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FIRST DIVISION

[G.R. No. 125355. March 30, 2000.]

COMMISSIONER OF INTERNAL REVENUE , petitioner, vs . COURT OF


APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION , respondents.

The Solicitor General for petitioner.


Benilda V. Quevedo-Santos and Anita A. Diomalanta-Arcinue for private respondent.

SYNOPSIS

Commonwealth Management and Services Corporation (COMASERCO) is a


corporation duly organized and existing under the laws of the Philippines. It is an a liate
of Philippine American Life Insurance Co. (Philamlife), organized by the latter to perform
collection, consultative and other technical services, including functioning as an internal
auditor of Philamlife and its other a liates. The Bureau of Internal Revenue (BIR) issued an
assessment to private respondent COMASERCO for de ciency value-added tax (VAT)
amounting to P351,851.01, for taxable year 1988. COMASERCO led with the Court of Tax
Appeals a petition for review contesting the Commissioner's assessment. COMASERCO
asserted that the services it rendered to Philamlife and its a liates were on a "no-pro t,
reimbursement-of-cost-only" basis, thus they were not engaged in business. In fact, it did
not generate pro t but suffered a net loss in taxable year 1988. COMASERCO averred that
since it was not engaged in business, it was not liable to pay VAT. The Court of Tax
Appeals rendered a decision in favor of the Commissioner of Internal Revenue.
Respondent led with the Court of Appeals a petition for review of the decision of the
Court of Tax Appeals. After due proceedings, the Court of Appeals rendered a decision
reversing that of the Court of Tax Appeals. The Commissioner of Internal Revenue led
with the Supreme Court a petition for review on certiorari assailing the decision of the
Court of Appeals. At issue in this case was whether COMASERCO was engaged in the sale
of services, and thus liable to pay VAT thereon.
The Supreme Court agreed with the Commissioner of Internal Revenue. Contrary to
COMASERCO's contention, Sec. 105 of the National Internal Revenue Code of 1997
clari es that even a non-stock, non-pro t organization or government entity is liable to pay
VAT on the sale of goods or services. VAT 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 pro t attributable thereto. There was no
merit to respondent's contention that the Court of Appeals' decision declaring the
COMASERCO as not engaged in business and not liable for the payment of xed and
percentage taxes, binds petitioner. The issue in the appellate court is different from the
present case, which involves COMASERCO's liability for VAT. Every person who sells,
barters, or exchanges goods and services, in the course of trade or business, as de ned by
law, is subject to VAT. The Court reversed the decision of the Court of Appeals and
reinstated the decision of the Court of Tax Appeals.

