#10 Fort Bonifacio Development Corporation vs.

Commissioner of Internal Revenue

G.R. No. 158885. April 2, 2009
Tinga, J.

FACTS:
 Petitioner was a real estate developer that bought from the national government a parcel
of land that used to be the Fort Bonifacio military reservation. At the time of the said
sale, since there was yet no VAT imposed, petitioner did not pay any VAT on its
purchase. Subsequently, Petitioner sold two parcels of land to Metro Pacific Corp.

 In reporting the said sale for VAT purposes (because the VAT had already been imposed
in the interim), petitioner invoked its right to avail of the transitional input tax credit and
accordingly submitted an inventory list of real properties it owned.

 The transitional input tax was provided in Sec 105 of the Old NIRC to allow newly VAT-
registered persons to credit 8% of its input tax from its beginning inventory of goods,
materials and supplies against its output tax. Thereby, reducing the tax that the person
will pay.

 The BIR, through the Commissioner of Internal Revenue (CIR), disallowed the claim of
presumptive input VAT and thereby assessed Petitioner for deficiency VAT. CIR based
its decision on BIR’s Revenue Regulation 7-95 (RR 7-95)

 RR 7-95 provides that those newly VAT-registered persons who are real estate dealers,
the basis of the presumptive input tax shall be the improvements, such as buildings,
roads, drainage systems, and other similar structures.

 Aggrieved, petitioner filed a petition for review before the CTA. But the Tax Court affirmed the
CIR’s decision. Hence, this petition.

ISSUE: Is the CIR justified in imposing restrictions to Sec 105 of the Old NIRC through RR 7-
95?

RULING: No.

The very idea of excluding the real properties itself from the beginning inventory simply runs
counter to what the transitional input tax credit seeks to accomplish for persons engaged in
the sale of goods, whether or not such “goods” take the form of real properties or more mundane
commodities.

Under Section 105, the beginning inventory of “goods” forms part of the valuation of the
transitional input tax credit. Goods, as commonly understood in the business sense, refers to the
product which the VAT-registered person offers for sale to the public. With respect to real
estate dealers, it is the real properties themselves which constitute their “goods.”

By limiting the definition of goods to “improvements” in Section 4.105-1, the BIR contravened
the definition of “goods” as provided in the Old NIRC.

The Court of Tax Appeals claimed that under Section 105 of the Old NIRC the basis for the
inventory of goods, materials and supplies upon which the transitional input VAT would be
based “shall be left to regulation by the appropriate administrative authority.”

Nonetheless, Section 105 does include the particular properties to be included in the inventory,
namely goods, materials and supplies. It is questionable whether the CIR has the power to
actually redefine the concept of “goods,” as she did when she excluded real properties from the
class of goods which real estate companies in the business of selling real properties may
include in their inventory.

The authority to prescribe regulations can pertain to more technical matters, such as how
to appraise the value of the inventory or what papers need to be filed to properly itemize
the contents of such inventory. But such authority cannot go as far as to amend Section 105
itself, which the Commissioner had unfortunately accomplished in this case.

It is of course axiomatic that a rule or regulation must bear upon, and be consistent with,
the provisions of the enabling statute if such rule or regulation is to be valid.

In case of conflict between a statute and an administrative order, the former must prevail.
Indeed, the CIR has no power to limit the meaning and coverage of the term “goods” in Section
105 of the Old NIRC absent statutory authority or basis to make and justify such limitation. A
contrary conclusion would mean the CIR could very well moot the law or arrogate legislative
authority unto himself by retaining sole discretion to provide the definition and scope of the term
“goods.”