FIRST DIVISION [ G.R. NO. 168129, April 24, 2007 ] COMMISSIONER OF INTERNA REVEN!E, "ETITIONER, VS.

"#I I""INE #EA T# CARE "ROVIDERS, INC., RES"ONDENT. DECISION SANDOVA $G!TIERRE%, &.' For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seeking to reverse the Decision 1! dated Fe"ruar# 1$, %&&5 and Resolution dated 'a# 9, %&&5 of the Court of ())eals *Fifteenth Division+ in C(,-.R. /P 0o. 71449. 2he factual antecedents of this case, as culled from the records, are3

2he Phili))ine 4ealth Care Providers, 5nc., herein res)ondent, is a cor)oration organi6ed and e7isting under the laws of the Re)u"lic of the Phili))ines. Pursuant to its (rticles of 5ncor)oration, %! its )rimar# )ur)ose is 82o esta"lish, maintain, conduct and o)erate a )re)aid grou) )ractice health care deliver# s#stem or a health maintenance organi6ation to take care of the sick and disa"led )ersons enrolled in the health care )lan and to )rovide for the administrative, legal, and financial res)onsi"ilities of the organi6ation.8 9n :ul# %5, 19$7, President Cora6on C. (;uino issued <7ecutive 9rder *<.9.+ 0o. %7=, amending the 0ational 5nternal Revenue Code of 1977 *Presidential Decree 0o. 115$+ "# im)osing >alue,(dded 2a7 *>(2+ on the sale of goods and services. 2his <.9. took effect on :anuar# 1, 19$$. ?efore the effectivit# of <.9. 0o. %7=, or on Decem"er 1&, 19$7, res)ondent wrote the Commissioner of 5nternal Revenue *C5R+, )etitioner, in;uiring whether the services it )rovides to the )artici)ants in its health care )rogram are e7em)t from the )a#ment of the >(2. 9n :une $, 19$$, )etitioner C5R, through the >(2 Review Committee of the ?ureau of 5nternal Revenue *?5R+, issued >(2 Ruling 0o. %=1,$$ stating that res)ondent, as a )rovider of medical services, is ()(*p+ from the >(2 coverage. 2his Ruling was su"se;uentl# confirmed "# Regional Director 9smundo -. @mali of Revenue Region 0o. $ in a letter dated ()ril %%, 1994. 'eanwhile, on :anuar# 1, 1991, Re)u"lic (ct *R.(.+ 0o. 7711 *<7)anded >(2 or <, >(2 Aaw+ took effect, amending further the 0ational 5nternal Revenue Code of 1977. 2hen on :anuar# 1, 199$, R.(. 0o. $4%4 *0ational 5nternal Revenue Code of 1997+ "ecame effective. 2his new 2a7 Code su"stantiall# ado)ted and re)roduced the )rovisions of <.9. 0o. %7= on >(2 and R.(. 0o. 7711 on <,>(2. 5n the interim, on 9cto"er 1, 1999, the ?5R sent res)ondent a Preliminar# (ssessment 0otice for deficienc# in its )a#ment of the >(2 and documentar# stam) ta7es *D/2+ for ta7a"le #ears 1991 and 1997. 9n 9cto"er %&, 1999, res)ondent filed a )rotest with the ?5R.

9n :anuar# %7, %&&&, )etitioner C5R sent res)ondent a letter demanding )a#ment of 8deficienc# >(28 in the amount of P1&&,5&5,&=&.%1 and D/2 in the amount of

