B.
Taxable Transactions (d) The right or the privilege to use motion picture films,
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 to 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 contracts of 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 private
organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to
members or 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 course of trade or business.
NOTE: I didn’t put the annotations of De Leon here
anymore since the annotations speak more of the
concepts of VAT which are more under Part A.
1. Sale of goods
SEC. 106. Value-Added Tax on Sale of Goods or
Properties. -
(A) Rate and Base of Tax. - There shall be levied,
assessed and collected on every sale, barter or
exchange of goods or properties, value-added tax
equivalent to ten percent (10%) of the gross selling price
or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller
or transferor.
(1) The term "goods" or "properties" shall mean all
tangible and intangible objects which are capable of
pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers
or held for lease in the ordinary course of trade or
business;
(b) The right or the privilege to use patent, copyright,
design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or
right;
(c) The right or the privilege to use in the Philippines of
any industrial, commercial or scientific equipment;
tapes and discs; and
(e) Radio, television, satellite transmission and cable
television time.
The term "gross selling price" means the total amount of
money or its equivalent which the purchaser pays or is
obligated to pay to the seller in consideration of the sale,
barter or exchange of the goods or properties, excluding
the value-added tax. The excise tax, if any, on such
goods or properties shall form part of the gross selling
price.
(2) The following sales by VAT-registered persons shall
be subject to zero percent (0%) rate:
(a) Export Sales. - The term "export sales" means:
(1) The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of
the goods so exported and paid for in acceptable foreign
currency or its equivalent in goods or services, and
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing,
processing, packing or repacking in the Philippines of
the said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas
(BSP);
(3) Sale of raw materials or packaging materials to
export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas
(BSP); and
(5) Those considered export sales under Executive
Order NO. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws.
(b) Foreign Currency Denominated Sale. - The
phrase "foreign currency denominated sale" means sale
to a nonresident of goods, except those mentioned in
Sections 149 and 150, assembled or manufactured in
the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption under
special laws or international agreements to which the
Philippines is a signatory effectively subjects such sales
to zero rate.
(B) Transactions Deemed Sale. - The following
transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of
business of goods or properties originally intended for
sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of
the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made
within sixty (60) days following the date such goods were
consigned; and
(4) Retirement from or cessation of business, with
respect to inventories of taxable goods existing as of
such retirement or cessation.
(C) Changes in or Cessation of Status of a VAT-
registered Person. - The tax imposed in Subsection (A)
of this Section shall also apply to goods disposed of or
existing as of a certain date if under circumstances to be
prescribed in rules and regulations to be promulgated by
the Secretary of Finance, upon recommendation of the
Commissioner, the status of a person as a VAT-
registered person changes or is terminated.
(D) Determination of the Tax. -
(1) The tax shall be computed by multiplying the total
amount indicated in the invoice by one-eleventh (1/11).
(2) Sales Returns, Allowances and Sales Discounts. -
The value of goods or properties sold and subsequently
returned or for which allowances were granted by a
VAT-registered person may be deducted from the gross
sales or receipts for the quarter in which a refund is
made or a credit memorandum or refund is issued. Sales
discount granted and indicated in the invoice at the time
of sale and the grant of which does not depend upon the
happening of a future event may be excluded from the
gross sales within the same quarter it was given.
(3) Authority of the Commissioner to Determine the
Appropriate Tax Base. - The Commissioner shall, by
rules and regulations prescribed by the Secretary of
Finance, determine the appropriate tax base in cases
where a transaction is deemed a sale, barter or
exchange of goods or properties under Subsection (B)
hereof, or where the gross selling price is unreasonably
lower than the actual market value.
NOTE: For annotations, see Part D.
2. Importation
SEC. 107. Value-Added Tax on Importation of
Goods-
(A) In General. - There shall be levied, assessed and
collected on every importation of goods a value-added
tax equivalent to ten percent (10%) based on the total
value used by the Bureau of Customs in determining
tariff and customs duties plus customs duties, excise
taxes, if any, and other charges, such tax to be paid by
the importer prior to the release of such goods from
customs custody: Provided, That where the customs
duties are determined on the basis of the quantity or
volume of the goods, the value-added tax shall be based
on the landed cost plus excise taxes, If any.
