COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. COURT OF APPEALS and
COMMONWEALTH MANAGEMENT AND
SERVICES CORPORATION, respondents.
Taxation; Value Added Tax is a tax on transactions,
imposed at every stage of the distribution process on the sale,
barter, exchange of goods or property, and on the performance
of services, even in the absence of profit attributable thereto.—
Contrary to COMASERCO’s contention the above provision
clarifies that even a non-stock, nonprofit, organization or
government entity, is liable to pay VAT on the sale of goods
or services. VAT is a tax on transactions, imposed at every
stage of the distribution process on the sale, barter, exchange
of goods or property, and on the performance of services, even
in the absence of profit attributable thereto. The term “in the
course of trade or business” requires the regular conduct or
pursuit of a com-
_______________
* FIRST DIVISION.
238
238 SUPREME COURT REPORTS
ANNOTATED
Commissioner of Internal Revenue vs. Court of Appeals
mercial or an economic activity, regardless of whether
or not the entity is profit-oriented.
Same; Even a nonstock, nonprofit organization or
government entity is liable to pay Value Added Tax for the
sale of goods and services.—The definition of the term “in the
course of trade or business” incorporated in the present law
applies to all transactions even to those made prior to its
enactment. Executive Order No. 273 stated that any person
who, in the course of trade or business, sells, barters or
exchanges goods and services, was already liable to pay VAT.
The present law merely stresses that even a nonstock,
nonprofit organization or government entity is liable to pay
VAT for the sale of goods and services.
Same; Definition of the phrase “sale of services.”—
Section 108 of the National Internal Revenue Code of 1997
defines the phrase “sale of services” as the “performance of
all kinds of services for others for a fee, remuneration or
consideration.” It includes “the supply of technical advice,
assistance or services rendered in connection with technical
management or administration of any scientific, industrial
or commercial undertaking or project.”
Same; Even if such corporation was organized without
any intention of realizing pro fit, any income or profit
generated by the entity in the conduct of its activities was
subject to income tax.—On February 5, 1998, the
Commissioner of Internal Revenue issued BIR Ruling No.
010-98 emphasizing that a domestic corporation that
provided technical, research, management and technical
assistance to its affiliated companies and received payments
on a reimbursement-of-cost basis, without any intention of
realizing profit, was subject to VAT on services rendered. In
fact, even if such corporation was organized without any
intention of realizing profit, any income or profit generated
by the entity in the conduct of its activities was subject to
income tax.
Same; As long as the entity provides service for a fee,
remuneration or consideration, then the service rendered is
subject to Value Added Tax.—It is immaterial whether the
primary purpose of a corporation indicates that it receives
payments for services rendered to its affiliates on a
reimbursement-on-cost basis only, without realizing profit,
for purposes of determining liability for VAT on services
rendered. As long as the entity provides service for a fee,
remuneration or consideration, then the service rendered is
subject to VAT.
239
VOL. 329, MARCH 30, 2000 239
Commissioner of Internal Revenue vs. Court of Appeals
Same; Any exemption from the payment of a tax must be
clearly stated in the language of the law.—It is a rule that
because taxes are the lifeblood of the nation, statutes that
allow exemptions are construed strictly against the grantee
and liberally in favor of the government. Otherwise stated,
any exemption from the payment of a tax must be clearly
stated in the language of the law; it cannot be merely implied
therefrom. In the case of VAT, Section 109, Republic Act 8424
clearly enumerates the transactions exempted from VAT.
The services rendered by COMASERCO do not fall within
the exemptions.
Same; Opinion of the Commissioner of Internal Revenue
entitled to great weight in the absence of any showing that it
is plainly wrong.—Both the Commissioner of Internal
Revenue and the Court of Tax Appeals correctly ruled that