P1%4,191,11&.9%, or a total of P%%4,7&%,141.1$ for ta7a"le #ears 1991 and 1997. (ttached to the demand letter were four *4+ assessment notices. 9n Fe"ruar# %=, %&&&, res)ondent filed another )rotest ;uestioning the assessment notices. Petitioner C5R did not take an# action on res)ondentBs )rotests. 4ence, on /e)tem"er %1, %&&&, res)ondent filed with the Court of 2a7 ())eals *C2(+ a )etition for review, docketed as C2( Case 0o. 1111. 9n ()ril 5, %&&%, the C2( rendered its Decision, the dis)ositive )ortion of which reads3 C4<R<F9R<, in view of the foregoing, the instant Petition for Review is P(R25(AAD -R(02<D. Petitioner is here"# 9RD<R<D 29 P(D the deficienc# >(2 amounting to P%%,&54,$=1.75 inclusive of %5E surcharge )lus %&E interest from :anuar# %&, 1997 until full# )aid for the 1991 >(2 deficienc# and P=1,&94,11=.$7 inclusive of %5E surcharge )lus %&E interest from :anuar# %&, 199$ until )aid for the 1997 >(2 deficienc#. (ccordingl#, >(2 Ruling 0o. %=1,$$ is declared void and without force and effect. 2he 1991 and 1997 deficienc# D/2 assessment against )etitioner is here"# C(0C<AA<D (0D /<2 (/5D<. Res)ondent is 9RD<R<D to D</5/2 from collecting the said D/2 deficienc# ta7. /9 9RD<R<D. Res)ondent filed a motion for )artial reconsideration of the a"ove Fudgment concerning its lia"ilit# to )a# the deficienc# >(2. 5n its Resolution =! dated 'arch %=, %&&=, the C2( granted res)ondentBs motion, thus3 C4<R<F9R<, in view of the foregoing, the instant 'otion for Partial Reconsideration is -R(02<D. (ccordingl#, the >(2 assessment issued "# herein res)ondent against )etitioner for the ta7a"le #ears 1991 and 1997 is here"# C524DR(C0 and /<2 (/5D<. /9 9RD<R<D. 2he C2( held3 'oreover, this court adheres to its conclusion that )etitioner is a ,(r-i.( ./0+r1.+/r su"Fect to >(2 since it does not actuall# render medical service "ut merel# acts as a ./023i+ "etween the mem"ers and )etitionerBs accredited and recogni6ed hos)itals and clinics. 4owever, after a careful review of the facts of the case as well as the Aaw and Furis)rudence a))lica"le, this court resolves to grant )etitionerBs 8'otion for Partial Reconsideration.8 Ce are in accord with the view of )etitioner that it is entitled to the "enefit of non,retroactivit# of rulings guaranteed under /ection %41 of the 2a7 Code, in the a"sence of showing of "ad faith on its )art. /ection %41 of the 2a7 Code )rovides3 Sec. %41. Non-Retroactivity of Rulings. G (n# revocation, modification or reversal of an# of the rules and regulations )romulgated in accordance with the )receding /ections or an# of the rulings or circulars )romulgated "# the Commissioner shall not "e given retroactive a))lication if the revocation, modification or reversal will "e )reFudicial to the ta7)a#ers, 7 7 7. Clearl#, undue )reFudice will "e caused to )etitioner if the revocation of >(2 Ruling 0o. %=1,$$ will "e retroactivel# a))lied to its case. >(2 Ruling 0o. %=1,$$ issued "# no less than the res)ondent itself has confirmed )etitionerBs entitlement to >(2 e7em)tion under /ection 1&= of the 2a7 Code. 5n sa#ing so, res)ondent has actuall# "roadened the sco)e of 8medical services8 to include the case of the )etitioner. 2his >(2 ruling was even confirmed su"se;uentl# "# Regional Director 9rmundo -. @mali in his letter dated ()ril %%, 1994 *Exhibit M+. <7hi"it P, which served as "asis for the issuance of the said >(2 ruling in favor of the )etitioner sufficientl# descri"ed the "usiness of )etitioner and there is no wa# ?5R could "e misled "# the said re)resentation as to the real nature

