CIR vs. MICHEL J. LHUILLIER PAWNSHOP, INC.
 CIR moved to dismiss on the ground that it did not state a cause of
Other Percentage Tax | July 15, 2003 | Davide, Jr., C.J.
Nature of the Case: Review on Certiorari
SUMMARY: CIR issued RMO subjecting pawnshops to 5% LIT based
on a restudy of the nature of pawnshop business and issued an
assessment notice to Lhuillier. Lhuillier filed a protest, contending
that pawnshops are not lending investors covered by Sec. 116, which
was being invoked by the CIR. CTA, CA, and SC all ruled for Lhuillier,
nullified the RMOs classifying pawnshops as among those covered by
the 5% LIT, and cancelling the assessment notice issued to Lhuillier.
DOCTRINE: While pawnshops are engaged in the business of lending
money, they are not considered “lending investors” for the purpose of
imposing the 5% percentage taxes.
FACTS:
 On 11 March 1991, CIR Ong issued RMO 15-91, imposing a 5%
lending investor’s tax (LIT) on pawnshops, based on a restudy of PD
1141 which indicates that the principal activity of pawnshops is
lending money at interest and incidentally accepting a pawn of
personal property delivered by the pawner to the pawnee as security
for the loan2, thus making pawnshop business akin to lending
investor’s business activity and making it subject to the 5% LIT on
their gross income pursuant to Sec. 116 of the Tax Code.
 A subsequent RMO3 was issued, clarifying RMO 15-91and revoking
the previous BIR Ruling No. 6-90 and VAT Ruling Nos. 22-90-67-90. 4
 Pursuant to these issuances, M. Lhuillier was issued an Assessment
Notice demanding payment of deficiency percentage tax in the
amount of ₱3.3M for 1994.
 Lhuillier filed a protest, which was not acted upon, prompting him to
elevate the matter before the CTA per Sec. 228 of the Tax Reform Act
of 1997.5
1
Pawnshop Regulation Act.
2
PD 114 Sec. 3. Pawnshops – as a person or entity engaged in the business of lending money
on personal property delivered as security for the loans.
3
RMO No. 43-91 (May 27, 1991)
4
Did not mention the subject of these Rulings.
5
Tax Reform Act of 1997 Section 228. Protesting of Assessment…
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the
said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the
action, as there was no action yet on the protest. 6
 CTA eventually ruled in favor of Lhuillier, declaring RMO 15-91 and
RMO 43-91 null and void, and cancelling the assessment notice to
Lhuillier.
 CA affirmed hence this petition.
ISSUE: W/N pawnshops are included in the term “lending investors”
for the purpose of imposing the 5% percentage tax under Sec. 116
of NIRC – NO.
CIR’s Argument:
1. The legal definition of “lending investors” under Sec. 157(u) of
the Tax Code is broad enough to include pawnshop operators
based on the latter’s principal business per PD 114.
2. RMO 15-91 and RMO 43-91, being mere interpretations of the
NIRC, are valid even without publication.
3. In CIR vs. Agenda Exquisite, the CA Special 14th Division ruled
that a pawnshop is subject to the 5% LIT.
Lhuillier’s Argument:
1. Before and after the amendment of Tax Code, pawnshops are
subjected to a different tax treatment by being required to pay a
fixed tax of only ₱1k, while lending investors were subject to 5%
LIT.
2. From April 1982 to Dec. 1990, CIR consistently ruled that a
pawnshop is not a lending investor.
3. RMO 15-91 and RMO 43-91 are not just implementing rules but
are new and additional tax measures which only Congress can
enact. In any case, these were not published in the Official
Gazette or any newspaper of general circulation.
4. Pawnshops are regulated by the Central Bank per PD 114.
5. In 1994, Congress passed House Bill No. 11197,5 which
attempted to amend Section 116 of NIRC to include owners of
pawnshops as among those subject to percentage tax. This bill,
which eventually became the E-VAT Law, did not incorporate
such proposed amendment.
6. It was not the intention of the Legislature to impose percentage
taxes on pawn-shops because if it were so, pawnshops would
decision shall become final, executory and demandable.
6
It’s actually because CIR had not acted upon the protest.
 have been included as among the businesses subject to the said
tax. Expressio unius est exclusio alterius.
Court’s Ruling: While pawnshops are engaged in the business of
lending money, they are not considered “lending investors” for the
purpose of imposing the 5% percentage taxes for the following
reasons:
1. Under Sec. 192 of the NIRC of 1977, prior to its amendment by
EO 273, as well as in Sec. 161 of the NIRC of 1986, pawnshops
and lending investors were subjected to different tax treatments.
2. Congress never intended pawnshops to be treated in the same
way as lending investors, especially since Sec. 116 of the NIRC of
1977, as renumbered and rearranged by EO 273, was basically
lifted from Sec. 1758 of the NIRC of 1986, which treated both tax
subjects differently. The definition of lending investors under Sec.
157(u) of NIRC of 19867 is not found in the NIRC of 1977 as
amended by EO 273. However, both NIRC of 1977 as amended by
EO 273 and NIRC of 1986 still treat pawnshops and lending
investors differently, evidencing the intent of Congress to deal
with both subjects differently.
3. Sec. 116 of the NIRC of 1977, as amended by EO 273, subjects to
percentage tax dealers in securities and lending investors only.
There is no mention of pawnshops. Expressio unius est exclusio
alterius.
4. In the past, BIR has consistently ruled that pawnshops are not
subject to the 5% LIT. Considering that Sec. 116 of the NIRC of
1977, as amended by EO 273, which was invoked by the CIR now
in this case, was practically lifted from NIRC of 1986, and there
being no change in the law, the interpretation should likewise no
have been altered.
5. In H.B. 11197, pawnshops were sought to be included as among
those subject to 5% LIT. If pawnshops were covered within the
term lending investor, there would have been no need to
introduce such amendment to include owners of pawnshops. At
any rate, such proposed amendment was not adopted. Instead
the approved Bill repealed Sec. 116 and the repeal shall be
deemed effective 15 days after its complete publication in a
newspaper of general circulation, which in this case was on May
27, 1994.
7
NIRC of 1986 Sec. 157(u). Lending Investors – all persons who make a practice of lending
money for themselves or others at interest.
6. Since Sec. 116 had already been repealed, RMO 15-91 and RMC
43-91, which depended upon it, are deemed automatically
repealed. Hence, even granting that pawn-shops are included
within the term lending investors, the assessment from 27 May
1994 onward would have no leg to stand on.
7. Absence of publication of RMO 15-91 and 43-91 added to the
invalidity of said issuances. These being legislative rules, rather
than interpretative rules, the agency implementing them should
inform those directly affected by said rules before they’re given
force and effect.
8. In any case, CIR exceeded the boundaries of its rule-making
powers: Although CIR has the power to make rulings and
opinions in implementing the internal revenue laws, it cannot, in
the exercise of such power, issue administrative rulings or
circulars not consistent with the law sought to be implemented.
Administrative issuances must not override, supplant or modify
the law, but must remain consistent with the law they intend to
carry out. Only Congress can repeal or amend the law.
9. The ruling in CIR vs. Agenda Exquisite cannot be binding, it being
the decision only of the Court of Appeals. The SC is the final
arbiter of any justifiable controversy.
RULING: Petition, DISMISSED.
NOTE: Both the CA and CTA referred to the Tax Code but did not specify
whether it was NIRC of 1977, as amended by EO 273, or NIRC of 1986.
NIRC of 1977, as amended by EO 273 was actually a later law than
the NIRC of 1986. And the citation is important to determine the intent
of the law.