Professional Documents
Culture Documents
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* SECOND DIVISION.
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discount, i.e., the sum of P3,522,123.25. for the year 1993 and
P34,211,769.45 for the year 1994. Therefore, petitioner is entitled to a tax
credit equivalent to the actual amounts of the 20% sales discount as
determined by the Court of Tax Appeals.
PEREZ, J.:
This petition for review on certiorari calls for an interpretation of
the term “cost” as used in Section 4(a) of Republic Act No. 7432,
otherwise known as “An Act to Maximize the Contribution of Senior
Citizens to Nation Building, Grant Benefits and Special Privileges
and For Other Purposes.”
A rundown of the pertinent facts is presented below.
Pursuant to Republic Act No. 7432, petitioner Mercury Drug
Corporation (petitioner), a retailer of pharmaceutical products,
granted a 20% sales discount to qualified senior citizens on their
purchases of medicines. For the taxable year April to December
1993 and January to December 1994, the amounts representing the
20% sales discount totalled P3,719,287.681 and P35,500,593.44,2
respectively, which petitioner claimed as deductions from its gross
income.
Realizing that Republic Act No. 7432 allows a tax credit for sales
discounts granted to senior citizens, petitioner filed with the
Commissioner of Internal Revenue (CIR) claims for refund in the
amount of P2,417,536.00 for the year 1993 and
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3 Rollo, pp. 51-52.
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When the CIR failed to act upon petitioner’s claims, the latter
filed a petition for review with the Court of Tax Appeals. On 6
September 2000, the Court of Tax Appeals rendered the following
judgment:4
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5 Id., at pp. 61-62.
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Multiply by 84.11%
Allowable Tax Credit P 7,393,094.28
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and no refund or tax credit for taxable year 1994 as the computation below shows
that Petitioner, instead of having a tax credit of P23,075,386.00 as claimed in the
Petition, still has a tax due of P5,032,113.72 detailed as follows:
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has a tax liability of P5,032,113.72, hence the refund for the period
must fail.”6
Moreover, the Court of Tax Appeals stated that the claim for tax
credit must be based on the actual cost of the medicine and not the
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6 Id., at pp. 59-61.
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Income
TOTAL INCOME P 1,928,389,653.00
OPERATING EXPENSES 1,499,422,645.00
NET INCOME BEFORE 428,967,008.00
TAX
Less: Income 25,591,586.00
subjected to final
income tax
NET TAXABLE INCOME P 403,375,422.00
INCOME TAX PAYABLE P 141,181,398.00
LESS: TAX CREDIT P
(Cost of 20% Discount 28,775,519.28
given to Senior
Citizens)
TAX ACTUALLY PAID 157,531,709.28
128,756,190.00
AMOUNT P 16,350,311.287
REFUNDABLE FOR
TAXABLE YEAR
1994
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7 Id., at pp. 91-92.
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that the actual discount granted to the senior citizens, rather than the
acquisition cost of the item availed by senior citizens, should be the
basis for computation of tax credit.
On 20 October 2003, the Court of Appeals rendered a Decision8
sustaining the Court of Tax Appeals and dismissing the petition.
Citing the Court of Appeals cases of Commissioner of Internal
Revenue v. Elmas Drug Corporation and Trinity Franchising and
Management Corp. v. Commissioner of Internal Revenue, the
appellate court interpreted the term “cost” as used in Section 4(a) of
Republic Act No. 7432 to mean the acquisition cost of the medicines
sold to senior citizens. Therefore, it upheld the computation
provided by the Court of Tax Appeals in its 20 December 2000
Resolution.
Petitioner filed a motion for partial reconsideration which the
Court of Appeals denied in a Resolution9 dated 23 June 2004. This
prompted petitioner to file the instant petition for review. Petitioner
raises the following legal grounds for the allowance of its petition:
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I.
