fort vs cir

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http://www.lawphil.net/judjuris/juri2012/sep2012/gr_173425_2012.html 1/16

TodayisFriday,July24,2015

RepublicofthePhilippinesSUPREMECOURT

Manila

ENBANC

G.R.No.173425September4,2012

FORTBONIFACIODEVELOPMENTCORPORATION,Petitioner,vs.COMMISSIONEROFINTERNALREVENUEandREVENUEDISTRICTOFFICER,REVENUEDISTRICTNO.44,TAGUIGandPATEROS,BUREAUOFINTERNALREVENUE,Respondents.

DECISION

DELCASTILLO,J.:

Courtscannotlimittheapplicationorcoverageofalaw,norcanitimposeconditionsnotprovidedtherein.Todosoconstitutesjudiciallegislation.

ThisPetitionforReviewonCertiorariunderRule45oftheRulesofCourtassailstheJuly7,2006Decision1oftheCourtofAppeals(CA)inCAG.R.SPNo.61436,thedispositiveportionofwhichreads.

WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Decision datedOctober12,2000oftheCourtofTaxAppealsinCTACaseNo.5735,denyingpetitionersclaimforrefund in the amount of Three Hundred FiftyNine Million Six Hundred FiftyTwo Thousand NinePesosandFortySevenCentavos(P359,652,009.47),isherebyAFFIRMED.

SOORDERED.2

FactualAntecedents

PetitionerFortBonifacioDevelopmentCorporation(FBDC)isadulyregistereddomesticcorporationengagedinthe development and sale of real property.3 The Bases Conversion Development Authority (BCDA), a whollyownedgovernmentcorporationcreatedunderRepublicAct(RA)No.7227,4owns45%ofpetitionersissuedandoutstandingcapital stockwhile theBonifacioLandCorporation,aconsortiumofprivatedomestic corporations,ownstheremaining55%.5

OnFebruary8,1995,byvirtueofRA7227andExecutiveOrderNo.40,6 datedDecember8, 1992, petitionerpurchased from the national government a portion of the Fort Bonifacio reservation, now known as the FortBonifacioGlobalCity(GlobalCity).7

OnJanuary1,1996,RA77168restructuredtheValueAddedTax(VAT)systembyamendingcertainprovisionsoftheoldNationalInternalRevenueCode(NIRC).RA7716extendedthecoverageofVATtorealpropertiesheldprimarilyforsaletocustomersorheldforleaseintheordinarycourseoftradeorbusiness.9

OnSeptember19,1996,petitionersubmittedto theBureauof InternalRevenue(BIR)RevenueDistrictNo.44,Taguig and Pateros, an inventory of all its real properties, the book value of which aggregated P71,227,503,200.10Basedon thisvalue,petitionerclaimedthat it isentitled toa transitional input taxcreditofP5,698,200,256,11pursuanttoSection10512oftheoldNIRC.

InOctober1996,petitionerstartedsellingGlobalCitylotstointerestedbuyers.13

Forthefirstquarterof1997,petitionergeneratedatotalamountofP3,685,356,539.50fromitssalesandleaseoflots,onwhichtheoutputVATpayablewasP368,535,653.95.14PetitionerpaidtheoutputVATbymakingcashpaymentstotheBIRtotallingP359,652,009.47andcreditingitsunutilizedinputtaxcreditonpurchasesofgoodsandservicesofP8,883,644.48.15

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Realizing that its transitional input taxcreditwasnotapplied incomputing itsoutputVAT for the firstquarterof1997,petitioneronNovember17,1998filedwiththeBIRaclaimforrefundoftheamountofP 359,652,009.47erroneouslypaidasoutputVATforthesaidperiod.16

RulingoftheCourtofTaxAppeals

OnFebruary24,1999,duetotheinactionoftherespondentCommissionerofInternalRevenue(CIR),petitionerelevatedthemattertotheCourtofTaxAppeals(CTA)viaaPetitionforReview.17

Inopposingtheclaimforrefund,respondentsinterposedthefollowingspecialandaffirmativedefenses:

xxxx

8.UnderRevenueRegulationsNo.795,implementingSection105oftheTaxCodeasamendedbyE.O. 273, the basis of the presumptive input tax, in the case of real estate dealers, is theimprovements,suchasbuildings,roads,drainagesystems,andothersimilarstructures,constructedonorafterJanuary1,1988.

9.Petitioner,bysubmittingitsinventorylistingofrealpropertiesonlyonSeptember19,1996,failedto comply with the aforesaid revenue regulations mandating that for purposes of availing thepresumptiveinputtaxcreditsunderitsTransitoryProvisions,"aninventoryasofDecember31,1995,ofsuchgoodsorpropertiesandimprovementsshowingthequantity,description,andamountshouldbefiledwiththeRDOnolaterthanJanuary31,1996.xxx"18

On October 12, 2000, the CTA denied petitioners claim for refund. According to the CTA, "the benefit oftransitional input taxcredit comeswith thecondition thatbusiness taxesshouldhavebeenpaid first."19 In thiscase,sincepetitioneracquiredtheGlobalCitypropertyunderaVATfreesaletransaction, itcannotavailof thetransitional input tax credit.20 The CTA likewise pointed out that under Revenue Regulations No. (RR) 795,implementingSection105oftheoldNIRC,the8%transitionalinputtaxcreditshouldbebasedonthevalueoftheimprovementsonlandsuchasbuildings,roads,drainagesystemandothersimilarstructures,constructedonorafterJanuary1,1998,andnotonthebookvalueoftherealproperty.21Thus,theCTAdisposedofthecaseinthismanner:

WHEREFORE,inviewofalltheforegoing,theclaimforrefundrepresentingallegedoverpaidvalueaddedtaxcoveringthefirstquarterof1997isherebyDENIEDforlackofmerit.

SOORDERED.22

RulingoftheCourtofAppeals

Aggrieved,petitionerfiledaPetitionforReview23underRule43oftheRulesofCourtbeforetheCA.

OnJuly7,2006,theCAaffirmedthedecisionoftheCTA.TheCAagreedthatpetitionerisnotentitledtothe8%transitional input taxcreditsince itdidnotpayanyVATwhen itpurchased theGlobalCityproperty.24 TheCAopined that transitional input taxcredit isallowedonlywhenbusiness taxeshavebeenpaidandpassedonaspartofthepurchaseprice.25 Inarrivingat thisconclusion, theCAreliedheavilyonthehistoricalbackgroundoftransitionalinputtaxcredit.26AstothevalidityofRR795,whichlimitedthe8%transitionalinputtaxtothevalueoftheimprovementsontheland,theCAsaidthatitisentitledtogreatweightasitwasissuedpursuanttoSection24527oftheoldNIRC.28

Issues

Hence,theinstantpetitionwiththeprincipalissueofwhetherpetitionerisentitledtoarefundofP359,652,009.47erroneouslypaidasoutputVATforthefirstquarterof1997,theresolutionofwhichdependson:

3.05.a. Whether Revenue Regulations No. 697 effectively repealed or repudiated RevenueRegulationsNo.795 insofaras the latter limited the transitional/presumptive input taxcreditwhichmaybeclaimedunderSection105oftheNationalInternalRevenueCodetothe"improvements"onrealproperties.

3.05.b. Whether Revenue Regulations No. 795 is a valid implementation of Section 105 of theNationalInternalRevenueCode.

3.05.c.WhethertheissuanceofRevenueRegulationsNo.795bytheBureauofInternalRevenue,and declaration of validity of saidRegulations by theCourt of TaxAppeals andCourt ofAppeals,wereinviolationofthefundamentalprincipleofseparationofpowers.

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3.05.d.WhetherthereisbasisandnecessitytointerpretandconstruetheprovisionsofSection105oftheNationalInternalRevenueCode.

3.05.e.Whether theremust havebeenpreviouspayment of business tax by petitioner on its landbefore it may claim the input tax credit granted by Section 105 of the National Internal RevenueCode.

3.05.f.WhethertheCourtofAppealsandCourtofTaxAppealsmerelyspeculatedonthepurposeofthe transitional/presumptive input tax provided for inSection105of theNational InternalRevenueCode.