the services rendered by COMASERCO to Philamlife and its
affiliates are subject to VAT. As pointed out by the
Commissioner, the performance of all kinds of services for
others for a fee, remuneration or consideration is considered
as sale of services subject to VAT. As the government agency
charged with the enforcement of the law, the opinion of the
Commissioner of Internal Revenue, in the absence of any
showing that it is plainly wrong, is entitled to great weight.
PETITION for review on certiorari of a decision of the
Court of Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Benilda V. Quevedo-Santos and Anita A.
Dimalanta-Arcinue for private respondent.
PARDO, J.:
What is before the Court is a petition for review on
certiorari of the decision of the Court of
Appeals, reversing that of
1
_______________
1 In CA-G.R. SP No. 37930, promulgated on May 13, 1996. Justice
Pacita Cañizares-Nye, ponente, Justices Pedro A. Ramirez and
Salvador J. Valdez, Jr., concurring. Rollo, pp. 27-31.
240
240 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Court of Appeals
the Court of Tax Appeals, which affirmed with
2
modification the decision of the Commissioner of
Internal Revenue ruling that Commonwealth
Management and Services Corporation, is liable for
value added tax for services to clients during taxable
year 1988.
Commonwealth Management and Services
Corporation (COMASERCO, for brevity), is a
corporation duly organized and existing under the laws
of the Philippines. It is an affiliate of Philippine
American Life Insurance Co. (Philamlife), organized by
the latter to perform collection, consultative and other
technical services, including functioning as an internal
auditor, of Philamlife and its other affiliates.
On January 24, 1992, the Bureau of Internal
Revenue (BIR) issued an assessment to private
respondent COMASERCO for deficiency value-added
tax (VAT) amounting to P351,851.01, for taxable year other technical assistance, including functioning as an
1988, computed as follows: internal auditor, were on a “no-profit, reimbursement-
“Taxable sale/receipt P1,679,155.00 of-cost-only” basis. It averred that it was not engaged in
10% tax due thereon 167,915.50 the business of providing services to Philamlife and its
25% surcharge 41,978.88 affiliates. COMASERCO was established to ensure
20% interest per annum 125,936.63 operational orderliness and administrative efficiency of
Compromise penalty for late payment 16,000.00 Philamlife and its affiliates, and not in the sale of
TOTAL AMOUNT DUE AND P services. COMASERCO stressed that it was not profit-
COLLECTIBLE 351,831.01“ 3 motivated, thus not engaged in business. In fact, it did
COMASERCO’s annual corporate income tax return not generate profit but suffered a net loss in taxable
ending December 31, 1988 indicated a net loss in its year 1988. COMASERCO averred that since, it was not
operations in the amount of P6,077.00. engaged in business, it was not liable to pay VAT.
On February 10, 1992, COMASERCO filed with the On June 22, 1995, the Court of Tax Appeals rendered
BIR, a letter-protest objecting to the latter’s finding of decision in favor of the Commissioner of Internal
deficiency VAT. On August 20, 1992, the Commissioner Revenue, the dispositive portion of which reads:
of Internal Revenue sent a collection letter to “WHEREFORE, the decision of the Commissioner of Internal
Revenue assessing petitioner deficiency value-added tax for
COMASERCO demanding payment of the deficiency
the taxable year 1988 is AFFIRMED with slight
VAT.
modifications. Accordingly, petitioner is ordered to pay
_______________
respondent Commissioner of Internal Revenue the amount
2 In C.T.A. Case No. 4853, promulgated on June 22, 1995. Judge of P335,831.01 inclusive of the 25% surcharge and interest
Ernesto D. Acosta, presiding, Judges Manuel K. Gruba and Ramon O. plus 20% interest from January 24, 1992 until fully paid
De Veyra, concurring. Rollo, pp. 32-42. pursuant to Section 248 and 249 of the Tax Code.
3 CTA Decision, Rollo, p. 32.
“The compromise penalty of P16,000.00 imposed by the
241 respondent in her assessment letter shall not be included in
VOL. 329, MARCH 30, 2000 241 the payment as there was no compromise agreement entered
into between petitioner and respondent with respect to the
Commissioner of Internal Revenue vs. Court of Appeals value-added tax deficiency.”
5

