5 Commissioner of Internal Revenue vs. SM Prime Holdings, Inc., 613 SCRA 774, February 26, 2010

SUPREME COURT REPORTS ANNOTATED VOLUME 613 2/24/21, 12:12 AM
G.R. No. 183505. February 26, 2010.*
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs. SM PRIME HOLDINGS, INC. and FIRST ASIA
REALTY DEVELOPMENT CORPORATION, respondents.
Taxation; Value-Added Tax (VAT); Statutory Construction; A

cursory reading of Section 108 of the National Internal Revenue
Code of 1997 clearly shows that the enumeration of the „sale or
exchange of services‰ subject to Value-Added Tax (VAT) is not
exhaustive·the words, „including,‰ „similar services,‰ and „shall
likewise include,‰ indicate that the enumeration is by way of
example only.·Section 108 of the NIRC of the 1997 reads: x x x A
cursory reading of the foregoing provision clearly shows that the
enumeration of the „sale
_______________
* SECOND DIVISION.
775
http://www.central.com.ph/sfsreader/session/00000177cfa98e28823d3230003600fb002c009e/p/AUB913/?username=Guest Page 1 of 31
or exchange of services‰ subject to VAT is not exhaustive. The

words, „including,‰ „similar services,‰ and „shall likewise include,‰
indicate that the enumeration is by way of example only. Among
those included in the enumeration is the „lease of motion picture
films, films, tapes and discs.‰ This, however, is not the same as the
showing or exhibition of motion pictures or films. As pointed out by
the CTA En Banc: „Exhibition‰ in BlackÊs Law Dictionary is defined
as „To show or display. x x x To produce anything in public so that it
may be taken into possession‰ (6th ed., p. 573). While the word
„lease‰ is defined as „a contract by which one owning such property
grants to another the right to possess, use and enjoy it on specified
period of time in exchange for periodic payment of a stipulated
price, referred to as rent (BlackÊs Law Dictionary, 6th ed., p. 889). x
x x Since the activity of showing motion pictures, films or movies by
cinema/
theater operators or proprietors is not included in the enumeration,
it is incumbent upon the court to the determine whether such
activity falls under the phrase „similar services.‰ The intent of the
legislature must therefore be ascertained.
Same; Same; Cinema Houses; Several amendments were made
to expand the coverage of Value Added Tax but none pertain to
cinema/theater operators or proprietors·at present, only lessors or
distributors of cinematographic films are subject to Value-Added Tax
(VAT).·In 1994, RA 7716 restructured the VAT system by widening
its tax base and enhancing its administration. Three years later, RA
7716 was amended by RA 8241. Shortly thereafter, the NIRC of
1997 was signed into law. Several amendments were made to
expand the coverage of VAT. However, none pertain to
cinema/theater operators or proprietors. At present, only lessors or
distributors of cinematographic films are subject to VAT. While
persons subject to amusement tax under the NIRC of 1997 are
exempt from the coverage of VAT.
Same; Same; Same; Legal Research; Historically, the activity of
showing motion pictures, films or movies by cinema/theater
operators or proprietors has always been considered as a form of
entertainment subject to amusement tax; Only lessors or distributors
of cinematographic films are included in the coverage of Value-
Added Tax (VAT).·Based on the foregoing, the following facts can
be established: (1) Historically, the activity of showing motion
pictures, films or movies by cinema/theater operators or proprietors
has always been considered as a form of entertainment subject to
amusement
776
tax. (2) Prior to the Local Tax Code, all forms of amusement tax
were imposed by the national government. (3) When the Local Tax
Code was enacted, amusement tax on admission tickets from
theaters, cinematographs, concert halls, circuses and other places of
amusements were transferred to the local government. (4) Under
the NIRC of 1977, the national government imposed amusement
tax only on proprietors, lessees or operators of cabarets, day and
night clubs, Jai-Alai and race tracks. (5) The VAT law was enacted
to replace the tax on original and subsequent sales tax and
percentage tax on certain services. (6) When the VAT law was
implemented, it exempted persons subject to amusement tax under
the NIRC from the coverage of VAT. (7) When the Local Tax Code
was repealed by the LGC of 1991, the local government continued to
impose amusement tax on admission tickets from theaters,
cinematographs, concert halls, circuses and other places of
amusements. (8) Amendments to the VAT law have been consistent
in exempting persons subject to amusement tax under the NIRC
from the coverage of VAT. (9) Only lessors or distributors of
cinematographic films are included in the coverage of VAT. These
reveal the legislative intent not to impose VAT on persons already
covered by the amusement tax. This holds true even in the case of
cinema/theater operators taxed under the LGC of 1991 precisely
because the VAT law was intended to replace the percentage tax on
certain services. The mere fact that they are taxed by the local
government unit and not by the national government is immaterial.
The Local Tax Code, in transferring the power to tax gross receipts
derived by cinema/theater operators or proprietor from admission
tickets to the local government, did not intend to treat
cinema/theater houses as a separate class. No distinction must,
therefore, be made between the places of amusement taxed by the
national government and those taxed by the local government.
Same; Same; Same; The power of taxation is sometimes called
also the power to destroy, therefore, it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer·it
must be exercised fairly, equally and uniformly, lest the tax collector
kill the „hen that lays the golden egg.‰·To hold otherwise would
impose an unreasonable burden on cinema/theater houses operators
or proprietors, who would be paying an additional 10% VAT on top
of the 30% amusement tax imposed by Section 140 of the LGC of
1991, or a total of 40% tax. Such imposition would result in
injustice, as persons taxed under the NIRC of 1997 would be in a
better position
777
than those taxed under the LGC of 1991. We need not belabor
that a literal application of a law must be rejected if it will operate
unjustly or lead to absurd results. Thus, we are convinced that the
legislature never intended to include cinema/theater operators or
proprietors in the coverage of VAT. On this point, it is apropos to
quote the case of Roxas v. Court of Tax Appeals, 23 SCRA 276 (168)
to wit: The power of taxation is sometimes called also the power to
destroy. Therefore, it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the „hen that
lays the golden egg.‰ And, in order to maintain the general publicÊs
trust and confidence in the Government this power must be used
justly and not treacherously.
Same; Same; Same; Local Government Code; Statutory
Construction; The repeal of the Local Tax Code by the Local
Government Code (LGC) of 1991 is not a legal basis for the
imposition of Value-Added Tax (VAT) on the gross receipts of
cinema/theater operators or proprietors derived from admission
tickets; A law will not be construed as imposing a tax unless it does
so clearly, expressly, and unambiguously; The power to impose
amusement tax on cinema/theater operators or proprietors remains
with the local government.·The repeal of the Local Tax Code by the
LGC of 1991 is not a legal basis for the imposition of VAT on the
gross receipts of cinema/theater operators or proprietors derived
from admission tickets. The removal of the prohibition under the
Local Tax Code did not grant nor restore to the national
government the power to impose amusement tax on cinema/theater
operators or proprietors. Neither did it expand the coverage of VAT.
Since the imposition of a tax is a burden on the taxpayer, it cannot
be presumed nor can it be extended by implication. A law will not be

