CIR vs. Magsaysay Lines Post under case digests, Taxation at Tuesday, March 13, 2012 Posted by chi!o"hrenic Mind #acts$ Pursuant to a govern%ent "rogra% o& "rivati!ation, The '(C decided to se)) in one )ot its 'MC shares and *ve +- o& its shi"s, hich are 3,/00 (T Teen (ecer, 4)oecner ty"e vesse)s.The vesse)s ere constructed &or the '(C beteen 1561 and 1567, then initia))y )eased to Lu!on tevedoring Co%"any, a)so its ho))yoned subsidiary. ubse8uent)y, the vesse)s ere trans&erred and )eased, on a bareboat bareboat basis, to the 'MC. The 'MC shares and the vesse)s ere o9ered &or "ub)ic bidding. :%ong the sti"u)ated ter%s and conditions &or the "ub)ic auction as that the inning bidder as to "ay a va)ue added tax o& 10; on the va)ue o& the vesse)s. 6,000,000.00. The bid as %ade by Magsaysay Lines, "ur"orted)y &or a ne co%"any sti)) to be &or%ed co%"osed o& itse)& and as a""roved by the Co%%ittee on Privati!ation, and a 'otice o& :ard dated 1 =u)y 1566 as issued to Magsaysay Lines ho in turn as assessed o& ?:T through ?:T Ru)ing 'o. >666 dated 17 (ece%ber 1566 &ro% the @IR, ho)ding that the sa)e o& the vesse)s as subAect to the 10; ?:T. The ru)ing cited the &act that '(C as a ?:Tregistered enter"rise, and thus its transactions incident to its nor%a) ?:T registered activity o& )easing out "ersona) "ro"erty inc)uding sa)e o& its on assets that are %ovab)e, tangib)e obAects hich are a""ro"riab)e or trans&erab)e are subAect to the 10; B?:T.
CT: ru)ed that the sa)e o& a vesse) as an iso)ated transaction, not done in the ordinary course o& '(CDs business, and as thus not subAect to ?:T, hich under ection 55 o& the Tax Code, as a"")ied on)y to sa)es in the course o& trade or business. The CT: &urther he)d that the sa)e o& the vesse)s cou)d not be dee%ed sa)e, and thus subAect to ?:T, as the transaction did not &a)) under the enu%eration o& transactions dee%ed sa)e as )isted either in ection 100+b- o& the Tax Code, or ection 7 o& R.R. 'o. 6/. #ina))y, the CT: ru)ed that any case o& doubt shou)d be reso)ved in &avor o& "rivate res"ondents since ection 55 o& the Tax Code hich i%")e%ented ?:T is not an exe%"tion "rovision, but a c)assi*cation "rovision hich arranted the reso)ution o& doubts in &avor o& the tax"ayer. Eence CIR a""ea)ed the CT: (ecision.
Issue$hether the sa)e by the 'ationa) (eve)o"%ent Co%"any +'(C- o& *ve +- o& its vesse)s to the "rivate res"ondents is subAect to va)ueadded tax +?:T- under the 'ationa) Interna) Revenue Code o& 156> +Tax Code- then "revai)ing at the ti%e o& the sa)e. The &acts are cu))ed "ri%ari)y &ro% the ru)ing o& the CT:.
Ee)d$ '
?:T is u)ti%ate)y a tax on consu%"tion, even though it is assessed on %any )eve)s o& transactions on the basis o& a *xed "ercentage. It is the end user o& consu%er goods or services hich u)ti%ate)y shou)ders the tax, as the )iabi)ity there&ro% is "assed on to the end users by the "roviders o& these goods or services ho in turn %ay credit their on ?:T )iabi)ity +or in"ut ?:T- &ro% the ?:T "ay%ents they receive &ro% the *na) consu%er +or out"ut ?:T-. The *na) "urchase by the end consu%er re"resents the *na) )in in a "roduction chain that itse)& invo)ves severa) transactions and severa) acts o& consu%"tion. The ?:T syste% assures *sca) ade8uacy through the co))ection o& taxes on every )eve) o& consu%"tion, yet assuages the %anu&acturers or "roviders o& goods and services by enab)ing the% to "ass on their res"ective ?:T )iabi)ities to the next )in o& the chain unti) *na))y the end consu%er shou)ders the entire tax )iabi)ity.
Het ?:T is not a singu)ar%inded tax on every transactiona) )eve). Its assess%ent bears direct re)evance to the tax"ayerDs ro)e or )in in the "roduction chain. Eence, as ar%ed by ection 55 o& the Tax Code and its subse8uent incarnations, the tax is )evied on)y on the sa)e, barter or exchange o& goods or services by "ersons ho engage in such activities, in the course o& trade or business. These transactions outside the course o& trade or business %ay invariab)y contribute to the "roduction chain, but they do so on)y as a %atter o& accident or incident. :s the sa)es o& goods or services do not occur ithin the course o& trade or business, the "roviders o& such goods or services ou)d hard)y, i& at a)), have the o""ortunity to a""ro"riate)y credit any ?:T )iabi)ity as against their on accu%u)ated ?:T co))ections since the accu%u)ation o& out"ut ?:T arises in the *rst ")ace on)y through the ordinary course o& trade or business.
That the sa)e o& the vesse)s as not in the ordinary course o& trade or business o& '(C as a""reciated by both the CT: and the Court o& :""ea)s, the )atter doing so even in its *rst decision hich it eventua))y reconsidered. e cite ith a""rova) the CT:Ds ex")anation on this "oint$
In I%"eria) v. Co))ector o& Interna) Revenue, J.R. 'o. L/527, e"te%ber 30, 15 +5/ Phi). 552-, the ter% carrying on business does not %ean the "er&or%ance o& a sing)e disconnected act, but %eans conducting, "rosecuting and continuing business by "er&or%ing "rogressive)y a)) the acts nor%a))y incident thereo&K hi)e
doing business conveys the idea o& business being done, not &ro% ti%e to ti%e, but a)) the ti%e.Course o& business is hat is usua))y done in the %anage%ent o& trade or business
Court ex")ained that course o& business or doing business connotes regu)arity o& activity. In the instant case, the sa)e as an iso)ated transaction. The sa)e hich as invo)untary and %ade "ursuant to the dec)ared "o)icy o& Jovern%ent &or "rivati!ation cou)d no )onger be re"eated or carried on ith regu)arity. It shou)d be e%"hasi!ed that the nor%a) ?:Tregistered activity o& '(C is )easing "ersona) "ro"erty.
This *nding is con*r%ed by the Revised Charter o& the '(C hich bears no indication that the '(C as created &or the "ri%ary "ur"ose o& se))ing rea) "ro"erty. The conc)usion that the sa)e as not in the course o& trade or business, hich the CIR does not dis"ute be&ore this Court, shou)d have de*nitive)y sett)ed the %atter. :ny sa)e, barter or exchange o& goods or services not in the course o& trade or business is not subAect to ?:T. :ccording)y, the Court ru)es that given the undis"uted *nding that the transaction in 8uestion as not %ade in the course o& trade or business o& the se))er, '(C that is, the sa)e is not subAect to ?:T "ursuant to ection 55 o& the Tax Code, no %atter ho the said sa)e %ay he to those transactions dee%ed sa)e as de*ned under ection 100. Petition (enied.