3.05.g. Whether the economic and social objectives in the acquisition of the subject property bypetitionerfromtheGovernmentshouldbetakenintoconsideration.29

PetitionersArguments

PetitionerclaimsthatitisentitledtorecovertheamountofP359,652,009.47erroneouslypaidasoutputVATforthefirstquarterof1997sinceitstransitionalinputtaxcreditofP5,698,200,256ismorethansufficienttocoveritsoutputVATliabilityforthesaidperiod.30

Petitioner assails the pronouncement of the CA that prior payment of taxes is required to avail of the 8%transitionalinputtaxcredit.31PetitionercontendsthatthereisnothinginSection105oftheoldNIRCtosupportsuchconclusion.32

Petitioner further argues that RR 795, which limited the 8% transitional input tax credit to the value of theimprovementsontheland,isinvalidbecauseitgoesagainsttheexpressprovisionofSection105oftheoldNIRC,inrelationtoSection10033ofthesameCode,asamendedbyRA7716.34

RespondentsArguments

Respondents,ontheotherhand,maintainthatpetitionerisnotentitledtoatransitional inputtaxcreditbecauseno taxeswere paid in the acquisition of theGlobalCity property.35 Respondents assert that prior payment oftaxesisinherentinthenatureofatransitionalinputtax.36RegardingRR795,respondentsinsistthatit isvalidbecauseitwasissuedbytheSecretaryofFinance,whoismandatedbylawtopromulgateallneedfulrulesandregulationsfortheimplementationofSection105oftheoldNIRC.37

OurRuling

Thepetitionismeritorious.

The issues before us are no longer new or novel as these have been resolved in the related case of FortBonifacioDevelopmentCorporationv.CommissionerofInternalRevenue.38

Priorpaymentoftaxesisnotrequiredforataxpayertoavailofthe8%transitionalinputtaxcredit

Section105oftheoldNIRCreads:

SEC.105.Transitional input taxcredits.Apersonwhobecomes liable tovalueadded taxoranyperson who elects to be a VATregistered person shall, subject to the filing of an inventory asprescribedby regulations,beallowed input taxonhisbeginning inventoryofgoods,materialsandsuppliesequivalentto8%ofthevalueofsuchinventoryortheactualvalueaddedtaxpaidonsuchgoods,materialsandsupplies,whicheverishigher,whichshallbecreditableagainsttheoutputtax.(Emphasissupplied.)

ContrarytotheviewoftheCTAandtheCA,thereisnothingintheabovequotedprovisiontoindicatethatpriorpayment of taxes is necessary for the availment of the 8% transitional input tax credit. Obviously, all that isrequiredisforthetaxpayertofileabeginninginventorywiththeBIR.

To require prior payment of taxes, asproposed in theDissent is not only tantamount to judicial legislationbutwouldalsorendernugatorytheprovisioninSection105oftheoldNIRCthatthetransitionalinputtaxcreditshallbe"8%ofthevalueof[thebeginning]inventoryortheactual[VAT]paidonsuchgoods,materialsandsupplies,whicheverishigher"becausetheactualVAT(now12%)paidonthegoods,materials,andsupplieswouldalwaysbehigher than the 8% (now2%)of the beginning inventorywhich, following the viewof JusticeCarpio,wouldhave toexcludeall goods,materials, andsupplieswhereno taxeswerepaid.Clearly, limiting the valueof the

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beginninginventoryonlytogoods,materials,andsupplies,wherepriortaxeswerepaid,wasnottheintentionofthelaw.Otherwise,itwouldhavespecificallystatedthatthebeginninginventoryexcludesgoods,materials,andsupplies where no taxes were paid. As retired Justice Consuelo YnaresSantiago has pointed out in herConcurringOpinionintheearliercaseofFortBonifacio:

IftheintentofthelawweretolimittheinputtaxtocaseswhereactualVATwaspaid,itcouldhavesimplysaid that the taxbaseshallbe theactual valueadded taxpaid. Instead, the lawas framedcontemplatesasituationwhereatransitional input taxcredit isclaimedeven if therewasnoactualpaymentofVATintheunderlyingtransaction.Insuchcases,thetaxbaseusedshallbethevalueofthebeginninginventoryofgoods,materialsandsupplies.39

Moreover,priorpaymentoftaxesisnotrequiredtoavailofthetransitionalinputtaxcreditbecauseitisnotataxrefundpersebutataxcredit.Taxcreditisnotsynonymoustotaxrefund.Taxrefundisdefinedasthemoneythatataxpayeroverpaidandis thusreturnedbythetaxingauthority.40Taxcredit,ontheotherhand, isanamountsubtracteddirectlyfromonestotaltaxliability.41Itisanyamountgiventoataxpayerasasubsidy,arefund,oranincentivetoencourageinvestment.Thus,unlikeataxrefund,priorpaymentoftaxesisnotaprerequisitetoavailofataxcredit.Infact,inCommissionerofInternalRevenuev.CentralLuzonDrugCorp.,42wedeclaredthatpriorpaymentoftaxesisnotrequiredinordertoavailofataxcredit.43PertinentportionsoftheDecisionread:

Whileataxliabilityisessentialtotheavailmentoruseofanytaxcredit,priortaxpaymentsarenot.Onthecontrary,fortheexistenceorgrantsolelyofsuchcredit,neitherataxliabilitynorapriortaxpaymentisneeded.TheTaxCodeis infactrepletewithprovisionsgrantingorallowingtax credits,eventhoughnotaxeshavebeenpreviouslypaid.

Forexample,incomputingtheestatetaxdue,Section86(E)allowsataxcreditsubjecttocertainlimitations for estate taxes paid to a foreign country. Also found in Section 101(C) is a similarprovisionfordonorstaxesagainwhenpaidtoaforeigncountryincomputingforthedonorstaxdue.Thetaxcreditsinbothinstancesalludetothepriorpaymentoftaxes,evenifnotmadetoourgovernment.

Under Section 110, a VAT (ValueAdded Tax) registered person engaging in transactions whetherornotsubjecttotheVATisalsoallowedataxcreditthatincludesaratableportionofanyinput tax not directly attributable to either activity. This input tax may either be the VAT on thepurchaseor importationof goodsor services that ismerelydue from not necessarily paidby such VATregistered person in the course of trade or business or the transitional input taxdeterminedinaccordancewithSection111(A).Thelattertypemayinfactbeanamountequivalentto only eight percent of the value of a VATregistered persons beginning inventory of goods,materialsandsupplies,whensuchamountascomputed ishigherthantheactualVATpaidonthesaiditems.Clearlyfromthisprovision,thetaxcreditreferstoaninputtaxthatiseitherdueonlyor given a value bymere comparisonwith the VAT actually paid then later prorated. No tax isactuallypaidpriortotheavailmentofsuchcredit.

InSection111(B),aoneandahalfpercentinputtaxcreditthatismerelypresumptiveisallowed.Forthepurchaseofprimaryagriculturalproductsusedasinputseitherintheprocessingofsardines,mackerelandmilk,orinthemanufactureofrefinedsugarandcookingoilandforthecontractpriceofpublicworkscontractsenteredintowiththegovernment,again,nopriortaxpaymentsareneededfortheuseofthetaxcredit.

Moreimportant,aVATregisteredpersonwhosesalesarezeroratedoreffectivelyzeroratedmay,underSection112(A),apply for the issuanceofa taxcreditcertificate for theamountofcreditableinput taxesmerelydue againnotnecessarilypaid to thegovernmentandattributable tosuchsales, to the extent that the input taxes have not been applied against output taxes. Where ataxpayerisengagedinzeroratedoreffectivelyzeroratedsalesandalsointaxableorexemptsales,theamountofcreditableinputtaxesduethatarenotdirectlyandentirelyattributabletoanyoneofthesetransactionsshallbeproportionatelyallocatedonthebasisofthevolumeofsales.Indeed, inavailingofsuchtaxcreditforVATpurposes,thisprovisionaswellastheoneearliermentionedshowsthatthepriorpaymentoftaxesisnotarequisite.