construed as imposing a tax unless it does so clearly, expressly, and
unambiguously. As it is, the power to impose amusement tax on
cinema/theater operators or proprietors remains with the local
government.
Same; Administrative Law; Revenue Memorandum Circulars
(RMCs); Revenue Memorandum Circulars (RMCs) must not
override, supplant, or modify the law, but must remain consistent
and in harmony with, the law they seek to apply and implement.·
Considering that there is no provision of law imposing VAT on the
gross receipts of cinema/theater operators or proprietors derived
from admission
778
tickets, RMC No. 28-2001 which imposes VAT on the gross

receipts from admission to cinema houses must be struck down. We
cannot overemphasize that RMCs must not override, supplant, or
modify the law, but must remain consistent and in harmony with,
the law they seek to apply and implement.
Same; The rule that tax exemptions should be construed strictly
against the taxpayer presupposes that the taxpayer is clearly subject
to the tax being levied against him·unless a statute imposes a tax
clearly, expressly and unambiguously, what applies is the equally
well-settled rule that the imposition of a tax cannot be presumed.·
Contrary to the view of petitioner, respondents need not prove their
entitlement to an exemption from the coverage of VAT. The rule
that tax exemptions should be construed strictly against the
taxpayer presupposes that the taxpayer is clearly subject to the tax
being levied against him. The reason is obvious: it is both illogical
and impractical to determine who are exempted without first
determining who are covered by the provision. Thus, unless a
statute imposes a tax clearly, expressly and unambiguously, what
applies is the equally well-settled rule that the imposition of a tax
cannot be presumed. In fact, in case of doubt, tax laws must be
construed strictly against the government and in favor of the
taxpayer.
PETITION for review on certiorari of the decision and
resolution of the Court of Tax Appeals.

The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Tan, Acut, Lopez & Pizon for respondents.
DEL CASTILLO, J.:
When the intent of the law is not apparent as worded,

or when the application of the law would lead to absurdity
or injustice, legislative history is all important. In
suchcases, courts may take judicial notice of the origin and
history of the law,1 the deliberations during the enact-
_______________
1 United States v. De Guzman, 30 Phil. 416, 419-420 (1915).
779
ment,2 as well as prior laws on the same subject matter3 to

ascertain the true intent or spirit of the law.
This Petition for Review on Certiorari under Rule 45 of
the Rules of Court, in relation to Republic Act (RA) No.
9282,4 seeks to set aside the April 30, 2008 Decision5 and
the June 24, 2008 Resolution6 of the Court of Tax Appeals
(CTA).
Factual Antecedents
Respondents SM Prime Holdings, Inc. (SM Prime) and

First Asia Realty Development Corporation (First Asia) are
domestic corporations duly organized and existing under
the laws of the Republic of the Philippines. Both are
engaged in the business of operating cinema houses, among
others.7
CTA Case No. 7079
On September 26, 2003, the Bureau of Internal Revenue

(BIR) sent SM Prime a Preliminary Assessment Notice
(PAN)
_______________
2 People v. Degamo, 450 Phil. 159, 179; 402 SCRA 133 (2003).
3 Celestial Nickel Mining Exploration Corporation v. Macroasia
Corporation, G.R. Nos. 169080, 172936, 176226 & 176319, December 19,
2007, 541 SCRA 166, 195.
4 An Act Expanding the Jurisdiction of the Court of Tax Appeals
(CTA), Elevating its Rank to the Level of a Collegiate Court with Special
Jurisdiction and Enlarging its Membership, Amending for the Purpose
Certain Sections of Republic Act No. 1125, As Amended, otherwise
known as the Law Creating the Court of Tax Appeals, and for Other
Purposes.
5 Rollo, pp. 98-120; penned by Associate Justice Olga Palanca-
Enriquez and concurred in by Presiding Justice Ernesto D. Acosta and
Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, and
Caesar A. Casanova. Associate Justice Erlinda P. Uy was on official
business.
6 Id., at pp. 121-123; penned by Associate Justice Olga Palanca-
Enriquez and concurred in by Presiding Justice Ernesto D. Acosta and
Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda
P. Uy, and Caesar A. Casanova.
7 Id., at p. 772.
780
for value added tax (VAT) deficiency on cinema ticket sales

in the amount of P119,276,047.40 for taxable year 2000.8 In
response, SM Prime filed a letter-protest dated December
15, 2003.9
On December 12, 2003, the BIR sent SM Prime a Formal
Letter of Demand for the alleged VAT deficiency, which the
latter protested in a letter dated January 14, 2004.10
On September 6, 2004, the BIR denied the protest filed
by SM Prime and ordered it to pay the VAT deficiency for
taxable year 2000 in the amount of P124,035,874.12.11
On October 15, 2004, SM Prime filed a Petition for

