Tolentino vs. Secretary of Finance G.R. No.
115455, August 25, 1994 (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.
Facts: The value-added tax (VAT) is levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services. RA 7716 seeks to widen the tax
base of the existing VAT system and enhance its administration by amending the
National Internal Revenue Code. There are various suits challenging the
constitutionality of RA 7716 on various grounds.
One contention is that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is in fact
the result of the consolidation of 2 distinct bills, H. No. 11197 and S. No. 1630. There is
also a contention that S. No. 1630 did not pass 3 readings as required by the
Constitution.
Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the Constitution
Held: The argument that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution will not bear analysis.
To begin with, it is not the law but the revenue bill which is required by the
Constitution to originate exclusively in the House of Representatives. To insist that a
revenue statute and not only the bill which initiated the legislative process culminating
in the enactment of the law must substantially be the same as the House bill would be
to deny the Senate’s power not only to concur with amendments but also to propose
amendments. Indeed, what the Constitution simply means is that the initiative for filing
revenue, tariff or tax bills, bills authorizing an increase of the public debt, private bills
and bills of local application must come from the House of Representatives on the
theory that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. Nor does the
Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by the Senate as a body is withheld
pending receipt of the House bill.
The next argument of the petitioners was that S. No. 1630 did not pass 3 readings on
separate days as required by the Constitution because the second and third readings
were done on the same day. But this was because the President had certified S. No.
1630 as urgent. The presidential certification dispensed with the requirement not only of
printing but also that of reading the bill on separate days. That upon the certification of
a bill by the President the requirement of 3 readings on separate days and of printing
and distribution can be dispensed with is supported by the weight of legislative practice.
Diaz vs. Secretary of Finance (2011)
Facts:
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for
declaratory relief assailing the validity of the impending imposition of value-added tax
Court treated the case as one of prohibition.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to
include toll fees within the meaning of "sale of services" that are subject to VAT; that a
toll fee is a "user's tax," not a sale of services; that to impose VAT on toll fees would
amount to a tax on public service; and that, since VAT was never factored into the
formula for computing toll fees, its imposition would violate the non-impairment clause
of the constitution.
The government avers that the NIRC imposes VAT on all kinds of services of franchise
grantees, including tollway operations; that the Court should seek the meaning and
intent of the law from the words used in the statute; and that the imposition of VAT on
tollway operations has been the subject as early as 2003 of several BIR rulings and
circulars.
The government also argues that petitioners have no right to invoke the non-
impairment of contracts clause since they clearly have no personal interest in existing
toll operating agreements (TOAs) between the government and tollway operators. At
any rate, the non-impairment clause cannot limit the State's sovereign taxing power
which is generally read into contracts.
Issue:
May toll fees collected by tollway operators be subjected to VAT (Are tollway
operations a franchise and/or a service that is subject to VAT)?
Ruling:
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the
latter's use of the tollway facilities over which the operator enjoys private proprietary
rights that its contract and the law recognize. In this sense, the tollway operator is no
different from the service providers under Section 108 who allow others to use their
properties or facilities for a fee.
Tollway operators are franchise grantees and they do not belong to exceptions that
Section 119 spares from the payment of VAT. The word "franchise" broadly covers
government grants of a special right to do an act or series of acts of public concern.
Tollway operators are, owing to the nature and object of their business, "franchise
grantees." The construction, operation, and maintenance of toll facilities on public
improvements are activities of public consequence that necessarily require a special
grant of authority from the state.
A tax is imposed under the taxing power of the government principally for the purpose
of raising revenues to fund public expenditures. Toll fees, on the other hand, are
collected by private tollway operators as reimbursement for the costs and expenses
incurred in the construction, maintenance and operation of the tollways, as well as to
assure them a reasonable margin of income. Although toll fees are charged for the use
of public facilities, therefore, they are not government exactions that can be properly
treated as a tax. Taxes may be imposed only by the government under its sovereign
authority, toll fees may be demanded by either the government or private individuals or
entities, as an attribute of ownership.