of )etitionerBs "usiness. /uch "eing the case, this court is convinced that )etitionerBs reliance on the said ruling is )remised on good faith. 2he facts of the case do not show that )etitioner deli"eratel# committed mistakes or omitted material facts when it o"tained the said ruling from the ?ureau of 5nternal Revenue. 2hus, in the a"sence of such )roof, this court u)holds the a))lication of /ection %41 of the 2a7 Code. Conse;uentl#, the )ronouncement made "# the ?5R in >(2 Ruling 0o. %=1,$$ as to the >(2 e7em)tion of )etitioner should "e u)held. Petitioner seasona"l# filed with the Court of ())eals a )etition for review, docketed as C(,-.R. /P 0o. 71449. 5n its Decision dated Fe"ruar# 1$, %&&5, the Court of ())eals affirmed the C2( Resolution. Petitioner C5R filed a motion for reconsideration, "ut it was denied "# the a))ellate court in its Resolution 4! dated 'a# 9, %&&5. 4ence, the instant )etition for review on certiorari raising these +4/ i,,3(,3 *1+ whether res)ondentBs services are su"Fect to >(2H and *%+ whether >(2 Ruling 0o. %=1,$$ e7em)ting res)ondent from )a#ment of >(2 has retroactive a))lication. 9n the first issue, res)ondent is contesting )etitionerBs assessment of its >(2 lia"ilities for ta7a"le #ears 1991 and 1997. /ection 1&% 5! of the 0ational 5nternal Revenue Code of 1977, as amended "# <.9. 0o. %7= *>(2 Aaw+ and R.(. 0o. 7711 *<,>(2 Aaw+, )rovides3 /<C. 1&%. Value-added tax on sale of services and use or lease of properties. G *a+ Rate and base of tax. G 2here shall "e levied, assessed and collected, a value,added ta7 e;uivalent to 1&E of gross recei)ts derived from the sale or e7change of services, including the use or lease of )ro)erties. 2he )hrase 8,1l( /r ().5106( /7 ,(r-i.(8 means the )erformance of all kinds of services in the Phili))ines for a fee, remuneration or consideration, including those )erformed or rendered "# construction and service contractors 7 7 7. /ection 1&= 1! of the same Code s)ecifies the e7em)t transactions from the )rovision of /ection 1&%, thus3 /<C. 1&=. Exempt Transactions. G 2he following shall "e e7em)t from the value,added ta73 7 7 7 *l+ 'edical, dental, hos)ital and veterinar# services e7ce)t those rendered "# )rofessionals 777 T5( i*p/r+ /7 +5( 18/-( pr/-i,i/0 i, pl1i0. I+ r(93ir(, 0/ i0+(rpr(+1+i/0. I+ ./0+(*pl1+(, +5( ()(*p+i/0 7r/* VAT /7 +1)p1:(r, (0616(2 i0 +5( p(r7/r*10.( /7 *(2i.1l, 2(0+1l, 5/,pi+1l, 102 -(+(ri01r: ,(r-i.(,. 5n Commissioner of International Revenue v. Seagate Technolog !"hilippines# , 7! we defined an e7em)t transaction as one involving goods or services which, "# their nature, are s)ecificall# listed in and e7)ressl# e7em)ted from the >(2, under the 2a7 Code, without regard to the ta7 status of the )art# in the transaction. 5n Commissioner of Internal Revenue v. Toshiba Information E$uipment !"hils.# Inc.% $! we reiterated this definition. 5n its letter to the ?5R re;uesting confirmation of its >(2,e7em)t status, res)ondent descri"ed its services as follows3 @nder the )re)aid grou) )ractice health care deliver# s#stem ado)ted "# 4ealth Care, individuals enrolled in 4ealth CareBs health care )rogram are entitled to )reventive, diagnostic, and corrective medical services to "e dis)ensed "# 4ealth CareBs dul# licensed )h#sicians, s)ecialists, and other )rofessional technical staff )artici)ating in said grou) )ractice health care deliver# s#stem esta"lished and o)erated "# 4ealth