Review before the CTA docketed as CTA Case No. 7079.12
CTA Case No. 7085
On May 15, 2002, the BIR sent First Asia a PAN for VAT
deficiency on cinema ticket sales for taxable year 1999 in
the total amount of P35,823,680.93.13 First Asia protested
the PAN in a letter dated July 9, 2002.14
Subsequently, the BIR issued a Formal Letter of
Demand for the alleged VAT deficiency which was protested
by First Asia in a letter dated December 12, 2002.15
On September 6, 2004, the BIR rendered a Decision
denying the protest and ordering First Asia to pay the
amount of P35,823,680.93 for VAT deficiency for taxable
year 1999.16
_______________
8 Id., at p. 100.
9 Id.
10 Id., at p. 101.
11 Id.
12 Id.
13 Id.
14 Id.
15 Id.
16 Id., at p. 102.
781
Accordingly, on October 20, 2004, First Asia filed a

Petition for Review before the CTA, docketed as CTA Case
No. 7085.17
CTA Case No. 7111
On April 16, 2004, the BIR sent a PAN to First Asia for
VAT deficiency on cinema ticket sales for taxable year 2000
in the amount of P35,840,895.78. First Asia protested the
PAN through a letter dated April 22, 2004.18

Thereafter, the BIR issued a Formal Letter of Demand
for alleged VAT deficiency.19 First Asia protested the same
in a letter dated July 9, 2004.20
On October 5, 2004, the BIR denied the protest and
ordered First Asia to pay the VAT deficiency in the amount
of P35,840,895.78 for taxable year 2000.21
This prompted First Asia to file a Petition for Review
before the CTA on December 16, 2004. The case was
docketed as CTA Case No. 7111.22
CTA Case No. 7272

Re: Assessment Notice No. 008-02
A PAN for VAT deficiency on cinema ticket sales for the

taxable year 2002 in the total amount of P32,802,912.21
was issued against First Asia by the BIR. In response, First
Asia filed a protest-letter dated November 11, 2004. The
BIR then sent a Formal Letter of Demand, which was
protested by First Asia on December 14, 2004.23
_______________
17 Id.
18 Id.
19 Id.
20 Id.
21 Id., at pp. 25-26.
22 Id., at p. 103.
23 Id.
782
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket sales in the

total amount of P28,196,376.46 for the taxable year 2003
was issued by the BIR against First Asia. In a letter dated
September 23, 2004, First Asia protested the PAN. A
Formal Letter of Demand was thereafter issued by the BIR
to First Asia, which the latter protested through a letter

dated November 11, 2004. 24
On May 11, 2005, the BIR rendered a Decision denying
the protests. It ordered First Asia to pay the amounts of
P33,610,202.91 and P28,590,826.50 for VAT deficiency for
taxable years 2002 and 2003, respectively.25
Thus, on June 22, 2005, First Asia filed a Petition for
Review before the CTA, docketed as CTA Case No. 7272.26
Consolidated Petitions
The Commissioner of Internal Revenue (CIR) filed his

Answers to the Petitions filed by SM Prime and First
Asia.27On July 1, 2005, SM Prime filed a Motion to
Consolidate CTA Case Nos. 7085, 7111 and 7272 with CTA
Case No. 7079 on the grounds that the issues raised
therein are identical and that SM Prime is a majority
shareholder of First Asia. The motion was granted.28
Upon submission of the partiesÊ respective memoranda,
the consolidated cases were submitted for decision on the
sole issue of whether gross receipts derived from admission
tickets by cinema/theater operators or proprietors are
subject to VAT.29
_______________
24 Id., at p. 104.
25 Id., at p. 700.
26 Id., at p. 104.
27 Id., at p. 28.
28 Id., at pp. 104-105.
29 Id., at p. 29.
783
Ruling of the CTA First Division
On September 22, 2006, the First Division of the CTA

rendered a Decision granting the Petition for Review.
Resorting to the language used and the legislative history
of the law, it ruled that the activity of showing

cinematographic films is not a service covered by VAT
under the National Internal Revenue Code (NIRC) of 1997,
as amended, but an activity subject to amusement tax
under RA 7160, otherwise known as the Local Government
Code (LGC) of 1991. Citing House Joint Resolution No. 13,
entitled „Joint Resolution Expressing the True Intent of
Congress with Respect to the Prevailing Tax Regime in the
Theater and Local Film Industry Consistent with the StateÊs
Policy to Have a Viable, Sustainable and Competitive
Theater and Film Industry as One of its Partners in
National Development,‰30 the CTA First Division held that
the House of Representatives resolved that there should
only be one business tax applicable to theaters and movie
houses, which is the 30% amusement tax imposed by cities
and provinces under the LGC of 1991. Further, it held that
consistent with the StateÊs policy to have a viable,
sustainable and competitive theater and film industry, the
national government should be precluded from imposing its
own business tax in addition to that already imposed and
collected by local government units. The CTA First Division
likewise found that Revenue Memorandum Circular (RMC)
No. 28-2001, which imposes VAT on gross receipts from
admission to cinema houses, cannot be given force and
effect because it failed to comply with the procedural due
process for tax issuances
_______________
30 Approved by the House on the Third Reading on November 15,

2005. Its counterpart in the Senate, Senate Joint Resolution No. 6,
entitled „Joint Resolution Expressing the True Intent of Congress
Regarding the Imposition of the Value-Added Tax Particularly on the
Theater Industry,‰ is pending in the Committee.
784
under RMC No. 20-86.31 Thus, it disposed of the case as

follows:
„IN VIEW OF ALL THE FOREGOING, this Court hereby

GRANTS the Petitions for Review. RespondentÊs Decisions denying
petitionersÊ protests against deficiency value-added taxes are hereby
REVERSED. Accordingly, Assessment Notices Nos. VT-00-000098,
VT-99-000057, VT-00-000122, 003-03 and 008-02 are ORDERED
cancelled and set aside.
SO ORDERED.‰32
Aggrieved, the CIR moved for reconsideration which was

denied by the First Division in its Resolution dated
December 14, 2006.33
Ruling of the CTA En Banc
Thus, the CIR appealed to the CTA En Banc.34 The case

