Bicolandia Drug Corporation vs. Commissioner Revenue, et al.

DECISION

This case involves a claim for refund or issuance of a tax credit ce1iificate of alleged overpaid income tax in the amount of P259,659.00 for the calendar year ended December 31, 1995. The alleged overpayment arose from Petitioner's interpretation that the 20% 'sales discount granted to senior citizens under Republic Act (R.A.) 7432 should be treated as tax credit instead of a deduction from gross income as declared by the Respondent in Revenue Regulations No. 2-94. The facts of the case are simple. PetitQoner is a corporation duly organized and existing under the laws of the Philippines (Exhs. ·I, J and R). It is engaged in the business of retailing pharmaceutical products under the business style of "MERCURY DRUG" (Exhs. A, A-1 to A-8, B, B-1 tR B-8, C and C-1): It is duly licensed by the Bureau of Food and Drugs to operate a 14'?0 drugstore with proper permits and licenses from the local government unit of the City of Naga and other government agencies (Exhs. K, L, P Q and R). I For the year 1995, Petitioner granted 20% sales discounts to qualified semor citizens on their purchases of medicines pursuant to R.A. 7432, otherwise known as "An ML""·-Act To Maximize The Contribution Of Senior Citizens To Nation Building, Grant Benefits And Special Privileges And For Other Purposes". Petitioner treated these discounts as a deduction from its gross income in compliance with Revenue Regulations No. 2-94 which implemented the aforesaid law. On April 15, 1996, Petitioner filed its 1995 Corporation Ammal Income Tax Return declaring a net loss position with a nil income tax liability. This final adjustment return treated the sales discounts granted to qualified senior citizens as a mere deduction instead of as a tax credit (Exhs. F, and F -1 to F -4 ). On December 27, 1996, Petitioner filed a letter claim for tax refund or credit with . the Appellate Division of the Bureau of Internal Revenue.(Exh. 0). The request for tax refund or credit with reference to the alleged overpaid income tax arose from Petitioner's contention I that Respondent erred in treating the 20% sales discounts given to senior citizens on their purchases of medicines as a deduction from its gross income for income tax purposes or other percentage tax purposes rather than as a tax credit. On April 6, 1998, Petitioner lodged its appeal with this Court in order to toll the running of the two-year prescriptive period to file a claim for refund pursuant to Section 230 of the Tax Code, as amended. In its Petition for Review, Petitioner contends that Section 4 of R.A. 7432 provides in clear and unequivocal language that discounts granted 14'?t1 . . ' ' to senior citizens may be claimed as TAX CREDIT. It further avers positively that Section 2(i) of Revenue Regulations No. 2-94 which is a mere administrative regulation, catmot modify .or alter the clear mandate of said law. Petitioner believes that Section 2(i) of Revenue Regulations No. 2-94 is illegal, void and without effect for being inconsistent "'-'i, with the statute it seeks to implement. -· Respondent, on the other hand, maintain the same argument in his Answer that Revenue Regulations No. 2-94 is valid considering that Republic Act No. 7432 has 1 mandated that the Department of Finance, among others, have the corresponding authority to issue necessat·y rules and regulations to carry out the objectives of the Act. Thus, the issues to be resolved by this Court are as follows: 1.

The proper interpretation of Section 4(a) of Republic Act No. 7432, insofar aR the treatment of the 20% sales discount granted to qualified senior citizens on their purchases of medicines; 2.

The validity of Revenue Regulations No. 2-94, implementing the aforesaid law, which treats the 20% sales discounts as a deduction from gross income for income tax purposes and from gross sales for value-added tax or other percentage tax purposes; and 3.

Whether or not Petitioner was able to prove with substantial evidence its claim for refund.

We find all the legal issues in favor of Petitioner. In fact, We have already ruled on these. similar issues in previous decisions enumerated hereunder, to wit: 1.

Tropical Hut Food Market, Inc.

vs.

Commissioner of Internal Revenue, CTA Case No. 5312, May 28, 1999; 14 '?'(' (

2.

Elmas Drug Corporation vs. Commissioner of Internal Revenue, CTA Case NO. 5311, August 27, 1998; 3.

Trinity Franchising & Management Corporation vs.

The Commissioner of Internal Revenue, CTA Case No. 5313, August 18, ' 1998;

4.

M.E. Holding Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5314, August 17, 1998; 5.

Baliuag Drug Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5365, May 13, 1998; 6.

Del Rosario Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5357, April6, 1998; 7.

Sto.

Rosario Drug Corporation vs.

