,080,508.00 8Q.330.00 Add: 2mfa Discount to Senior Citizen P31,160,838.00 GroasSat less: Cost of Sales cha lnventofy, beg. p 4,226,586.00 29.234.301 .00 Add Purchases

DECISION CTACASE NO. 6311 12 Total Good& Available for Sal s P33,460,947 00 26.585.0()3.00 L a: Merchandise Inventory., End Gross Income 4.875.944.00 p 2,575,835.00 Less: Operating Expenses 1.706.491 .00 p 669,34400 Net Operattng Income 72.680.00 Add: Miscellaneous Income p 942.024.00 Net Income 21,1.40.00 Le : In rest Income Subject to Fin I Tax p 92088400 Net Taxable ncome Tax Due (920,884 x 354M~) p 73,600.03 p 322,309.40 Less: 1) Tax Cred t (Cost of 20% Discount) 294.194.00 367,�84.Q3 [(28,585,003.00/31, 160,838.00) X 80,~. 34} 2) Income Tax Paym nt tor the Year E 45.574,63 AMOUNT REFUNDABLE For 11M: N Sales P29,904, 734.0 0 515.00().00 Add: 20% Discount to Senior Citizen P30,410,734.00 Gross Sal 27.9U.93Q.OO L : Cost of Sal p 2,441,804.00 Merchand� e Inventory, beg. p 4,875,944.00 1,880,153.00 Add Purcha 28.138.103.00 p 561,651 .00 82.2QZ.QQ Total Good Avail bJ for S I P 33, 0 1 4,0 4 7 .0 0 p 643,858.00 Le : Merchandise inventory, End 5.036.11 7.00 30 8.00 Gros Income p 61324000 Less: Operating Expen N Operating Income Add: Mi II neous Income Netlncom Less: lntef tncome Subject to Fin I Tax NetT xab lncom Tax Due (613,240 x 35%) P 14,634.00 L : 1) Tax Cred (Cost ot 2096 Discount) 350.540.48 [(27,9n,930 00130,419,734.00) X 343, 749.38] P316,156.48 p 135 906 48 2} Income Tax Paym nt for the Y r 34.3��.00 AMOUNT REFUNDABLE We cannot conclude the adjudication of the issues involved in this case without commenting on the fact that the CPA certiflca on Issued by the accoun ng rm of Vice E. Rey and Associates (Exhibit "R'") contatned Inaccurate ments p rticu arty those which virtually guaranteed the Integrity and accuracy

DECISION CTA CASE NO. 5311 13 of the Summaries of Sales nd Discounts Given to Senior Citizens (Exhibits ..R-1" and "R-2'). This same CPA certification also vouched that the 20% sales discounts re properly computed and th t an the cash ips w r signed by the purcha rs. After a painstaking scrutiny of all the pr&-marked cash lips submitted to thi Court, it was observed that there w re marked discrepancies between the figures contained in these summaries with that of the amounts found in the individual cash slips. This examination gives rise to the conclusion that, contrary to the s tements of the accounting firm of Vicent E. Rey and Associates, the 20% s discounts gr n eel by petitioner to the senior citizens were not properly computed nd not all the ca h lip were signed by the firm (Vicen E. Rey and Associates) failed to fulfill � solemn duty to perform its sk dili ntly and with faithfulness and honesty expect d of an offic r of this Court. The in ccurat tements contained in said CPA certification puts the independence and reliability of this accounting firm in question. We will how ver adopt a fiber Is nee this time and limit our respon to a me~ admonition. We will not howev r hes~ to impose gra� r sanctions upon a repetition of s id acts and omission . WHEREFORE, in view of all the foregoing, petitioner's claim for refund is t . by rtially GRANTED. Respondent is her by ORDERED to REFUND, or in mativ , to ISSUE a tax credit certificate in favor of th petition r th

DECISION CTA CASE NO. 6311 14 amounts of P45,574.63 and P135,906.48, representing ov rp id income tax for they rs 1993 and 1994. respectively. SO ORDERED. AssoclateJ WE CONCUR: G--\o..O~ ER TOD.ACOSTA Presiding Judge (Concurring and Dissenting) AMA CIO Q. SAOA Associate Judge CERTIFICATION I her by certify th t the above decl ion was r ached r due consu on with the member of the Court of Tax Appe Is In accordance with Section 13, Article VIII of the Constitution. C-Q_~Q~ ER STOD.ACO TA ~ ngJudge

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON Cl Y ELMAS DRUG CORPORATION, Petition r, - versus - C.T.A. CASE NO. 5311 COMMISSIONEh OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - - - CONCURRING AND DISSENTING OPINION The majority opinion granted the amounts of P46,574.63 and P135,906.48 representing overpaid lnoome tax for the years 1993 and 1994, respectively. Whl le agree, in most part, with th oonolusion embodied In the deoislon, I take exoeptlon to the majority ' s computation o1 petitioner's refundable Income tax for the taxable year 1994. As I hav lready xpressed In my dissenting opinion In the oase entitled Trinity Franohlslng and Management Corporation vs. Commissioner of Internal Revenue, CTA Case No. 6313 dat d August 18. 1998, the refund or tax oredlt to be gr nted to petitioner In oases of this nature, should be limited to the taxes It had aotually paid for this partloular p rlod and not the entire amount representing the oost of the 20% disoount.

CONCURRING AND DISSENTING OPINION C.T.A. CASE NO. 5311 - 2- Seotlon 204 (3) of the old Tax Code and Seotlon 204 (o) of the Tax Reform Aot of 1997 provides as fol lowsa Seotton 204. Authority of the Commissioner to compromise, abate, and refund/credit taxes.-The Commis s ioner may - (1) X X X (2) X X X (3) Credit or refund taxes erroneous I y or� I I Iega I I y reoe I ved, or penalties Imposed without authority x x x. Section 204(o) of the ax ReforM Aot of 1997- "Credit or refund taxes erroneously or i I legally received or penalties Imposed without authority xxx. Provided, further, that in no oase shal I a tax refund be given resulting from ava I I ment of Incentives granted pursuant to Sf!!eoial laws for which no actual payt ant was made. " (Underscoring for emphasis) A reading of the aforequoted provisions of law as appl led to the Instant case gives rise to the oonolusion that any excess or unapplied portion of the cost of the 20\ sales dlsoount Is not refundable tor the simple reason that Section 204(3) of the old Tax Code speaks only of refund or oredit of taxes erroneously or Illegally received. In the Instant case , no suoh "cash " was ever received by herein respondent. The right of the taxpayer to tax credit the oost of the 20% sales discount against lnoome tax Is a mere privilege whloh oan be availed of only If the Income tax per return Is sufficient to absorb the same. Consistent with this

CONCURRING AND DISSENTING OPINION C.T.A. CASE NO. 5311 - 3- theory Is that no tax oredlt or carry over to the next taxable year shal 1 be allowed. Aooordlngly, vote to reduoe the amount of Income tax to be refunded to petitioner for the taxable year 1994 to P34,384.00 detailed as fol lowsa Tax due per return P214,634.00 Lessr Cost of the 20% sales discount P316,156.48 Exoess of the 20% <not refundable) P101,522.48 lnoome Tax paid during the year p 34,384.00 <refundable)