Case Summary (G.R. No. L-10232)
Procedural History
The CTA consolidated the four petitions, focusing on whether gross receipts from cinema admission tickets constitute “sale of services” subject to the 10% VAT under Section 108 of the National Internal Revenue Code (NIRC) of 1997. The CTA First Division reversed the assessments; the CIR’s motion for reconsideration was denied. The CIR elevated the case to the CTA En Banc, which affirmed the First Division decision and held that cinema admissions fall outside the VAT-covered enumeration and remain subject solely to local amusement tax.
Issue
Whether operators or proprietors of cinema or theater houses must include gross receipts from admission tickets in the VAT base under Section 108 of the NIRC of 1997, or whether such receipts are exclusively taxable under the Amusement Tax provisions of the Local Government Code of 1991.
Interpretation of Section 108, NIRC
Section 108 levies a 10% VAT on gross receipts from the “sale or exchange of services,” listing examples introduced by the terms “including” and “similar services,” thereby indicating a non-exhaustive enumeration. While the lease of motion picture films is expressly covered, the “showing or exhibition” of films is not. The court therefore examined whether exhibition qualifies as a “similar service.”
Legislative and Historical Context of Amusement Taxes
Under the NIRC of 1939 and the 1977 Code, cinema admissions were subject to national amusement tax. The 1973 Local Tax Code transferred jurisdiction over amusement taxes on admissions to local governments. When the VAT law (EO 273) replaced certain percentage taxes in 1988, persons subject to amusement tax remained expressly exempt from VAT coverage.
Impact of LGC of 1991 and Subsequent VAT Laws
The Local Government Code of 1991 continued local authority to impose amusement tax (up to 30%) on cinema admissions. Subsequent VAT expansions and amendments (RA 7716, RA 8241, RA 9337) broadened service coverage but never included cinema admissions or altered the exemption of those already subject to amusement tax. Only lessors or distributors of cinematographic films are VAT-covered under current law.
Invalidity of RMC No. 28-2001
RMC No. 28-2001, which attempted to impose VAT on cinema admission receipts, conflicts with statutory law. Administrative issuances cannot override or expand tax bases beyond what the statute clearly
...continue readingCase Syllabus (G.R. No. L-10232)
Procedural Context
- Petition for Review on Certiorari under Rule 45 of the Rules of Court, in relation to Republic Act No. 9282, seeking to set aside the April 30, 2008 Decision and June 24, 2008 Resolution of the Court of Tax Appeals (CTA).
- Petitioner: Commissioner of Internal Revenue (CIR).
- Respondents: SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation (First Asia), both domestic corporations operating cinema houses among other businesses.
Factual Antecedents
- SM Prime (CTA Case No. 7079) received a Preliminary Assessment Notice (PAN) and subsequent Formal Letter of Demand from the BIR for VAT deficiency on cinema ticket sales for taxable year 2000 (around P119 million), which protested and ultimately led to a CTA petition filed October 15, 2004.
- First Asia filed multiple protests and CTA petitions for VAT assessments:
- Case No. 7085: PAN for taxable year 1999 (P35.8 million), petition filed October 20, 2004.
- Case No. 7111: PAN for taxable year 2000 (P35.84 million), petition filed December 16, 2004.
- Case No. 7272: PANs for taxable years 2002 and 2003 (P32.8 million and P28.2 million), petition filed June 22, 2005.
Consolidation and Central Issue
- CIR filed Answers to all petitions.
- SM Prime’s Motion to Consolidate CTA Case Nos. 7085, 7111, and 7272 with No. 7079 was granted on July 1, 2005, due to identical issues and SM Prime’s majority shareholding in First Asia.
- The sole issue submitted: whether gross receipts from admission tickets by cinema/theater operators are subject to 10% VAT under Section 108 of the 1997 National Internal Revenue Code (NIRC), as amended.
CTA First Division Ruling
- Date: September 22, 2006.
- Held that exhibition of cinematographic films is not a VAT-able service under the NIRC but is subject to local amusement tax under the Local Government Code (LGC) of 1991.
- Relied on legislative history, House Joint Resolution No. 13 expressing intent that only local amusement tax (up to 30%) apply to theaters.
- Invalidated Revenue Memorandum Circular (RMC) No. 28-2001 for failure to comply with procedural due process under RMC No. 20-86.
- Ordered cancellation of Assessment Notices Nos. VT-00-000098, VT-99-000057, VT-00-000122, 003-03, and 008-02.
- Reconsideration denied December 14, 2006.
CTA En Banc Ruling
- Docketed as CTA EB No. 244.
- Denied CIR’s Petition for Review and dismissed its Motion for Reconsideration.
- Held Section 108 NIRC provides an exhaustive list of services subject to VAT and does not