Commissioner of Internal Revenue, CTA Case No. 5367, February 16, 1998 @n the aforementioned cases, this Court disposed of the legal issue in this wise: "After a painstaking scrutiny of the attending facts, the issues involved, the respective argumentation of the parties and the applicable jurisprudence, laws and regulations in point, this Court hereby rules in favor of the Petitioner.

A cursory review of the wordings of Section 4 of Republic Act No. 7432 would reveal that the law literally intended the cost of the 20% discount to be claimed as tax credit by private establishments. We could not · see any plausible reason for the Respondent to interpret the plu·ase in a different way. The discount being available for tax credit as stated in the law cannot be made incoherent to mean that such discount be utilized instead as a deduction from gross income and from gross sales as what is provided in RR No. 2-94.

To be valid, an administrative regulation must not be in contravention but should conform to the standards that the law prescribes. (Tayug Rural Bank vs. Central Bank,

146 SCRA

120) Its promulgation must be authorized by the legislature. (Philippine Administrative Law, Cruz, 1994 Ad., p. 32) 14'?8 (

RR No. 2-94 which engraved a new meaning to the phrase "tax credit" as refeiTing to the 20% discount which is deductible from gross sales is patently incongruous and a deviation from the plain intendment of the law. It is even repugnant to the common dictionary acceptation of said phrase. XXX XXX XXX In ,declaring that the provisions of RA 7432 prevail over Revenue Regulations No. 2-94, it is important to point out that the cost of the 20% discount shall not be treated as deduction from the gross income of the Petitioner nor deducted from its gross sales for VAT or other percentage tax purposes. The benefit that can be derived by taxpayers is the privilege of claiming these discounts as tax credit and no longer as deductions as what 'other taxpayers have done. They cannot avail of tax credit and claim said discounts as deductions at the same time because this would be tantamount to granting them benefits that are already disproportionate to the obligations imposed upon them by virtue of said law. This is to make clear for both the taxpayers and Respondent that the tax credit privilege takes the place of claiming these discounts as deductions pursuant to this Court's stand that Section 2(1) of Revenue Regulations No. 2-94 is null and void and it is Section 4(a) of RA 7432 that will apply in cases of this nature (Del Rosario Drug Corporation vs. Commissioner of Internal Revenue, C.T.A. Case No. 5U57, dated April 6, 1998, supra)." The aforecited ruling has been affirmed by the Court of Appeals in the case entitled Commissioner of Internal Revenue vs. Elmas Drug Corporation, CA-G.R. SP No. 49946, dated October 19, 1999. Pertinent portions of the said decision are quoted hereunder:

"(W)here the law is very clear, there is no room for interpretation. Section 4 of Republic Act 7432 clearly provides that the cost of the 20% discount may be claimed by Respondent as tax c;-edit and there is nothing more to interpret.

The Court of Tax Appeals, in its decision dated August 27, 1998 correctly ruled that the direct cost or the cost o(sales o(the 20% discount given to senior citizens is deductible as tax credit." (Underlining supplied). 14'?J !

I 

Having settled the legal issue involved in the case at bar, We are now tasked to resolve the factual issue of whether or not Petitioner is entitled to the claim for refund of overpaid income tax for the year 1995 based on the evidence submitted. It is apparent from the records of the case that the present claim for refund was ....:.

__ seasonably filed within the reglementary period of two years from the date of payment of the tax pursuPt to Section 230 of the Tax Code, as amended. The letter claim for refund was filed with the Respondent on December 26, 1996, and the Petition for Review was filed on April 7, 1998. The two-year period commences to run on April 15, 1996, the time when Petitioner filed its 1995 final adjustment return (Commissioner of Internal Revenue vs. TMX Sales, Inc. et al., G.R. No. 837736, dated January 15, 1992). In order to prove that it granted the 20% sales discounts to qualified senior citizens, Petitioner presented, among others, the various pre-marked cash slips which were previously examined by the commissioned independent certified public accountant. A, meticulous scrutiny of the evidence on record, together with the certification issued by the independent accountant, reveal the following: 1.

Not all the cash slips supporting the Summary of Sales and Discounts to Senior Citizens were presented; 2.

Some of the cash slips offered in evidence were not admitted by the Court in its Resolution, dated June 10, 1999; and 3.

