FIRST DIVISION

[G.R. No. 125355. March 30, 2000]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF

APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION, respondents. Court

DECISION

PARDO, J.:

What is before the Court is a petition for review on certiorari of the decision of the Court
of Appeals,[1] reversing that of the Court of Tax Appeals,[2] which affirmed with
modification the decision of the Commissioner of Internal Revenue ruling that
Commonwealth Management and Services Corporation, is liable for value added tax for
services to clients during taxable year 1988.

Commonwealth Management and Services Corporation (COMASERCO, for brevity), is

a corporation duly organized and existing under the laws of the Philippines. It is an
affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the letter to
perform collection, consultative and other technical services, including functioning
as an internal auditor, of Philamlife and its other affiliates.

On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to
private respondent COMASERCO for deficiency value-added tax (VAT) amounting to
P351,851.01, for taxable year 1988, computed as follows:

"Taxable sale/receipt P1,679,155.00

10% tax due thereon 167,915.50

25% surcharge 41,978.88

20% interest per annum 125,936.63

Compromise penalty for late payment 16,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P 351,831.01"[3]

COMASERCO's annual corporate income tax return ending December 31, 1988
indicated a net loss in its operations in the amount of P6,077.00. J lexj

On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the
latter's finding of deficiency VAT. On August 20, 1992, the Commissioner of Internal
Revenue sent a collection letter to COMASERCO demanding payment of the deficiency
VAT.

On September 29,1992, COMASERCO filed with the Court of Tax Appeals [4] a petition
for review contesting the Commissioner's assessment. COMASERCO asserted that
the services it rendered to Philamlife and its affiliates, relating to collections,
consultative and other technical assistance, including functioning as an internal
auditor, were on a "no-profit, reimbursement-of-cost-only" basis. It averred that it
was not engaged id the business of providing services to Philamlife and its affiliates.
COMASERCO was established to ensure operational orderliness and administrative
efficiency of Philamlife and its affiliates, and not in the sale of services. COMASERCO
stressed that it was not profit-motivated, thus not engaged in business. In fact, it
did not generate profit but suffered a net loss in taxable year 1988. COMASERCO
averred that since it was not engaged in business, it was not liable to pay VAT.

On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the
Commissioner of Internal Revenue, the dispositive portion of which reads:

"WHEREFORE, the decision of the Commissioner of Internal Revenue

assessing petitioner deficiency value-added tax for the taxable year 1988
is AFFIRMED with slight modifications. Accordingly, petitioner is ordered
to pay respondent Commissioner of Internal Revenue the amount of
P335,831.01 inclusive of the 25% surcharge and interest plus 20%
interest from January 24, 1992 until fully paid pursuant to Section 248 and
249 of the Tax Code.

"The compromise penalty of P16,000.00 imposed by the respondent in her

assessment letter shall not be included in the payment as there was no
compromise agreement entered into between petitioner and respondent
with respect to the value-added tax deficiency."[5]

On July 26, 1995, respondent filed with the Court of Appeals, petition for review of the
decision of the Court of Appeals.

After due proceedings, on May 13, 1996, the Court of Appeals rendered decision
reversing that of the Court of Tax Appeals, the dispositive portion of which reads: Lexj
uris

"WHEREFORE, in view of the foregoing, judgment is hereby rendered

REVERSING and SETTING ASIDE the questioned Decision promulgated
on 22 June 1995. The assessment for deficiency value-added tax for the
taxable year 1988 inclusive of surcharge, interest and penalty charges are
ordered CANCELLED for lack of legal and factual basis."[6]

The Court of Appeals anchored its decision on the ratiocination in another tax case
involving the same parties,[7] where it was held that COMASERCO was not liable to pay
fixed and contractor's tax for services rendered to Philamlife and its affiliates. The Court
of Appeals, in that case, reasoned that COMASERCO was not engaged in business of
providing services to Philamlife and its affiliates. In the same manner, the Court of
Appeals held that COMASERCO was not liable to pay VAT for it was not engaged in the
business of selling services.

On July 16, 1996, the Commissioner of Internal Revenue filed with this Court a
petition for review on certiorari assailing the decision of the Court of Appeals.

On August 7, 1996, we required respondent COMASERCO to file comment on the

petition, and on September 26, 1996, COMASERCO complied with the resolution. [8]

We give due course to the petition.

At issue in this case is whether COMASERCO was engaged

in the sale of services, and thus liable to pay VAT thereon.
Petitioner avers that to "engage in business" and to "engage in the sale of services" are
two different things. Petitioner maintains that the services rendered by COMASERCO to
Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is a tax
on the value added by the performance of the service. It is immaterial whether
profit is derived from rendering the service. Juri smis

We agree with the Commissioner.

