DCCD Engineering Corporation vs. The Commissioner of Internal Evens E

DECISION -

CTA CASE N O ~ 3158

- 3 - On February 12, 1979 , r espondent Commissioner of Internal Revenue informed petitioner t a t its c aim for •re fund was referred to the Chief , Services and Miscel- l aneous Tax Division of his office for study , but since then~o action or decision was seasonably t aken or ren- dered by respondent on t he matter . \ Hence this petition for review .

....

..

The case was submitted for dec i sion on the basis of the p eadin~s and the records of the Bureau of Intetnal Reven e i n this proceeding , and no memoranda were filed by the par ties .

Petitioner contends that on the basi s of Section 6. 03 •

of Article VI of the

11Agreement" it entered into with the Government through the Ministry of Public Highways , · t aking into considerati on the mandate of Letter of Ins- tructions No . 128 , petitioner i s not liable for the payment of the contractor ' s tax assessed ! gainst it . and i s therefore enti t led to the r efund of'. the amount of P96 , 342 . 52 from respondent. Section 6. 03 of Article VI is reproduced hereundet:

(pp . 7-S .of the Agreement,

p. 113, BIR recor ds .) "6.03 Any and all compensations , pay ments, reimbur s ements or expens·es undertaken to be paid or assumed by the Government in favor of t he Consultant under this Agreement are understood to have been determined and established to be net of the Contractor Tax , Joint Ven t ure Tax, duties and other forms of Government levy attr ibutable to the services under this Agreement.

The Government, f or and on behalf of t he Consultant, $hall assume the burden of such taxes whether national or local, duties or levies , if any , payable on any and 283

DECISION -

CTA CASE

O. 3158 - 4 - all compen ations , payments, reimbur sements o expenses under t aken to be paid o ass umed by t he Government under th i s Agreement in f avor of t he Consultant."

Letter of Instructions No. 128 dated Sept ember 14, 1973 , cited by the Ministr y of Public Highways a s aut hor-:. i zing i t to agree to t he above cond i tion , i s as f ollows : {pp . 124-125 , BIR r ecords . )

"l'1ALACA.NAHG

Manila

LETTER OF INSTRUCTIONS

NO . 128 September 14, 1973

TO :

1 . The Secretary of Finance

2. The Director-General

National Economic and

Developmen t Authori t y In order to secure uniformity in the tax treatment of consultants contracted by t he Philippine Government, its agencies , · entities and i nstrumentalities in connection ~ith pro j ects , f i nanced with ~or e ign l oans , the fol l ow- i ng guidelines , in adqition to those already observed in t he r eview and appr oval of pro- j ects proposed f or f oteign f inancing, shall be f urther observed:

1 .

Approval of projec ts proposed by government agencies shall prescribe t he con- . dition that in negotia t i ng tax provisions in consul t ancy contracts entered i nto by such agencies in i mplementation of the foreign loan and i nvol ving utilization of l oan proceeds , t he agency concerned shall agree to provisions exempting consultants from taxes and duties unless otherwis e i ndicated by the cons ultan t s . 284 ..

DECISION -

CTA CASE NO . 3158 - 5 - 2.

With respect to proj ects proposed by "proprietary" government corporations , as well as those involving the private section ava il- i ng of government feasibility loans, approva of such proj ects shall be under the condition that the consultancy contracts to be ent ered into by such "proprietary" government corpo- . rations, including pr ivate sector contracts , 1 n· implementation of the foreign loan and i n- volving uti l i zation of loan proceeds , shall provide for the ,imposition of taxes and duties on the consultants irrespective of whether the •.taxes and .¢iuties are to be paid by the consu t ants or by the other party on a reimbursement basis .

You a~e hereby enjoined to act accoFdingly .

(SGD)

FERDINAND E. MARCOS

President

Republic of the Philippines"

Respondent i n his Answer alleges, among others , as special and affirmative defense , that the, provision in the agreement executed between petitioner and the Min i~ try _of Public Hi ghways "is the concern of the contracting parties and therefore 8 cannot bind the r espondent in ..