(B) Transfer of Goods by Tax-Exempt Persons. - In
the case of tax-free importation of goods into the
Philippines by persons, entities or agencies exempt from
tax where such goods are subsequently sold, transferred
or exchanged in the Philippines to non-exempt persons
or entities, the purchasers, transferees or recipients shall
be considered the importers thereof, who shall be liable
for any internal revenue tax on such importation. The tax
due on such importation shall constitute a lien on the
goods superior to all charges or liens on the goods,
irrespective of the possessor thereof.
NOTE: For annotations, see Part E.
3. Sale of services
SEC. 108. Value-added Tax on Sale of Services and
Use or Lease of Properties. -
(A) Rate and Base of Tax. - There shall be levied,
assessed and collected, a value-added tax equivalent to
ten percent (10%) of gross receipts derived from the sale
or exchange of services, including the use or lease of
properties.
The phrase "sale or exchange of services" means the
performance of all kinds or services in the Philippines for
others for a fee, remuneration or consideration, including
those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or
distributors of cinematographic films; persons engaged
in milling processing, manufacturing or repacking goods
for others; proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment
parlors, cafes and other eating places, including clubs
and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or
cargoes, including persons who transport goods or
cargoes for hire another domestic common carriers by
land, air and water relative to their transport of goods or
cargoes; services of franchise grantees of telephone and
telegraph, radio and television broadcasting and all other
franchise grantees except those under Section 119 of
this Code; services of banks, non-bank financial
intermediaries and finance companies; and non-life
insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether
or not the performance thereof calls for the exercise or
use of the physical or mental faculties. The phrase 'sale
or exchange of services' shall likewise include:
(1) The lease or the use of or the right or privilege to use
any copyright, patent, design or model, plan secret
formula or process, goodwill, trademark, trade brand or
other like property or right;
(2) The lease of the use of, or the right to use of any
industrial, commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or
commercial knowledge or information;
(4) The supply of any assistance that is ancillary and
subsidiary to and is furnished as a means of enabling
the application or enjoyment of any such property, or
right as is mentioned in subparagraph (2) or any such
knowledge or information as is mentioned in
subparagraph (3);
(5) The supply of services by a nonresident person or
his employee in connection with the use of property or
rights belonging to, or the installation or operation of any
brand, machinery or other apparatus purchased from
such nonresident person.
(6) The supply of technical advice, assistance or
services rendered in connection with technical
management or administration of any scientific, industrial
or commercial undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and
discs; and
(8) The lease or the use of or the right to use radio,
television, satellite transmission and cable television
time.
Lease of properties shall be subject to the tax herein
imposed irrespective of the place where the contract of
lease or licensing agreement was executed if the
property is leased or used in the Philippines.
The term "gross receipts" means the total amount of
money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the
services and deposits and advanced payments actually
or constructively received during the taxable quarter for
the services performed or to be performed for another
person, excluding value-added tax.
(B) Transactions Subject to Zero Percent (0%)
Rate. - The following services performed in the
Philippines by VAT- registered persons shall be subject
to zero percent (0%) rate.
(1) Processing, manufacturing or repacking goods for
other persons doing business outside the Philippines
which goods are subsequently exported, where the
services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding
paragraph, the consideration for which is paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero
percent (0%) rate;
(4) Services rendered to vessels engaged exclusively in
international shipping; and
(5) Services performed by subcontractors and/or
contractors in processing, converting, of manufacturing
goods for an enterprise whose export sales exceed
seventy percent (70%) of total annual production.
NOTE: For annotations, see Part F.
Concept of "in the course of trade or business"
RR 16-2005
Sec 4.105-3. Meaning of "in the course of trade or
business". – The term "in the course of trade or
business" means the regular conduct or pursuit of a
commercial or economic activity, including transactions
incidental thereto, by any person regardless of whether
or not the person engaged therein is a non-stock, non-
profit private organization (irrespective of the disposition
of its net income and whether or not it sells exclusively to
members or their guests), or government entity.
Non-resident persons who perform services in the
Philippines are deemed to be making sales in the course
of trade or business, even if the performance of services
is not regular.