Section 99 of the National Internal Revenue Code of 1986, as amended by Executive

Order (E.O.) No. 273 in 1988, provides that:

"Section 99. Persons liable. - Any person who, in the course of trade or
business, sells, barters or exchanges goods, renders services, or engages
in similar transactions and any person who imports goods shall be subject
to the value-added tax (VAT) imposed in Sections 100 to 102 of this
Code."[9]

COMASERCO contends that the term "in the course of trade or business" requires that
the "business" is carried on with a view to profit or livelihood. It avers that the activities
of the entity must be profit- oriented. COMASERCO submits that it is not motivated by
profit, as defined by its primary purpose in the articles of incorporation, stating that it is
operating "only on reimbursement-of-cost basis, without any profit." Private respondent
argues that profit motive is material in ascertaining who to tax for purposes of
determining liability for VAT.

We disagree.

On May 28, 1994, Congress enacted Republic Act No. 7716, the Expanded VAT Law
(EVAT), amending among other sections, Section 99 of the Tax Code. On January 1,
1998, Republic Act 8424, the National Internal Revenue Code of 1997, took effect. The
amended law provides that:

"SEC. 105. Persons Liable. - Any person who, in the course of trade or
business, sells, barters, exchanges, leases goods or properties, renders
services, and any person who imports goods shall be subject to the value-
added tax (VAT) imposed in Sections 106 and 108 of this Code.

"The value-added tax is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to existing sale or
lease of goods, properties or services at the time of the effectivity of
Republic Act No.7716.

"The phrase "in the course of trade or business" means the regular
conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether or not
the person engaged therein is a nonstock, nonprofit organization
(irrespective of the disposition of its net income and whether or not it sells
exclusively to members of their guests), or government entity. Jjj uris

"The rule of regularity, to the contrary notwithstanding, services as defined

in this Code rendered in the Philippines by nonresident foreign persons
shall be considered as being rendered in the course of trade or business."

Contrary to COMASERCO's contention the above provision clarifies that even a non-
stock, non-profit, organization or government entity, is liable to pay VAT on the sale of
goods or services. VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or property, and on
the performance of services, even in the absence of profit attributable thereto.
The term "in the course of trade or business" requires the regular conduct or pursuit of a
commercial or an economic activity, regardless of whether or not the entity is profit-
oriented.

The definition of the term "in the course of trade or business" incorporated in the
present law applies to all transactions even to those made prior to its enactment.
Executive Order No. 273 stated that any person who, in the course of trade or business,
sells, barters or exchanges goods and services, was already liable to pay VAT. The
present law merely stresses that even a nonstock, nonprofit organization or government
entity is liable to pay VAT for the sale of goods and services.

Section 108 of the National Internal Revenue Code of 1997 [10] defines the phrase "sale of
services" as the "performance of all kinds of services for others for a fee, remuneration
or consideration." It includes "the supply of technical advice, assistance or services
rendered in connection with technical management or administration of any scientific,
industrial or commercial undertaking or project."[11]
On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No.
010-98[12] emphasizing that a domestic corporation that provided technical, research,
management and technical assistance to its affiliated companies and received
payments on a reimbursement-of-cost basis, without any intention of realizing profit,
was subject to VAT on services rendered. In fact, even if such corporation was
organized without any intention of realizing profit, any income or profit generated by the
entity in the conduct of its activities was subject to income tax.lex

Hence, it is immaterial whether the primary purpose of a corporation indicates that it

receives payments for services rendered to its affiliates on a reimbursement-on-cost
basis only, without realizing profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT.

At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that
allow exemptions are construed strictly against the grantee and liberally in favor of the
government. Otherwise stated, any exemption from the payment of a tax must be
clearly stated in the language of the law; it cannot be merely implied therefrom. [13] In the
case of VAT, Section 109, Republic Act 8424 clearly enumerates the transactions
exempted from VAT. The services rendered by COMASERCO do not fall within the
exemptions.

Both the Commissioner of Internal Revenue and the Court of Tax Appeals
correctly ruled that the services rendered by COMASERCO to Philamlife and its
affiliates are subject to VAT. As pointed out by the Commissioner, the performance of
all kinds of services for others for a fee, remuneration or consideration is considered as
sale of services subject to VAT. As the government agency charged with the
enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the
absence of any showing that it is plainly wrong, is entitled to great weight.[14] Also, it has
been the long standing policy and practice of this Court to respect the conclusions of
quasi-judicial agencies, such as the Court of Tax Appeals which, by the nature of its
functions, is dedicated exclusively to the study and consideration of tax cases and has
necessarily developed an expertise on the subject, unless there has been an abuse or
improvident exercise of its authority.[15]

There is no merit to respondent's contention that the Court of Appeals' decision in CA-
G. R. No. 34042, declaring the COMASERCO as not engaged in business and not
liable for the payment of fixed and percentage taxes, binds petitioner. The issue in CA-
G. R. No. 34042 is different from the present case, which involves COMASERCO's
liability for VAT. As heretofore stated, every person who sells, barters, or exchanges
goods and services, in the course of trade or business, as defined by law, is subject to
VAT. Jksm

WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the
Court of Appeals in CA-G. R. SP No. 37930. The Court hereby REINSTATES the
decision of the Court of Tax Appeals in C. T. A. Case No. 4853.
No costs.

SO ORDERED.

Davide, Jr., C.J.,(Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.