was docketed as CTA EB No. 244.35 The CTA En Banc
however denied36 the Petition for Review and dismissed37
as well petitionerÊs Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC
actually sets forth an exhaustive enumeration of what
services are intended to be subject to VAT. And since the
showing or exhibition of motion pictures, films or movies by
cinema operators or proprietors is not among the
enumerated activities contemplated in the phrase „sale or
exchange of services,‰ then gross receipts derived by
cinema/theater operators or proprie-
_______________
31 Notice, Publication and Effectivity of Internal Revenue Tax Rules

and Regulations, issued by then Commissioner Bienvenido A. Tan, Jr. on
July 24, 1986.
32 Rollo, p. 247.
33 Id., at pp. 249-257.
34 Id., at p. 32.
35 Id.
36 Id., at p. 119.
37 Id., at p. 122.
785
tors from admission tickets in showing motion pictures,

film or movie are not subject to VAT. It reiterated that the
exhibition or showing of motion pictures, films, or movies is
instead subject to amusement tax under the LGC of 1991.
As regards the validity of RMC No. 28-2001, the CTA En
Banc agreed with its First Division that the same cannot
be given force and effect for failure to comply with RMC
No. 20-86.
Issue
Hence, the present recourse, where petitioner alleges

that the CTA En Banc seriously erred:
(1) In not finding/holding that the gross receipts derived by

operators/proprietors of cinema houses from admission tickets [are]
subject to the 10% VAT because:
(a) THE EXHIBITION OF MOVIES BY CINEMA
OPERATORS/PROPRIETORS TO THE PAYING PUBLIC IS
A SALE OF SERVICE;
(b) UNLESS EXEMPTED BY LAW, ALL SALES OF
SERVICES ARE EXPRESSLY SUBJECT TO VAT UNDER
SECTION 108 OF THE NIRC OF 1997;
(c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR
PROVISION OF LAW AND THE APPLICATION OF RULES
OF STATUTORY CONSTRUCTION AND EXTRINSIC AIDS
IS UNWARRANTED;
(d) GRANTING WITHOUT CONCEDING THAT RULES OF
CONSTRUCTION ARE APPLICABLE HEREIN, STILL THE
HONORABLE COURT ERRONEOUSLY APPLIED THE
SAME AND PROMULGATED DANGEROUS
PRECEDENTS;
(e) THERE IS NO VALID, EXISTING PROVISION OF LAW
EXEMPTING RESPONDENTSÊ SERVICES FROM THE VAT
IMPOSED UNDER SECTION 108 OF THE NIRC OF 1997;
(f) QUESTIONS ON THE WISDOM OF THE LAW ARE NOT
PROPER ISSUES TO BE TRIED BY THE HONORABLE
COURT; and
786
(g) RESPONDENTS WERE TAXED BASED ON THE

PROVISION OF SECTION 108 OF THE NIRC.
(2) In ruling that the enumeration in Section 108 of the NIRC of
1997 is exhaustive in coverage;
(3) In misconstruing the NIRC of 1997 to conclude that the
showing of motion pictures is merely subject to the amusement tax
imposed by the Local Government Code; and
(4) In invalidating Revenue Memorandum Circular (RMC) No.
28-2001.38
Simply put, the issue in this case is whether the gross

receipts derived by operators or proprietors of
cinema/theater houses from admission tickets are subject
to VAT.
PetitionerÊs Arguments
Petitioner argues that the enumeration of services

subject to VAT in Section 108 of the NIRC is not exhaustive
because it covers all sales of services unless exempted by
law. He claims that the CTA erred in applying the rules on
statutory construction and in using extrinsic aids in
interpreting Section 108 because the provision is clear and
unambiguous. Thus, he maintains that the exhibition of
movies by cinema operators or proprietors to the paying
public, being a sale of service, is subject to VAT.
RespondentsÊ Arguments
Respondents, on the other hand, argue that a plain

reading of Section 108 of the NIRC of 1997 shows that the
gross receipts of proprietors or operators of
cinemas/theaters derived from public admission are not
among the services subject to VAT. Respondents insist that
gross receipts from cinema/theater admission tickets were
never intended to be subject to any tax imposed by the
national government. Ac-
_______________
38 Id., at pp. 35-36.
787
cording to them, the absence of gross receipts from

cinema/theater admission tickets from the list of services
which are subject to the national amusement tax under
Section 125 of the NIRC of 1997 reinforces this legislative
intent. Respondents also highlight the fact that RMC No.
28-2001 on which the deficiency assessments were based is
an unpublished administrative ruling.
Our Ruling
The petition is bereft of merit.
The enumeration of services subject to

VAT under Section 108 of the NIRC is
not exhaustive
Section 108 of the NIRC of the 1997 reads:
„SEC. 108. Value-added Tax on Sale of Services and Use or Lease

of Properties.·
(A) Rate and Base of Tax.·There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of gross
receipts derived from the sale or exchange of services, including the
use or lease of properties.
The phrase „sale or exchange of services‰ means the
performance of all kinds of services in the Philippines for others for
a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or
distributors of cinematographic films; persons engaged in
milling, processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, rest houses,

pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for hire
and other domestic common carriers by land, air and water relative
to their transport of goods or cargoes;
788
services of franchise grantees of telephone and telegraph,

radio and television broadcasting and all other franchise
grantees except those under Section 119 of this Code;
services of banks, non-bank financial intermediaries and
finance companies; and non-life insurance companies
(except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls
for the exercise or use of the physical or mental faculties.
The phrase „sale or exchange of services‰ shall likewise
include:
(1) The lease or the use of or the right or privilege to use

any copyright, patent, design or model, plan, secret formula
or process, goodwill, trademark, trade brand or other like
property or right;
xxxx
(7) The lease of motion picture films, films, tapes
and discs; and
(8) The lease or the use of or the right to use radio,
television, satellite transmission and cable television time.
x x x x‰ (Emphasis supplied)
A cursory reading of the foregoing provision clearly

shows that the enumeration of the „sale or exchange of
services‰ subject to VAT is not exhaustive. The words,
„including,‰ „similar services,‰ and „shall likewise include,‰
indicate that the enumeration is by way of example only.39
Among those included in the enumeration is the „lease

of motion picture films, films, tapes and discs.‰ This,
however, is not the same as the showing or exhibition of
motion pictures or films. As pointed out by the CTA En
Banc:
„Exhibition‰ in BlackÊs Law Dictionary is defined as „To show or

display. x x x To produce anything in public so that it may be taken
into possession‰ (6th ed., p. 573). While the word „lease‰ is defined
as „a contract by which one owning such property grants to another
the right to possess, use and enjoy it on specified period of time in
ex-
_______________
39 See Binay v. Sandiganbayan, 374 Phil. 413, 440; 316 SCRA 65