Some of the cash slips were twice entered or not properly computed. These aforementioned observations by the Court will have the effect of reducing Petitioner's claimed 20% sales discount to P256,871.22, detailed as follows: 1480

Summation Summary of Summary Page No. Per Page 1 P 1,899.91 2 2,579.49 3 1,937.95 4 2,198.21 as) 2,313.61 6 1,590.04 7 1,942.99 8 2,320.43 9 2,101.31 10 2,086.91 11 2,148.92 12 2,233.38 13 2,397.35 14 2,142.08

15. 2,341.72 16 2,609.65 17 2,340.18 18 2,155.75 19 2,379.86 20 2,210.49 21 2,355.26 22 2,013.04 23 2,271.14 24 2,418.46 25 2,355.29 26 2,178.00 27 2,709.92 28 2,413.30 29 2,509.00 30 2,258.17 31 2,568.07 32 - 2,440.24 33 2,590.21 34 2,683.87 35 2,701.68 36 2,966.46 37 3,113.12 38 2,743.78 39 2,761.82 40 2,654.49 41 2,708.55 42 2,213.89 43 2,819.42 44 2,144.06 45 667.03 Substantiated By Evidence 1,899.91 2,510.89 1,937.95 2,198.21 2,313.61 1,541.50 1,942.43 2,320.43 2,101.31 2,086.91 2,148.92 2,233.38 2,397.35 2,142.08 2,341.72 2,573.07 2,340.18 2,155.75 2,244.13 2,210.49 2,315.50 2,013.04 2,271.14 2,418.46 2,355.29 2,134.10 2,709.92 2,413.30 2,509.00 2,258.17 2,568.07 2,440.24 2,590.21 2,683.87 2,679.31 2,966.46 3,113.12 2,743.78 2,761.82 2,654.49 2,708.55 2,213.79 2,819.42 2,144.06 667.03 Disallowances Made by the Court P 68.60 48.54 0.56 135.73 39.76 REMARKS Exh. U-2084 not admitted Exhs. U-2292 and 908 twice entered Exh. U-950 overstated Exh. U-2714 not admitted Exhs. U-2858 and U-2878 not admitted Exh. U-3029 not admitted Exh. U-3225 not admitted Exh. U-3225 not admitted Exh. U-4016 overstated

46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71:

72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 2,897.89 2,966.57 4,174.10 2,491.00 2,370.16 2,860.17 1,951.77 2,106.30 1,770.60 1,742.34 1,452.03 1,956.07 1,521.92 1,342.29 1,331.58 1,700.31 1,686.97 1,836.86 1,389.33 1,597.96 1,533.39 2,083.65 1,488.23 579.48 1,687.51 1,546.75 2,010.03 1,639.23 2,160.74 2,369.24 2,331.03 2,164.70 2,613.64 2,320.94 3,058.43 3,255.99 2,798.87 2,909.57 2,231.00 3,207.61.

2,694.77 2,805.89 2,411.30 4,106.67 2,373.74 1,955.31 2,837.71 1,835.76 2,080.54 1,718.77 1,692.52 1,415.07 1,644.04 1,481.81 1,308.44 1,331.58 1,676.96 157.45 398.36 1,407.74 2,083.65 1,462.23 579.48 1,687.51 1,527.26 1,991.83 1,639.23 2,160.74 2,336.55 2,331.03 1,850.79 462.41 2,320.94 2,985.51 2,963.97 1,021.28 2,909.57 2,231.00 2,107.47 1,850.05 92.00 155.27 67.43 117.26 414.85 22.46 116.01 25.76 51.83 49.82 36.96 312.03 40.11 33.85 23.35 1,529.52 1,836.86 1,389.33 1,199.60 125.65 26.00 19.49 18.20 32.69 313.91 2,151.23 72.92 292.02 1,777.59 1,100.14 844.72 b— i> oO:

CQ Exhs. U-269139 and U-269141 overstated Exhs. U-269190 and U-270009 twice entered; net overstatement in Exhs. U-269194 & U-270004 Exh. U-270051 not admitted and U-271201 not offered Exh. U-271433 & U-271643 not offered; and Exh. 271258 not admitted Exhs. U-271301 to U-371309 not offered Exh. U271310 not offered Exh. U-272801 not admitted Exh. U-272817 twice entered Exh. U-272856 twice entered Exhs. U273425 & U-273439 not admitted Exh. U-273488 not admitted Exhs. U476468 to U-476476 not offered;

Exh. U-273966 twice entered Exh. U-274000 not offered Exh. U-274125 not admitted Exh. U-274843 twice entered Exhs. U-276801 to U-276854 not admitted Exhs. U-276855 to U-276900 not admitted Exhs. U-276312 to U-276327, and Exhs. U-277325 to U-277363 not admitted Exhs. U-277365 to U-277400 not admitted Exh. U-278633 twice entered and Exhs. U-278610, U-278624 and U-278640 not admitted Exh. U-279334 twice entered Exh. U-280057 not admitted Exh. U-280835 not admitted Exh. U-281801 not admitted Exhs. U-282251 to U-282259 not admitted Exhs. U-282260 to U-282300 not admitted Exhs. U-282735 and U-282739 twice entered Exhs. U-282761, U-282762, U-282765 and U-282766 entered twice Exhs. U-282767 to U-282789 twice entered; and Exh. U-282900 not offered Exhs. U-283551 to U-283568 not offered Exhs. U-283569 to U-283577, U-283801 to