It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax creditallowed, even though no prior tax payments are not required. Specifically, in this provision, theimpositionofafinalwithholdingtaxrateoncashand/orpropertydividendsreceivedbyanonresidentforeigncorporationfromadomesticcorporationissubjectedtotheconditionthataforeigntaxcreditwill be given by the domiciliary country in an amount equivalent to taxes that aremerely deemedpaid. Although true, this provision actually refers to the tax credit as a condition only for theimpositionofalowertaxrate,notasadeductionfromthecorrespondingtaxliability.Besides,itisnotourgovernmentbut thedomiciliarycountrythatcreditsagainst the incometaxpayabletothe latter

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bytheforeigncorporation,thetaxtobeforegoneorspared.

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits,against the incometax imposableunderTitleII, theamountof incometaxesmerely incurrednotnecessarilypaidbyadomesticcorporationduringataxableyearinanyforeigncountry.Moreover,Section 34(C)(5) provides that for such taxes incurred but not paid, a tax creditmay be allowed,subjecttotheconditionprecedentthatthetaxpayershallsimplygiveabondwithsuretiessatisfactoryto and approved by petitioner, in such sum as may be required and further conditioned uponpaymentbythetaxpayerofanytaxfounddue,uponpetitionersredeterminationofit.

InadditiontotheabovecitedprovisionsintheTaxCode,therearealsotaxtreatiesandspeciallawsthatgrantorallowtaxcredits,eventhoughnopriortaxpaymentshavebeenmade.

Underthetreatiesinwhichthetaxcreditmethodisusedasarelieftoavoiddoubletaxation,incomethat is taxed in thestateofsource isalso taxable in thestateof residence,but the taxpaid in theformerismerelyallowedasacreditagainstthetaxleviedinthelatter.Apparently,paymentismadetothestateofsource,notthestateofresidence.Notax,therefore,hasbeenpreviouslypaidtothelatter.

Under special laws that particularly affect businesses, there can also be tax credit incentives. Toillustrate,theincentivesprovidedforinArticle48ofPresidentialDecreeNo.(PD)1789,asamendedby Batas Pambansa Blg. (BP) 391, include tax credits equivalent to either five percent of the netvalueearned,orfiveortenpercentofthenetlocalcontentofexport.Inordertoavailofsuchcreditsunderthesaidlawandstillachieveitsobjectives,nopriortaxpaymentsarenecessary.

Fromall the foregoing instances, it isevident thatprior taxpaymentsarenot indispensable to theavailment of a tax credit. Thus, the CA correctly held that the availment under RA 7432 did notrequirepriortaxpaymentsbyprivateestablishmentsconcerned.However,wedonotagreewithitsfinding that the carryover of tax credits under the said special law to succeeding taxableperiods,andeventheirapplicationagainst internalrevenuetaxes,didnotnecessitatetheexistenceofataxliability.

Theexamplesaboveshow thata tax liability iscertainly important in theavailmentoruse,not theexistenceorgrant,ofataxcredit.Regardingthismatter,aprivateestablishmentreportinganetlossinitsfinancialstatementsisnodifferentfromanotherthatpresentsanetincome.Bothareentitledtothe tax credit provided for under RA 7432, since the law itself accords that unconditional benefit.However,forthelosingestablishmenttoimmediatelyapplysuchcredit,wherenotaxisdue,willbeanimprovidentusance.44

In thiscase,whenpetitionerrealizedthat its transitional input taxcreditwasnotapplied incomputing itsoutputVATforthe1stquarterof1997,itfiledaclaimforrefundtorecovertheoutputVATiterroneouslyorexcessivelypaidforthe1stquarterof1997.Infilingaclaimfortaxrefund,petitionerissimplyapplyingitstransitionalinputtaxcreditagainsttheoutputVATithaspaid.Hence,itismerelyavailingofthetaxcreditincentivegivenbylawtofirsttimeVATtaxpayers.AswehavesaidintheearliercaseofFortBonifacio,theprovisionontransitional inputtaxcreditwasenactedtobenefit firsttimeVATtaxpayersbymitigatingtheimpactofVATonthetaxpayer.45 Thus,contrary to theviewofJusticeCarpio, thegrantingofa transitional input taxcredit in favorofpetitioner,whichwouldbepaidoutofthegeneralfundofthegovernment,wouldbeanappropriationauthorizedbylaw,specificallySection105oftheoldNIRC.

The history of the transitional input tax credit likewise does not support the ruling of theCTA andCA. In ourDecisiondatedApril2,2009,intherelatedcaseofFortBonifacio,weexplainedthat:

If indeed the transitional input tax credit is integrally related to previously paid sales taxes, thepurportedcausal linkbetween those twowouldhavebeennonethelessextinguished longago.YetCongress has reenacted the transitional input tax credit several times that fact simply belies theabsenceofanyrelationshipbetweensuchtaxcreditandthelongabolishedsalestaxes.

Obviously then, thepurposebehind the transitional input taxcredit isnotconfined to the transitionfromsalestaxtoVAT.

Thereishardlyanyconstricteddefinitionof"transitional"thatwilllimititspossiblemeaningtotheshiftfrom the sales tax regime to the VAT regime. Indeed, it could also allude to the transition oneundergoes from not being a VATregistered person to becoming a VATregistered person. Suchtransition does not take placemerely by operation of law, E.O. No. 273 or Rep. Act No. 7716 inparticular. It could also occur when one decides to start a business. Section 105 states that thetransitional inputtaxcreditsbecomeavailableeitherto(1)apersonwhobecomesliabletoVATor(2)anypersonwhoelectstobeVATregistered.Theclearlanguageofthelawentitlesnewtradesor

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businesses to avail of the tax credit once they become VATregistered. The transitional input taxcredit,whetherunder theOldNIRCor theNewNIRC,maybeclaimedbyanewlyVAT registeredperson such as when a business as it commences operations. If we view the matter from theperspective of a starting entrepreneur, greater clarity emerges on the continued utility of thetransitionalinputtaxcredit.

FollowingthetheoryoftheCTA,thenewenterpriseshouldbeabletoclaimthetransitionalinputtaxcredit because it has presumably paid taxes, VAT in particular, in the purchase of the goods,materialsandsupplies in itsbeginning inventory.Consequently,as theCTAheldbelow, if thenewenterprisehasnotpaidVATinitspurchasesofsuchgoods,materialsandsupplies,thenitshouldnotbe able to claim the tax credit. However, it is not always true that the acquisition of such goods,materialsandsuppliesentailthepaymentoftaxesonthepartofthenewbusiness.Infact,thiscouldoccurasamatterofcoursebyvirtueoftheoperationofvariousprovisionsoftheNIRC,andnotonlyonaccountofaspeciallylegislatedexemption.

Letuscitea fewexamplesdrawn from theNewNIRC. If thegoodsorpropertiesarenotacquiredfromapersoninthecourseoftradeorbusiness,thetransactionwouldnotbesubjecttoVATunderSection105.ThesalewouldbesubjecttocapitalgainstaxesunderSection24(D),butsincecapitalgainsisataxonpassiveincomeitistheseller,notthebuyer,whogenerallywouldshoulderthetax.

Ifthegoodsorpropertiesareacquiredthroughdonation,theacquisitionwouldnotbesubjecttoVATbuttodonorstaxunderSection98instead.Itisthedonorwhowouldbeliabletopaythedonorstax,and the donationwould beexempt if the donors total net gifts during the calendar year doesnotexceedP100,000.00.

Ifthegoodsorpropertiesareacquiredthroughtestateorintestatesuccession,thetransferwouldnotbesubject toVATbut liable insteadforestatetaxunderTitle IIIof theNewNIRC.If thenetestatedoesnotexceedP200,000.00,noestatetaxwouldbeassessed.

The interpretation proffered by the CTA would exclude goods and properties which are acquiredthroughsalenot in theordinarycourseof tradeorbusiness,donationor throughsuccession, fromthe beginning inventory on which the transitional input tax credit is based. This prospect all buthighlightstheultimateabsurdityoftherespondentsposition.Again,nothingintheOldNIRC(oreventheNewNIRC)speaksofsuchapossibilityorqualifies thepreviouspaymentofVAToranyothertaxesonthegoods,materialsandsuppliesasaprerequisiteforinclusioninthebeginninginventory.