Care. /uch medical services will "e dis)ensed in a hos)ital or clinic owned, o)erated, or accredited "# 4ealth Care. 2o "e entitled to receive such medical services from 4ealth Care, an individual must enroll in 4ealth CareBs health care )rogram and )a# an annual fee. <nrollment in 4ealth CareBs health care )rogram is on a #ear,to,#ear "asis and enrollees are issued identification cards. From the foregoing, the C2( made the following conclusions3 a+ Res)ondent ;i, 0/+ 1.+31ll: r(02(ri06 *(2i.1l ,(r-i.( 83+ *(r(l: 1.+i06 1, 1 ./023i+ 8(+4((0 +5( *(*8(r, 102 +5(ir 1..r(2i+(2 102 r(./60i<(2 5/,pi+1l, 102 .li0i.,.; "+ 5t merel# ;pr/-i2(, 102 1rr106(, 7/r +5( pr/-i,i/0 /7 pr($0((2 5(1l+5 .1r( ,(r-i.(, +/ i+, *(*8(r, 7/r 1 7i)(2 pr(p1i2 7(( 7/r 1 ,p(.i7i(2 p(ri/2 /7 +i*(.; c+ 5t then ;./0+r1.+, +5( ,(r-i.(, /7 p5:,i.i10,, *(2i.1l 102 2(0+1l pr1.+i+i/0(r,, .li0i., 102 5/,pi+1l, +/ p(r7/r* ,3.5 ,(r-i.(, +/ i+, (0r/ll(2 *(*8(r,=; and d+ Res)ondent ;1l,/ (0+(r, i0+/ ./0+r1.+ 4i+5 .li0i.,, 5/,pi+1l,, *(2i.1l pr/7(,,i/01l, 102 +5(0 0(6/+i1+(, 4i+5 +5(* r(61r2i06 p1:*(0+ ,.5(*(,, 7i010.i06 102 /+5(r pr/.(23r(, i0 +5( 2(li-(r: /7 5(1l+5 ,(r-i.(,.; Ce note that these factual findings of the C2( were neither modified nor reversed "# the Court of ())eals. 5t is a doctrine that findings of fact of the C2(, a s)ecial court e7ercising )articular e7)ertise on the su"Fect of ta7, are generall# regarded as final, "inding, and conclusive u)on this Court, more so where these do not conflict with the findings of the Court of ())eals. 9! "(r7/r.(, 1, r(,p/02(0+ 2/(, 0/+ 1.+31ll: pr/-i2( *(2i.1l 102>/r 5/,pi+1l ,(r-i.(,, 1, pr/-i2(2 302(r S(.+i/0 10? /0 ()(*p+ +r10,1.+i/0,, 83+ *(r(l: 1rr106(, 7/r +5( ,1*(, i+, ,(r-i.(, 1r( 0/+ VAT$()(*p+. Relative to the second issue, /ection %41 of the 1997 2a7 Code, as amended, )rovides that rulings, circulars, rules and regulations )romulgated "# the Commissioner of 5nternal Revenue have no retroactive a))lication if to a))l# them would )reFudice the ta7)a#er. 2he e7ce)tions to this rule are3 *1+ where the ta7)a#er deli"eratel# misstates or omits material facts from his return or in an# document re;uired of him "# the ?ureau of 5nternal RevenueH *%+ where the facts su"se;uentl# gathered "# the ?ureau of 5nternal Revenue are materiall# different from the facts on which the ruling is "ased, or *=+ where the ta7)a#er acted in "ad faith. Ce must now determine whether >(2 Ruling 0o. %=1,$$ e7em)ting res)ondent from )a#ing its >(2 lia"ilities has retroactive a))lication. 5n its Resolution dated 'arch %=, %&&=, the C2( found that there is no showing that res)ondent 8deli"eratel# committed mistakes or omitted material facts8 when it o"tained >(2 Ruling 0o. %=1,$$ from the ?5R. 2he C2( held that res)ondentBs letter which served as the "asis for the >(2 ruling 8sufficientl# descri"ed8 its "usiness and 8there is no wa# the ?5R could "e misled "# the said re)resentation as to the real nature8 of said "usiness. 5n sustaining the C2(, the Court of ())eals found that 8the failure of res)ondent to refer to itself as a health maintenance organi6ation is not an indication of "ad faith or a deli"erate attem)t to make false re)resentations.8 (s 8the term health maintenance organi6ation did not as #et have an# )articular significance for ta7 )ur)oses,8 res)ondentBs failure 8to include a term that has #et to ac;uire its )resent definition and significance cannot "e e;uated with "ad faith.8 Ce agree with "oth the 2a7 Court and the Court of ())eals that res)ondent acted in good faith. 5n Civil Service Commission v. Maala , 1&! we descri"ed good faith as 8that state of mind denoting honest# of intention and freedom from knowledge of circumstances which ought to )ut the holder u)on in;uir#H an honest intention to a"stain from taking an# unconscientious advantage of another, even through technicalities of law, together with a"sence of all information, notice, or "enefit or "elief of facts which render transaction unconscientious.8

