BPI V. CA; G.R. No. 127624   November 18, 2003

PARTIES:BPI LEASING CORPORATION – petitioner, THE HONORABLE COURT OF APPEALS, COURT OF TAX APPEAL AND COMMISSIONER OF INTERNAL REVENUE – respondents.

PONENTE: AZCUNA, J.:

FACTS:For the calendar year 1986, BPI Leasing Corporation, Inc. (BLC) paid the Commissioner of Internal Revenue (CIR) a total of P1,139,041.49 representing 4% "contractor’s percentage tax" then imposed by Section 205 of the National Internal Revenue Code (NIRC), based on its gross rentals from equipment leasing for the said year amounting to P27,783,725.42.

On November 10, 1986, the CIR issued RR 19-86. Section 6.2 thereof provided that finance and leasing companies registered under Republic Act 5980 shall be subject to gross receipt tax of 5%-3%-1% on actual income earned. This means that companies registered under Republic Act 5980, such as BLC, are not liable for "contractor’s percentage tax" under Section 205 but are, instead, subject to "gross receipts tax" under Section 260 (now Section 122) of the NIRC. Since BLC had earlier paid the aforementioned "contractor’s percentage tax," it re-computed its tax liabilities under the "gross receipts tax" and arrived at the amount of P361,924.44. BLC filed a claim for a refund with the CIR for the amount of P777,117.05, representing the difference between the P1,139,041.49 it had paid as "contractor’s percentage tax" and P361,924.44 it should have paid for "gross receipts tax."

The CTA dismissed the petition and denied BLC’s claim of refund and held that RR 19-86, may only be applied prospectively such that it only covers all leases written on or after January 1, 1987. The CTA ruled that, since BLC’s rental income was all received prior to 1986, it follows that this was derived from lease transactions prior to January 1, 1987, and hence, not covered by the RR.

A motion for reconsideration of the CTA’s decision was filed, but was denied. BLC then appealed the case to the Court of Appeals. BLC submits that the Court of Appeals and the CTA erred in not ruling that RR 19-86 may be applied retroactively so as to allow BLC’s claim for a refund of P777,117.05.

Respondents, on the other hand, maintain that the provision on the date of effectivity of RR 19-86 is clear and unequivocal, leaving no room for interpretation on its prospective application.

ISSUES:WON RR 19-86 is legislative or interpretative in nature.WON RR 19-86 is prospective or retroactive in nature. WON BPI failed to meet the quantum of evidence required in refund cases.

RULE:1ST ISSUE – BLC attempts to convince the Court that RR 19-86 is legislative rather than interpretative in character and hence, should retroact to the date of effectivity of the law it seeks to interpret. A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing. The Court finds the questioned RR to be legislative in nature. Section 1 of RR 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC (now Section 244), an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. Verily, it cannot be disputed that RR 19-86 was issued pursuant to the rule-making power of the Secretary of Finance, thus making it legislative, and not interpretative as alleged by BLC.

BLC further posits that, it is invalid for want of due process as no prior notice, publication and public hearing attended the issuance thereof. To support its view, BLC cited CIR v. Fortune Tobacco, et

al., wherein the Court nullified a revenue memorandum circular which reclassified certain cigarettes and subjected them to a higher tax rate, holding it invalid for lack of notice, publication and public hearing. In this case, RR 19-86 would be beneficial to the taxpayers as they are subjected to lesser taxes. Petitioner, in fact, is invoking RR 19-86 as the very basis of its claim for refund. If it were invalid, then petitioner all the more has no right to a refund.

2ND ISSUE – The Court now resolves whether its application should be prospective or retroactive. Statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication. In the present case, there is no indication that the RR may operate retroactively. Furthermore, there is an express provision stating that it "shall take effect on January 1, 1987," and that it "shall be applicable to all leases written on or after the said date." Thus, BLC is not in a position to invoke the provisions of RR 19-86 for lease rentals it received prior to January 1, 1987.

3RD ISSUE – Tax refunds are in the nature of tax exemptions. As such, these are to be strictly construed against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption and he must be able to justify his claim by the clearest grant under Constitutional or statutory law, and he cannot be permitted to rely upon vague implications. Nothing that BLC has raised justifies a tax refund.

WHEREFORE, the petition for review is hereby DENIED, and the assailed decision and resolution of the Court of Appeals are AFFIRMED. No pronouncement as to costs.

SO ORDERED.

PRINCIPLES INVOLVED: Legislative or Interpretive nature of Statute Prospective or Retroactive effect of Ordinances