(1999).
789
change for periodic payment of a stipulated price, referred to as rent

(BlackÊs Law Dictionary, 6th ed., p. 889). x x x‰40
Since the activity of showing motion pictures, films or

movies by cinema/ theater operators or proprietors is not
included in the enumeration, it is incumbent upon the
court to the determine whether such activity falls under
the phrase „similar services.‰ The intent of the legislature
must therefore be ascertained.
The legislature never intended operators

or proprietors of cinema/theater houses to
be covered by VAT
Under the NIRC of 1939,41 the national government

imposed amusement tax on proprietors, lessees, or
operators of theaters, cinemato-
_______________
40 Rollo, p. 420.
41 Commonwealth Act No. 466.
42 SECTION 260. Amusement taxes.·There shall be collected from
the proprietor, lessee, or operator of theaters, cinematographs, concert
halls, circuses, boxing exhibitions, and other places of amusement the
following taxes:
(a) When the amount paid for admission exceeds twenty centavos but
does not exceed twenty-nine centavos, two centavos on each admission.
xxxx
(i) When the amount paid for admission exceeds ninety-nine centavos,
ten centavos on each admission.
In the case of theaters or cinematographs, the taxes herein prescribed
shall first be deducted and withheld by the proprietors, lessees, or
operators of such theaters or cinematographs and paid to the Collector of
Internal Revenue before the gross receipts are divided between the
proprietors, lessees, or operators of the theaters or cinematographs and
the distributors of the cinematographic films.
790
graphs, concert halls, circuses, boxing exhibitions, and

other places of amusement, including cockpits, race tracks,
and cabaret.42 In the case of theaters or cinematographs,
the taxes were first deducted, withheld, and paid by the
proprietors, lessees, or operators of such theaters or
cinematographs before the gross receipts were divided
between the proprietors, lessees, or operators of the
theaters or cinematographs and the distributors of the
cinematographic films. Section 1143 of the Local Tax Code,44
however, amended this provision by transferring the power
to impose amusement tax45 on admission from theaters,
cinematographs, concert
_______________
In the case of cockpits, race tracks, and cabarets, x x x. For the

purpose of the amusement tax, the term „gross receipts‰ embraces all the
receipts of the proprietor, lessee, or operator of the amusement place,
excluding the receipts derived by him from the sale of liquors, beverages,
or other articles subject to specific tax, or from any business subject to
tax under this Code.

xxxx
43 SECTION 11. Taxes transferred.·The imposition of the taxes
provided in Sections 12, 13, 14, 15, and 16 of this Code heretofore
exercised by the national government or the municipal government, shall
henceforth be exercised by the provincial government, to the exclusion of
the national or municipal government. To avoid any revenue loss, the
province shall levy and collect such taxes as provided in said Sections 12,
13 and 14.
44 Presidential Decree No. 231 (1973).
45 SECTION 13. Amusement tax on admission.·The province shall
impose a tax on admission to be collected from the proprietors, lessees, or
operators of theaters, cinematographs, concert halls, circuses and other
places of amusements at the following rates:
(a) When the amount paid for admission is one peso or less, twenty per
cent; and
(b) When the amount paid for admission exceeds one peso, thirty per
cent.
In the case of theaters or cinematographs, the taxes herein prescribed
shall first be deducted and withheld by the proprietors, lessees, or
operators of the theaters or cinematographs and paid to the provincial
treasurer concerned thru the municipal treasurer before the gross
receipts are divided between the proprietors, lessees, or operators of the
theaters or cinematographs and the distributors of the cinematographic
films.
791
halls, circuses and other places of amusements exclusively

to the local government. Thus, when the NIRC of 197746
was enacted, the national government imposed amusement
tax only on proprietors, lessees or operators of cabarets,
day and night clubs, Jai-Alai and race tracks.47
On January 1, 1988, the VAT Law48 was promulgated. It
amended certain provisions of the NIRC of 1977 by
imposing a multi-stage VAT to replace the tax on original
and subsequent sales tax and percentage tax on certain
services. It imposed VAT on sales of services under Section
102 thereof, which provides:
„SECTION 102. Value-added tax on sale of services.·(a) Rate

and base of tax.·There shall be levied, assessed and collected, a
value-added tax equivalent to 10% percent of gross receipts derived
by any person engaged in the sale of services. The phrase „sale of
services‰ means the performance of all kinds of services for others
for a fee, remuneration or consideration, including those performed
or rendered by construction and service contractors; stock, real
estate, commercial, customs and immigration brokers; lessors of
personal property; lessors or distributors of cinematographic
films; persons engaged in milling, processing, manufacturing or
repacking goods for others; and similar services regardless of
whether or not the performance thereof calls for the exercise or use
of the physical or mental faculties: Provided, That the following
services performed in the Philippines by VAT-registered persons
shall be subject to 0%:
(1) Processing manufacturing or repacking goods for other
persons doing business outside the Philippines which goods are
subsequently exported, x x x
xxxx
_______________
xxxx
46 Presidential Decree No. 1158.
47 SECTION 268. Amusement taxes.·There shall be collected from
the proprietor, lessee or operator of cabarets, day and night clubs, Jai-
Alai and race tracks, a tax equivalent to x x x x
48 Executive Order No. 273.
792
„Gross receipts‰ means the total amount of money or its

equivalent representing the contract price, compensation or service
fee, including the amount charged for materials supplied with the
services and deposits or advance payments actually or
constructively received during the taxable quarter for the service
performed or to be performed for another person, excluding value-
added tax.
(b) Determination of the tax.·(1) Tax billed as a separate item in
the invoice.·If the tax is billed as a separate item in the invoice,
the tax shall be based on the gross receipts, excluding the tax.
(2) Tax not billed separately or is billed erroneously in the invoice.
·If the tax is not billed separately or is billed erroneously in the
invoice, the tax shall be determined by multiplying the gross
receipts (including the amount intended to cover the tax or the tax
billed erroneously) by 1/11.‰ (Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977,