LIMITING THE TAX CREDIT ON THE ACQUISITION COST OF THE
MEDICINES SOLD AMOUNTS TO A TAKING OF PROPERTY FOR
PUBLIC USE WITHOUT JUST COMPENSATION.
II.
FORCING PETITIONER TO GRANT 20% DISCOUNT ON SALE OF
MEDICINE TO SENIOR CITIZENS WITHOUT FULLY REIMBURSING
IT FOR THE AMOUNT OF DISCOUNT GRANTED VIOLATES THE
DUE PROCESS CLAUSE FOR BEING OPPRESSIVE,
UNREASONABLE, CONFISCATORY, AND AN UNDUE RESTRAINT
OF TRADE.
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III.
EVEN THE COURT OF APPEALS HAD AN INTERPRETATION OF
THE TERM “COST” THAT IS DIFFERENT FROM, AND BROADER
THAN THE INTERPRETATION OF THE COURT OF TAX APPEALS.
YET, THE COURT OF APPEALS AFFIRMED IN TOTO THE COURT OF
TAX APPEALS’ DECISION.
IV.
THE COURT MAY CONSIDER THE SPIRIT AND REASON OF THE
LAW WHERE A LITERAL MEANING WOULD LEAD TO INJUSTICE
OR DEFEAT THE CLEAR INTENT OF THE LAWMAKERS.
V.
RESPONDENT MUST ACCORD PETITIONER THE SAME
TREATMENT AS MAR-TESS DRUG IN ACCORDANCE WITH THE
PRINCIPLE OF EQUAL PROTECTION OF LAWS.10
trade. In the second tier, petitioner maintains that the term “cost”
should at least include all business expenses directly incurred to
produce the merchandise and to bring them to their present location
and use. Petitioner alleges that while the Court of Appeals
subscribes to the above interpretation, it neverthe-
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10 Id., at pp. 16-31.
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11 G.R. No. 142299, 22 June 2006, 492 SCRA 159.
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been elevated to this Court and had been eventually resolved with
finality on 22 June 2006 in the case entitled Bicolandia Drug
Corporation v. Commissioner of Internal Revenue.
We reiterated this ruling in the 2008 case of Cagayan Valley
Drug by holding that petitioner therein is entitled to a tax credit for
the full 20% sales discounts it extended to qualified senior citizens.
This holds true despite the fact that petitioner suffered a net loss for
that taxable year.18
The most recent case in point is M.E. Holding Corporation
which bears a strikingly similar set of facts and issues with the case
at bar. Both petitioners filed their respective income tax return
initially treating the 20% sales discount to senior citizens as
deductions from its gross income. When advised that the discount
should be treated as tax credit, they both filed a claim for
overpayment. The Bureau of Internal Revenue on both occasions
failed to act timely on the claims, hence they appealed before the
Court of Tax Appeals. The Court of Tax Appeals in M.E. Holding
concedes that the 20% sales discount granted to qualified senior
citizens should be treated as tax credit but it placed reliance on the
Court of Appeals’ decision in Commissioner of Internal Revenue v.
Elmas Drug Corporation where the term “cost of the discount” was
interpreted to mean only the direct acquisition cost, excluding
administrative and other incremental costs. This was the very same
case relied upon by the Court of Appeals in the present case. We
finally affirmed in M.E. Holding that the tax credit should be
equivalent to the actual 20% sales discount granted to qualified
senior citizens.
It is worthy to mention that Republic Act No. 7432 had
undergone two (2) amendments; first in 2003 by Republic Act No.
9257 and most recently in 2010 by Republic Act No. 9994.
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the factual findings of the Court of Tax Appeals with respect to the
actual amount of the 20% sales discount, i.e., the sum of
P3,522,123.25. for the year 1993 and P34,211,769.45 for the year
1994. Therefore, petitioner is entitled to a tax credit equivalent to the
actual amounts of the 20% sales discount as determined by the Court
of Tax Appeals. A new computation for tax refund is in order, to wit:
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19 G.R. No. 159647, 15 April 2005, 456 SCRA 414.
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