ItisapparentthatthetransitionalinputtaxcreditoperatestobenefitnewlyVATregisteredpersons,whether or not they previously paid taxes in the acquisition of their beginning inventory of goods,materialsandsupplies.DuringthatperiodoftransitionfromnonVATtoVATstatus,thetransitionalinputtaxcreditservestoalleviatetheimpactoftheVATonthetaxpayer.Attheverybeginning,theVATregisteredtaxpayerisobligedtoremitasignificantportionoftheincomeitderivedfromitssalesas output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer'sincomebyaffordingtheopportunitytooffsetthelossesincurredthroughtheremittanceoftheoutputVATatastagewhenthepersonisyetunabletocreditinputVATpayments.

There is another point thatweighsagainst theCTAs interpretation.UnderSection105of theOldNIRC,therateof thetransitional input taxcredit is"8%of thevalueofsuch inventoryor theactualvalueadded tax paid on such goods, materials and supplies, whichever is higher." If indeed thetransitionalinputtaxcreditispremisedonthepreviouspaymentofVAT,thenitdoesnotmakesensetoaffordthetaxpayerthebenefitofsuchcreditbasedon"8%ofthevalueofsuchinventory"shouldthesameprovehigherthantheactualVATpaid.ThisintentthattheCTAalludedtocouldhavebeenimplementedwitheasehadthelegislaturesharedsuchintentbyprovidingtheactualVATpaidasthesolebasisfortherateofthetransitionalinputtaxcredit.46

Inviewoftheforegoing,wefindpetitionerentitledtothe8%transitionalinputtaxcreditprovidedinSection105oftheoldNIRC.ThefactthatitacquiredtheGlobalCitypropertyunderataxfreetransactionmakesnodifferenceaspriorpaymentoftaxesisnotaprerequisite.

Section4.1051ofRR795isinconsistentwithSection105oftheoldNIRC

As regardsSection 4.105147 ofRR 795which limited the 8% transitional input tax credit to the value of theimprovements on the land, the same contravenes the provision of Section 105 of the oldNIRC, in relation toSection100ofthesameCode,asamendedbyRA7716,whichdefines"goodsorproperties,"towit:

SEC.100.Valueaddedtaxonsaleofgoodsorproperties.(a)Rateandbaseoftax.Thereshall

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belevied,assessedandcollectedoneverysale,barterorexchangeofgoodsorproperties,avalueadded tax equivalent to 10% of the gross selling price or gross value in money of the goods orpropertiessold,barteredorexchanged,suchtaxtobepaidbythesellerortransferor.

(1)Theterm"goodsorproperties"shallmeanalltangibleandintangibleobjectswhicharecapableofpecuniaryestimationandshallinclude:

(A)Realpropertiesheldprimarilyforsaletocustomersorheldforleaseintheordinarycourseoftradeorbusinessxxx

Infact,inourResolutiondatedOctober2,2009,intherelatedcaseofFortBonifacio,weruledthatSection4.1051 of RR 795, insofar as it limits the transitional input tax credit to the value of the improvement of the realproperties,isanullity.48PertinentportionsoftheResolutionread:

AsmandatedbyArticle7oftheCivilCode,anadministrativeruleorregulationcannotcontravenethelawonwhichitisbased.RR795isinconsistentwithSection105insofarasthedefinitionoftheterm"goods" isconcerned.This isa legislativeactbeyondtheauthorityof theCIRandtheSecretaryofFinance.Therulesandregulationsthatadministrativeagenciespromulgate,whicharetheproductofadelegatedlegislativepowertocreatenewandadditionallegalprovisionsthathavetheeffectoflaw,should bewithin the scope of the statutory authority granted by the legislature to the objects andpurposes of the law, and should not be in contradiction to, but in conformity with, the standardsprescribedbylaw.

Tobevalid,anadministrative ruleor regulationmustconform,notcontradict, theprovisionsof theenablinglaw.1 w p h i1Animplementingruleorregulationcannotmodify,expand,orsubtractfromthelawitisintendedtoimplement.Anyrulethatisnotconsistentwiththestatuteitselfisnullandvoid.

While administrative agencies, such as the Bureau of Internal Revenue,may issue regulations toimplement statutes, they arewithout authority to limit the scopeof the statute to less thanwhat itprovides,orextendorexpandthestatutebeyonditsterms,orinanywaymodifyexplicitprovisionsofthe law.Indeed,aquasijudicialbodyoranadministrativeagencyfor thatmattercannotamendanact of Congress. Hence, in case of a discrepancy between the basic law and an interpretative oradministrativeruling,thebasiclawprevails.

Torecapitulate,RR795,insofarasitrestrictsthedefinitionof"goods"asbasisoftransitionalinputtaxcreditunderSection105isanullity.49

Asweseeit then,the8%transitional inputtaxcreditshouldnotbelimitedtothevalueoftheimprovementsontherealpropertiesbutshouldincludethevalueoftherealpropertiesaswell.

In thiscase,sincepetitioner isentitled toa transitional input taxcreditofP5,698,200,256,which ismore thansufficienttocoveritsoutputVATliabilityforthefirstquarterof1997,arefundoftheamountofP359,652,009.47erroneouslypaidasoutputVATforthesaidquarterisinorder.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated July 7, 2006 of the Court ofAppeals in CAG.R. SP No. 61436 is REVERSED and SET ASIDE. Respondent Commissioner of InternalRevenue is ordered to refund to petitioner Fort Bonifacio Development Corporation the amount of P359,652,009.47paidasoutputVATforthefirstquarterof1997inlightofthetransitionalinputtaxcreditavailableto petitioner for the said quarter, or in the alternative, to issue a tax credit certificate corresponding to suchamount.

SOORDERED.

MARIANOC.DELCASTILLOAssociateJustice

WECONCUR:

MARIALOURDESP.A.SERENOChiefJustice

ANTONIOT.CARPIOAssociateJustice

PRESBITEROJ.VELASCO,JR.AssociateJustice

TERESITAJ.LEONARDODECASTROAssociateJustice

ARTUROD.BRIONAssociateJustice

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DIOSDADOM.PERALTAAssociateJustice

LUCASP.BERSAMINAssociateJustice

ROBERTOA.ABADAssociateJustice

MARTINS.VILLARAMA,JR.AssociateJustice

JOSEPORTUGALPEREZAssociateJustice

JOSECATRALMENDOZAAssociateJustice

BIENVENDIOL.REYESAssociateJustice

ESTELAM.PERLASBERNABEAssociateJustice

CERTIFICATION

I certify that the conclusions in the above Decision had been reached in consultation before the case wasassignedtothewriteroftheopinionoftheCourt.

MARIALOURDESP.A.SERENOChiefJustice

Footnotes

1Rollo,pp.317333pennedbyAssociateJusticeMoninaArevaloZenarosaandconcurredinbyAssociateJusticesRenatoC.DacudaoandRosmariD.Carandang.

2Id.at332.

3Id.at318.

4BASESCONVERSIONANDDEVELOPMENTACTOF1992.

5Rollo,p.318.

6 IMPLEMENTING THE PROVISIONS OF REPUBLIC ACT NO. 7227 AUTHORIZING THE BASESCONVERSIONANDDEVELOPMENTAUTHORITY (BCDA)TORAISEFUNDSTHROUGHTHESALEOFMETRO MANILA MILITARY CAMPS TRANSFERRED TO BCDA TO FORM PART OF ITSCAPITALIZATIONANDTOBEUSEDFORTHEPURPOSESSTATEDINSAIDACT.

7Rollo,p.319.

8ANACTRESTRUCTURINGTHEVALUEADDEDTAX(VAT)SYSTEM,WIDENINGITSTAXBASEANDENHANCING ITS ADMINISTRATION AND FOR THESE PURPOSES AMENDINGANDREPEALING THERELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOROTHERPURPOSES.