· recognizi ng t heir stipulations regarding exemption from the payment of tax. "

And that a' Tax exempti on privileges should always emanate from statutes expressly granting such pr i vileges and never implied. " 'The records of the Bureau of I nternal Revenue show that when this matt er was referred to that office .by the Ministry of Finance f or comment on the reques t for inter- cession by t he Ministry of Public Highways to consider the tax exempt status of petitioner and the granting of 285 .

. "

DECISION -

CTA CASE NO. 3158 - 6 - i ts claim f or r efund , the chief s of said Bureau ' s di f - feren t l egal divisions rendered two divergent v i e\'rs . 1The view entertained by the major ity was .for favorable acti on on petitioner ' s claim for r efund while t he minor- i ty wa~ f or t he den i a l of the refund & The opinion of he Chief of the Law Di vision (p . 197 , BIR r ~cords ) ~ concurred in by the Deputy Com- miss i oner of Internal Revenue and t he Chie f of the Liti gation Divi'G i on

p. 202 and pp . 229-2.36 , .BIR recor ds)'· is that the Commissi oner of I nterna l Revenue should gran t the refund.

To quote :

"i do not subscribe to t he proposed act ion of the Appellate Division 'seeking to deny the c laim for refund.

As stated in my Memorandum of J anuary 15 , 1980 , t he taxpayer i s exempt f rom the payment o f t he contractor as t ax based on LOI 128 which provides tha t "the. agency c oncerned shall agr e e t o provis ion exempting c onsul t ants f rom taxes and duties unless other- wi se indicated by the consul tants ." (Under - .

scor i ng s uppl ied). It may be stated that the agreement providing tax exemption i s ·based on Section 4-A of R. A. No . 4860, as inserted by P.D . No . 150 , quoted as follows : . ·• u SEC . 4·- A.

Upon the recommend .

ation of the .Secretary of Finance , in consul t a tion with the National Economic and Development Authority and approval ot t he President of the Phil i ppines, l oan agreements as we l l as contracts invol ving the availment of or ut i l i zation of the proceeds of loans , c redits or indebtedness obta ined under the pro- . visions of thi s Act, may provide f or t he exemption fr om taxes , charges, or other l evi es . 0 The provis o in the Agreement between the Philippine Governmen t , thru the Ministry of ~86 .

••

DECISION -

CTA CASE NO e 3158 - 7 Publ i c Highways , and the taxpayer s tating that payments by t he former shall be 11 net of the Contractor Ta '9 i mplements the above provisions of LOI 128 and P.D . No. 150.

This means that the contractor shall receive amount without billing the contractor 0 s tax against the · Philippine Government~ In this par ticul ar case, the t axpayer , i n effec t , was not allowed ~o. pass on the t ax to the Government . For in the case of the contractor ' s ta , the con- . t ractor althoug~ directly liable for t he pay- . m~nt of t he tax may legally pass on the same ~o the contractee.

For this reason, and s ince the government also agreed t o assume the pay- ment of the tax, it i s c lear that the t axpayer was relieved fr om paying the contractor 9 s tax . Such being the cas e , the payment of t he con- . t ractor 1 s tax by the taxpayer i s erroneous which entitles i t to a refund .

In view thereof , it i s r espectfully recom- mended that favorable action be taken on the above 6la im for r efund . "

On the other hand, the grounds relied on by the Chief of the Appellate Division and t he Revenue Service Chief .

(Legal) .in sustai ning the opposite view are as fol l ows : (p. 198, BIR records.)

"1. t or No . 128 i s not a tax- exemption grant.

The said directive merely enjoins government agencies concerned to agr~e to a provision ~~ exempting consultants from taxes and duties unless otherwise indicated by the consultants.

11 2.

The agr eement between. the Ministry of Publ i c Highways and t he herein taxpayer is not a tax-~xemp ti on grant ei t her , but it merely ·stipulates who shall assume the burden of pay- i ng the t ax. 11 It is argued f urther that since the 3% contractor ' ~ tax paid by petitioner was not er roneously or illegall y recei ved by the Bureau of Internal Revenue, t he reim- bursement of t he tax paid should be a matter to be • ·.