SYLLABUS
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1. TAXATION; REPUBLIC ACT NO. 7716 (EXPANDED VAT LAW); CLARIFIES THAT
EVEN A NON-STOCK, NON-PROFIT ORGANIZATION OR GOVERNMENT ENTITY IS LIABLE
TO PAY VAT ON THE SALE OF GOODS OR SERVICES. — On May 28, 1994, Congress
enacted Republic Act No. 7716, the Expanded VAT Law (EVAT), amending among other
sections, Section 99 of the Tax Code. On January 1, 1998, Republic Act 8424, the National
Internal Revenue Code of 1997, took effect. Contrary to COMASERCO's contention the
amended law clari es that even a non-stock, non-profit, organization or government entity,
is liable to pay VAT on the sale of goods or services. VAT 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 pro t attributable
thereto. The term "in the course of trade or business" requires the regular conduct or
pursuit of a commercial or an economic activity, regardless of whether or not the entity is
pro t-oriented. The de nition of the term "in the course of trade or business" incorporated
in the present law applies to all transactions even to those made prior to its enactment.
Executive Order No. 273 stated that any person who, in the course of trade or business,
sells, barters or exchanges goods and services, was already liable to pay VAT. The present
law merely stresses that even a nonstock, nonpro t organization or government entity is
liable to pay VAT for the sale of goods and services. Section 108 of the National Internal
Revenue Code of 1997 de nes the phrase "sale of services" as the "performance of all
kinds of services for others for a fee, remuneration or consideration." It includes "the
supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scienti c, industrial or commercial undertaking or
project."
2. ID.; ID.; BIR RULING NO. 010-98; EMPHASIZED THAT AS LONG AS THE ENTITY
PROVIDES SERVICE FOR A FEE, REMUNERATION OR CONSIDERATION, THEN THE
SERVICE RENDERED IS SUBJECT TO VALUE ADDED TAX (VAT). — On February 5, 1998, the
Commissioner of Internal Revenue issued BIR Ruling No. 010-98 emphasizing that a
domestic corporation that provided technical, research, management and technical
assistance to its a liated companies and received payments on a reimbursement-of-cost
basis, without any intention of realizing pro t, was subject to VAT on services rendered. In
fact, even if such corporation was organized without any intention of realizing pro t, any
income or pro t generated by the entity in the conduct of its activities was subject to
income tax. Hence, it is immaterial whether the primary purpose of a corporation indicates
that it receives payments for services rendered to its a liates on a reimbursement-on-
cost basis only, without realizing pro t, 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.
3. ID.; TAXES; EXEMPTION FROM THE PAYMENT THEREOF CONSTRUED STRICTLY
AGAINST THE GRANTEE AND LIBERALLY IN FAVOR OF THE GOVERNMENT;
APPLICATION IN CASE AT BAR. — 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. The services rendered by COMASERCO do not fall within
the exemptions.
4. REMEDIAL LAW; EVIDENCE; CONCLUSIONS OF QUASI-JUDICIAL AGENCIES;
RESPECTED ON APPEAL; CASE AT BAR. — Both the Commissioner of Internal Revenue and
the Court of Tax Appeals correctly ruled that the services rendered by COMASERCO to
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Philamlife and its a liates are subject to VAT. As pointed out by the Commissioner, the
performance of all kinds of services for others for a fee, remuneration or consideration is
considered as sale of services subject to VAT. As government agency charged with the
enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the
absence of any showing that it is plainly wrong, is entitled to great weight. Also, it has been
the long standing policy and practice of this Court to respect the conclusions of quasi-
judicial agencies, such as the Court of Tax Appeals which, by the nature of its functions, is
dedicated exclusively to the study and consideration of tax cases and has necessarily
developed an expertise on the subject, unless there has been and abuse or improvident
exercise of its authority. aITDAE

DECISION

PARDO , J : p

What is before the Court is a petition for review on certiorari of the decision of the
Court of Appeals, 1 reversing that of the Court of Tax Appeals, 2 which a rmed with
modi cation the decision of the Commissioner of Internal Revenue ruling that
Commonwealth Management and Services Corporation, is liable for value added tax for
services to clients during taxable year 1988. Cdpr

Commonwealth Management and Services Corporation (COMASERCO, for brevity),


is a corporation duly organized and existing under the laws of the Philippines. It is an
a liate of Philippine American Life Insurance Co. (Philamlife), organized by the latter to
perform collection, consultative and other technical services, including functioning as an
internal auditor, of Philamlife and its other affiliates.
On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to
private respondent COMASERCO for de ciency value-added tax (VAT) amounting to
P351,851.01, for taxable year 1988, computed as follows:
"Taxable sale/receipt P1,679,155.00
===========
10% tax due thereon 167,915.50
25% surcharge 41,978.88
20% interest per annum 125,936.63
Compromise penalty for late payment 16,000.00
—————
TOTAL AMOUNT DUE AND COLLECTIBLE P351,831.01" 3
===========

COMASERCO's annual corporate income tax return ending December 31, 1988
indicated a net loss in its operations in the amount of P6,077.00.
On February 10, 1992, COMASERCO led with the BIR, a letter-protest objecting to
the latter's nding of de ciency VAT. On August 20, 1992, the Commissioner of Internal
Revenue sent a collection letter to COMASERCO demanding payment of the de ciency
VAT.
On September 29, 1992, COMASERCO led with the Court of Tax Appeals 4 a
petition for review contesting the Commissioner's assessment. COMASERCO asserted
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that the services it rendered to Philamlife and its a liates, relating to collections,
consultative and other technical assistance, including functioning as an internal auditor,
were on a "no-pro t, reimbursement-of-cost-only" basis. It averred that it was not engaged
in the business of providing services to Philamlife and its a liates. COMASERCO was
established to ensure operational orderliness and administrative e ciency of Philamlife
and its a liates, and not in the sale of services. COMASERCO stressed that it was not
pro t-motivated, thus not engaged in business. In fact, it did not generate pro t but
suffered a net loss in taxable year 1988. COMASERCO averred that since it was not
engaged in business, it was not liable to pay VAT. cdasia