as amended, however, were exempted from the coverage of
VAT.49
On February 19, 1988, then Commissioner Bienvenido
A. Tan, Jr. issued RMC 8-88, which clarified that the power
to impose amusement tax on gross receipts derived from
admission tickets was exclusive with the local government
units and that only the gross receipts of amusement places
derived from sources other than from admission tickets
were subject to amusement tax under the NIRC of 1977, as
amended. Pertinent portions of RMC 8-88 read:
_______________
49 SECTION 103. Exempt Transactions.·The following shall be

exempt from the value-added tax:
(a) Sale of nonfood agricultural; marine and forest products in their
original state by the primary producer or the owner of the land where the
same are produced.
xxxx
(j) Services rendered by persons subject to percentage tax under Title
V;
xxxx
793
„Under the Local Tax Code (P.D. 231, as amended), the

jurisdiction to levy amusement tax on gross receipts arising from
admission to places of amusement has been transferred to the local
governments to the exclusion of the national government.
xxxx
Since the promulgation of the Local Tax Code which took effect
on June 28, 1973 none of the amendatory laws which amended the
National Internal Revenue Code, including the value added tax law
under Executive Order No. 273, has amended the provisions of
Section 11 of the Local Tax Code. Accordingly, the sole jurisdiction
for collection of amusement tax on admission receipts in places of
amusement rests exclusively on the local government, to the
exclusion of the national government. Since the Bureau of Internal
Revenue is an agency of the national government, then it follows
that it has no legal mandate to levy amusement tax on admission
receipts in the said places of amusement.
Considering the foregoing legal background, the provisions under
Section 123 of the National Internal Revenue Code as renumbered
by Executive Order No. 273 (Sec. 228, old NIRC) pertaining to
amusement taxes on places of amusement shall be implemented in
accordance with BIR RULING, dated December 4, 1973 and BIR
RULING NO. 231-86 dated November 5, 1986 to wit:
„x x x Accordingly, only the gross receipts of the amusement
places derived from sources other than from admission
tickets shall be subject to x x x amusement tax prescribed
under Section 228 of the Tax Code, as amended (now Section
123, NIRC, as amended by E.O. 273). The tax on gross receipts
derived from admission tickets shall be levied and collected
by the city government pursuant to Section 23 of
Presidential Decree No. 231, as amended x x x‰ or by the
provincial government, pursuant to Section 11 of P.D. 231,
otherwise known as the Local Tax Code.‰ (Emphasis supplied)
On October 10, 1991, the LGC of 1991 was passed into

law. The local government retained the power to impose
amusement tax on proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadia,
and other places of amusement at a rate of not more than
thirty percent (30%) of the gross receipts from admission
fees under Section
794
140 thereof.50 In the case of theaters or cinemas, the tax

shall first be deducted and withheld by their proprietors,
lessees, or operators and paid to the local government
before the gross receipts are divided between said

proprietors, lessees, or operators and the distributors of the
cinematographic films. However, the provision in the Local
Tax Code expressly excluding the national government
from collecting tax from the proprietors, lessees, or
operators of theaters, cinematographs, concert halls,
circuses and other places of amusements was no longer
included.
In 1994, RA 7716 restructured the VAT system by
widening its tax base and enhancing its administration.
Three years later, RA 7716 was amended by RA 8241.
Shortly thereafter, the NIRC of 199751 was signed into law.
Several amendments52 were made to expand the coverage
of VAT. However, none pertain to cinema/theater operators
or proprietors. At present, only lessors or distributors of
cinematographic films are subject to VAT. While persons
subject to amusement tax53 under the NIRC of 1997 are
exempt from the
_______________
50 SECTION 140. Amusement Tax.·(a) The province may levy an

amusement tax to be collected from the proprietors, lessees, or operators
of theaters, cinemas, concert halls, circuses, boxing stadia, and other
places of amusement at a rate of not more than thirty percent (30%) of
the gross receipts from admission fees.
(b) In the case of theaters or cinemas, the tax shall first be deducted
and withheld by their proprietors, lessees, or operators and paid to the
provincial treasurer before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the
cinematographic films.
xxxx
51 Republic Act No. 8424.
52 See Republic Act No. 8761, Republic Act No. 9010, Republic Act No.
9238 and Republic Act No. 9337.
53 SECTION 125. Amusement Taxes.·There shall be collected from
the proprietor, lessee or operator of cockpits, cabarets,
795
coverage of VAT.54
_______________
night or day clubs, boxing exhibitions, professional basketball games,

Jai-Alai and racetracks, a tax equivalent to:
(a) Eighteen percent (18%) in the case of cockpits;
(b) Eighteen percent (18%) in the case of cabarets, night or day clubs;
(c) Ten percent (10%) in the case of boxing exhibitions: Provided,
however, That boxing exhibitions wherein World or Oriental
Championships in any division is at stake shall be exempt from
amusement tax: Provided, further, That at least one of the contenders for
World or Oriental Championship is a citizen of the Philippines and said
exhibitions are promoted by a citizen/s of the Philippines or by a
corporation or association at least sixty percent (60%) of the capital of
which is owned by such citizens;
(d) Fifteen percent (15%) in the case of professional basketball games
as envisioned in Presidential Decree No. 871: Provided, however, That
the tax herein shall be in lieu of all other percentage taxes of whatever
nature and description; and
(e) Thirty percent (30%) in the case of Jai-Alai and racetracks of their
gross receipts, irrespective of whether or not any amount is charged for
admission.
For the purpose of the amusement tax, the term Âgross receiptsÊ
embraces all the receipts of the proprietor, lessee or operator of the
amusement place. Said gross receipts also include income from
television, radio and motion picture rights, if any. A person or entity or
association conducting any activity subject to the tax herein imposed
shall be similarly liable for said tax with respect to such portion of the
receipts derived by him or it.
The taxes imposed herein shall be payable at the end of each quarter
and it shall be the duty of the proprietor, lessee or operator concerned, as
well as any party liable, within twenty (20) days after the end of each
quarter, to make a true and complete return of the amount of the gross
receipts derived during the preceding quarter and pay the tax due
thereon.
54 SECTION 109. Exempt Transactions.·The following shall be
exempt from the value-added tax:
796
Based on the foregoing, the following facts can be