CIR vs CA (2000)
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.
Facts:
COMASERCO is a corporation duly organized and
existing under the laws of the Philippines. It is an affiliate
of Philamlife organized by the letter to perform collection,
consultative and other technical services, including
functioning as an internal auditor, of Philamlife and its
other affiliates. BIR assessed COMASERCO of
deficiency value-added tax amounting to 351, 851.01 for
1988.COMASERCO filed with the BIR, a letter-protest
objecting to the latter's finding of deficiency VAT.
COMASERCO filed with the CTA a petition for review
contesting the Commissioner's assessment.
COMASERCO asserted that the:
a. services it rendered to Philamlife and its
affiliates, relating to collections, consultative and
other technical assistance, including functioning
as an internal auditor, were on a "no-profit,
reimbursement-of-cost-only" basis
b. it was not engaged in the business of
providing services to Philamlife and its affiliates
c. it was established to ensure operational
orderliness and administrative efficiency of
 Philamlife and its affiliates, and not in the sale of
services
d. it was not profit-motivated, thus not
engaged in business. In fact, it did not generate
profit but suffered a net loss in taxable year
1988.
COMASERCO averred that since it was not engaged in
business, it was not liable to pay VAT.
CTA ruled in favor of CIR. CA reversed ruling that
COMASERCO was not engaged in business of providing
services to Philamlife and its affiliates and was not
engaged in the business of selling services; thus, not
liable to VAT.
Ratio:
SC agrees with CIR that to "engage in business" and to
"engage in the sale of services" are two different things.
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.
SC disagrees with COMASERCO that the term "in the
course of trade or business" requires that the "business"
is carried on with a view to profit or livelihood. Profit
motive is immaterial in ascertaining who to tax for
purposes of determining liability for VAT.
RA 8424 amended the EVAT Law which provided
Section 105 (see provision). This 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" 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.
Sec. 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."
BIR Ruling No. 010-98 emphasized 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
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, 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 clearly enumerates the transactions
exempted from VAT. The services rendered by
COMASERCO do not fall within the exemptions.
CIR vs CA (1995)
"To engage" is to embark on a business or to employ
oneself therein. The word "engaged" connotes more
than a single act or a single transaction; it involves some
continuity of action. "To engage in business" is uniformly
construed as signifying an employment or occupation
which occupies one's time, attention, and labor for the
purpose of a livelihood or profit. The expressions
"engage in business," "carrying on business" or "doing
business" do not have different meanings, but separately
or connectedly convey the idea of progression,
continuity, or sustained activity. "Engaged in business"
means occupied or employed in business; carrying on
business" does not mean the performance of a single
disconnected act, but means conducting, prosecuting,
and continuing business by performing progressively all
the acts normally incident thereto; while "doing business"
conveys the idea of business being done, not from time
to time, but all the time.
Facts:
Atlas is a domestic corporation which owns and operates
a mining concession at Cebu, products of which are
exported to Japan and other foreign countries. CIR
assessed Atlas for deficiency ad valorem percentage
and fixed taxes for 1975. Atlas protested but CIR denied.
CTA reversed saying that Atlas was not liable for ad
valorem tax on copper and silver and that in computing
the ad valorem tax on copper mineral, the refining and
smelting charges should be deducted. But CTA also held
that Atlas was liable for late payment fee and late filing
of notice of removal of silver, gold and pyrite, as well as
for alleged deficiency manufacturers' sales tax and
contractor's tax. CA dismissed petition and affirmed the
tax court's decision re ad valorem tax.
Ratio:
On ad valorem tax:
CIR contends that the actual market value of the
mineral products should be the gross sales realized from
copper concentrates, deducting therefrom mining,
milling, refining, transporting, handling, marketing or any
other expenses. He submits that the phrase "or any
other expenses" includes smelting and refining charges
and that the law allows deductions for actual cost of
ocean freight and insurance only in instances where the
minerals or mineral products are sold or consigned
abroad by the lessees or owner of the mine under C.I.F.
terms, hence it is error to allow smelting and refining
charges as deductions.
