IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the Petitions for Review. Respondent's Decisions denying petitioners' protests against deficiency value-added taxes are hereby REVERSED. Accordingly, Assessment Notices Nos. VT-00-000098, VT-99-000057, VT-00-000122, 003-03 and 008-02 are ORDERED cancelled and set aside.
SO ORDERED.32
(1) In not finding/holding that the gross receipts derived by operators/proprietors of cinema houses from admission tickets [are] subject to the 10% VAT because:
(a) THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS TO THE PAYING PUBLIC IS A SALE OF SERVICE; (b) UNLESS EXEMPTED BY LAW, ALL SALES OF SERVICES ARE EXPRESSLY SUBJECT TO VAT UNDER SECTION 108 OF THE NIRC OF 1997; (c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR PROVISION OF LAW AND THE APPLICATION OF RULES OF STATUTORY CONSTRUCTION AND EXTRINSIC AIDS IS UNWARRANTED; (d) GRANTING WITHOUT CONCEDING THAT RULES OF CONSTRUCTION ARE APPLICABLE HEREIN, STILL THE HONORABLE COURT ERRONEOUSLY APPLIED THE SAME AND PROMULGATED DANGEROUS PRECEDENTS; (e) THERE IS NO VALID, EXISTING PROVISION OF LAW EXEMPTING RESPONDENTS' SERVICES FROM THE VAT IMPOSED UNDER SECTION 108 OF THE NIRC OF 1997; (f) QUESTIONS ON THE WISDOM OF THE LAW ARE NOT PROPER ISSUES TO BE TRIED BY THE HONORABLE COURT; and (g) RESPONDENTS WERE TAXED BASED ON THE PROVISION OF SECTION 108 OF THE NIRC.
(2) In ruling that the enumeration in Section 108 of the NIRC of 1997 is exhaustive in coverage;
(3) In misconstruing the NIRC of 1997 to conclude that the showing of motion pictures is merely subject to the amusement tax imposed by the Local Government Code; and
(4) In invalidating Revenue Memorandum Circular (RMC) No. 28-2001.38
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. --
(A) Rate and Base of Tax. -- There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land, air and water relative to their transport of goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television broasting and all other franchise grantees except those under Section 119 of this Code; services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase "sale or exchange of services" shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
x x x x
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
x x x x (Emphasis supplied)
"Exhibition" in Black's Law Dictionary is defined as "To show or display. x x x To produce anything in public so that it may be taken into possession" (6th ed., p. 573). While the word "lease" is defined as "a contract by which one owning such property grants to another the right to possess, use and enjoy it on specified period of time in exchange for periodic payment of a stipulated price, referred to as rent (Black's Law Dictionary, 6th ed., p. 889). x x x40
SECTION 102. Value-added tax on sale of services. -- (a) Rate and base of tax. -- There shall be levied, assessed and collected, a value-added tax equivalent to 10% percent of gross receipts derived by any person engaged in the sale of services. The phrase "sale of services" means the performance of all kinds of services for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of personal property; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties: Provided That the following services performed in the Philippines by VAT-registered persons shall be subject to 0%:
(1) Processing manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, x x x
x x x x
"Gross receipts" means the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged for materials supplied with the services and deposits or advance payments actually or constructively received during the taxable quarter for the service performed or to be performed for another person, excluding value-added tax.
(b) Determination of the tax. -- (1) Tax billed as a separate item in the invoice. -- If the tax is billed as a separate item in the invoice, the tax shall be based on the gross receipts, excluding the tax.
(2) Tax not billed separately or is billed erroneously in the invoice. -- If the tax is not billed separately or is billed erroneously in the invoice, the tax shall be determined by multiplying the gross receipts (including the amount intended to cover the tax or the tax billed erroneously) by 1/11. (Emphasis supplied)
Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy amusement tax on gross receipts arising from admission to places of amusement has been transferred to the local governments to the exclusion of the national government.
x x x x
Since the promulgation of the Local Tax Code which took effect on June 28, 1973 none of the amendatory laws which amended the National Internal Revenue Code, including the value added tax law under Executive Order No. 273, has amended the provisions of Section 11 of the Local Tax Code. Accordingly, the sole jurisdiction for collection of amusement tax on admission receipts in places of amusement rests exclusively on the local government, to the exclusion of the national government. Since the Bureau of Internal Revenue is an agency of the national government, then it follows that it has no legal mandate to levy amusement tax on admission receipts in the said places of amusement.