On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the
Commissioner of Internal Revenue, the dispositive portion of which reads:
"WHEREFORE, the decision of the Commissioner of Internal Revenue
assessing petitioner de ciency value-added tax for the taxable year 1988 is
AFFIRMED with slight modi cations. Accordingly, petitioner is ordered to pay
respondent Commissioner of Internal Revenue the amount of P335,831.01
inclusive of the 25% surcharge and interest plus 20% interest from January 24,
1992 until fully paid pursuant to Section 248 and 249 of the Tax Code.
"The compromise penalty of P16,000.00 imposed by the respondent in her
assessment letter shall not be included in the payment as there was no
compromise agreement entered into between petitioner and respondent with
respect to the value-added tax deficiency." 5

On July 26, 1995, respondent led with the Court of Appeals, a petition for review of
the decision of the Court of Appeals.
After due proceedings, on May 13, 1996, the Court of Appeals rendered decision
reversing that of the Court of Tax Appeals, the dispositive portion of which reads:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered
REVERSING and SETTING ASIDE the questioned Decision promulgated on 22
June 1995. The assessment for de ciency value-added tax for the taxable year
1988 inclusive of surcharge, interest and penalty charges are ordered CANCELLED
for lack of legal and factual basis." 6

The Court of Appeals anchored its decision on the ratiocination in another tax case
involving the same parties, 7 where it was held that COMASERCO was not liable to pay
xed and contractor's tax for services rendered to Philamlife and its a liates. The Court of
Appeals, in that case, reasoned that COMASERCO was not engaged in business of
providing services to Philamlife and its a liates. In the same manner, the Court of Appeals
held that COMASERCO was not liable to pay VAT for it was not engaged in the business of
selling services.
On July 16, 1996, the Commissioner of Internal Revenue led with this Court a
petition for review on certiorari assailing the decision of the Court of Appeals.
On August 7, 1996, we required respondent COMASERCO to le comment on the
petition, and on September 26, 1996, COMASERCO complied with the resolution. 8
We give due course to the petition.
At issue in this case is whether COMASERCO was engaged in the sale of services,
and thus liable to pay VAT thereon.
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Petitioner avers that to "engage in business" and to "engage in the sale of services"
are two different things. Petitioner maintains that the services rendered by COMASERCO
to Philamlife and its a liates, for a fee or consideration, are subject to VAT. VAT is a tax
on the value added by the performance of the service. It is immaterial whether pro t is
derived from rendering the service. cdasia

We agree with the Commissioner.


Section 99 of the National Internal Revenue Code of 1986, as amended by Executive
Order (E.O.) No. 273 in 1988, provides that:
"SECTION 99. Persons liable. — Any person who, in the course of trade or
business, sells, barters or exchanges goods, renders services, or engages in
similar transactions and any person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 100 to 102 of this Code." 9

COMASERCO contends that the term "in the course of trade or business" requires
that the "business" is carried on with a view to profit or livelihood. It avers that the activities
of the entity must be pro t-oriented. COMASERCO submits that it is not motivated by
pro t, as de ned by its primary purpose in the articles of incorporation, stating that it is
operating "only on reimbursement-of-cost basis, without any pro t." Private respondent
argues that pro t motive is material in ascertaining who to tax for purposes of
determining liability for VAT.
We disagree.
On May 28, 1994, Congress enacted Republic Act No. 7716, the Expanded VAT Law
(EVAT), amending among other sections, Section 99 of the Tax Code. On January 1, 1998,
Republic Act 8424, the National Internal Revenue Code of 1997, took effect. The amended
law provides that:
"SECTION 105. Persons Liable. — 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 and 108 of this Code.
"The value-added tax is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods, properties or
services. This rule shall likewise apply to existing sale or lease of goods,
properties or services at the time of the effectivity of Republic Act No. 7716.
"The phrase "in the course of trade or business" means the regular conduct
or pursuit of a commercial or an economic activity, including transactions
incidental thereto, by any person regardless of whether or not the person engaged
therein is a nonstock, nonpro t organization (irrespective of the disposition of its
net income and whether or not it sells exclusively to members of their guests), or
government entity.

"The rule of regularity, to the contrary notwithstanding, services as de ned


in this Code rendered in the Philippines by nonresident foreign persons shall be
considered as being rendered in the course of trade or business."

