G.R. No. 132624 - Banares II vs. Balising

National Development Company (NDC) decided to privatize its wholly-owned subsidiary, National Marine Corporation (NMC), by selling all NMC shares and five 3,700 DWT Tween-Decker vessels in one lot.
The vessels were constructed between 1981 and 1984, initially leased to Luzon Stevedoring Company and later on a bareboat basis to NMC.

Public auction terms required the winning bidder to pay a 10% value-added tax (VAT) on the vessels’ value.
On June 3, 1988, Magsaysay Lines, Inc. (for itself, Baliwag Navigation, Inc., and FIM Limited) bid ₱168,000,000; received Notice of Award on July 1, 1988.
Contract of Sale executed September 28, 1988, with clause 11.02 stating: “value-added tax, if any, shall be for the account of the PURCHASER.” An irrevocable letter of credit secured VAT payment.

BIR issued VAT Ruling No. 568-88 (December 14, 1988), holding the sale subject to 10% VAT; reiteration in Ruling No. 007-89 (February 24, 1989).
NDC drew on the letter of credit and paid ₱15,120,000 VAT on March 16, 1989.
Private respondents filed for refund with the CTA (April 10, 1989; supplemental July 14, 1989) and separately with the BIR (July 13, 1989).

CTA Decision (April 27, 1992): sale was an isolated transaction, not in NDC’s trade/business course; not a “deemed sale”; VAT refund granted.
Court of Appeals Decision (March 11, 1997): reversed CTA, deeming the sale a VAT-able “deemed sale” (change of ownership of business).
CA Resolution (February 5, 2001): upon reconsideration, affirmed CTA; held “change of ownership” must accompany retirement/cessation; sale outside VAT.
CIR elevated the case to the Supreme Court under G.R. No. 146984.

Whether the sale of the five vessels by NDC to private respondents is subject to 10% VAT under the 1986 Tax Code.
Whether “deemed sale” provisions (Section 100 of the Tax Code; Section 4 of RR No. 5-87) apply regardless of whether a sale occurs “in the course of trade or business” under Section 99.