On September 29, 1992, COMASERCO filed with the

Court of Tax Appeals a petition for review contesting
4 On July 26, 1995, respondent filed with the Court of
the Commissioner’s assessment. COMASERCO Appeals, a petition for review of the decision of the
asserted that the services it rendered to Philamlife and Court of Appeals.
its affiliates, relating to colleo tions, consultative and _______________
 4 Docketed as C.T.A. Case No. 4853.
5 Rollo, pp. 32-43.
242
242 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Court of Appeals
After due proceedings, on May 13, 1996, the Court of
Appeals rendered decision reversing that of the Court of
Tax Appeals, the dispositive portion of which reads:
“WHEREFORE, in view of the foregoing, judgment is hereby
rendered REVERSING and SETTING ASIDE the questioned
Decision promulgated on 22 June 1995. The assessment for
deficiency value-added tax for the taxable year 1988
inclusive of surcharge, interest and penalty charges are
ordered CANCELLED for lack of legal and factual basis.”6
The Court of Appeals anchored its decision on the
ratiocination in another tax case involving the same
parties, where it was held that COMASERCO was not
7
liable to pay fixed and contractor’s tax for services
rendered to Philamlife and its affiliates. The Court of
Appeals, in that case, reasoned that COMASERCO was
not engaged in business of providing services to
Philamlife and its affiliates. In the same manner, the
Court of Appeals held that COMASERCO was not liable
to pay VAT for it was not engaged in the business of
selling services.
On July 16, 1996, the Commissioner of Internal
Revenue filed with this Court a petition for review on
certiorari assailing the decision of the Court of Appeals.
On August 7, 1996, we required respondent
COMASERCO to file comment on the petition, and on
September 26, 1996, COMASERCO complied with the
resolution. 8 tax (VAT) imposed in Sections 100 to 102 of this Code.”
We give due course to the petition.
________________
6 Rollo, pp. 27-31.
7 Docketed as CA-G-R. SP No. 34032, Commonwealth Management
and Services Corporation v. Commissioner of Internal Revenue and
the Court of Tax Appeals, promulgated on December 21, 1995. Justice
Jaime M. Lantin, ponente, Justices Eduardo G. Montenegro and Jose
C. Dela Rama, concurring. This decision became final since no petition
for review was filed with this Court.
8 Rollo, pp. 50-64.
243
VOL. 329, MARCH 30, 2000 243
Commissioner of Internal Revenue vs. Court of Appeals
At issue in this case is whether COMASERCO was
engaged in the sale of services, and thus liable to pay
VAT thereon.
Petitioner avers that to “engage in business” and to
“engage in the sale of services” are two different things.
Petitioner maintains that the services rendered by
COMASERCO to Philamlife and its affiliates, for a fee
or consideration, are subject to VAT. VAT is a tax on the
value added by the performance of the service. It is
immaterial whether profit is derived from rendering the
service.
We agree with the Commissioner.
Section 99 of the National Internal Revenue Code of
1986, as amended by Executive Order (E.O.) No. 273 in
1988, provides that:
“Section 99. Persons liable.—Any person who, in the course
of trade or business, sells, barters or exchanges goods,
renders services, or engages in similar transactions and any
person who imports goods shall be subject to the value-added
9
COMASERCO contends that the term “in the course of
trade or business” requires that the “business” is
carried on with a view to profit or livelihood. It avers
that the activities of the entity must be profit-oriented.
COMASERCO submits that it is not motivated by
profit, as defined by its primary purpose in the articles
of incorporation, stating that it is operating “only on
reimbursement-of-cost basis, without any profit.”
Private respondent argues that profit motive is material
in ascertaining who to tax for purposes of determining
liability for VAT.
We disagree.
On May 28, 1994, Congress enacted Republic Act No.
7716, the Expanded VAT Law (EVAT), amending
among other sections, Section 99 of the Tax Code. On
January 1, 1998, Republic Act 8424, the National
Internal Revenue Code of 1997, took effect. The
amended law provides that:
_______________
9 Now in Section 105 of the Tax Code.
244
244 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Court of Appeals
“SEC. 105. Persons Liable.—Any person who, in the course
of trade or business, sells, barters, exchanges, leases goods
or properties, renders services, and any person who imports
goods shall be subject to the value-added tax (VAT) imposed
in Sections 106 and 108 of this Code.
“The value-added tax is an indirect tax and the amount of
tax may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services. This rule shall
likewise apply to existing sale or lease of goods, properties or
services at the time of the effectivity of Republic Act No.
7716.
“The phrase “in the course of trade or business” means the
regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged
therein is a nonstock, nonprofit organization (irrespective of
the disposition of its net income and whether or not it sells
exclusively to members of their guests), or government
entity.
“The rule of regularity, to the contrary notwithstanding,
services as defined in this Code rendered in the Philippines
by nonresident foreign persons shall be considered as being
rendered in the course of trade or business.”
