GR 160193; (March, 2008) (Digest)
G.R. No. 160193 ; March 3, 2008
M.E. HOLDING CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
FACTS
Petitioner M.E. Holding Corporation, a drugstore operator, filed its 1995 Corporate Annual Income Tax Return, claiming the 20% sales discount it granted to senior citizens as a deduction from its gross income pursuant to Revenue Regulation No. 2-94. It filed under protest, arguing that Republic Act No. 7432 (the Senior Citizens Act) mandated that the discount be treated as a tax credit. M.E. subsequently filed a claim for refund for alleged overpaid income tax. The Court of Tax Appeals partially granted the claim but significantly reduced the refundable amount, finding that M.E. failed to properly support the total claimed discount with corresponding cash slips as evidence. The CTA also ruled that the “cost” of the discount, which serves as the basis for the tax credit, refers only to the direct acquisition cost of the medicines, not the actual selling price or other costs.
ISSUE
The core issues were: (1) whether the Court of Appeals erred in not appreciating other evidence to prove the total discount granted, and (2) whether the “cost” of the discount under RA 7432 should be based on the actual discount granted (selling price) or the acquisition cost.
RULING
The Supreme Court partly granted the petition. On the first issue, it upheld the CA and CTA, ruling that claims for tax refunds are construed strictly against the taxpayer. M.E. failed to substantiate its claim with the required primary evidence (cash slips), and its proffered excuse for not presenting them earlier did not constitute newly discovered evidence warranting a new trial. On the second and principal issue, the Court clarified the legal interpretation of RA 7432. It held that for the taxable year 1995, the 20% discount should indeed be treated as a tax credit, not a mere deduction, as the law’s plain language (“may claim the cost as tax credit”) prevails over the contrary provision in RR 2-94. However, the Court affirmed that the basis for this credit is the “cost” of the goods sold, interpreted as the direct acquisition cost or purchase price of the medicines from the manufacturer or supplier, not the actual discount computed from the selling price. This interpretation prevents the padding of costs and ensures the benefit is limited to the actual loss on the product cost. Consequently, the CTA’s computation using the acquisition cost was sustained, but the final refundable amount was recalculated and ordered to be issued as a tax credit certificate.