Considering the foregoing legal background, the provisions under Section 123 of the National Internal Revenue Code as renumbered by Executive Order No. 273 (Sec. 228, old NIRC) pertaining to amusement taxes on places of amusement shall be implemented in accordance with BIR RULING, dated December 4, 1973 and BIR RULING NO. 231-86 dated November 5, 1986 to wit:
"x x x Accordingly, only the gross receipts of the amusement places derived from sources other than from admission tickets shall be subject to x x x amusement tax prescribed under Section 228 of the Tax Code, as amended (now Section 123, NIRC, as amended by E.O. 273). The tax on gross receipts derived from admission tickets shall be levied and collected by the city government pursuant to Section 23 of Presidential Decree No. 231, as amended x x x" or by the provincial government, pursuant to Section 11 of P.D. 231, otherwise known as the Local Tax Code. (Emphasis supplied)
(1) Historically, the activity of showing motion pictures, films or movies by cinema/theater operators or proprietors has always been considered as a form of entertainment subject to amusement tax. (2) Prior to the Local Tax Code, all forms of amusement tax were imposed by the national government. (3) When the Local Tax Code was enacted, amusement tax on admission tickets from theaters, cinematographs, concert halls, circuses and other places of amusements were transferred to the local government. (4) Under the NIRC of 1977, the national government imposed amusement tax only on proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai and race tracks. (5) The VAT law was enacted to replace the tax on original and subsequent sales tax and percentage tax on certain services. (6) When the VAT law was implemented, it exempted persons subject to amusement tax under the NIRC from the coverage of VAT. (7) When the Local Tax Code was repealed by the LGC of 1991, the local government continued to impose amusement tax on admission tickets from theaters, cinematographs, concert halls, circuses and other places of amusements. (8) Amendments to the VAT law have been consistent in exempting persons subject to amusement tax under the NIRC from the coverage of VAT. (9) Only lessors or distributors of cinematographic films are included in the coverage of VAT.
The power of taxation is sometimes called also the power to destroy. Therefore, it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg." And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously.
Basically, it was acknowledged that a cinema/theater operator was then subject to amusement tax under Section 260 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code of 1939, computed on the amount paid for admission. With the enactment of the Local Tax Code under Presidential Decree (PD) No. 231, dated June 28, 1973, the power of imposing taxes on gross receipts from admission of persons to cinema/theater and other places of amusement had, thereafter, been transferred to the provincial government, to the exclusion of the national or municipal government (Sections 11 & 13, Local Tax Code). However, the said provision containing the exclusive power of the provincial government to impose amusement tax, had also been repealed and/or deleted by Republic Act (RA) No. 7160, otherwise known as the Local Government Code of 1991, enacted into law on October 10, 1991. Accordingly, the enactment of RA No. 7160, thus, eliminating the statutory prohibition on the national government to impose business tax on gross receipts from admission of persons to places of amusement, led the way to the valid imposition of the VAT pursuant to Section 102 (now Section 108) of the old Tax Code, as amended by the Expanded VAT Law (RA No. 7716) and which was implemented beginning January 1, 1996.58 (Emphasis supplied)
Endnotes:
1 United States v. De Guzman, 30 Phil. 416, 419-420 (1915).
2 People v. Degamo, 450 Phil. 159, 179 (2003).
3 Celestial Nickel Mining Exploration Corporation v. Macroasia Corporation, G.R. Nos. 169080, 172936, 176226 & 176319, December 19, 2007, 541 SCRA 166, 195.
4 An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose Certain Sections of Republic Act No. 1125, As Amended, otherwise known as the Law Creating the Court of Tax Appeals, and for Other Purposes.
5 Rollo, pp. 98-120; penned by Associate Justice Olga Palanca-Enriquez and concurred in by Presiding Justice Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, and Caesar A. Casanova. Associate Justice Erlinda P. Uy was on official business.
6 Id. at 121-123; penned by Associate Justice Olga Palanca-Enriquez and concurred in by Presiding Justice Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, and Caesar A. Casanova.
7 Id. at 772.
8 Id. at 100.
9 Id.
10 Id. at 101.
11 Id.
12 Id.
13 Id.
14 Id.
15 Id.
16 Id. at 102.
17 Id.
18 Id.
19 Id.
20 Id.
21 Id. at 25-26.
22 Id. at 103.
23 Id.
24 Id. at 104.
25 Id. at 700.
26 Id. at 104.
27 Id. at 28.
28 Id. at 104-105.
29 Id. at 29.
30 Approved by the House on the Third Reading on November 15, 2005. Its counterpart in the Senate, Senate Joint Resolution No. 6, entitled "Joint Resolution Expressing the True Intent of Congress Regarding the Imposition of the Value-Added Tax Particularly on the Theater Industry," is pending in the Committee.
31 Notice, Publication and Effectivity of Internal Revenue Tax Rules and Regulations, issued by then Commissioner Bienvenido A. Tan, Jr. on July 24, 1986.
32 Rollo, p. 247.
33 Id. at 249-257.
34 Id. at 32.
35 Id.
36 Id. at 119.
37 Id. at 122.
38 Id. at 35-36.
39 See Binay v. Sandiganbayan, 374 Phil. 413, 440 (1999).
40 Rollo, p. 420.
41 Commonwealth Act No. 466.
42 SECTION 260. Amusement taxes. -- There shall be collected from the proprietor, lessee, or operator of theaters, cinematographs, concert halls, circuses, boxing exhibitions, and other places of amusement the following taxes:(a) When the amount paid for admission exceeds twenty centavos but does not exceed twenty-nine centavos, two centavos on each admission.
x x x x
(i) When the amount paid for admission exceeds ninety-nine centavos, ten centavos on each admission.