Contrary to COMASERCO’s contention the above
provision clarifies that even a non-stock, non-
profit,organization or government entity, is liable to pay
VAT on the sale of goods or services. VAT is a tax on
transactions, imposed at every stage, of the distribution
process on the sale, barter, exchange of goods or
property, and on the performance of services, even in
the absence of profit attributable thereto. The term “in
the course of trade or business” requires the regular
conduct or pursuit of a commercial or an economic
activity, regardless of whether or not the entity is profit-
oriented.
The definition of the term “in the course of trade or
business” incorporated in the present law applies to all
transactions even to those made prior to its enactment.
Executive Order No. 273 stated that any person who, in
the course of trade or business, sells, barters or
exchanges goods and services, was already liable to pay
VAT. The present law merely stresses that even a
nonstock, nonprofit organization or gov-
245
VOL. 329, MARCH 30, 2000 245
Commissioner of Internal Revenue vs. Court of Appeals
eminent entity is liable to pay VAT for the sale of goods
and services.
Section 108 of the National Internal Revenue Code of
1997 defines the phrase “sale of services” as the
10
“performance of all kinds of services for others for a fee,
remuneration or consideration.” It includes “the supply
of technical advice, assistance or services rendered in
connection with technical management or
administration of any scientific, industrial or
commercial undertaking or project.” 11
On February 5, 1998, the Commissioner of Internal
Revenue issued BIR Ruling No. 010-98 emphasizing
12
that a domestic corporation that provided technical,
research, management and technical assistance to its
affiliated companies and received payments on a
reimbursement-of-cost basis, without any intention of
realizing profit, was subject to VAT on services
rendered. In fact, even if such corporation was
organized without any intention of realizing profit, any
income or profit generated by the entity in the conduct
of its activities was subject to income tax.
Hence, it is immaterial whether the primary purpose
of a corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-
on-cost basis only, without realizing profit, for purposes
of determining liability for VAT on services rendered.
As long as the entity provides service for a fee,
remuneration or consideration, then the service
rendered is subject to VAT.
At any rate, it is a rule that because taxes are the
lifeblood of the nation, statutes that allow exemptions
are construed strictly against the grantee and liberally
in favor of the government. Otherwise stated, any
exemption from the payment of a tax must be clearly
stated in the language of the law; it
_________________
10 Formerly Section 102.
11 Section 108 (A) (6), National Internal Revenue Code of 1997;
Section 4.102-1, Revenue Regulations No. 7-95 (Value-Added Tax
Regulations), as amended, December 9, 1995.
12 Upon a query made by Tipco-Bataan Group Incorporated.
246
246 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Court of Appeals
cannot be merely implied therefrom. In the case of
13
VAT, Section 109, Republic Act 8424 clearly
enumerates the transactions exempted from VAT. The
services rendered by COMASERCO do not fall within
the exemptions.
Both the Commissioner of Internal Revenue and the
Court of Tax Appeals correctly ruled that the services
rendered by COMASERCO to Philamlife and its
affiliates are subject to VAT. As pointed out by the
Commissioner, the performance of all kinds of services
for others for a fee, remuneration or consideration is
considered as sale of services subject to VAT. As the
government agency charged with the enforcement of the
law, the opinion of the Commissioner of Internal
Revenue, in the absence of any showing that it is plainly
wrong, is entitled to great weight. Also, it has been the
14 decision of the Court of Tax Appeals in C.T.A. Case No.
long standing policy and practice of this Court to respect 4853.
the conclusions of quasijudicial agencies, such as the No costs.
Court of Tax Appeals which, by the nature of its SO ORDERED.
functions, is dedicated exclusively to the study and
consideration of tax cases and has necessarily developed
an expertise on the subject, unless there has been an
abuse or improvident exercise of its authority. 15

There is no merit to respondent’s contention that the

Court of Appeals’ decision in CA-G.R. No. 34042,
declaring the COMASERCO as not engaged in business
and not liable for the payment of fixed and percentage
taxes, binds petitioner. The issue in CA-G-R. No.
34042 is different from the present case, which involves
COMASERCO’s liability for VAT. As heretofore stated,
every person who sells, barters, or exchanges goods and
services, in the course of trade or business, as defined
by law, is subject to VAT.
_________________

13 Davao Gulf Lumber Corporation v. Commissioner of Internal

Revenue, 293 SCRA 76 (1998).

14 Misamis Oriental Association of Coco Traders, Inc. v.
Department of Finance Secretary, 238 SCRA 63, 68 (1994).
15 Commissioner of Internal Revenue v. Court of Appeals, 204
SCRA 183, 189-190 (1991).

247
VOL. 329, MARCH 30, 2000 247
People vs. Aquino
WHEREFORE, the Court GRANTS the petition and
REVERSES the decision of the Court of Appeals in CA-
G.R. SP No. 37930. The Court hereby REINSTATES the