Fort Bonifacio Development Corp. v. CIR (2014)

Facts:

The Court has consolidated these three petitions as they involve the same parties, similar facts and common questions of law.

Theory of Petitioner

Petitioner claims that "the 10% value-added tax is based on the gross selling price or gross value in money of the ‘goods’ sold, bartered or exchanged." Petitioner likewise claims that by definition, the term "goods" was limited to "movable, tangible objects which is appropriable or transferable" and that said term did not originally include "real property." It was previously defined as follows under Revenue Regulations No. 5-87:

(p) "Goods" means any movable, tangible objects which h is appropriable or transferrable. Republic Act No. 7716 (E-VAT Law, January 1, 1996) expanded the coverage of the original VAT Law (Executive Order No. 273), specifically Section 100 of the old NIRC. According to petitioner, while under Executive Order No. 273, the term "goods" did not include real properties, Republic Act No. 7716, in amending Section 100, explicitly included in the term "goods" "real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business." Consequently, the sale, barter, or exchange of real properties was made subject to a VAT equivalent to 10% (later increased to 12%, pursuant to Republic Act No. 9337) of the gross selling price of real properties.

Among the new provisions included by Executive Order No. 273 in the NIRC was the following:

SEC. 105. Transitional Input Tax Credits. — A person who becomes liable to value-added tax or any person who elects to be a VAT registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8%of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.

Theory of Respondents

Petitioner’s claims for refund were consistently denied in the three cases now before us. Even if in one case, G.R. No. 180035, petitioner succeeded in getting a favorable decision from the CTA, the grant of refund or tax credit was subsequently reversed on respondents’ Motion for Reconsideration, and such denial of petitioner’s claim was affirmed by the Court of Appeals. Respondents’ reasons for denying petitioner’s claims are summarized in their Comment in G.R. No. 175707, and we quote:

REASONS WHY PETITION SHOULD BE DENIED OR DISMISSED

1. The 8% input tax credit provided for in Section 105 of the NIRC, in relation to Section 100 thereof, is based on the value of the improvements on the land.

2. The taxpayer is entitled to the input tax credit provided for in Section 105 of the NIRC only if it has previously paid VAT or sales taxes on its inventory of land.

3. Section 4.105-1 of Revenue Regulations No. 7-95 of the BIR is valid, effective and has the force and effect of law, which implemented Section 105 of the NIRC.

In respondents’ Comment dated November 3, 2008 in G.R. No. 180035, they averred that petitioner’s claim for the 8% transitional/presumptive input tax is "inconsistent with the purpose and intent of the law in granting such tax refund or tax credit." Respondents raise the following arguments:

1. The transitional input tax provided under Section 105 in relation to Section 100 of the Tax Code, as amended by EO No. 273 effective January 1, 1988, is subject to certain conditions which petitioner failed to meet.

2. The claim for petitioner for transitional input tax is in the nature of a tax exemption which should be strictly construed against it.

3. Revenue Regulations No. 7-95 is valid and consistent with provisions of the NIRC.76 Moreover, respondents contend that:

"[P]etitioner is not legally entitled to any transitional input tax credit, whether it be the 8% presumptive inputtax credit or any actual input tax credit in respect of its inventory of land brought into the VAT regime beginning January 1, 1996, in view of the following:

1. VAT free acquisition of the raw land.– petitioner purchased and acquired, from the Government, the aforesaid raw land under a VAT free sale transaction. The Government, as a vendor, was tax- exempt and accordingly did not pass on any VAT or sales tax as part of the price paid therefor by the petitioner.

2. No transitory input tax on inventory of land is allowed. Section 105 of the Code, as amended by Republic Act No. 7716, and as implemented by Section 4.105-1 of Revenue Regulations No. 7-95, expressly provides that no transitional input tax credit shall be allowed to real estate dealers in respect of their beginning inventory of land brought into the VAT regime beginning January 1, 1996 (supra). Likewise, the Transitory Provisions [(a) (iii)] of Revenue Regulations No. 7-95 categorically states that "for real estate dealers, the presumptive input tax of 8% of the book value of improvements constructed on or after January 1, 1998 (effectivity of E.O. 273) shall be allowed." For purposes of subparagraphs (i), (ii) and (iii) above, an inventory as of December 31, 1995 of such goods or properties and improvements showing the quantity, description, and amount should be filed with the RDO not later than January 31, 1996. It is admitted that petitioner filed its inventory listing of real properties on September 19, 1996 or almost nine (9) months late in contravention [of] the requirements in Revenue Regulations No. 7-95."