9Section2ofRepublicActNo.7716provides:

Sec.2.Section100oftheNationalInternalRevenueCode,asamended,isherebyfurtheramendedtoreadasfollows:

"Section100.Valueaddedtaxonsaleofgoodsorproperties. (a)Rateandbaseof tax.Thereshallbe levied,assessedandcollectedoneverysale,barterorexchangeofgoodsorproperties, a valueadded tax equivalent to 10%of the gross selling price or gross value inmoney of the goods, or properties sold, bartered or exchanged, such tax to be paid by thesellerortransferor.

"(1) The term goods or properties shallmean all tangible and intangible objectswhich arecapableofpecuniaryestimationandshallinclude:

(A)Realpropertiesheldprimarilyforsaletocustomersorheldforleaseintheordinarycourseoftradeorbusiness."

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xxxx

10Rollo,p.320.

11CTArollo,p.4.

12NowSection111(A)oftheNATIONALINTERNALREVENUECODEOF1997whichprovides:

SEC111.Transitional/PresumptiveInputTaxCredits.

(A)TransitionalInputTaxCredits.ApersonwhobecomesliabletovalueaddedtaxoranypersonwhoelectstobeaVATregisteredpersonshall,subjecttothefilingofaninventoryaccordingtorulesandregulationsprescribedbytheSecretaryofFinance,uponrecommendationoftheCommissioner,beallowed input taxonhisbeginning inventoryofgoods,materialsandsuppliesequivalent to twopercent (2%) of the value of such inventory or the actual valueadded tax paid on such goods,materials and supplies, whichever is higher, which shall be creditable against the output tax. [AsamendedbyRepublicActNo.9337AnActAmendingSections27,28,34,106,107,108,109,110,111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the National InternalRevenueCodeof1997,asamended,andforotherpurposes.

13Rollo,p.319.

14Id.at320.

15Id.at320321.

16CTArollo,p.5.

17Id.at112.

18Id.at44.

19Rollo,p.148.

20Id.at149.

21Id.at149150.

22Id.at150.

23CArollo,pp.766.

24Rollo,p.330.

25Id.at329.

26Id.at325328.

27SEC.245.AuthorityofSecretaryofFinance topromulgate rulesand regulations.TheSecretaryofFinance,uponrecommendationoftheCommissioner,shallpromulgateallneedfulrulesandregulationsfortheeffectiveenforcementof theprovisionsof thisCode.xxx (NowSection244of theNational InternalRevenueCodeof1997.)

28Rollo,pp.331332.

29Id.at2324.

30Id.at82.

31Id.at84.

32Id.at87.

33NowSection106oftheNationalInternalRevenueCodeof1997.

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34Rollo,pp.4761.

35Id.at367.

36Id.at357.

37Id.at378.

38G.R.Nos.158885&170680,April2,2009,583SCRA168.

39Id.at201.

40Garner,BlacksLawDictionary,7thEdition,p.1475.

41Id.at1473.

42496Phil.307(2005).

43Id.at322.

44Id.at322325.

45Supranote38at192193.

46Id.at190193.

47Sec.4.1051.Transitionalinputtaxonbeginninginventories.TaxpayerswhobecameVATregisteredpersonsuponeffectivityofRANo.7716whohaveexceededtheminimumturnoverof

P500,000.00orwhovoluntarilyregistereveniftheirturnoverdoesnotexceedP500,000.00shallbeentitled to a presumptive input tax on the inventory on hand as of December 31, 1995 on thefollowing:

(a) goods purchased for resale in their present condition (b) materials purchased for furtherprocessing,butwhichhavenotyetundergoneprocessing(c)goodswhichhavebeenmanufacturedbythetaxpayer(d)goodsinprocessandsupplies,allofwhichareforsaleorforuseinthecourseofthetaxpayerstradeorbusinessasaVATregisteredperson.

However, in the case of real estate dealers, the basis of the presumptive input tax shall be theimprovements,suchasbuildings,roads,drainagesystems,andothersimilarstructures,constructedonoraftertheeffectivityofEO273(January1,1988).

Thetransitional inputtaxshallbe8%ofthevalueoftheinventoryoractualVATpaid,whichever ishigher, which amount may be allowed as tax credit against the output tax of the VATregisteredperson.xxx(Emphasissupplied.)

48 Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, G.R. Nos. 158885 &170680,October2,2009,602SCRA159.

49Id.at166167.

TheLawphilProjectArellanoLawFoundation

DISSENTINGOPINION

CARPIO,J.:

Idissent.IreiteratemyviewthatpetitionerisnotentitledtoarefundorcreditofanyinputVAT,asexplainedinmydissentingopinionsinFortBonifacioDevelopmentCorporationv.Commissionerof InternalRevenue,1 involvinganinputVATrefundofP347,741,695.74andraisingthesamelegalissueasthatraisedinthepresentcase.

Themajoritygrantspetitioneran8o/otransitionalinputVATrefund or credit of P 359,652,009.47 in relation topetitioner'soutputVATforthefirstquarterof1997.Petitionerarguesthat there isnothinginSection105 of the

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oldNationalInternalRevenueCode(NIRC)tosupporttheCourtofAppeals'conclusionthatpriorpaymentofVATisrequiredtoavailofarefundorcreditofthe8%transitionalinputVAT.

Petitioner'sargumenthasnomerit.

It ishornbookdoctrinethatataxpayercannotclaimarefundorcreditofataxthatwasneverpaidbecausethelawnever imposed the tax in the firstplace,as in thepresentcase.A tax refundorcreditassumesa taxwaspreviouslypaid,whichmeanstherewasalawthatimposedthetax.Thesourceofthetaxrefundorcreditisthetaxthatwaspreviouslypaid,andthispreviouslypaidtaxissimplybeingreturnedtothetaxpayerduetodouble,excessive,erroneous,advanceorcreditabletaxpayment.

Withoutsuchprevioustaxpaymentassource,thetaxrefundorcreditwillbeanexpenditureofpublicfundsfortheexclusivebenefitofaspecificprivateindividualorentity.Thisviolatesthefundamentalprinciple,asruledbythis Court in several cases,2 that public funds can be used only for a public purpose. Section 4(2) of theGovernmentAuditingCodeofthe

Philippinesmandatesthat"Governmentfundsorpropertyshallbespentorusedsolelyforpublicpurposes."Anytax refund or credit in favor of a specific taxpayer for a tax thatwas never paidwill have to be sourced fromgovernmentfunds.Thisisclearlyanexpenditureofpublicfundsfora private purpose.Congress cannot validlyenactalawtransferringgovernmentfunds,raisedthroughtaxation,tothepocketofaprivateindividualorentity.AwellrecognizedinherentlimitationontheconstitutionalpoweroftheStatetolevytaxesisthattaxescanonlybeusedforapublicpurpose.3

Evenifonlyataxcreditisgranted,itwillstillbeanexpenditureofpublicfundsforthebenefitofaprivatepurposeintheabsenceofapriortaxpaymentassourceofthetaxcredit.Thetaxduefromataxpayerisapublicfund.Ifthe taxpayer isallowed tokeepapartof the taxasa taxcrediteven in theabsenceofaprior taxpaymentassource, it is in factgivingapublic fund toaprivateperson foraprivatebenefit.This isaclearviolationof theconstitutionaldoctrinethattaxescanonlybeusedforapublicpurpose.

Moreover, such refund or credit without prior tax payment is an expenditure of public funds without anappropriationlaw.ThisviolatesSection29(1),ArticleVIoftheConstitution,whichmandatesthat"Nomoneyshallbe paid out of the Treasury except in pursuance of an appropriationmade by law."Without any previous taxpaymentassource,ataxrefundorcreditwillbepaidoutofthegeneralfundsofthegovernment,apaymentthatrequiresanappropriationlaw.TheTaxCode,particularlyitsprovisionsontheVAT,isarevenuemeasure,notanappropriationlaw.

TheVATisataxontransactions.TheVATisleviedonthevaluethatisaddedtogoodsandservicesateverylinkinthechainoftransactions.However,ataxcreditisallowedfortaxespreviouslypaidwhenthesamegoodsandservicesaresoldfurtherinthechainoftransactions.Thepurposeofthistaxcreditingsystemistopreventdoubletaxation in the subsequent sale of the same product and services that were already previously taxed. TaxespreviouslypaidarethusallowedasinputVATcredits,whichmaybedeductedfromtheoutputVATliability.

