G.R. No. 125355 March 30, 2000 CIR, vs.

. COURT OF APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION, respondents. What is before the Court is a petition for review on certiorari of the decision of the Court of Appeals,1 reversing that of the Court of Tax Appeals,2 which affirmed with 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 letter to perform collection, consultative and other technical services, including functioning as an internal auditor, of Philamlife and its other affiliates.1wphi1.nt 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 1988, computed as follows: Taxable sale/receipt 10% tax due thereon 25% surcharge 20% interest per annum Compromise penalty for late payment TOTAL AMOUNT DUE AND COLLECTIBLE P1,679,155.00 ============ 167,915.50 41,978.88 125,936.63 16,000.00

engaged in business, it was not liable to pay VAT. On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the Commissioner of Internal Revenue, the dispositive portion of which reads: WHEREFORE, the decision of the Commissioner of Internal Revenue assessing petitioner deficiency value-added tax for the taxable year 1988 is AFFIRMED with slight modifications. Accordingly, petitioner is ordered to pay respondent Commissioner of Internal Revenue the amount of P335,831.01 inclusive of the 25% surcharge and interest plus 20% interest from January 24, 1992 until fully paid pursuant to Section 248 and 249 of the Tax Code. The compromise penalty of P16,000.00 imposed by the respondent in her assessment letter shall not be included in the payment as there was no compromise agreement entered into between petitioner and respondent with respect to the value-added tax deficiency.5 On July 26, 1995, respondent filed with the Court of Appeals, a petition for review of the decision of the 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 6 and 3 penalty charges are ordered CANCELLED for lack of legal and factual basis. The Court of Appeals anchored its decision on the ratiocination in another tax case involving the same parties,7 where it was held that COMASERCO was not 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 We give due course to the petition. At issue in this case is whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon.

P351,831.01 ============ COMASERCO's annual corporate income tax return ending December 31, 1988 indicated a net loss in its operations in the amount of P6,077.00. On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of deficiency VAT. On August 20, 1992, the Commissioner of Internal Revenue sent a collection letter to COMASERCO demanding payment of the deficiency VAT. On September 29, 1992, COMASERCO filed with the Court of Tax Appeals4 a petition for review contesting the Commissioner's assessment. COMASERCO asserted that the 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. It averred that it was not engaged in the business of providing services to Philamlife and its affiliates. COMASERCO was established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and not in the sale of services. COMASERCO stressed that 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

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. Sec. 99 of the National Internal Revenue Code of 1986, as amended by Executive Order (E. O.) No. 273 in 1988, provides that: Sec. 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 tax (VAT) imposed in Sections 100 to 102 of this Code. 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: 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 nonstock, 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 10 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." 11 On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 01098 12 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 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.1awp++i1 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 cannot be merely implied therefrom. 13 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. 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. 14 Also, it has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the nature of its 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 CAG.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. 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 decision of the Court of Tax Appeals in C. T. A. Case No. 4853. No costs. SO ORDERED. CIR vs. Sony Philippines, Inc. Facts: On Dec. 6, 1999 CIR issued a preliminary assessment for 1997 deficiency taxes and penalties to Sony, which it protested. A petition for review was filed by Sony before the CTA, within 30 days after the lapse of the 180 days from the submission of the supporting documents to the CIR. CTA-1st Division disallowed the deficiency VAT assessment the subsidized advertising expense paid by Sony was duly covered by a VAT invoice resulted in an input VAT credit. However, for the EWT, the deficiency assessment was upheld. CIR sought reconsideration on the ground that Sony should be liable for the deficiency VAT. It contends that Sonys advertising expense cannot be considered as an input VAT credit because the same was eventually reimbursed by Sony International Singapore (SIS). As a result, Sony is not entitled to a tax credit and that the said advertising expense should be for the account of SIS. ISSUE: W/N the source of the payment of tax is relevant to determine Ruling: NO. Sonys deficiency VAT assessment derived from the CIRs allowance of the input VAT credits that should have been realized from advertising expense of the latter. Under Sec. 110 of the 1997 Tax Code, an advertising expense duly covered by a VAT invoice is a legitimate business expense. It cannot be denied that Sony incurred advertising expense. CIRs own witness Aluquin even testified that advertising companies issued invoices in the name of Sony and the latter paid for the same.

