GR 183505; (February, 2010) (Digest)
G.R. No. 183505 February 26, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. SM PRIME HOLDINGS, INC. and FIRST ASIA REALTY DEVELOPMENT CORPORATION, Respondents.
FACTS
Respondents SM Prime Holdings, Inc. and First Asia Realty Development Corporation are domestic corporations engaged in operating cinema houses. The Bureau of Internal Revenue (BIR) issued deficiency Value-Added Tax (VAT) assessments against them for various taxable years (1999, 2000, 2002, 2003) based on gross receipts from cinema ticket sales. The respondents protested these assessments. The BIR denied the protests, prompting the respondents to file separate Petitions for Review before the Court of Tax Appeals (CTA), which were later consolidated. The core issue presented was whether gross receipts from admission tickets by cinema/theater operators are subject to VAT. The CTA First Division ruled in favor of the respondents, canceling the assessments. It held that the activity of showing films is not a VAT-covered service under the National Internal Revenue Code (NIRC) but is subject to amusement tax under the Local Government Code (LGC). It also invalidated Revenue Memorandum Circular (RMC) No. 28-2001, which imposed VAT on such receipts, for non-compliance with procedural due process for tax issuances. The CTA En Banc affirmed the First Division’s decision. The Commissioner of Internal Revenue filed the present petition.
ISSUE
Whether the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets are subject to Value-Added Tax.
RULING
The Supreme Court DENIED the petition and AFFIRMED the decisions of the CTA. The gross receipts from cinema admission tickets are not subject to VAT.
The Court held that the enumeration of services under Section 108 of the NIRC is not exhaustive. However, applying the rule of statutory construction that a specific law prevails over a general law, the imposition of amusement tax on cinema operators under the specific provisions of the Local Government Code of 1991 prevails over the general VAT on services under the NIRC. The legislative history of tax laws reveals a clear intent to transfer the power to levy amusement taxes on theaters/cinemas from the national government to local government units. This transfer began with the 1973 Local Tax Code and was fully realized under the 1991 Local Government Code, which provides provinces and cities the exclusive power to impose amusement taxes on such establishments. Consequently, the national government is precluded from imposing a business tax, like VAT, on the same activity. Furthermore, the Court found RMC No. 28-2001, which sought to impose VAT on these receipts, void for contravening the law.