SC disagrees. Based on Secs. 2431 and 2462 of NIRC,
the ad valorem tax of 2% is imposed on the actual
market value of the annual gross output of the minerals
or mineral products extracted or produced from all
mineral lands not covered by lease. In computing the
tax, the term "gross output" shall be the actual market
value of minerals or mineral products, or of bullion from
each mine or mineral lands operated as a separate
entity, without any deduction for mining, milling, refining,
transporting, handling, marketing or any other expenses.
If the minerals or mineral products are sold or consigned
abroad by the lessee or owner of the mine under C.I.F.
terms, the actual cost of ocean freight and insurance
shall be deducted.
1
Sec. 243. Ad valorem taxes on output of mineral
lands not covered by lease. — There is hereby
imposed on the actual market value of the annual
gross output of the minerals mineral products
extracted or produced from all mineral lands not
covered by lease, an ad valorem tax in the
amount of two per centum of the value of the
output except gold which shall pay one and one-
half per centum.
Before the minerals or mineral products are
removed from the mines, the Commissioner of
Internal Revenue or his representatives shall first
be notified of such removal on a form prescribed
for the purpose.
2
Sec. 246. Definitions of the terms "gross
output," "minerals" and "mineral products." —
Disposition of royalties and ad valorem taxes. The
term "gross output" shall be interpreted as the
actual market value of minerals or mineral
products, or of bullion from each mine or mineral
lands operated as a separate entity without any
deduction from mining, milling, refining,
transporting, handling, marketing, or any other
expenses: Provided, however, That if the minerals
or mineral products are sold or consigned. abroad
by the lessee or owner of the mine under C.I.F.
terms, the actual cost of ocean freight and
insurance shall be deducted. The output of any
group of contiguous mining claim shall not be
subdivided. The word "minerals" shall mean all
inorganic substances found in nature whether in
solid, liquid, gaseous, or any intermediate state.
The term "mineral products" shall mean things
produced by the lessee, concessionaire or owner
of mineral lands, at least eighty per cent of which
things must be minerals extracted by such
lessee, concessionaire, or owner of mineral lands.
Ten per centum of the royalties and ad
valorem taxes herein provided shall accrue to the
municipality and ten per centum to the province
where the-mines are situated, and eighty per
centum to the National Treasury.
In other words, the assessment shall be based, not upon
the cost of production or extraction of said minerals or
mineral products, but on the price which the same —
before or without undergoing a process of manufacture
— would command in the ordinary course of business.
The issue of whether the ad valorem tax should be
based upon the value of the finished product, or the
value upon extraction of the raw materials or minerals
used in the manufacture of said finished products, has
been passed upon by SC in several cases wherein it
held that the ad valorem tax is to be computed on the
basis of the market value of the mineral in its condition at
the time of such removal and before it undergoes a
chemical change through manufacturing process, as
distinguished from a purely physical process which does
not necessarily involve the change or transformation of
the raw material into a composite distinct product. As
held in Cebu Portland Cement Co. vs. CIR: ad
valorem tax is a tax not on the minerals, but upon the
privilege of severing or extracting the same from the
earth, the government's right to exact the said impost
springing from the Regalian theory of State ownership of
its natural resources.
Therefore, the imposable ad valorem tax should be
based on the selling price of the quarried minerals,
which is its actual market value, and not on the price of
the manufactured product. If the market value chosen for
the reckoning is the value of the manufactured. or
finished product, as in the case at bar, then all expenses
of processing or manufacturing should be deducted in
order to approximate as closely as is humanly possible
the actual market value of the raw mineral at the mine
site.
It was copper ore that was extracted by ACMDC from its
mine site which, through a simple physical process of
removing impurities therefrom, was converted into
copper concentrate In turn, this copper concentrate
underwent the process of smelting and refining, and the
finished product is called copper cathode or copper wire
bar.
The copper wire bar is the manufactured copper. It is not
the mineral extracted from the mine site nor can it be
considered a mineral product since it has undergone a
manufacturing process.
On Manufacturer's Tax and Contractor's Tax: (relevant)
The manufacturer's tax is imposed under Section 1863 of
the tax code then in force while the contractor's tax is
provided for under Section 191 of the same code,
paragraph 17 of which declares that lessors of personal
property shall be subject to a contractor's tax of 3% of
the gross receipts.
