FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 158885 October 2, 2009
Facts:
1. Petitioner Fort Bonifacio Development Corporation (FBDC) is engaged in the development and sale of real property.
2. On 8 February 1995, FBDC acquired by way of sale from the national government, a vast tract of land that formerly formed part of the Fort Bonifacio military reservation.
3. Since the sale was consummated prior to the enactment of Rep. Act No. 7716, no VAT was paid thereon.
4. FBDC then proceeded to develop the tract of land, and from October, 1966 onwards it has been selling lots located in the Global City to interested buyers.
5. Following the effectivity of Rep. Act No. 7716, real estate transactions such as those regularly engaged in by FBDC have since been made subject to VAT.
6. As the vendor, FBDC from thereon has become obliged to remit to the BIR output VAT payments it received from the sale of its properties.
7. FBDC likewise invoked its right to avail of the transitional input tax credit and accordingly submitted an inventory list of real properties it owned, with a total book value of P71,227,503,200.00.
8. FBDC sent two (2) letters to the BIR requesting appropriate action on whether its use of its presumptive input VAT on its land inventory, to the extent of P28,413,783.00 in partial payment of its output VAT, was in order.
9. After investigating the matter, the BIR recommended that the claimed presumptive input tax credit be disallowed on the basis of RR 7-95 and RMC 396.
10. Specifically, Section 4.1051 of RR 7-95 provides: In the case of real estate dealers, the basis of the presumptive input tax shall be the improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity of EO 273 (January 1, 1988).
Issues:
Whether Section 105 of the Old NIRC may be interpreted in such a way as to restrict its application in the case of real estate dealers only to the improvements on the real property belonging to their beginning inventory, and not the entire real property itself
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Ruling:
On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real properties, together with the improvements thereon, in the beginning inventory of goods, materials and supplies, based on which inventory the transitional input tax credit is computed. It can be conceded that when it was drafted Section 105 could not have possibly contemplated concerns specific to real properties, as real estate transactions were not originally subject to VAT. At the same time, when transactions on real properties were finally made subject to VAT beginning with Rep. Act No. 7716, no corresponding amendment was adopted as regards Section 105 to provide for a differentiated treatment in the application of the transitional input tax credit with respect to real properties or real estate dealers.
It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which made real estate transactions subject to VAT for the first time. Prior to the amendment, Section 100 had imposed the VAT "on every sale, barter or exchange of goods," without however specifying the kind of properties that fall within or under the generic class "goods" subject to the tax.
Rep. Act No. 7716, which significantly is also known as the Expanded ValueAdded Tax (EVAT) law, expanded the coverage of the VAT by amending Section 100 of the Old NIRC in several respects, some of which we will enumerate. First, it made every sale, barter or exchange of "goods or properties" subject to VAT. Second, it generally defined "goods or properties" as "all tangible and intangible objects which are capable of pecuniary estimation." Third, it included a nonexclusive enumeration of various objects that fall under the class "goods or properties" subject to VAT, including "real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business."
From these amendments to Section 100, is there any differentiated VAT treatment on real properties or real estate dealers that would justify the suggested limitations on the application of the transitional input tax on them? The court sees none.
Under Section 105, the beginning inventory of "goods" forms part of the valuation of the transitional input tax credit. Goods, as commonly understood in the business sense, refers to the product which the VAT registered person offers for sale to the public. With respect to real estate dealers, it is the real properties themselves which constitute their "goods." Such real properties are the operating assets of the real estate dealer.
Section 4.100-1 of RR No. 795 itself includes in its enumeration of "goods or properties" such "real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business." Said definition was taken from the very statutory language of Section 100 of the Old NIRC. By limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only contravened the definition of "goods" as provided in the Old NIRC, but also the definition which the same revenue regulation itself has provided.
As mandated by Article 7 of the Civil Code,3 an administrative rule or regulation cannot contravene the law on which it is based. RR 795 is inconsistent with Section 105 insofar as the definition of the term "goods" is concerned. This is a legislative act beyond the authority of the CIR and the Secretary of Finance.
A quasi-judicial body or an administrative agency for that matter cannot amend an act of Congress. Hence, in case of a discrepancy between the basic law and an interpretative or administrative ruling, the basic law prevails.
It is argued that the transitional input tax credit applies only when taxes were previously paid on the properties in the beginning inventory and that there should be a law imposing the tax presumed to have been paid.
When the aforesaid section speaks of "eight percent (8%) of the value of such inventory" followed by the clause "or the actual value-added tax paid on such goods, materials and supplies," the implication is clear that under the first clause, "eight percent (8%) of the value of such inventory," the law does not contemplate the payment of any prior tax on such inventory. This is distinguished from the second clause, "the actual value-added tax paid on the goods, materials and supplies" where actual payment of VAT on the goods, materials and supplies is assumed. Had the intention of the law been to limit the amount to the actual VAT paid, there would have been no need to explicitly allow a claim based on 8% of the value of such inventory.
It is apparent that the transitional input tax credit operates to benefit newly VAT registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies. During that period of transition from nonVAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT registered taxpayer is obliged to remit a significant portion of the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer’s income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT payments.
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