Hence, Sony incurred and paid for advertising expense services. Where the money came from is another matter all together. Before any VAT is levied, there must be sale, barter or exchange of goods or property. In this case, there was no sale, barter, exchange in the subsidy given by SIS to Sony. It was but a dole out and not in payment for the goods or properties sold, bartered or exchanged by Sony. COMMISSIONER OF INTERNAL REVENUE VS. SONY PHILIPPINES, INC.- Value Added Tax, Final Withholding Tax, Letter of Authority FACTS: Sony Philippines was ordered examined for the period 1997 and unverified prior years as indicated in the Letter of Authority. The audit yielded assessments against Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of Final Withholding Tax on royalties for the period January to March 1998 and (2) deficiency VAT on reimbursable received by Sony Philippines from its offshore affiliate, Sony International Singapore (SIS). ISSUES: (1) Is Petitioner liable for deficiency Value Added (2) Was the investigation of its 1998 Final Withholding Tax return valid? Tax?

HELD: (1) NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices when it paid for certain advertising costs. This is sufficient to accord it the benefit of input VAT credits and where the money came from to satisfy said advertising billings is another matter but does not alter the VAT effect. In the same way, Sony Philippines can not be deemed to have received the reimbursable as a fee for a VAT-taxable activity. The reimbursable was couched as an aid for Sony Philippines by SIS in view of the companys dire or adverse economic conditions. More importantly, the absence of a sale, barter or exchange of goods or properties supports the non-VAT nature of the reimbursement. This was distinguished from the COMASERCO case where even if there was similarly a reimbursement-on-cost arrangement between affiliates, there was in fact an underlying service. Here, the advertising services were rendered in favor of Sony Philippines not SIS. (2) NO. A Letter of Authority should cover a taxable period not exceeding one year and to indicate that it covers unverified prior years should be enough to invalidate it. In addition, even if the Final Withholding Tax was covered by Son y Philippines fiscal year ending March 1998, the same fell outside of the period 1997 and was thus not validly covered by the Letter of Authority. CIR V AMERICAN EXPRESS INTERNATIONAL, INC. (Phil. Branch) JUN GR 152609 | June 29, 2005 | J. Panganiban Facts:

Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked with servicing a unit of AMEX-Hongkong Branch and facilitating the collections of AMEX-HK receivables from card members situated in the Philippines and payment to service establishments in the Philippines. It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as basis Section 110B of the 1997 Tax Code, which held that xxx Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112. In addition, respondent relied on VAT Ruling No. 080-89, which read, In Reply, please be informed that, as a VAT registered entity whose service is paid for in acceptable foreign currency which is remitted inwardly to the Philippine and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines, your service income is automatically zero rated xxx Petitioner claimed, among others, that the claim for refund should be construed strictly against the claimant as they partake of the nature of tax exemption. CTA rendered a decision in favor of respondent, holding that its services are subject to zero-rate. CA affirmed this decision and further held that respondents services were services other than the processing, manufacturing or repackaging of goods for persons doing business outside the Philippines and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of BSP. Issue: W/N AMEX Phils is entitled to refund Held: Yes. Section 102 of the Tax Code provides for the VAT on sale of services and use or lease of properties. Section 102B particularly provides for the services or transactions subject to 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 BSP; (2) Services other than those mentioned in the preceding subparagraph, e.g. those rendered by hotels and other service establishments, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP Under subparagraph 2, services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or repackaging of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the R&R of BSP, are zero-rated. Respondent renders service falling under the category of zero rating.