established:
(1) Historically, the activity of showing motion pictures, films or

movies by cinema/theater operators or proprietors has always been
considered as a form of entertainment subject to amusement tax.
(2) Prior to the Local Tax Code, all forms of amusement tax were
imposed by the national government.
(3) When the Local Tax Code was enacted, amusement tax on
admission tickets from theaters, cinematographs, concert halls,
circuses and other places of amusements were transferred to the
local government.
(4) Under the NIRC of 1977, the national government imposed
amusement tax only on proprietors, lessees or operators of cabarets,
day and night clubs, Jai-Alai and race tracks.
(5) The VAT law was enacted to replace the tax on original and
subsequent sales tax and percentage tax on certain services.
(6) When the VAT law was implemented, it exempted persons
subject to amusement tax under the NIRC from the coverage of
VAT.
(7) When the Local Tax Code was repealed by the LGC of 1991, the
local government continued to impose amusement tax on admission
tickets from theaters,
_______________
(a) Sale of nonfood agricultural products; marine and forest products

in their original state by the primary producer or the owner of the land
where the same are produced;
xxxx
(j) Services subject to percentage tax under Title V;
797
cinematographs, concert halls, circuses and other places of

amusements.
(8)Amendments to the VAT law have been consistent in exempting
persons subject to amusement tax under the NIRC from the

coverage of VAT.
(9)Only lessors or distributors of cinematographic films are included
in the coverage of VAT.
These reveal the legislative intent not to impose VAT on

persons already covered by the amusement tax. This holds
true even in the case of cinema/theater operators taxed
under the LGC of 1991 precisely because the VAT law was
intended to replace the percentage tax on certain services.
The mere fact that they are taxed by the local government
unit and not by the national government is immaterial.
The Local Tax Code, in transferring the power to tax gross
receipts derived by cinema/theater operators or proprietor
from admission tickets to the local government, did not
intend to treat cinema/theater houses as a separate class.
No distinction must, therefore, be made between the places
of amusement taxed by the national government and those
taxed by the local government.
To hold otherwise would impose an unreasonable burden
on cinema/theater houses operators or proprietors, who
would be paying an additional 10%55 VAT on top of the 30%
amusement tax imposed by Section 140 of the LGC of 1991,
or a total of 40% tax. Such imposition would result in
injustice, as persons taxed under the NIRC of 1997 would
be in a better position than those taxed under the LGC of
1991. We need not belabor that a literal application of a law
must be rejected if it will operate unjustly or lead to absurd
results.56 Thus, we are convinced that the legislature never
intended to include
_______________
55 Now 12%.
56 Commissioner of Internal Revenue v. Solidbank Corp., 462 Phil. 96,
130; 416 SCRA 436 (2003).
798
cinema/theater operators or proprietors in the coverage of
VAT.
On this point, it is apropos to quote the case of Roxas v.
Court of Tax Appeals,57 to wit:
„The power of taxation is sometimes called also the power to

destroy. Therefore, it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the „hen that
lays the golden egg.‰ And, in order to maintain the general publicÊs
trust and confidence in the Government this power must be used
justly and not treacherously.‰
The repeal of the Local Tax Code by the

LGC of 1991 is not a legal basis for the
imposition of VAT
Petitioner, in issuing the assessment notices for

deficiency VAT against respondents, ratiocinated that:
„Basically, it was acknowledged that a cinema/theater
operator was then subject to amusement tax under Section
260 of Commonwealth Act No. 466, otherwise known as the
National Internal Revenue Code of 1939, computed on the
amount paid for admission. With the enactment of the
Local Tax Code under Presidential Decree (PD) No. 231,
dated June 28, 1973, the power of imposing taxes on gross
receipts from admission of persons to cinema/theater and
other places of amusement had, thereafter, been
transferred to the provincial government, to the exclusion
of the national or municipal government (Sections 11 & 13,
Local Tax Code). However, the said provision containing
the exclusive power of the provincial government to impose
amusement tax, had also been repealed and/or deleted by
Republic Act (RA) No. 7160, otherwise known as the Local
Government Code of 1991, enacted into law on October 10,
1991. Accordingly, the enactment of RA No. 7160, thus,
eliminating the statutory prohibition on the national
government to impose business tax on gross receipts
from admission of persons to places of amusement,
led the way to the valid
_______________
57 131 Phil. 773, 780-781; 23 SCRA 276, 282 (1968).
799
imposition of the VAT pursuant to Section 102 (now Section

108) of the old Tax Code, as amended by the Expanded VAT
Law (RA No. 7716) and which was implemented beginning
January 1, 1996.‰58 (Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is
not a legal basis for the imposition of VAT on the gross
receipts of cinema/theater operators or proprietors derived
from admission tickets. The removal of the prohibition
under the Local Tax Code did not grant nor restore to the
national government the power to impose amusement tax
on cinema/theater operators or proprietors. Neither did it
expand the coverage of VAT. Since the imposition of a tax is
a burden on the taxpayer, it cannot be presumed nor can it
be extended by implication. A law will not be construed as
imposing a tax unless it does so clearly, expressly, and
unambiguously.59 As it is, the power to impose amusement
tax on cinema/theater operators or proprietors remains
with the local government.
Revenue Memorandum Circular

No. 28-2001 is invalid
Considering that there is no provision of law imposing

VAT on the gross receipts of cinema/theater operators or
proprietors derived from admission tickets, RMC No. 28-
2001 which imposes VAT on the gross receipts from
admission to cinema houses must be struck down. We
cannot overemphasize that RMCs must not override,
supplant, or modify the law, but must remain consistent
and in harmony with, the law they seek to apply and
implement.60
_______________
58 Rollo, pp. 671-672; 681 and 693.