TheVATispaidbythesellerofgoodsandservices,buttheamountoftheVATispassedontothebuyeraspartofthepurchaseprice.Thus,thetaxburdenactuallyfallsonthebuyerwhoisallowedbylawataxcreditorrefundinthesubsequentsaleofthesamegoodsandservices.The8%transitionalinputVATwasintroducedtoeasethetransitionfromtheoldVATto theexpandedVATsystemthat includedmoregoodsandservices,requiringnewdocumentation not required under the old VAT system. To simplify the transition, the law allows an 8%presumptive inputVAT on goods and services newly covered by the expandedVAT system. In short, the lawgrantsthetaxpayeran8%inputVATwithoutneedofsubstantiatingthesame,onthelegalpresumptionthattheVATimposedbylawpriortotheexpandedVATsystemhadbeenpaid,regardlessofwhetheritwasactuallypaid.

UndertheVATsystem,ataxrefundorcreditrequiresthataprevioustaxwaspaidbyataxpayer,orinthecaseofthetransitionalinputtax,thatthetaximposedbylawispresumedtohavebeenpaid.NotasinglecentavoofVATwaspaid,orcouldhavebeenpaid,byanyoneinthesalebytheNationalGovernmenttopetitioneroftheGlobalCitylandfortwobasicreasons.First,theNationalGovernmentisnotsubjecttoanytax,includingVAT,whenthelawauthorizesittosellgovernmentpropertyliketheGlobalCityland.Second,in1995theoldVATlawdidnotyetimposeVATonthesaleoflandandthusnoVATonthesaleoflandcouldhavebeenpaidbyanyone.

PetitionerboughttheGlobalCitylandfromtheNationalGovernmentin1995,andthissalewasofcourseexemptfromanykindoftax,includingVAT.TheNationalGovernmentdidnotpassontopetitioneranyprevioussalestaxor VAT as part of the purchase price of the Global City land. Thus, petitioner is not entitled to claim anytransitional input VAT refund or credit when petitioner subsequently sells the Global City land. In short, sincepetitionerwill notbesubject todouble taxationon its subsequent saleof theGlobalCity land,petitioner isnotentitledtoataxrefundorcreditundertheVATsystem.

Section 105 of the oldNIRC provides that a taxpayer is "allowed input tax on his beginning inventory x x xequivalentto8%xxx,ortheactualvalueaddedtaxpaidxxx,whicheverishigher."The 8% transitional input

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VATinSection105assumesthataprevioustaxwasimposedbylaw,whetherornotitwasactuallypaid.Thisisclearfromthephrase"ortheactualvalueaddedtaxpaid,whicheverishigher,"whichnecessarilymeansthattheVATwasalready imposedon theprevioussale.The law creates a presumption of payment of the transitionalinputVATwithoutneedofsubstantiatingthesame,providedtheVATis imposedontheprevioussale.Thus, inordertobeentitledtoataxrefundorcredit,petitionermustpoint totheexistenceofa lawimposingthetaxforwhicharefundorcredit issought.Since landwasnotyetsubject toVAToranyother inputbusinesstaxat thetimeofthesaleoftheGlobalCitylandin1995,the8%transitionalinputVATcouldneverbepresumedtohavebeenpaid.Hence,petitionersargumentmustfailsincethetransitionalinputVATrequiresatransactionwhereataxhasbeenimposedbylaw.

Moreover,theponenteinsiststhatnopriorpaymentoftaxisrequiredtoavailofthetransitionalinputtaxsinceitisnota taxrefundpersebutataxcredit.Theponenteclaimsthatinfilingaclaimfor tax refund the petitioner issimplyapplyingitstransitionalinputtaxcreditagainsttheoutputVATithaspaid.

Idisagree.

AvailingofataxcreditandfilingforataxrefundarealternativeoptionsallowedbytheTaxCode.Thechoiceofoneoptionprecludestheother.Ataxpayermayeither(1)applyforataxrefundbyfilingforawrittenclaimwiththeBIRwithintheprescriptiveperiod,or(2)availofataxcreditsubjecttoverificationandapprovalbytheBIR.Aclaimfortaxcreditrequiresthatapersonwhobecomes liable toVAT for the first timemustsubmita listofhisinventoriesexistingonthedateofcommencementofhisstatusasaVATregisteredtaxableperson.Bothclaimsforataxrefundandcreditareinthenatureofaclaimforexemptionandshouldbeconstruedinstrictissimijurisagainstthepersonorentityclaimingit.Theburdenofproof toestablish the factualbasisor thesufficiencyandcompetencyofthesupportingdocumentsoftheclaimfortaxrefundortaxcreditrestsontheclaimant.

Inthepresentcase,petitioneractuallyfiledwiththeBIRaclaimfortaxrefundintheamountofP347,741,695.74.Infilingaclaimfortaxrefund,petitionerhastheburdentoshowthatpriortaxpaymentsweremade,orattheveryleast,thatthereisanexistinglawimposingtheinputtax.Similarly,inaclaimforinputtaxcredit,aVATtaxpayermustsubmithisbeginninginventoryshowingpreviouslypaidbusinesstaxesonhispurchaseofgoods,materialsandsupplies.Inbothclaims,priortaxpaymentsshouldhavebeenmade.Thus, in claiming fora tax refundorcredit,priortaxpaymentmustbeclearlyestablishedanddulyprovenbyaVATtaxpayerinordertobeentitledtotheclaim.Inaclaimfortransitionalinputtaxcredit,asinthepresentcase,theVATtaxpayermustpointtoalawimposingtheinputVAT,withoutneedofprovingsuchinputVATwasactuallypaid.Petitionerfurtherargues thatRR795 is invalid since the Revenue Regulation (1) limits the 8% transitional input VAT to the value of theimprovementson the land,and (2)violates theexpressprovisionofSection105of theoldNIRC, in relation toSection100,asamendedbyRA7716.

Petitionerscontentionmustagainfail.

Section4.1051ofRR7954anditsTransitoryProvisions5providethatthebasisofthe8%transitionalinputVATisthevalueof the improvements on the land and not the value of the taxpayers land or real properties. ThisRevenueRegulationfindsstatutorybasisinSection105oftheoldNIRC,whichprovidesthatinputVATisallowedonthetaxpayers"beginninginventoryofgoods,materialsandsupplies."Thus,thepresumptiveinputVATreferstotheinputVATpaidon"goods,materialsorsupplies"soldbysupplierstothetaxpayer,whichthetaxpayerusedtointroduceimprovementsontheland.

UnderRA7716ortheExpandedValueAddedTaxLaw,theVATwasexpandedtoincludelandorrealpropertiesheldprimarilyforsaletocustomersorheldforleaseintheordinarycourseoftradeorbusiness.Beforethislawwasenacted,onlyimprovementsonlandweresubjecttoVAT.SincetheGlobalCitylandwasnotyetsubjecttoVATatthetimeofthesalein1995,theGlobalCitylandcannotbeconsideredaspartofthebeginninginventoryunderSection105.Clearly, the8% transitional input tax credit shouldonlybeapplied to improvementson thelandbutnottothelanditself.

ThereisnodisputethatiftheNationalGovernmentsellstodayaparcelofland,thesaleiscompletelytaxexempt.The sale is not subject toVAT, and the buyer cannot claim any inputVAT from the sale. Stated otherwise, ataxpayerlikepetitionercannotclaimanyinputVATonitspurchasetodayoflandfromtheNationalGovernment,evenwhenVATonlandforrealestatedealersisalreadyineffect.Withgreaterreason, petitioner cannot claimanyinputVATforits1995purchaseofgovernmentlandwhenVATonlandwasstillnonexistentandpetitioner,asarealestatedealer,wasstillnotsubject toVATon itssaleof land. Inshort, ifpetitionercannotclaim a taxrefundorcredit ifthesametransaction happened todaywhen there is already aVAT on sales of land by realestate developers, then withmore reason petitioner cannot claim a tax refund or credit when the transactionhappenedin1995whentherewasstillnoVATonsalesoflandbyrealestatedevelopers.