Contrary to COMASERCO's contention the above provision clari es that even a non-
stock, non-pro t organization or government entity, is liable to pay VAT on the sale of
goods or services. VAT 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
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services, even in the absence of pro t attributable thereto. The term "in the course of trade
or business" requires the regular conduct or pursuit of a commercial or an economic
activity, regardless of whether or not the entity is profit-oriented.
The de nition of the term "in the course of trade or business" incorporated in the
present law applies to all transactions even to those made prior to its enactment.
Executive Order No. 273 stated that any person who, in the course of trade or business,
sells, barters or exchanges goods and services, was already liable to pay VAT. The present
law merely stresses that even a nonstock, nonpro t organization or government entity is
liable to pay VAT for the sale of goods and services. cda

Section 108 of the National Internal Revenue Code of 1997 10 de nes the phrase
"sale of services" as the "performance of all kinds of services for others for a fee,
remuneration or consideration." It includes "the supply of technical advice, assistance or
services rendered in connection with technical management or administration of any
scientific, industrial or commercial undertaking or project." 1 1
On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No.
010-98 12 emphasizing that a domestic corporation that provided technical, research,
management and technical assistance to its a liated companies and received payments
on a reimbursement-of-cost basis, without any intention of realizing pro t, was subject to
VAT on services rendered. In fact, even if such corporation was organized without any
intention of realizing pro t, any income or pro t generated by the entity in the conduct of
its activities was subject to income tax.
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 pro t, 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. 13 In the case of
VAT, Section 109, Republic Act 8424 clearly enumerates the transactions exempted from
VAT. The services rendered by COMASERCO do not fall within the exemptions.
Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly
ruled that the services rendered by COMASERCO to Philamlife and its a liates are subject
to VAT. As pointed out by the Commissioner, the performance of all kinds of services for
others for a fee, remuneration or consideration is considered as sale of services subject to
VAT. As the government agency charged with the enforcement of the law, the opinion of
the Commissioner of Internal Revenue, in the absence of any showing that it is plainly
wrong, is entitled to great weight. 14 Also, it has been the long standing policy and practice
of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax
Appeals which, by the nature of its functions, is dedicated exclusively to the study and
consideration of tax cases and has necessarily developed an expertise on the subject,
unless there has been an abuse or improvident exercise of its authority. 1 5
There is no merit to respondent's contention that the Court of Appeals' decision in
CA-G.R. No. 34042, declaring the COMASERCO as not engaged in business and not liable
for the payment of xed and percentage taxes, binds petitioner. The issue in CA-G.R. No.
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34042 is different from the present case, which involves COMASERCO's liability for VAT.
As heretofore stated, every person who sells, barters, or exchanges goods and services, in
the course of trade or business, as defined by law, is subject to VAT. cdtai

WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the
Court of Appeals in CA-G.R. SP No. 37930. The Court hereby REINSTATES the decision of
the Court of Tax Appeals in C.T.A. Case No. 4853.
No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.

Footnotes
1. In CA-G.R. SP No. 37930, promulgated on May 13, 1996. Justice Pacita Cañizares-Nye,
ponente, Justices Pedro A. Ramirez and Salvador J. Valdez, Jr., concurring. Rollo, pp. 27-
31.

2. In C.T.A. Case No. 4853, promulgated on June 22, 1995. Judge Ernesto D. Acosta, presiding,
Judges Manuel K. Gruba and Ramon O. De Veyra, concurring. Rollo, pp. 32-42.
3. CTA Decision, Rollo, p. 32.

4. Docketed as C.T.A. Case No. 4853.


5. Rollo, pp. 32-43.
6. Rollo, pp. 27-31.
7. Docketed as CA-G.R. SP NO. 34032, Commonwealth Management and Services Corporation
v. Commissioner of Internal Revenue and the Court of Tax Appeals , promulgated on
December 21, 1995. Justice Jaime M. Lantin, ponente, Justices Eduardo G. Montenegro
and Jose C. Dela Rama, concurring. This decision became nal since no petition for
review was filed with this Court.
8. Rollo, pp. 50-64.

9. Now in Section 105 of the Tax Code.


10. Formerly Section 102.
11. Section 108 (A) (6), National Internal Revenue Code of 1997; Section 4.102-1, Revenue
Regulations No. 7-95 (Value-Added Tax Regulations), as amended, December 9, 1995.
12. Upon a query made by Tipco-Bataan Group Incorporated.
13. Davao Guf Lumber Corporation v. Commissioner of Internal Revenue, 293 SCRA 76 (1998).
14. Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary , 238
SCRA 63, 68 (1994).
15. Commissioner of Internal Revenue v. Court of Appeals, 204 SCRA 183, 189-190 (1991).

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