Misamis Oriental Association vs. Dept. of Finance Secretary
FACTS: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic
corporation whose members, are engaged in the buying and selling of copra. The
petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91,
which implemented VAT Ruling 190-90, copra
was classified as agricultural food product under § 103(b) of the National Internal
Revenue Code and, therefore, exempt from VAT at all stages of production or
distribution. Said circular classified copra as an agricultural nonfood product and
declared it "exempt from VAT only if the sale is made by the primary producer
pursuant to Section 103(a) of the Tax Code, as amended." The reclassification had the
effect of denying to the petitioner the exemption it previously enjoyed when copra was
classified as an agricultural food product under §103(b) of the NIRC.
ISSUES: WON the petitioner is exempt from the tax.
RULING: NO. In interpreting §103(a) and (b) of the NIRC, the Commissioner of
Internal Revenue gave it a strict construction consistent with the rule that tax
exemptions must be strictly construed against the taxpayer and liberally in favor of the
state. 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. Indeed, the ruling was made
by the Commissioner of Internal Revenue in the exercise of his power under § 245 of
the NIRC to "make rulings or opinions in connection
with the implementation of the provisions of internal revenue laws, including rulings on
the classification of articles for sales tax and similar purposes."
St. Luke’s Medical Center vs CTA CA
FACTS: St. Luke's is a non-stock non-profit hospital. The BIR assessed St. Luke's based
on the argument that Section 27(B) of the Tax Code should apply to it and hence all of
St. Luke's income should be subject to the 10% tax therein as it is a more specific
provision and should prevail over Section 30 which is a general provision. St. Luke's
countered by saying that its free services to patients was 65% of its operating income
and that no part of its income inures to the benefit of any individual.
ISSUE: Does Section 27(B) have the effect of taking proprietary non-profit hospitals
out of the income tax exemption under Section 30 of the Tax Code and should instead
be subject to a preferential rate of 10% on its entire income?
RULING: No. The enactment of Section 27(B) does not remove the possible income
tax exemption of proprietary non-profit hospitals. The only thing that Section 27(B)
captures (at 10% tax) in the case of qualified hospitals is in the instance where the
income realized by the hospital falls under the last paragraph of Section 30 such as
when the entity conducts any activity for profit. The revenues derived by St. Luke's
from pay patients are clearly income from activities conducted for profit.
TAMBUNTING PAWNSHOP, INC. v. COMMISSIONER OF INTERNAL
REVENUE. G.R. No. 179085. January 21, 2010
FACTS:
Petitioner was issued an assessment for deficiency VAT for the taxable year of 1999.
Petitioner, after his protest with the CIR merited no response, it filed a Petition for
Review with the CTA raising that pawnshops are not subject to VAT under the NIRC
and that pawn tickers are not subject to documentary stamp tax.
The CTA ruled that petitioner is liable for the deficiency VAT and the documentary
stamp tax.
The petitioner argues that a pawnshop is not enumerated as one of those engaged in
sale or exchange of services in Section 108 of the National Internal Revenue Code and
citing the case of Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshops,
Inc. as basis.
ISSUE: Whether petitioner is liable for the deficiency VAT.
Whether the petitioner is liable for the documentary stamp tax.
RULING:
YES. The Court cited the case of First Planters Pawnshop, Inc. v. Commissioner of
Internal Revenue. In the foregoing case, since the imposition of VAT on pawnshops,
which are non-bank financial intermediaries, was deferred for the tax years 1996 to
2002, petitioner is not liable for VAT for the tax year 1999.
NO. Sections 195 of the NIRC provides that on the pledge of personal property, there
shall be collected a documentary stamp tax. The Court held in Michel J. Lhuillier
Pawnshop, Inc. v. Commissioner of Internal Revenue that the documentary stamp tax is
an excise tax on the exercise of a right or privilege and that pledge is among the
privileges, the exercise of which is subject to documentary stamp taxes. For purposes of
taxation, pawn tickets are proof of an exercise of a taxable privilege of concluding a
contract of pledge