In the case of theaters or cinematographs, the taxes herein prescribed shall first be deducted and withheld by the proprietors, lessees, or operators of such theaters or cinematographs and paid to the Collector of Internal Revenue before the gross receipts are divided between the proprietors, lessees, or operators of the theaters or cinematographs and the distributors of the cinematographic films.
In the case of cockpits, race tracks, and cabarets, x x x. For the purpose of the amusement tax, the term "gross receipts" embraces all the receipts of the proprietor, lessee, or operator of the amusement place, excluding the receipts derived by him from the sale of liquors, beverages, or other articles subject to specific tax, or from any business subject to tax under this Code.
x x x x
43 SECTION 11. Taxes transferred. -- The imposition of the taxes provided in Sections 12, 13, 14, 15, and 16 of this Code heretofore exercised by the national government or the municipal government, shall henceforth be exercised by the provincial government, to the exclusion of the national or municipal government. To avoid any revenue loss, the province shall levy and collect such taxes as provided in said Sections 12, 13 and 14.
44 Presidential Decree No. 231 (1973).
45 SECTION 13. Amusement tax on admission. -- The province shall impose a tax on admission to be collected from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusements at the following rates:(a) When the amount paid for admission is one peso or less, twenty per cent; and
(b) When the amount paid for admission exceeds one peso, thirty per cent.
In the case of theaters or cinematographs, the taxes herein prescribed shall first be deducted and withheld by the proprietors, lessees, or operators of the theaters or cinematographs and paid to the provincial treasurer concerned thru the municipal treasurer before the gross receipts are divided between the proprietors, lessees, or operators of the theaters or cinematographs and the distributors of the cinematographic films.
x x x x
46 Presidential Decree No. 1158.
47 SECTION 268. Amusement taxes. -- There shall be collected from the proprietor, lessee or operator of cabarets, day and night clubs, Jai-Alai and race tracks, a tax equivalent to x x x x
48 Executive Order No. 273.
49 SECTION 103. Exempt Transactions. -- The following shall be exempt from the value-added tax:(a) Sale of nonfood agricultural; marine and forest products in their original state by the primary producer or the owner of the land where the same are produced.
x x x x
(j) Services rendered by persons subject to percentage tax under Title V;
x x x x
50 SECTION 140. Amusement Tax. -- (a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees.
(b) In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors, lessees, or operators and the distributors of the cinematographic films.
x x x x
51 Republic Act No. 8424.
52 See Republic Act No. 8761, Republic Act No. 9010, Republic Act No. 9238 and Republic Act No. 9337.
53 SECTION 125. Amusement Taxes. -- There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks, a tax equivalent to:(a) Eighteen percent (18%) in the case of cockpits;
(b) Eighteen percent (18%) in the case of cabarets, night or day clubs;
(c) Ten percent (10%) in the case of boxing exhibitions: Provided, however, That boxing exhibitions wherein World or Oriental Championships in any division is at stake shall be exempt from amusement tax: Provided, further, That at least one of the contenders for World or Oriental Championship is a citizen of the Philippines and said exhibitions are promoted by a citizen/s of the Philippines or by a corporation or association at least sixty percent (60%) of the capital of which is owned by such citizens;
(d) Fifteen percent (15%) in the case of professional basketball games as envisioned in Presidential Decree No. 871: Provided, however, That the tax herein shall be in lieu of all other percentage taxes of whatever nature and description; and
(e) Thirty percent (30%) in the case of Jai-Alai and racetracks of their gross receipts, irrespective of whether or not any amount is charged for admission.
For the purpose of the amusement tax, the term 'gross receipts' embraces all the receipts of the proprietor, lessee or operator of the amusement place. Said gross receipts also include income from television, radio and motion picture rights, if any. A person or entity or association conducting any activity subject to the tax herein imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it.
The taxes imposed herein shall be payable at the end of each quarter and it shall be the duty of the proprietor, lessee or operator concerned, as well as any party liable, within twenty (20) days after the end of each quarter, to make a true and complete return of the amount of the gross receipts derived during the preceding quarter and pay the tax due thereon.
54 SECTION 109. Exempt Transactions. -- The following shall be exempt from the value-added tax:(a) Sale of nonfood agricultural products; marine and forest products in their original state by the primary producer or the owner of the land where the same are produced;
x x x x
(j) Services subject to percentage tax under Title V;
55 Now 12%.
56 Commissioner of Internal Revenue v. Solidbank Corp., 462 Phil. 96, 130 (2003).
57 131 Phil. 773, 780-781 (1968).
58 Rollo, pp. 671-672; 681 and 693.
59 Commissioner of Internal Revenue v. Court of Appeals, 338 Phil. 322, 330 (1997).
60 Commissioner of Internal Revenue v. Court of Appeals, 310 Phil. 392, 397 (1995).
61 Commissioner of Internal Revenue v. The Phil. American Accident Insurance Company, Inc., 493 Phil. 785, 793 (2005).
62 Commissioner of Internal Revenue v. Court of Appeals, supra note 59.
63 Commissioner of Internal Revenue v. The Phil. American Accident Insurance Company, Inc., supra.
64 Id.