As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed. In the present case, the facilitation of the collection of receivables is different from the utilization of consumption of the outcome of such service. While the facilitation is done in the Philippines, the consumption is not. The services rendered by respondent are performed upon its sending to its foreign client the drafts and bulls it has gathered from service establishments here, and are therefore, services also consumed in the Philippines. Under the destination principle, such service is subject to 10% VAT. However, the law clearly provides for an exception to the destination principle; that is 0% VAT rate for services that are performed in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the R&R of BSP. The respondent meets the following requirements for exemption, and thus should be zero-rated: (1) Service be performed in the Philippines (2) The service fall under any of the categories in Section 102B of the Tax Code (3) It be paid in acceptable foreign currency accounted for in accordance with BSP R&R. G.R. No. 146984 July 28, 2006 CIR vs. MAGSAYSAY LINES, INC., The issue in this present petition is whether the sale by the National Development Company (NDC) of five (5) of its vessels to the private respondents is subject to valueadded tax (VAT) under the National Internal Revenue Code of 1986 (Tax Code) then prevailing at the time of the sale. The Court of Tax Appeals (CTA) and the Court of Appeals commonly ruled that the sale is not subject to VAT. We affirm, though on a more unequivocal rationale than that utilized by the rulings under review. The fact that the sale was not in the course of the trade or business of NDC is sufficient in itself to declare the sale as outside the coverage of VAT. The facts are culled primarily from the ruling of the CTA. Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its shares in its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC shares and five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels.1 The vessels were constructed for the NDC between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its wholly-owned subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat basis, to the NMC.2 The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for the public auction was that the winning bidder was to pay "a

value added tax of 10% on the value of the vessels."3 On 3 June 1988, private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong (collectively, private respondents). 4 The bid was approved by the Committee on Privatization, and a Notice of Award dated 1 July 1988 was issued to Magsaysay Lines. On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand, and Magsaysay Lines, Baliwag Navigation, and FIM Limited, on the other. Paragraph 11.02 of the contract stipulated that "[v]alue-added tax, if any, shall be for the account of the PURCHASER."5 Per arrangement, an irrevocable confirmed Letter of Credit previously filed as bidders bond was accepted by NDC as security for the payment of VAT, if any. By this time, a formal request for a ruling on whether or not the sale of the vessels was subject to VAT had already been filed with the Bureau of Internal Revenue (BIR) by the law firm of Sycip Salazar Hernandez & Gatmaitan, presumably in behalf of private respondents. Thus, the parties agreed that should no favorable ruling be received from the BIR, NDC was authorized to draw on the Letter of Credit upon written demand the amount needed for the payment of the VAT on the stipulated due date, 20 December 1988.6 In January of 1989, private respondents through counsel received VAT Ruling No. 56888 dated 14 December 1988 from the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling cited the fact that NDC was a VAT-registered enterprise, and thus its "transactions incident to its normal VAT registered activity of leasing out personal property including sale of its own assets that are movable, tangible objects which are appropriable or transferable are subject to the 10% [VAT]."7 Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as VAT Ruling No. 395-88 (dated 18 August 1988), which made a similar ruling on the sale of the same vessels in response to an inquiry from the Chairman of the Senate Blue Ribbon Committee. Their motion was denied when the BIR issued VAT Ruling Nos. 00789 dated 24 February 1989, reiterating the earlier VAT rulings. At this point, NDC drew on the Letter of Credit to pay for the VAT, and the amount of P15,120,000.00 in taxes was paid on 16 March 1989. On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA, followed by a Supplemental Petition for Review on 14 July 1989. They prayed for the reversal of VAT Rulings No. 395-88, 568-88 and 007-89, as well as the refund of the VAT payment made amounting to P15,120,000.00.8 The Commissioner of Internal Revenue (CIR) opposed the petition, first arguing that private respondents were not the real parties in interest as they were not the transferors or sellers as contemplated in Sections 99 and 100 of the then Tax Code. The CIR also squarely defended the VAT rulings holding the sale of the vessels liable for VAT, especially citing Section 3 of Revenue Regulation No. 5-87 (R.R. No. 5-87), which provided that "[VAT] is imposed on any sale or transactions deemed sale of taxable goods (including capital goods, irrespective of the date of acquisition)." The CIR argued that the sale of the vessels were among those transactions "deemed sale," as enumerated in Section 4 of R.R. No. 5-87. It

