Contex Corporation vs Commissioner of Internal Revenue
(G.R. No.151135, July 2, 2004)
Facts:
Petitioner Contex Corporation (CONTEX) is a domestic corporation
engaged in the business of manufacturing hospital textiles and garments and other hospital supplies for export. Petitioners place of business is at the Subic Bay Freeport Zone (SBFZ). It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant to the provisions of RA 7227. As an SBMA-registered firm, petitioner is exempt from all local and national internal revenue taxes except for the 5% preferential tax provided in RA 7227. Petitioner also registered with the BIR as a
The Court of Appeals reversed the CTAs ruling, hence, this petition.
Issue/s:
Was COMASERCO engaged in the sale of services, and thus, liable to
pay VAT?
Held:
Yes. Section 99 of the National Internal Revenue Code of 1986
provides that: Any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar transactions and any person, who, imports goods shall be subject to VAT imposed in Sections 100 to 102 of this Code. The Higher Court clarified the meaning of the term in the course of trade or business by citing Section 105 of RA 8424 which took effect on January 1, 1998. The phrase in the course of trade or business means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.
It is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its affiliates on a reimbursement-of-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides services for a fee, remuneration or consideration, then the service rendered is subject to VAT.
Taxation II Atty. D. Acosta-Cajustin
Page 1 of 2 Case Digests in Taxation II
Secondly, it is a rule that business taxes are the lifeblood of the
nation, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law, it cannot be merely implied therefrom. In the case of the VAT, Section 109, RA 8424 clearly enumerates the transactions exempted from VAT. The services rendered by COMASERCO do not fall within the exemptions.