GR 103915; (October, 1995) (Digest)
G.R. No. 103915 October 23, 1995
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. TELEFUNKEN SEMICONDUCTOR PHILIPPINES, INC., COURT OF TAX APPEALS, AND THE COURT OF APPEALS, respondents.
FACTS
Telefunken Semiconductors Philippines, Inc. is a domestic corporation registered with the Board of Investments (BOI) as an export producer with pioneer status under Republic Act No. 6135 . From October 1979 to September 1981, it produced and entirely exported semiconductors. During this period, Telefunken paid contractor’s tax amounting to P2,482,042.35. It later sought a refund or tax credit, contending it was exempt from all national internal revenue taxes except income tax under Section 7 of R.A. 6135 in relation to Section 8(a) of R.A. 5186 (The Investment Incentives Act).
The Commissioner of Internal Revenue denied the claim, arguing that the tax exemption under Section 205(16) of the 1977 National Internal Revenue Code (NIRC) applies only to pioneer enterprises registered under R.A. 5186, not those registered under R.A. 6135. The Commissioner asserted that Telefunken, registered under the latter law, was only entitled to a graduated tax exemption and not a full exemption from the contractor’s tax.
ISSUE
Whether Telefunken, a BOI-registered pioneer export producer under R.A. 6135, is exempt from paying the 3% contractor’s tax for the period in question.
RULING
Yes. The Supreme Court affirmed the decisions of the Court of Tax Appeals and the Court of Appeals, ordering the grant of a tax credit. The legal logic is clear from a harmonious reading of the applicable statutes. Section 7 of R.A. 6135 explicitly entitles registered export producers with pioneer status to the incentives under Section 8(a) of R.A. 5186, which includes exemption from all national internal revenue taxes except income tax. This specific grant of incentives by R.A. 6135 incorporates by reference the benefits under R.A. 5186.
Furthermore, Section 205(16) of the 1977 NIRC exempts from the contractor’s tax the “gross receipts of a pioneer enterprise registered with the Board of Investments under Republic Act 5186.” Telefunken, as a BOI-registered pioneer enterprise, falls within this category. The Court rejected the Commissioner’s restrictive interpretation that the exemption applies only to firms registered directly under R.A. 5186. Such an interpretation would defeat the clear legislative intent of R.A. 6135 to grant pioneer export producers the same tax incentives. The policy to promote exports, as declared in R.A. 6135, supports this conclusion. Therefore, Telefunken was erroneously assessed the contractor’s tax and is entitled to a refund.