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Jazem A.

Ansama

11186631

CIR vs. CA and Comaserco


G.R. No. 125355
March 30, 2000
Facts:
Commonwealth Management and Services Corporation (COMASERCO) is a domestic
corporation. It is an affiliate of Philippine American Life Insurance Co. (Philamlife). It was
organized by the latter to perform collection, consultative and other technical services, including
functioning as an internal auditor, of Philamlife and its other affiliates.
In 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private
respondent COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.00 for
taxable year 1988. In the same year, COMASERCO filed with the BIR, a letter-protest objecting
to the latters finding of deficiency VAT. Afterwards, the Commissioner of Internal Revenue sent
a collection letter to COMASERCO demanding payment of the deficiency VAT. The following
month of the same year, COMASERCO filed with the CTA a petition for review contesting the
Commissioners assessment. COMASERCO asserted that: 1) it was on a no-profit,
reimbursement-of-cost-only basis; 2) it was not engaged in the business of providing services
to Philamlife and its affiliates; 3) COMASERCO was established to ensure operational
orderliness and administrative efficiency of Philamlife and its affiliates, not on the sale of
services; and 4) it even did not generate profit but suffered a net loss in taxable year 1988.
Thus, it was not liable to pay VAT.
In 1995, the CTA rendered a decision in favor of the Commissioner with slight
modifications. COMASERCO was liable to pay the amount of P335,831.01. During the same
year, COMASERCO filed with the CA, a petition for review of the decision of the CTA. The CA
ruled in favor of the respondent and based its decision in another tax case involving the same
parties where it was held that COMASERCO was not liable to pay fixed and contractors tax and
it was not engaged in business of providing services to Philamlife and its affiliates. Hence, this
petition was filed before the SC.
Issue:
Whether or not COMASERCO is engaged in the sale of services, thus liable to pay VAT.
Held:
Yes. Contrary to COMASERCOs contention, Sec. 105 of the Tax Code states 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.
As long as the entity provides service for a fee, remuneration or consideration, then the
service rendered is subject to VAT. 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. Section 109 of the Tax Code enumerates the transactions exempted from VAT. The
services rendered by COMASERCO do not fall within the exemptions. It falls under Section 108
of the Tax Code in which it defines the phrase sale of services as the performance of all kinds
of services for others for a fee, remuneration or consideration.

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