DECISION -

CTA CASE NO. 3158 - 8 - resolved be tween the .Minis try of Public Highways and petitioner DCCD Engineering Corporation . Undoubtedly , there i s no dispute that in accor d- ance with t he Agreement, the government i s under obli- gati on to refund the said contractor ' s tax to peti t i oner . The ~on trove rsy hinges on who should issue the refund? I s i t ' the Ministry of Publ ic Highways or the Commiss i oner of Internal Revenue?

We are in accord . with the majority view that re~- pondent Commissioner of Internal Revenue should issue the refund • .

As pointed out by the Chief of the Law Divis1on , Articl e VI , Section 6.03 of the "Agreement for Super- vision of C6nstruction Services" implements the pro- visi ons of Letter of Instructions No. 128 and Secti on 4-A of Republic Act No G 4860 as inserted by Presidential Decree No . 150 .

'There is no doubt that theabove- mentioned .

· Section 6 . 03 was included to comply with the provision of Let ter of Instructions No . 128 that "approval of projects proposed by government agencies shall pres- cribe the condi tion that in negotiating tax provi sions in consultancy contracts entered into by such agencies in impl ementation of the fore i gn l oan and i nvolving uti- lization of loan proceeds, t he agency shall agree to provisions exempting consultants fr om t axes and duties ,/ 288 ·.

DECISION -

CTA CASE NO . 3158 - 9 - ~n l ess o therwise i ndicated by the consultants." (Under- seer ing supplied . ) . The intention behind t he promul- . gati on of Letter of I nstructions No . 128 ·is to secure uniformity in the tax treatment of consultants con- ..

tracted by the Philippine Government and i ts agenc ies in connecti on with projects financed with foreign l oans . ' 1hus , Ar t icle VI , Section 6. 03 i s expl icit -that "any and all compensations , payments , reimbur sements or expenses undertaken to be paid or assumed .by t he Governmen t i n favor of t he Consultant under t his Agree- ment are understood t o have been deter mi ned and estab- ·l i shed to be net of the Contr actor Tax", which bu'rden the Government shall assume for and on behalf of the Consultant e Under the above proviso , petitionerw s gros~ r ecei pts are not exempted from the payment of the contractor ' s tax , but peti tioner i s r elieved f rom such" t ax liability . ..

by r easorr of the assumption by the Government of the bur den of s uch tax l iabil ity . While i t is true that th i s t ax exempt ion agreement is not a direct t ax exemption grant , it i s neverthel ess bindi ng upon r espondent as it i ~ c learly sanctioned by Letter of I ns tructions No . 128 and Sect ion 4-A of Republic Act No. 4860 .

Since by

authority of the afor ementioned l aws the Phi lippine Government had assumed peti tioner 8 s liabil ity for t he contract or ' s tax , r esponden t er r ed. i n coll ecting from petitioner t he said tax .

289 . .

DECISION -

CTA CASE NO s 3158 - .10 - ' The proponents for the denial of the claim for refund i nsi st t hat by virtue of Articl e VI , Section 16 e04 which is quoted below , the proper agency to make the r eimbursement is the Ministry of Public Highways whicH is the party t o the Agreement: (P o 8 of ,Agree-, .

ment, p. 113, BIR reqords. ) .

• "6.04 If notwithstanding the assurances of the preceding paragraph , the Consultant is, for any reason , compelled t o pay the Con- tractor Tax , Joi nt Venture Tax , duti es or l evies, then , in that event, the Gover nment will anticipate payment to or immediately re imburse t he Consultant f or such t axes , duties or levies mentioned in Art. 6. 03 assessed and collected against him in con- necti on with the Services. "

T~e authority to r efund erroneousl y or illegally received i nternal revenue taxes, and the 3% contractor ' s . tax is undisputedly an internal r evenue .tax , is vested exclusively with the Commissioner of Internal Revenue · under Section 309 (now Section 295) _of the National Internal Revenue Code .