Sections 186 and 191 fall under Title V of the tax code,
entitled "Privilege Taxes on Business and Occupation."
These "privilege taxes on business" are taxes imposed
upon the privilege of engaging in business. They are
essentially excise taxes. To be held liable for the
payment of a privilege tax, the person or entity must
be engaged in business, as shown by the fact that the
drafters of the tax code had purposely grouped said
provisions under the general heading adverted to above.
"To engage" is to embark on a business or to
employ oneself therein. The word "engaged"
connotes more than a single act or a single
transaction; it involves some continuity of action.
"To engage in business" is uniformly construed as
signifying an employment or occupation which
occupies one's time, attention, and labor for the
purpose of a livelihood or profit. The expressions
"engage in business," "carrying on business" or
"doing business" do not have different meanings,
but separately or connectedly convey the idea of
progression, continuity, or sustained activity.
"Engaged in business" means occupied or
employed in business; carrying on business" does
not mean the performance of a single disconnected
act, but means conducting, prosecuting, and
continuing business by performing progressively all
the acts normally incident thereto; while "doing
3
Sec. 186. Percentage tax on sales of other
articles. — There shall be levied, assessed and
collected once only on every original sale, barter,
exchange, or similar transaction either for
nominal or valuable consideration, intended to
transfer ownership of, or title to, the articles not
enumerated in sections one hundred and eighty-
four-A, one hundred and eighty five, one hundred
and eighty-five-A, one hundred eighty-five-B, and
one hundred eighty-six-B, a tax equivalent to
seven per centum of the gross selling price or
gross value in money of the articles so sold,
bartered, exchanged, or transferred, such tax to
be paid by the manufacturer or producer:
Provided, That where the articles subject to tax
under this Section are manufactured out of
materials likewise subject to tax under this
section and section one hundred eighty-nine, the
total cost of such materials, as duly established,
shall be deductible from the gross selling price or
gross value in money of such manufactured
articles.
business" conveys the idea of business being done,
not from time to time, but all the time.
The foregoing notwithstanding, it has likewise been ruled
that one act may be sufficient to constitute carrying on a
business according to the intent with which the act is
done. A single sale of liquor by one who intends to
continue selling is sufficient to render him liable for
"engaging in or carrying on" the business of a liquor
dealer.
There may be a business without any sequence of acts,
for if an isolated transaction, which if repeated would be
a transaction in a business, is proved to have been
undertaken with the intent that it should be the first of
several transactions, that is, with the intent of carrying on
a business, then it is a first transaction in an existing
business.
Thus, where the end sought is to make a profit, the
act constitutes "doing- business." This is not without
basis. The term "business," as used in the law imposing
a license tax on business, trades, and so forth, ordinarily
means business in the trade or commercial sense only,
carried on with a view to profit or livelihood; It is thus
restricted to activities or affairs where profit is the
purpose, or livelihood is the motive. Since the term
"business" is being used without any qualification in our
aforesaid tax code, it should therefore be therefore be
construed in its plain and ordinary meaning, restricted to
activities for profit or livelihood.
In the case at bar, ACMDC claims exemptions from the
payment of manufacturer's tax. It asserts that it is not
engaged in the business of selling grinding steel balls,
but it only produces grinding steel balls solely for its own
use or consumption, However, it admits having lent its
grinding steel balls to other entities but only in very
isolated cases.
After a careful review of the records and on the basis of
the legal concept of "engaging in business" hereinbefore
discussed, SC agrees with ACMDC that it should not
and cannot be held liable for the payment of the
manufacturer's tax:
a. First, under the tax code then in force,
the 7% manufacturer's sales tax is imposed on
the manufacturer for every original sale, barter,
exchange and other similar transaction intended
to transfer ownership of articles. Thus, a
manufacturer, in order to be subjected to the
necessity of paying the percentage tax imposed
by Section 186 of the tax code, must be
'engaged' in the sale, barter or exchange of;
personal property. Under a statute which
imposes a tax on persons engaged in the sale,
barter or exchange of merchandise, a person
must be occupied or employed in the sale, barter
or exchange of personal property. A person can
hardly be considered as occupied or employed
in the sale, barter or exchange of personal
property when he has made one purchase and
sale only.
b. Second, it cannot be legally asserted,
for purposes of this particular assessment only,
that ACMDC was engaged in the business of
selling grinding steel balls on the basis of the
isolated transaction entered into by it in 1975.