Issues:

The main issue before us now is whether or not petitioner is entitled to a refund of the amounts of: 1) ₱486,355,846.78 in G.R. No. 175707, 2) ₱77,151,020.46 for G.R. No. 180035, and 3) ₱269,340,469.45 in G.R. No. 181092, which it paid as value-added tax, or to a tax credit for said amounts.

To resolve the issue stated above, it is also necessary to determine:

● Whether the transitional/presumptive input tax credit under Section 105 of the NIRC may be claimed only on the "improvements" on real properties;

● Whether there must have been previous payment of sales tax or value added tax by petitioner on its land before it may claim the input tax credit granted by Section 105 of the NIRC;

● Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the NIRC; and

● Whether the issuance of Revenue Regulations No. 7-95 by the BIR, and declaration of validity of said Regulations by the Court of Tax Appeals and the Court of Appeals, was in violation of the fundamental principle of separation of powers.

Rulings:

A. G.R. No. 175707

1. CTA Case No. 5885 Decision (October 13, 2000)

The CTA traced the history of "transitional input tax credit" from the original VAT Law of 1988 (Executive Order No. 273) up to the Tax Reform Act of 1997 and looked into Section 105 of the Tax Code. According to the CTA, the BIR issued Revenue Regulations No. 5-87, specifically Section 26(b), to implement the provisions of Section 105. The CTA concluded from these provisions that "the purpose of granting transitional input tax credit to be utilized as payment for output VAT is primarily to give recognition to the sales tax component of inventories which would qualify as input tax credit had such goods been acquired during the effectivity of the VAT Law of 1988." The CTA stated that the purpose of transitional input tax credit remained the same even after the amendments introduced by the E-VAT Law. The CTA held that "the rationale in granting the transitional input tax credit also serves as its condition for its availment as a benefit"  and that "[i]nherent in the law is the condition of prior payment of VAT or sales taxes." The CTA excluded petitioner from availing of the transitional input tax credit provided by law, reasoning that "to base the 8% transitional input tax on the book value of the land is to negate the purpose of the law in granting such benefit. It would be tantamount to giving an undeserved bonus to real estate dealers similarly situated as petitioner which the Government cannot afford to provide."  Furthermore, the CTA held that respondent was correct in basing the 8% transitional input tax credit on the value of the improvements on the land, citing Section 4.105-1 of Revenue Regulations No. 7-95, which the CTA claims is consistent and in harmony with the law it seeks to implement. Thus, the CTA denied petitioner’s claim for refund.

2. CA-G.R. No. 61516 Decision (April 22, 2003)

The Court of Appeals affirmed the CTA and ruled that petitioner is not entitled to refund or tax credit in the amount of ₱486,355,846.78 and stated that "Revenue Regulations No. 7-95 is a valid implementation of the NIRC."87 According to the Court of Appeals:

"[P]etitioner acquired the contested property from the National Government under a VAT-free transaction. The Government, as a vendor was outside the operation of the VAT and ergo, could not possibly have passed on any VAT or sales tax as part of the purchase price to the petitioner as vendee."

x x x [T]he grant of transitional input tax credit indeed presupposes that the manufacturers, producers and importers should have previously paid sales taxes on their inventories. They were given the benefit of transitional input tax credits, precisely, to make up for the previously paid sales taxes which were now abolished by the VAT Law. It bears stressing that the VAT Law took the place of privilege taxes, percentage taxes and sales taxes on original or subsequent sale of articles. These taxes were substituted by the VAT at the constant rate of 0% or 10%.

3. CA-G.R. No. 61516 Resolution (November 30, 2006)

Upon petitioner’s Motion for Reconsideration, the Court of Appeals affirmed its decision, but we find the following statement by the appellate court worthy of note:

We concede that the inventory restrictions under Revenue Regulation No. 7-95 limiting the coverage of the inventory only to acquisition cost of the materials used in building "improvements" has already been deleted by Revenue Regulation 6-97. This notwithstanding, we are poised to sustain our earlier ruling as regards the refund presently claimed.

B. G.R. No. 180035

1. CTA Case No. 6021 Decision (January 30, 2002)

The CTA sustained petitioner’s position and held that respondent erred in basing the transitional input tax credit of real estate dealers on the value of the improvements.  The CTA ratiocinated as follows:

This Court, in upholding the position taken by the petitioner, is convinced that Section 105 of the Tax Code is clear in itself. Explicit therefrom is the fact that a taxpayer shall be allowed a transitional/presumptive input tax credit based on the value of its beginning inventory of goods which is defined in Section 100 as to encompass even real property. x x x.