59 Commissioner of Internal Revenue v. Court of Appeals, 338 Phil.
322, 330; 271 SCRA 605 (1997).
60 Commissioner of Internal Revenue v. Court of Appeals, 310 Phil.
392, 397; 240 SCRA 368, 372 (1995).
800
In view of the foregoing, there is no need to discuss

whether RMC No. 28-2001 complied with the procedural
due process for tax issuances as prescribed under RMC No.
20-86.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents

need not prove their entitlement to an exemption from the
coverage of VAT. The rule that tax exemptions should be
construed strictly against the taxpayer presupposes that
the taxpayer is clearly subject to the tax being levied
against him.61 The reason is obvious: it is both illogical and
impractical to determine who are exempted without first
determining who are covered by the provision.62 Thus,
unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled
rule that the imposition of a tax cannot be presumed.63 In
fact, in case of doubt, tax laws must be construed strictly
against the government and in favor of the taxpayer.64
WHEREFORE, the Petition is hereby DENIED. The
assailed April 30, 2008 Decision of the Court of Tax
Appeals En Banc holding that gross receipts derived by
respondents from admission tickets in showing motion
pictures, films or movies are not subject to value-added tax
under Section 108 of the National Internal Revenue Code
of 1997, as amended, and its June 24, 2008 Resolution
denying the motion for reconsideration are AFFIRMED.
_______________
61 Commissioner of Internal Revenue v. The Phil. American Accident
Insurance Company, Inc., 493 Phil. 785, 793; 453 SCRA 668, 680 (2005).
62 Commissioner of Internal Revenue v. Court of Appeals, supra note
59.
63 Commissioner of Internal Revenue v. The Phil. American Accident
Insurance Company, Inc., supra.
64 Id.
801
SO ORDERED.
Carpio (Chairperson), Brion, Abad and Perez, JJ.,

concur.
Petition denied, judgment and resolution affirmed.
Notes.·When a company is taxed on its main business,

it is no longer taxable further for engaging in an activity or
work which is merely a part of, incidental to and is
necessary to its main business·to require them to pay
percentage and fixed taxes again for an activity which is
necessarily a part of the same business, the law must
expressly require such additional payment of tax.
(Commissioner of Internal Revenue vs. Philippine American
Accident Insurance Company, Inc., 453 SCRA 668 [2005])
The rulings, circulars, rules and regulations
promulgated by the Commissioner on Internal Revenue
would have no retroactive application if to so apply them
would be prejudicial to the taxpayers. (Intel Technology
Philippines, Inc. vs. Commissioner of Internal Revenue, 522
SCRA 657 [2007])
··o0o··
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5 Commissioner of Internal Revenue vs. SM Prime Holdings, Inc., 613 SCRA 774, February 26, 2010

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5 Commissioner of Internal Revenue vs. SM Prime Holdings, Inc., 613 SCRA 774, February 26, 2010

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SUPREME COURT REPORTS ANNOTATED VOLUME 613 2/24/21, 12:12 AM

G.R. No. 183505. February 26, 2010.*

COMMISSIONER OF INTERNAL REVENUE, petitioner,

Taxation; Value-Added Tax (VAT); Statutory Construction; A

or exchange of services‰ subject to VAT is not exhaustive. The

be presumed nor can it be extended by implication. A law will not be

tickets, RMC No. 28-2001 which imposes VAT on the gross

PETITION for review on certiorari of the decision and

resolution of the Court of Tax Appeals.

When the intent of the law is not apparent as worded,

1 United States v. De Guzman, 30 Phil. 416, 419-420 (1915).

ment,2 as well as prior laws on the same subject matter3 to

Respondents SM Prime Holdings, Inc. (SM Prime) and

CTA Case No. 7079

On September 26, 2003, the Bureau of Internal Revenue

for value added tax (VAT) deficiency on cinema ticket sales

On October 15, 2004, SM Prime filed a Petition for

CTA Case No. 7085

Accordingly, on October 20, 2004, First Asia filed a

CTA Case No. 7111

PAN through a letter dated April 22, 2004.18

CTA Case No. 7272

A PAN for VAT deficiency on cinema ticket sales for the

Re: Assessment Notice No. 003-03

A PAN for VAT deficiency on cinema ticket sales in the

to First Asia, which the latter protested through a letter

The Commissioner of Internal Revenue (CIR) filed his

Ruling of the CTA First Division

On September 22, 2006, the First Division of the CTA

of the law, it ruled that the activity of showing

30 Approved by the House on the Third Reading on November 15,

under RMC No. 20-86.31 Thus, it disposed of the case as

„IN VIEW OF ALL THE FOREGOING, this Court hereby

Aggrieved, the CIR moved for reconsideration which was

Ruling of the CTA En Banc

Thus, the CIR appealed to the CTA En Banc.34 The case

31 Notice, Publication and Effectivity of Internal Revenue Tax Rules

tors from admission tickets in showing motion pictures,

Hence, the present recourse, where petitioner alleges

(1) In not finding/holding that the gross receipts derived by

(g) RESPONDENTS WERE TAXED BASED ON THE

Simply put, the issue in this case is whether the gross

Petitioner argues that the enumeration of services

Respondents, on the other hand, argue that a plain

38 Id., at pp. 35-36.

cording to them, the absence of gross receipts from

The petition is bereft of merit.

The enumeration of services subject to

Section 108 of the NIRC of the 1997 reads:

„SEC. 108. Value-added Tax on Sale of Services and Use or Lease

proprietors, operators or keepers of hotels, motels, rest houses,

services of franchise grantees of telephone and telegraph,

(1) The lease or the use of or the right or privilege to use

A cursory reading of the foregoing provision clearly

Among those included in the enumeration is the „lease

„Exhibition‰ in BlackÊs Law Dictionary is defined as „To show or

39 See Binay v. Sandiganbayan, 374 Phil. 413, 440; 316 SCRA 65

change for periodic payment of a stipulated price, referred to as rent

Since the activity of showing motion pictures, films or

The legislature never intended operators