87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 ' 116 117 Total 2,601.90 2,341.52 2,280.40 2,814.53 2,845.08 2,429.96 2,431.84 2,697.79 2,970.50 3,179.91 2,325.78 2,506.84 3,121.32 2,652.19 2,658.61 2,861.46 2,471.28 2,373.87 2,985.41 2,892.04 3,238.59 3,140.85 2,731.75 2,912.15 3,242.20 3,020.10 2,457.81 2,623.45 2,947.99 2,655.21 447.43 P = 275,479.28 P 2,180.30 2,341.52 2,280.40 2,786.97 2,315.84 2,388.59 2,366.04 2,697.79 2,970.50 3,060.76 2,325.78 2,506.84 3,090.85 2,652.19 2,658.61 2,479.15 2,342.41 2,239.60 2,852.65 2,818.54 2,865.51 2,993.92 2,715.69 2,805.95 3,051.05 2,738.55 2,442.81 2,502.42 2,947.99 2,189.30 328.18 256,871.22 P 382.31 128.87 134.27 132.76 73.50 373.08 146.93 16.06 106.20 191.15 281.55 15.00 121.03 465.91 119.25 18,608.06 U-283803 not admitted; & U-283918 twice entered Exhs. U-283951 to U-283960 not offered Exh. U-284446 not aditted; and Exh. U-284603 overstated Exhs. U-284617 to U-284621, U-284634, U-284755, U-284771 and U-284772 twice entered Exh. U-284902 twice entered Exh. U-285151 not admitted Exh. U-285524 not admitted Exh. U-286227 & U-286228 not offered; and U-286264 twice entered Exhs. U-287002 & U-287028 not admitted; and U-287009 & U-287025 twice entered Exhs. U-287048 & U-287049 not admitted; and U-287055 not offered Exhs. U-287242 & U-287532 twice entered; and U-287520 not admitted Exh. U-287515 not admitted; and U-287833 not offered Exhs. U-288751 & U-288752 not offered Exhs. U-288001, U-288189, U-288190, U-288220, U-288221, U-288229 not offered; and U-288282 not admitted Exh. U0288229 not offered; and U-288518 twice entered Exh. U-288729 twice entered & U-28831 not offered Exh. U-289001 not offered; & U-289059 overstated Exh. U-289247 twice entered; and U-26316 not offered Exhs. U-289547, U-289549 & U-289550 not admitted; U-289551 not offered Exh. U-289954 not admitted Exh. U-289969 not admitted Exhs. U-290451 to U-290462 not offered Exhs. U-290463 & U-290464 not offered

Hence, Petitioner is only entitled to a lesser amount of P236,321.52, computed as followsV Net Sales Add: 20% Discount to Senior Citizens (Per Petitioner's Summary) Gross Sales Less: Cost of Sales Merchandise Inventory, beg. Add Purchases Total Goods Available for Sales .Less: Merchandise Inventory, End Gross Income Less: Operating Expenses Net Operating Loss Add: Miscellaneous Income ' , Net Loss Tax Due p 5,036,117.00 47,694,148.00 P52,730,265.00 11,620,255.00 Less: 1) Tax Credit- Cost of 20% Discounts with supporting documents [(P41 '11 0,01 O/P44,645,280.28) X P256,871.22] 2) Income Tax Payment for the Year Total Less: Amount to be applied as credit to next year Amount Refundable P44,369,801.00 275,479.28 P44,645,280.28 41,110,010.00 p 3,535,270.28 4,424,747.00 p 889,476.72 75 124.00 p 814,352.72 p p 236,321.52 99 920.91 p 336,242.43 99,920.91 p 236)21.52

WHEREFORE, in view of the foregoing, Petitioner's claim for refund is hereby partially GRANTED.

Respondent is hereby ORDERED to REFUND in favor of Petitioner the an1ount of P236,321.52, representing overpaid income tax for the year 1995.

WE CONCUR:

· ERNESTO D. ACOSTA Presiding Judge (Dissenting) AMANCIO Q. SAGA Associate Judge CERTIFICATION I hereby .

certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

1480 L-k(. ERNESTO D. A COST A Presiding Judge