There is no showing that said transaction was
undertaken by ACMDC with a view to gaining
profit. therefrom and with the intent of carrying
on a business therein. On the contrary, what is
clear is that the sale was more of an
accommodation to the other mining companies,
and that ACMDC was subsequently replaced by
other suppliers shortly thereafter. At most,
whatever profit ACMDC may have realized from
that single transaction was just incidental to its
primordial purpose of accommodating other
mining companies. Well-settled is the rule that
anything done as a mere incident to, or as a
necessary consequence of, the principal
business is not ordinarily taxed as an
independent business in itself.
The same conclusion; however, cannot be made with
respect to the contractor's tax being imposed on
ACMDC. It cannot validly claim that the leasing out of its
personal properties was merely an isolated transaction.
Its book of accounts shows that several distinct
payments were made for the use of its personal
properties such as its plane, motor boat and dump truck.
The series of transactions engaged in by ACMDC for the
lease of its aforesaid properties could also be deduced
from the fact that there were profits earned and reported
therefor.
Considering that there was a series of transactions
involved, plus the fact that there was an apparent and
protracted intention to profit from such activities, it can
be safely concluded that ACMDC was habitually
engaged in the leasing out of its plane, motor boat and
dump truck, and is perforce subject to the contractor's
tax.
CS Garments vs CIR
Transactions that are made incidental to the pursuit of a
commercial or economic activity are considered as
entered into in the course of trade or business. Once an
activity has been identified as a business, any sale made
while carrying it on is likely to be made in the course or
furtherance of business; thus, subject to VAT.
Facts:
CS Garments, a company engaged in the garments
business, sold its motor vehicle to its General Manager.
CIR imposed 10% VAT on such transaction. CS
Garments opposed.
Ratio:
VAT is imposed on a sale or transaction entered into by
a person in the course of trade or business. A
transaction will be characterized as having been entered
into by a person in the course of trade or business if it is:
(1) regularly conducted; and (2) undertaken in pursuit of
a commercial or economic activity.
Likewise, transactions that are made incidental to the
pursuit of a commercial or economic activity are
considered as entered into in the course of trade or
business. Incidental means something else as primary; it
means something necessary, appertaining to, or
dependent upon the principal. Hence, an isolated
transaction is not necessarily disqualified from being
made incidental in the course of trade or business.
would only be incidental to its insurance and
underwriting services.
4. Fund-raising activity consisting of the
sale of raffle tickets by a religious, charitable, etc.
organization is not a business activity
contemplated by Sec 99.
5. All persons formerly liable to taxes
replaced by VAT are liable for VAT. All persons
under Sec 99 are liable also.
All sellers of goods, properties, and services whose
aggregate gross annual sales of articles and/or services
exceed P550,000 will be covered by VAT unless such
sales are specifically exempt.

The sale of motor vehicle is considered an incidental

transaction because the said vehicle was purchased and
used in furtherance of the company's business. It formed
part of the company's capital assets.

Once an activity has been identified as a business, any

sale made while carrying it on is likely to be made in the
course or furtherance of business.

C. Persons liable
SEC. 105, supra

De Leon:
1. Government entities and
instrumentalities including GOCCs and non-
stock, nonprofit organizations are subject to VAT
if in the course of trade or business they sell, etc.,
goods or properties, or render services, or
whether for business or not, import goods.
2. There is no automatic exemption from
value-added tax registration requirements of local
government units. For so long as the government
entity sells, barters, exchanges, leases goods,
properties or renders services in the course of
trade or business, it is required to register as a
VAT taxpayer.
3. The sale by a company, a dealer of
scrap materials, of a damaged vessel purchased
by it from an insurance company, as a scrap in
the course of trade or business is subject to 10%
VAT. But the sale of a vessel by the insurance
company which insured the vessel and acquired
custody of the same is not subject to VAT as sale