Insum,granting80/0transitionalinputVATintheamountofP359,652,009.47topetitionerisfraughtwithgravelegalinfirmities,namely:(1)violationofSection4(2)oftheGovernmentAuditingCodeofthePhilippines,whichmandatesthatpublicfundsshallbeusedonlyforapublicpurpose(2)violationofSection29(1),ArticleVIoftheConstitution,whichmandates that nomoney in theNational Treasury,which includes tax collections, shall be

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spent unless there is an appropriation law authorizing such expenditure and (3) violation of the fundamentalconceptoftheVATsystem,asfoundinSection105oftheoldNIRC,thatbeforetherecanbeaVATrefundorcredittheremustbeapreviouslypaidinputVATthatcanbedeductedfromtheoutputVATbecausethepurposeoftheVATcreditingsystemistopreventdoubletaxation.

Accordingly,IvotetoDENYthepetitionandAFFIRMthe7July2006DecisionoftheCourtofAppealsinCAG.R.SPNo.61436.

ANTONIOT.CARPIOAssociateJustice

Footnotes

1G.R.Nos.158885&170680,2April2009,583SCRA168G.R.Nos.158885&170680,2October2009,602SCRA159.

2 Francisco v. Toll Regulatory Board, G.R. No. 166910, 19 October 2010, 633 SCRA 470 Ya p v.Commission onAudit,G.R.No. 158562, 23April 2010, 619SCRA 154 Strategic Alliance DevelopmentCorporationv.RadstockSecuritiesLimited,G.R.No.178158,4December2009,607SCRA412Pascualv.SecretaryofPublicWorks,110Phil.331(1960).

3PlantersProduct,Inc.v.FertiphilCorporation,G.R.No.166006,14March2008,548SCRA485Pascualv.SecretaryofPublicWorks,110Phil.331(1960).

4SEC.4.1051.Transitionalinputtaxonbeginninginventories.xxx

However, in the case of real estate dealers, the basis of the presumptive input tax shall be theimprovements,suchasbuildings,roads,drainagesystems,andothersimilarstructures,constructedonoraftertheeffectivityofE.O.273(1January1988).xxx

5TRANSITORYPROVISIONS.xxx

(b)PresumptiveInputTaxCreditsxxx

(iii) For real estate dealers, the presumptive input tax of 8% of the book value of improvementsconstructedonorafterJanuary1,1988(theeffectivityofE.O.273)shallbeallowed.xxx


CONCURRINGOPINION

ABAD,J.:

IfullyconcurinJusticeMarianoC.DelCastillo'sponenciaanddisagreewithJusticeAntonioT.Carpio'spointsofdissent. In 1992 Congress enacted Republic Act (R.A.) 7227 creating the Bases Conversion DevelopmentAuthority(BCDA)forthepurposeofraisingfundsthroughthesaletoprivate investorsofmilitary landsinMetroManila.Todothis,theBCDAestablishedtheFortBonifacioDevelopmentCorp.(FBDC),aregisteredcorporation,toenablethelatter to develop the 214hectaremilitary camp in Fort Bonifacio, Taguig, formix residential andcommercialpurposes.OnFebruary8,1995theGovernmentoftheRepublicofthePhilippinescededthelandbydeedofabsolutesale toFBDC forP71.2billion.Subsequently, cashing in on the sale, BCDA sold at a publicbidding55o/oofitssharesinFBDCtoprivateinvestors,retainingownershipoftheremaining45%.

InOctober1996,aftertheNationalInternalRevenueCode(NIRC)subjectedthesaleandleaseofrealpropertiestoVAT,FBDCbegansellingandleasinglotsinFortBonifacio.FBDCfileditsfirstVATreturncoveringthosesalesandleasesandsubsequentlymadecashpaymentsforoutputVATdue.Afterwhich,FBDCfiledaclaimforrefundrepresentingtransitionalinputtaxcreditbasedon8o/oofthevalueof itsbeginninginventoryof lands or actualvalueadded tax paid on its goods,whichever is higher, that Section 105 of theNIRC grants to firsttime VATpayerslikeFBDC.

Because of the inaction of the Commissioner of Internal Revenue (CIR) on its claim for refund, FBDC filed apetitionforreviewbeforetheCourtofTaxAppeals(CTA),whichcourtdeniedthepetition.Onappeal,theCourtof

Appeals(CA)affirmedthedenial.BoththeCTAandtheCApremisedtheiractionsonthefactthatFBDCpaidno

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taxon theGovernmentssaleof the landsto itas toentitle it to the transitional input taxcredit.Likewise, citingRevenueRegulations795,whichimplementedSection105oftheNIRC,theCTAandtheCAruledthatsuchtaxcredit given to real estate dealers is essentially based on the value of improvements theymade on their landholdingsafterJanuary1,1988,ratherthanonthebookvalueofthesameasFBDCproposed.

FBDCsubsequentlyappealedtheCAdecisiontothisCourtbypetitionforreviewinG.R.158885,"FortBonifacioDevelopmentCorporationv.CommissionerofInternalRevenue."Meantime,similaractionsinvolvingsubsequentFBDCsalessubjecttoVAT,includingthepresentaction,tookthesamerouteCTA,CA,andlastlythisCourtbecauseoftheCIRsrefusaltohonorFBDCsclaimtotransitionalinputtaxcredit.

On April 2, 2009 the Court En Banc rendered judgment in G.R. 158885,1 declaring FBDC entitled to thetransitionalinputtaxcreditthatSection105oftheNIRCgranted.Inthesamedecision,theCourtalsodisposedofG.R. 170680, "Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue," which wasconsolidatedwithG.R.158885.TheCourtdirectedtheCIRinthatcasetorefundtoFBDCtheVATwhichitpaidfor the third quarter of 1997. Justice Tinga penned the decision with the concurrence of Justices Martinez,Corona,Nazario,Velasco,Jr.,DeCastro,Peralta,andSantiago.JusticesCarpio,Quisumbing,Morales,andBriondissented.ChiefJusticePunoandJusticeNachuratooknopart.

The CIR filed a motion for reconsideration but the Court denied the same with finality on October 2, 2009.2JusticeDeCastropenned the resolutionofdenialwith theconcurrenceof JusticesSantiago,Corona,Nazario,Velasco,Jr.,Nachura,Peralta,Bersamin,DelCastillo,andAbad.JusticesCarpioandMoralesdissented.ChiefJusticePunotooknopart.JusticesQuisumbingandBrionwereonleave.

Since theCourtsApril 2,2009decisionandOctober2,2009 resolution inG.R.158885andG.R.170680hadlongbecomefinalandexecutory,theyshouldforeclosetheidenticalissueinthepresentcases(G.R.173425andG.R.181092)ofwhetherornotFBDCisentitledtothetransitionalinputtaxcreditgrantedinSection105oftheNIRC.Indeed,therulingsinthosepreviouscasesmayberegardedasthelawofthecaseandcannolongerbechanged.

Justice Del Castillos ponencia in the present case reiterates the Courts rulings on exactly the same issuebetweenthesameparties.ButJusticeCarpiosdissentwouldhave theCourt flip from its landmark ruling, takeFBDCstaxcreditback,andholdthattheCourtgrosslyerredinallowingFBDC,still45%governmentowned,togetanearlierrefundoftheVATpaymentsitmadefromthesaleofFortBonifaciolands.

Avalueadded tax isa formof indirectsales taxpaidonproductsandservicesateachstageofproduction ordistribution,basedonthevalueaddedatthatstageandincludedinthecosttotheultimateconsumer.3

ToillustratehowVATworks,takealumberstorethatsellsapieceof lumbertoacarpentryshopforP 100.00.Thelumberstoremustpaya12%VATorP12.00onsuchsalebutitmaychargethecarpentryshopP112.00forthepieceoflumber,passingontothelattertheburdenofpayingtheP12.00VAT.

