G.R. No. 147295 . February 16, 2007.
THE COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. ACESITE (PHILIPPINES) HOTEL CORPORATION, Respondent.

FACTS

Acesite (Philippines) Hotel Corporation, owner of the Holiday Inn Manila Pavilion, leased a portion of its premises to the Philippine Amusement and Gaming Corporation (PAGCOR) for casino operations and also provided food and beverages to PAGCOR’s patrons. For the period covering January 1996 to April 1997, Acesite paid Value-Added Tax (VAT) amounting to P30,152,892.02 to the Bureau of Internal Revenue (BIR) on these transactions. Acesite initially attempted to pass this VAT cost to PAGCOR, but PAGCOR refused to pay, invoking its tax-exempt status.
Subsequently, Acesite concluded that its transactions with PAGCOR should be subject to a zero percent VAT rate. Consequently, it filed an administrative claim for refund with the Commissioner of Internal Revenue (CIR). Due to the CIR’s inaction, Acesite filed a petition for refund with the Court of Tax Appeals (CTA).

ISSUE

The primary issue is whether PAGCOR’s tax exemption privilege under its charter includes exemption from indirect taxes like the VAT, thereby rendering Acesite’s services to it effectively zero-rated and entitling Acesite to a refund of the VAT paid.

RULING

The Supreme Court denied the CIR’s petition and affirmed the lower courts’ decisions, ordering the refund. The Court held that PAGCOR’s tax exemption is comprehensive. Section 13 of P.D. No. 1869, PAGCOR’s charter, explicitly states that “no tax of any kind or form, income or otherwise” shall be assessed, and that this exemption extends to entities with whom PAGCOR has contractual relationships. The law makes no distinction between direct and indirect taxes; thus, the exemption logically encompasses indirect taxes like the VAT.
Since PAGCOR is exempt from paying the VAT, the transactions by Acesite for PAGCOR’s benefit are effectively zero-rated under the Tax Code. A zero-rated transaction is a taxable event but does not result in an output tax liability for the seller; simultaneously, the seller can claim a refund or credit for input taxes paid. The Court found that Acesite sufficiently proved its actual VAT payments and its entitlement to the refund. The BIR’s duty to refund erroneously collected taxes must be performed without unreasonable delay. Therefore, Acesite was correctly granted a refund of the VAT it paid on its transactions with the tax-exempt PAGCOR.