Sec tion 309 (now ~.ection 295) of the Tax Code clear ~y and explicitly authorizes t he Commi ssioner of Internal Revenue to credi t or r e f und taxes erroneously or illegally received . Since t he defici ency contractor ' s tax under consider ation was erroneous ly , if not i llegally, col lected fr om peti t i oner by respondent, it follows that r espondent Commi ssioner of Internal Revenue , and not t he Ministry of Public Hig~ways, should i ssue the refund . 290 ., ·.

• . '

DECISION -

CTA CASE NO. 3158

I

- 11 - ACCORDINGLY, respondent Commissioner of I nternal Revenue is hereby ordered to refund t o petitioner DCCD Eng ineer ing Corporation t he amount of ~96 , 342 . 52 . Withou t pronouncement as t o costs. ·so- ORDERED.

Quezon City , Metro Manila, December 27, 1984.

I

CONCUR:

• ROAQUIN

e J udge Dissents i n s e parate opinion .

ALEX z •. REYES Assoc i ate Judge 291 ' .

Presidin

.. ..

/ · , ~

I

r .

,.

.

. .

REPUBLIC

O F TH£ PHILIPPINE:;

COURT OF TAX A.PP.EA.LS

QUEZON CIT1'

DCCD ENGINEERING CORPORATION , Petitioner , ·~·· - versus - C.T.A o CASE NO. 3158

• THE COMt-1ISSIONER OF INTERNAL

REVENUE, Respondent.

X

~- -- -·-

X

DISSENTING OPINION

..

Upon the facts on record and as so provided in an ·Agreement f or Supervision of Constructi on Services between the Government represented by the Ministry of Public Highways and the Norconsult A.S. / DCCD Engineer- ing Corporation , is that "The Government, f or and on behalf of the Consul tant, shall assume the burden of such t axes whether national or l ocal, duties or levies , if any 11 (Sec. 6.03) '· conformably with the authority that the "Agency concer ned shall agree to provisions exempting consultants from taxes and dut~es unless otherwise indicated by the consultants . 01 (LOI No . 128 , September 14 , 1973) •. This contractual stipulation i s by no means t he contempl ated statutory grant of ~ax exemption pr i vilege binding upon the Bureau of Internal Revenue.

The respondent Commissioner of I nternal Reve- nue had t herefore rightly demanded and collected the corresponding contractor 's tax l egally due on the pe.ti- tioner 's undertakingse 292 IF '.

•,

DISSENTING OPINION -

CTA CASE NO . 3158 2 Nonetheless , the payment by the petitioner of the tax did not exculpate the Ministry of Public 1 Highways from complying with its obligation per Agreement which remains valid and enforceablee As thus , ."If notwithstanding the assurances of the pre- ceding paragraph, the consultant is, for any r eason , \ coll\i?elled to pay the Contractor vs Tax , Joint Venture Tax, duties or l evies , in that event, the Government will an~icip ate payments to or i mmediately reimburse the consultant for such t axes, duties or levies men- tioned i n Article 6. 03 assessed and collected against him in cortnection to the services. 11 (Sec. 6&04 ,of the Agreement).. Suffice it t o state that Ministry of Public Highways has not r eneged in its commitment ' with such reassurance that "As a corollary action, we are r equesti ng the Budget Commission for the r elease of funds to cover the reimbursement in ~ase the reconsi- deration is denied .. "

(Letter of the Minister of Public

Highways to the Minister of Finance on November 14 , 1978 ) ~ The chips otherwise l eviable on the petitioner bu t for the contractual stipulation definitely l'ie with the Ministry of Public High\'rays upon which any recourse for relief must be addressed .

The respondent Commissioner of Internal Revenue cannot serve as a convenient "wailing wall" as woul d 293

DISSENTING OPINION -

CTA CASE NO . 3158 - 3

I

relieve pet i tioner 8 ~ predicament in a ti zzyly whipped- up short order claim to a ref und o This sounds sor t • of a barking a t the wrong tree expecting the unexpect ed . I c annot see my way c l ear in t reading t he same path preci- p itat~l y blazed by my disti nguished colleagues . Petition has to be dismi ssed with costs . \ Quezon Ci ty, Metro Manil a , February 11 , 1985 • 294 . ..