WhenthecarpentryshopmakesawoodenstooloutofthatlumberandsellsthestooltoafurnitureretailerforP150.00(whichwouldnowconsistsoftheP100.00costofthelumber,theP50.00costofshapingthelumberintoastool,andprofit),thecarpentryshopmustpaya12%VATofP6.00ontheP50.00valueitaddedtothepieceoflumberthatitmadeintoastool.ButitmaychargethefurnitureretailertheVATofP12.00passedontoitbythe lumberstoreaswellas theVATofP6.00 that thecarpentryshop itselfhas topay. Itsbuyer, the furnitureretailer,willpayP150.00,thepriceofthewoodenstool,andP18.00(P12.00+P6.00),thepassedonVATdueonthesame.

WhenthefurnitureretailersellsthewoodenstooltoacustomerforP200.00,itwouldhaveaddedtoitsP150.00acquisitioncostof thestool itsmarkupofP50.00 tocover itsoverheadandprofit.The furniture retailermust,however,payanadditional12%VATofP6.00ontheP50.00addonvalueofthestool.But itcouldcharge itscustomer all the accumulated VAT payments: the P 12.00 paid by the lumber store, the P 6.00 paid by thecarpentryshop,andtheotherP6.00duefromthefurnitureretailer,foratotalofP24.00.ThecustomerwillpayP200.00forthestoolandP24.00inpassedon12%VAT.

Now,wouldthefurnitureretailerpaytotheBIRtheP24.00VATthat itpassedontoitscustomerandcollectedfromhimatthestorescounter?NotalloftheP24.00.ThefurnitureretailercouldclaimacreditfortheP12.00andtheP6.00 in inputVATpayments that the lumberstoreand thecarpentryshoppassedon to itand that itpaidforwhenitboughtthewoodenstool.ThefurnitureretailerwouldjusthavetopaytotheBIRtheoutputVATofP6.00coveringitsP50.00markup.Thispaymentroundsoutthe12%VATdueonthefinalsaleofthestoolforP200.00.

WhentheVATlawfirsttookeffect,itwouldhavebeenunfairforafurnitureretailertopayallofthe10%VAT(theoldrate)onthewoodenstoolsinitsinventoryatthattimeandnotbeabletoclaimdeductionforanytaxonsalethatthelumberstoreandthecarpentryshoppresumablypassedontoitwhenitboughtthosewoodenstools.Toremedythisunfairness,Section105oftheNIRCgrantedthosewhomustpayVATforthefirsttimeatransitional

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input taxcreditof8%of thevalueof the inventoryofgoods theyhaveoractualvalueadded taxpaidonsuchgoodswhentheVATlawtookeffect.Thefurnitureretailerwouldthushavetopayonlya2%VATonthewoodenstoolsinthatinventory,giventhetransitionalinputVATtaxcreditof8%alloweditundertheold10%VATrate.

InthecasebeforetheCourt,FBDChadaninventoryofFortBonifaciolotswhentheVATlawwasmadetocoverthe sale of real properties for the first time. FBDC registered as newVAT payer and submitted to theBIR aninventoryof its lots.FBDCsought toapply the8% transitional input taxcredit thatSection105grants firsttimeVATpayerslikeitbuttheCIRwouldnotallowit.ThedissentingopinionofJusticeCarpioechoestheCIRsreasonfor suchdisallowance.When theGovernment sold theFortBonifacio lands toFBDC, theGovernmentpaidnosalestaxwhatsoeveronthatsale.Consequently,itcouldnothavepassedontoFBDCwhatcouldbethebasisforthe8%transitionalinputtaxcreditthatSection105provides.

The reasoningappearssoundat firstglance.ButSection105grantsall firsttimeVATpayers such transitionalinputtaxcreditof8%withoutanyprecondition.Itdoesnotsaythatataxpayerhastoprovethattheseller,fromwhomhebought thegoodsor the lands,paidsales taxeson them.Consequently, theCIRhasnoauthority toinsistthatsalestaxshouldhavebeenpaidbeforehandonFBDCsinventoryoflandsbeforeitcouldclaimthe8%transitionalinputtaxcredit.TheCourtsdecisioninG.R.158885andG.R.170680morethanamplyexplainsthispointandsuchexplanationneednotberepeatedhere.

Butthereisapointthathasapparentlybeenmissed.WhentheGovernmentsoldthemilitarylandstoFBDCfordevelopment into mixed residential and commercial uses, the presumption is that in fixing their price theGovernment took into account the price that private lands similarly situatedwould have fetched in themarketplaceat that time.Theclear intentwas toprivatizeownershipof those formermilitary lands. Itwouldmakenosense for the Government to sell the same to intended private investors at a price lesser than the price ofcomparableprivatelands.Thepresumptionisthatthesaledidnotgiveunduebenefittothebuyersinviolationoftheantigraftandcorruptpracticesact.

Moreover,thereisoneclearevidencethattheformermilitarylandsweresoldtoprivateinvestorsatmarketprice.After theGovernmentsold the landstoFBDC,thenwhollyownedbyBCDA,the lattersold55%of itsshares inFBDCtoprivateinvestorsinapublicbiddingwheremanycompeted.SinceFBDChadnoassetsotherthanthelandsitboughtfromtheGovernment,thebiddingwasessentiallyforthoselands.Therecanbenobetterwayofdeterminingthemarketpriceofsuchlandsthanawellpublicizedbiddingfor them, joinedinby interestedbonafidebidders.

Thus, since theGovernment sold its lands to investors atmarket price like theywere private lands, the priceFBDCpaidtoitalreadyfactoredinthecostofsalestaxthatpricesofordinaryprivatelandsincluded.ThismeansthatFBDC,whichboughtthelandsatprivatelandprice,shouldbeallowedlikeotherrealestatedealersholdingprivatelandstoclaimthe8%transitionalinputtaxcreditthatSection105grantswithnopreconditiontofirsttimeVATpayers.Otherwise,FBDCwouldbeputatagrossdisadvantagecomparedtootherrealestatedealers.Itwillhavetosellathigherpricesthanmarketprice,tocoverthe10%VATthattheBIRinsistsitshouldpay.Whereasitscompetitorswillpayonlya2%VAT,giventhe8%transitionalinputtaxcreditofSection105.TodenysuchtaxcredittoFBDCwouldamounttoadenialofitsrightstofairnessaqdtoequalprotection.

TheCourtwascorrectinallowingFBDCtherighttoberefundedtheVATthatitalreadypaid,applyinginsteadtotheVATtaxdueonitssalesthetransitionalinputVATthatSection105provides.

JusticeCarpioalsoargues that ifFBDCwillbegivena taxrefund, itwouldbesourced frompublic funds,whichviolatesSection 4(2) of theGovenm1ent AuditingCode that govemment funds or property cannot be used inordertobenefitprivateindividualsorentities.Theyshallonlybespentorusedsolelyforpublicpurposes.

ButtherecordsshowthatFBDCactuallypaidtotheBIRtheamountsforwhichitseeksaBIRtaxrefund.TheCIRdoesnotdenythisfact.FBDCwasforcedtopaycashontheVATdueon itssalesbecause theBIRrefused toapply the8% transitional inputVAT taxcredits that the lawallowed it.Since such tax creditswere sufficient tocovertheVATdue,FBDCisentitledtoarefundoftheVATitalreadypaid.And,contrarytothedissentingopinion,ifFBDCwillbegivenataxrefund,itwouldbesourced,notfrompublicfunds,butfromtheVATpaymentswhichFBDCitselfpaidtotheBIR.

LikethepreviouscasesbeforetheCourt,theBIRhastheoptiontorefundwhatFBDCpaiditwithequivalenttaxcredits.Suchtaxcreditshaveneverbeenregardedasneedingappropriationoutofgovernment funds. Indeed,FBDCconcedesinitsprayersthatitmaygetitsrefundintheformofaTaxCreditCertificate.

Fortheabovereasons,IconcurwithJusticeDelCastillo'sponencia.

ROBERTOA.ABADAssociateJustice

7/24/2015 G.R.No.173425


Footnotes

1FortBonifacioDevelopmentCorp.v.CommissionerofInternalRevenue,583SCRA168.

2FortBonifacioDevelopmentCorp.v.CommissionerofInternalRevenue,G.R.Nos.158885and170680,602SCRA159.

3WebstersNewWorldCollegeDictionary,Thirdedition,p.1474.


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