The CTA went on to point out inconsistencies it had found between the transitory provisions of Revenue Regulations No. 7-95 and the law it sought to implement, in the following manner:

Notice that letter (a)(ii) of the x x x transitory provisions states that goods or properties purchased with the object of resalein their present condition comes with the corresponding 8% presumptive input tax of the value of the goods, which amount may also be credited against the output tax of a VAT-registered person. It must be remembered that Section 100 as amended by Republic Act No. 7716 extends the term "goods or properties" to real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business. This provision alone entitles Petitioner to the 8%presumptive input tax of the value of the land (goods or properties) sold. However in letter (a)(iii) of the same Transitory Provisions, Respondent apparently changed his (sic) course when it declared that real estate dealers are only entitled to the 8% of the value of the improvements. This glaring inconsistency between the two provisions prove that Revenue Regulations No. 7-95 was not a result of an intensive study and analysis and may have been haphazardly formulated.

Clearly, Petitioner is entitled to the presumptive input tax in the amount of ₱5,698,200,256.00, computed as follows:

Book Value of Inventory x x x ₱71,227,503,200.00

Multiply by Presumptive

Input Tax rate _____ 8%

Available Presumptive Input Tax ₱5,698,200,256.00

To prove the fact of overpayment, Petitioner presented the original Monthly VAT Declaration for the month of January 1998 showing the amount of ₱77,151,020.46 as the cash component of the value- added taxes paid (Exhibits E-14 & E-14-A) which is the subject matter of the instant claim for refund.

In Petitioner’s amended quarterly VAT return for the 1st quarter of 1998 (Exhibit D-1), Petitioner deducted the amount of ₱77,151,020.46 from the total available input tax toshow that the amount being claimed would no longer be available as input tax credit.

In conclusion, the Petitioner has satisfactorily proven its entitlement to the refund of value-added taxes paid for the first quarter of taxable year 1998.

WHEREFORE, in view of the foregoing, the Petition for Review is GRANTED.

2. CTA Case No. 6021 Resolution (March 28, 2003)

The CTA reversed its earlier ruling upon respondents’ motion for reconsideration and thus denied petitioner’s claim for refund. The CTA reasoned and concluded as follows:

The vortex of the controversy in the instant case actually involves the question of whether or not Section 4.105-1 of Revenue Regulations No. 7-95, issued by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue, is valid and consistent with and not violative of Section 105 of the Tax Code, in relation to Section 100 (a)(1)(A).

xxxx

Section 105, which requires the filing of an inventory for the grant of the transitional input tax, is couched in a manner where there is a need for an implementing rule or regulation to carry its intendment. True to its wordings, the BIR issued Revenue Regulations No. 7-95 (specifically Section 4.105-1) which succinctly mentioned that the basis of the presumptive input tax shall be the improvements in case of real estate dealers.

xxxx

WHEREFORE, in view of the foregoing, the instant Motion for Reconsideration filed by respondents is hereby GRANTED.

3. CA-G.R. SP No. 76540 Decision (April 30, 2007)

The Court of Appeals affirmed the CTA’s Resolution denying petitioner’s claim for refund, and we quote portions of the discussion from the Court of Appeals decision below:

To Our mind, the key to resolving the jugular issue of this controversy involves a deeper analysis on how the much-contested transitional input tax credit has been encrypted in the country’s value added tax (VAT) system.

xxxx
x x x [T]he Commissioner of Internal Revenue promulgated Revenue Regulations No. 7-95which laid

down, among others, the basis of the transitional input tax credit for real estate dealers:

 x x x x

The Regulation unmistakably allows credit for transitional input tax of any person who becomes liable to VAT or who elects to be a VAT registered person. More particularly, real estate dealers who were beforehand not subject to VAT are allowed a tax credit to cushion the staggering effect of the newly imposed 10% output VAT liability under RA No. 7716.

Bearing in mind the purpose of the transitional input tax credit under the VAT system, We find it incongruous to grant petitioner’s claim for tax refund. We take note of the fact that petitioner acquired the Global City lots from the National Government. The transaction was not subject to any sales or business tax. Since the seller did not pass on any tax liability to petitioner, the latter may not claim tax credit. Clearly then, petitioner cannot simply demand that it is entitled to the transitional input tax credit.

Lawmakers went on to say that the creditable input tax shall be whichever is higher between the value of the inventory and the actual VAT paid. Necessarily then, a comparison of these two figures would have to be made. This strengthens Our view that previous payment of the VAT is indispensable to determine the actual value of the input tax creditable against the output tax. So too, this is in consonance with the present tax credit method adopted in this jurisdiction whereby an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.