(ccording to the Court of ())eals, res)ondentBs failure to descri"e itself as a 8health maintenance organi6ation,8 which is su"Fect to >(2, is not tantamount to "ad faith. Ce note that the term 8health maintenance organi6ation8 was first recorded in the Phili))ine statute "ooks onl# u)on the )assage of 82he 0ational 4ealth 5nsurance (ct of 19958 *Re)u"lic (ct 0o. 7$75+. /ection 4 *o+ *=+ thereof defines a 5(1l+5 *1i0+(010.( /r610i<1+i/0 as 8an entit# that )rovides, offers, or arranges for coverage of designated health services needed "# )lan mem"ers for a fi7ed )re)aid )remium.8 @nder this law, a health maintenance organi6ation is one of the classes of a 8health care )rovider.8 5t is thus a))arent that when >(2 Ruling 0o. %=1,$$ was issued in res)ondentBs favor, the term 8health maintenance organi6ation8 was #et unknown or had no significance for ta7ation )ur)oses. Res)ondent, therefore, "elieved in good faith that it was >(2 e7em)t for the ta7a"le #ears 1991 and 1997 on the "asis of >(2 Ruling 0o. %=1,$$. 5n &'S-C'( 'roadcasting Corp. v. Court of Tax &ppeals , 11! this Court held that under /ection %41 of the 1997 2a7 Code, +5( C/**i,,i/0(r /7 I0+(r01l R(-(03( i, pr(.l32(2 7r/* 12/p+i06 1 p/,i+i/0 ./0+r1r: +/ /0( pr(-i/3,l: +1@(0 45(r( i0A3,+i.( 4/3l2 r(,3l+ +/ +5( +1)p1:(r. 4ence, where an assessment for deficienc# withholding income ta7es was made, three #ears after a new ?5R Circular reversed a )revious one u)on which the ta7)a#er had relied u)on, such an assessment was )reFudicial to the ta7)a#er. 2o rule otherwise, o)ined the Court, would "e contrar# to the tenets of good faith, e;uit#, and fair )la#. 2his Court has consistentl# reaffirmed its ruling in &'S-C'( 'roadcasting Corp. in the later cases of Commissioner of Internal Revenue v. 'orroughs% )td.% 1%! Commissioner of Internal Revenue v. Mega *en. Mdsg. Corp. 1=! Commissioner of Internal Revenue v. Telefun+en Semiconductor !"hils.# Inc.% 14! and Commissioner of Internal Revenue v. Court of &ppeals. 15! 2he rule is that the ?5R rulings have no retroactive effect where a grossl# unfair deal would result to the )reFudice of the ta7)a#er, as in this case. 'ore recentl#, in Commissioner of Internal Revenue v. 'enguet Corporation , 11! wherein the ta7)a#er was entitled to ta7 refunds or credits "ased on the ?5RBs own issuances "ut later was suddenl# saddled with deficienc# ta7es due to its su"se;uent ruling changing the categor# of the ta7)a#erBs transactions for the )ur)ose of )a#ing its >(2, this Court ruled that a))l#ing such ruling retroactivel# would "e )reFudicial to the ta7)a#er. B#EREFORE, we DENC the )etition and AFFIRM the assailed Decision and Resolution of the Court of ())eals in C(,-.R. /P 0o. 71449. 0o costs. SO "uno%
1!

ORDERED. C.,.% !Chairperson#% Corona% &-cuna% and *arcia% ,,.% concur.

Rollo% )). =1,4=. Penned "# (ssociate :ustice Rosmari D. Carandang and concurred in "# (ssociate :ustice Remedios /ala6ar,Fernando and (ssociate :ustice 'onina (revalo,Ienarosa.
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1$, 1%, 19, =&, %=, 1,

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