Case Summary (G.R. No. 147295)
Key Dates
- Transaction Period: January 1996 to April 1997
- Administrative Refund Claim Filed: May 21, 1998
- CTA Decision: January 3, 2000
- CA Decision: November 17, 2000
- Supreme Court Decision: February 16, 2007
Applicable Law
- 1987 Philippine Constitution
- Presidential Decree No. 1869, Section 13 (PAGCOR charter)
- 1977 Tax Code, Section 102(b)(3) (now 1997 Tax Code, Section 108(b)(3))
- Civil Code, Articles 2142 and 2154 (solutio indebiti)
- Rule 45, Rules of Court
Facts
Acesite leased part of its hotel premises to PAGCOR for casino operations and supplied food and beverages to casino patrons. From January 1996 to April 1997, it incurred VAT of ₱30,152,892.02 on rentals and sales to PAGCOR. PAGCOR, invoking its tax-exempt status, paid only the net amounts, and Acesite remitted the disputed VAT to the CIR to avoid penalties. Realizing belatedly that services to a tax-exempt entity should be zero-rated, Acesite filed an administrative refund claim on May 21, 1998, and a petition with the CTA on May 29, 1998.
CTA and CA Rulings
The Court of Tax Appeals held that PAGCOR’s statutory exemption under PD 1869 extends to indirect taxes, rendering Acesite’s transactions zero-rated under Section 102(b)(3) of the 1977 Tax Code, and ordered a refund of ₱30,054,148.64. The Court of Appeals affirmed in toto, concluding that neither PAGCOR nor its contractors are liable for VAT on such transactions.
Issues
- Does PAGCOR’s tax exemption privilege include indirect taxes (VAT), entitling Acesite to a zero percent rate?
- Does Section 102(b)(3) of the 1977 Tax Code (now Section 108(b)(3) of the 1997 Tax Code) apply to Acesite’s transactions?
Analysis
P.D. 1869, Section 13 grants PAGCOR blanket exemption from “income and other taxes” and extends this benefit to entities contracting with PAGCOR. The broad language encompasses indirect taxes such as VAT. Section 13(2)(b) specifically prevents the shifting of any tax burden to contractors in casino operations.
Under Section 102(b)(3) of the 1977 Tax Code, services rendered to entities exempt under special laws are zero-rated. Acesite’s rentals and sales to PAGCOR qualify for the 0% VAT rate by law.
Acesite’s remittance of VAT was made under a mistake of fact, as it was unaware of PAGCOR’s exemption. The doctrine of solutio indebiti (Civil Code Arts. 2142 and 2154) allows recovery of payments made
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Facts
- Acesite (Philippines) Hotel Corporation owns and operates the Holiday Inn Manila Pavilion Hotel in Manila.
- It leased 6,768.53 square meters of hotel premises to the Philippine Amusement and Gaming Corporation (PAGCOR) for casino operations.
- Acesite also provided food and beverage services to PAGCOR’s casino patrons.
- From January 1996 to April 1997, Acesite incurred Value-Added Tax (VAT) amounting to ₱30,152,892.02 on rental income and sale of food and beverages to PAGCOR.
- Acesite attempted to pass the VAT to PAGCOR, but PAGCOR refused to pay because of its tax-exempt status.
- PAGCOR paid Acesite only the net amount after deducting the quoted VAT; Acesite nonetheless remitted the full VAT to the Commissioner of Internal Revenue (CIR) out of concern for legal repercussions.
- Subsequently, Acesite realized that its transactions with PAGCOR were effectively zero-rated due to PAGCOR’s tax-exempt status.
- On May 21, 1998, Acesite filed an administrative claim for VAT refund with the CIR, which remained unresolved, prompting Acesite to file a petition before the Court of Tax Appeals (CTA) on May 29, 1998.
Procedural History
- The CTA (Presiding Judge Ernesto D. Acosta) ruled in favor of Acesite, ordering a refund of ₱30,054,148.64 based on the zero-rate provision and the principle of solutio indebiti.
- The CIR appealed to the Court of Appeals (CA-G.R. SP No. 56816), which, in a November 17, 2000 decision, affirmed the CTA ruling in toto, holding that PAGCOR’s exemption from indirect taxes effectively zero-rated Acesi