Case Summary (G.R. No. 150947)
Petitioner
Commissioner of Internal Revenue (CIR) seeks reversal of appellate rulings that invalidated RMO No. 15-91 and RMC No. 43-91 and cancelled Lhuillier’s deficiency assessment.
Respondent
Michel J. Lhuillier Pawnshop, Inc., a regulated pawnbroker under P.D. No. 114, which contends it is not a “lending investor” subject to Section 116 percentage tax.
Key Dates
• March 11, 1991: RMO No. 15-91 issued.
• May 27, 1991: RMC No. 43-91 issued.
• September 11, 1997: Assessment Notice for 1994 deficiency issued.
• October 3, 1997: Administrative protest filed.
• December 13, 2000: CTA decision cancelling assessment.
• November 20, 2001: CA affirmed CTA.
• July 15, 2003: Supreme Court decision.
Applicable Law
• 1987 Philippine Constitution (post-1990 decisions).
• National Internal Revenue Code (NIRC) of 1977 as amended by Executive Order No. 273.
• NIRC of 1986 (for definitional comparison).
• Presidential Decree No. 114 (Pawnshop Regulation Act).
• Revenue Memorandum Order No. 15-91 and Revenue Memorandum Circular No. 43-91.
Factual Background
The CIR classified pawnshops as “lending investors” under Section 116 of the 1977 NIRC, thereby subjecting them to a 5% percentage tax on gross income effective January 1, 1991. Lhuillier paid fixed annual taxes under P.D. 114 but refused to pay the new percentage tax. After issuance of an assessment for P3,360,335.11 (1994), Lhuillier protested administratively and elevated its protest to the CTA due to CIR inaction. The CTA and CA both held the administrative issuances invalid and cancelled the assessment.
Issue
Whether pawnshops are “lending investors” subject to the 5% percentage tax under Section 116 of the NIRC of 1977, as amended, and whether RMO No. 15-91 and RMC No. 43-91 are valid implementing rules.
Petitioner’s Contentions
• Section 116’s broad reference to “lending investors” encompasses pawnshops, as P.D. 114 defines pawnshops as lending money at interest.
• RMO No. 15-91 and RMC No. 43-91 are mere interpretations of existing tax law and thus valid without publication.
• Judicial precedent (Agencia Exquisite) supports the imposition of percentage tax on pawnshops.
Respondent’s Contentions
• Pawnshops and lending investors have distinct tax treatments under both the 1977 and 1986 Codes; pawnshops paid fixed annual taxes only.
• Administrative issuances imposing a new tax classification constitute impermissible taxation by implication and class legislation.
• RMO No. 15-91 and RMC No. 43-91 lack publication and notice, violating due process and rule-making requirements.
• Legislative attempts to amend Section 116 to include pawnshops (House Bill No. 11197) establish that pawnshops were not originally covered.
Validity of Administrative Issuances
The CIR’s power to promulgate rulings under Section 245 of the NIRC of 1977 is subject to consistency with the law. RMO No. 15-91 and RMC No. 43-91 effectively amend Section 116 by adding pawnshops, exceeding interpretative authority and imposing new burdens without legislative sanction or required notice, hearing, and publication.
Interpretation of “Lending Investors”
• Section 116 (1977 Code) lists only “dealers in securities” and “lending investors.” Pawnshops are not named.
• Section 157(u) of the 1986 Code defines “lending investors” broadly, but this definitional provision has no counterpart in the 1977 Code where Section 116 resides.
• Under expressio unius est exclusio alterius, omission of pawnshops from Section 116 implies exclusion.
Legislative Intent and Statutory Construction
Congress treated pawnshops and lending investors distinctly:
• Fixed annual taxes in Section 192(3)(dd) and (ff) (1977 Code) and Section 161(2)(dd) and (ff) (1986 Code) differentiate lending investors from pawnshops.
• House Bill No. 11197’s proposal to add pawnshops to Section 116 underscores legislative recognition that pawnshops were not covered.
• The Supreme Court must interpret tax statutes strictly in favor of taxpayers when doubt exists.
Repeal of Section 116 and Effect o
...continue readingCase Syllabus (G.R. No. 150947)
Facts
- On March 11, 1991, Commissioner Jose U. Ong issued Revenue Memorandum Order No. 15-91, classifying pawnshops as “lending investors” subject to the 5% percentage tax under Section 116 of the National Internal Revenue Code (NIRC) of 1977, as amended.
- Revenue Memorandum Circular No. 43-91 (May 27, 1991) clarified RMO No. 15-91, fixed January 1, 1991 as the cut-off date, extended payment without penalty until June 30, 1991, and imposed documentary stamp tax on pawnshops.
- On September 11, 1997, BIR Assessment Notice No. 81-PT-13-94-97-9-118 was issued against Lhuillier for P3,360,335.11 deficiency percentage tax for 1994, inclusive of interest and surcharges.
- Lhuillier filed an administrative protest on October 3, 1997, arguing (a) no express statutory basis for the 5% tax on pawnshops; (b) pawnshops are not lending investors; (c) RMO No. 15-91 and RMC No. 43-91 were new taxes without congressional enactment; (d) such issuances amount to impermissible class legislation.
- The protest was not acted upon by the BIR regional office or the CIR; a warrant of distraint and levy was issued on October 12, 1998.
- On November 11, 1998, Lhuillier appealed to the Court of Tax Appeals (CTA) under Section 228 of R.A. 8424.
Procedural History
- CTA denied CIR’s motion to dismiss for failure to state a cause of action and granted Lhuillier’s motion for a writ of preliminary injunction (June 30, 1999).
- On December 13, 2000, the CTA declared RMO No. 15-91 and RMC No. 43-91 null and void, and cancelled the assessment.
- CIR appealed to the Court of Appeals (CA G.R. SP No. 62463), which on November 20, 2001, affirmed the CTA decision.
- CIR filed a petition for review on certiorari with the Supreme Court, contending that pawnshops fall within the statutory definition of lending investors and that the administrative issuances are valid interpretations of Section 116 of the NIRC.
Issues
- Whether pawnshops are “lending investors” for purposes of the 5% percentage tax under Section 116 of the NIRC of 1977, as amended.
- Whether RMO No. 15-91 and RMC No.