Case Digest: COMMISSIONER OF INTERNAL REVENUE v . PHILIPPINE GLOBAL COMMUNICATIONS, INC. 499 SCRA 53 (2006)

COMMISSIONER OF INTERNAL REVENUE v . PHILIPPINE GLOBAL COMMUNICATIONS, INC. 

The wordings of the Temporary Restraining Order suspended the implementation of the E-VAT law in its entirety, but not the collection of 10% VAT on service under the National Internal Revenue Code.

By reason of a legislative franchise, Respondent Philippine Global Communications, Inc. (PGCI) constructs, maintains and operates communications system subject to 3% franchise tax under the Tax Code. However, the said provision of the Tax Code on franchise tax was amended by Section 12 of the Expanded Value Added Tax Law (E-VAT Law) which omitted the 3% franchise tax imposed upon a telecommunications company.
A Temporary Restraining Order (TRO) was subsequently issued by the Court in the consolidated cases of Tolentino et al. v. Secretary of Finance, et al., “ordering all the respondents to cease and desist from enforcing and/or implementing the E-VAT Law.” By reason of the suspension of the E- VAT Law, PGCI filed a claim for tax refund before Respondent Commission of Internal Revenue (CIR) stating therein that upon the effectivity of the E-VAT Law, it was no longer required to pay the 3% franchise tax. Due to the inaction of CIR, PGCI filed a case against it before the Court of Tax Appeals (CTA). CTA ruled that BIR should refund the 3% to PGCI.

ISSUE:

Whether or not PGCI was exempted from paying franchise taxes during the effectivity of the TRO suspending the enforcement of the E-VAT Law.

HELD:

Under Section 12 of the E-VAT Law, the 3% franchise tax on “telephone and/or telegraph systems and radio broadcasting stations” to which category PGCI belongs was omitted. Under Section 3 of the E-VAT Law, however, PGCI’s sale of services is subject to VAT, thus, under the E-VAT Law, PGCI ceased to be liable to pay the 3% franchise tax. It instead is made liable to pay 10% VAT on sale of services.
The effectivity of the E-VAT Law was, however, suspended, by this Court when it issued a TRO pending the resolution of the Tolentino et al. cases challenging the constitutionality of the law. The wording of the order leaves no doubt that what was restrained by the TRO was the implementation of the E-VAT law in its entirety.
That the provisions of the Tax Code, prior to their amendment by the E-VAT Law, were to apply in the interim, that is, while the TRO in Tolentino et al. was effective, is clearly reflected in Revenue Memorandum Circular No. 27-94 issued by CIR which directed all internal revenue officers to comply with the following directives, to wit: “3. All VAT and non-VAT persons shall be governed by the provisions of the National Internal Revenue Code prior to its amendment by Republic Act No. 7716 x x x x 5. All other amendments of the NIRC made by RA 7716 shall be considered ineffective until the Supreme Court has declared otherwise.”
With the issuance of the TRO, the enforcement and/or implementation of the entire E-VAT law was stopped. The abolition of the 3% franchise tax on telecommunications companies, and its replacement by the 10% VAT, was effective and implemented only on January 1, 1996. Thus, PGCI’s claim for refund of the franchise tax must fail. To grant a refund of the franchise tax it paid prior to the effectivity and implementation of the VAT would create a vacuum and thereby deprive the government from collecting either the VAT or the franchise tax

Share this:

Leave a Reply