Petitioner insists that the term "goods" which was one of the bases in computing the transitional input tax credit must be construed so as to include real properties held primarily for sale to customers. Petitioner posits that respondent Commissioner practically rewrote the law when it issued Revenue Regulations No. 7-95 which limited the basis of the 8% transitional input tax credit to the value of improvements alone.

Petitioner is clearly mistaken.

The term "goods" has been defined to mean any movable or tangible objects which are appreciable or tangible. More specifically, the word "goods" is always used to designate wares, commodities, and personal chattels; and does not include chattels real. "Real property" on the other hand, refers to land, and generally whatever is erected or growing upon or affixed to land. It is therefore quite absurd to equate "goods" as being synonymous to "properties". The vast difference between the terms "goods" and "real properties" is so obvious that petitioner’s assertion must be struck down for being utterly baseless and specious.

Along this line, We uphold the validity of Revenue Regulations No. 7-95. The authority of the Secretary of Finance, in conjunction with the Commissioner of Internal Revenue, to promulgate all needful rules and regulations for the effective enforcement of internal revenue laws cannot be controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above, however, is that all such issuances must not override, but must remain consistent and in harmony with, the law they seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor to modify, the law. Revenue Regulations No. 7-95 is clearly not inconsistent with the prevailing statute insofar as the provision on transitional input tax credit is concerned.

4. CA-G.R. SP No. 76540 Resolution (October 8, 2007)

In this Resolution, the Court of Appeals denied petitioner’s Motion for Reconsideration of its Decision dated April 30, 2007.

C. G.R. No. 181092

1. CTA Case No. 5694 Decision (September 29, 2000)

Applying the rule on statutory construction that particular words, clauses and phrases should not be studied as detached and isolated expressions, but the whole and every part of the statute must be considered in fixing the meaning of any of its parts in order to produce a harmonious whole, the phrase "transitional input tax" found in Section 105 should be understood to encompass goods, materials and supplies which are subject to VAT, in line with the context of "input tax" as defined in Section 104, most especially that the latter includes, and immediately precedes, the former under its statutory meaning. Petitioner’s contention that the 8% transitional input tax is statutorily presumed to the extent that its real properties which have not been subjected to VAT are entitled thereto, would directly contradict "input tax" as defined in Section 104 and would invariably cause disharmony.

The CTA held that the 8% transitional input tax should not be viewed as an outright grant or presumption without need of prior taxes having been paid. Expounding on this, the CTA said: The simple instance in the aforesaid paragraphs of requiring the tax on the materials, supplies or goods comprising the inventory to be currently unutilized as deferred sales tax credit before the 8% presumptive input tax can be enjoyed readily leads to the inevitable conclusion that such 8% tax cannot be just granted toany VAT liable person if he has no priorly paid creditable sales taxes. Legislative intent thus clearly points to priorly paid taxes on goods, materials and supplies before a VAT registered person can avail of the 8% presumptive input tax.

2. CA-G.R. SP No. 61158 Decision (December 28, 2007)

The Court of Appeals affirmed the CTA’s denial of petitioner’s claim for refund and upheld the validity of the questioned Revenue Regulation issued by respondent Commissioner ofInternal Revenue, reasoning as follows:

Sec. 105 of the NIRC, as amended, provides that the allowance for the 8% input tax on the beginning inventory of a VAT-covered entity is "subject to the filing of an inventory as prescribed by regulations." This means that the legislature left to the BIR the determination of what will constitute the beginning inventory ofgoods, materials and supplies which will, in turn, serve as the basis for computing the 8% input tax.

While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence of facts on which its operation depends x x x. Hence, there is no gainsaying that the CIR and the Secretary of Finance, in limiting the application of the input tax of real estate dealers to improvements constructed on or after January 1, 1988, merely exercised their delegated authority under Sec. 105, id., to promulgate rules and regulations defining what should be included in the beginning inventory of a VAT-registered entity.

xxxx

In the instant case, We find that, contrary to petitioner’s attacks against its validity, the limitation on the beginning inventory of real estate dealers contained in Sec. 4.105-1 of RR No. 7-95 is reasonable and consistent with the natureof the input VAT. x x x.

As previously stated, the issues here have already been passed upon and resolved by this Court En Banc twice, in decisions that have reached finality, and we are bound by the doctrine of stare decisis to apply those decisions to these consolidated cases, for they involve the same facts, issues, and even parties.

Thus, we find for the petitioner.