seems that the CIR particularly emphasized Section 4(E)(i) of the Regulation, which classified "change of ownership of business" as a circumstance that gave rise to a transaction "deemed sale." In a Decision dated 27 April 1992, the CTA rejected the CIRs arguments and granted the petition.9 The CTA ruled that the sale of a vessel was an "isolated transaction," not done in the ordinary course of NDCs business, and was thus not subject to VAT, which under Section 99 of the Tax Code, was applied only to sales in the course of trade or business. The CTA further held that the sale of the vessels could not be "deemed sale," and thus subject to VAT, as the transaction did not fall under the enumeration of transactions deemed sale as listed either in Section 100(b) of the Tax Code, or Section 4 of R.R. No. 5-87. Finally, the CTA ruled that any case of doubt should be resolved in favor of private respondents since Section 99 of the Tax Code which implemented VAT is not an exemption provision, but a classification provision which warranted the resolution of doubts in favor of the taxpayer. The CIR appealed the CTA Decision to the Court of Appeals, 10 which on 11 March 1997, rendered a Decision reversing the CTA.11 While the appellate court agreed that the sale was an isolated transaction, not made in the course of NDCs regular trade or business, it nonetheless found that the transaction fell within the classification of those "deemed sale" under R.R. No. 5-87, since the sale of the vessels together with the NMC shares brought about a change of ownership in NMC. The Court of Appeals also applied the principle governing tax exemptions that such should be strictly construed against the taxpayer, and liberally in favor of the government.12 However, the Court of Appeals reversed itself upon reconsidering the case, through a Resolution dated 5 February 2001.13 This time, the appellate court ruled that the "change of ownership of business" as contemplated in R.R. No. 5-87 must be a consequence of the "retirement from or cessation of business" by the owner of the goods, as provided for in Section 100 of the Tax Code. The Court of Appeals also agreed with the CTA that the classification of transactions "deemed sale" was a classification statute, and not an exemption statute, thus warranting the resolution of any doubt in favor of the taxpayer.14 To the mind of the Court, the arguments raised in the present petition have already been adequately discussed and refuted in the rulings assailed before us. Evidently, the petition should be denied. Yet the Court finds that Section 99 of the Tax Code is sufficient reason for upholding the refund of VAT payments, and the subsequent disquisitions by the lower courts on the applicability of Section 100 of the Tax Code and Section 4 of R.R. No. 5-87 are ultimately irrelevant. A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed percentage.15 It is the end user of consumer goods or services which ultimately shoulders the tax, as the liability therefrom is passed on to the end users by the providers of these goods or services16 who in turn may credit their own VAT liability (or input VAT) from the VAT payments they receive from the final consumer (or output VAT).17 The final purchase by the end consumer represents the final link in a production

chain that itself involves several transactions and several acts of consumption. The VAT system assures fiscal adequacy through the collection of taxes on every level of consumption,18 yet assuages the manufacturers or providers of goods and services by enabling them to pass on their respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax liability. Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayers role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations,19 the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business. These transactions outside the course of trade or business may invariably contribute to the production chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not occur within the course of trade or business, the providers of such goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation of output VAT arises in the first place only through the ordinary course of trade or business. That the sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated by both the CTA and the Court of Appeals, the latter doing so even in its first decision which it eventually reconsidered.20 We cite with approval the CTAs explanation on this point: In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil. 992), the term "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 thereof; while "doing business" conveys the idea of business being done, not from time to time, but all the time. [J. Aranas, UPDATED NATIONAL INTERNAL REVENUE CODE (WITH ANNOTATIONS), p. 608-9 (1988)]. "Course of business" is what is usually done in the management of trade or business. [Idmi v. Weeks & Russel, 99 So. 761, 764, 135 Miss. 65, cited in Words & Phrases, Vol. 10, (1984)]. What is clear therefore, based on the aforecited jurisprudence, is that "course of business" or "doing business" connotes regularity of activity. In the instant case, the sale was an isolated transaction. The sale which was involuntary and made pursuant to the declared policy of Government for privatization could no longer be repeated or carried on with regularity. It should be emphasized that the normal VAT-registered activity of NDC is leasing personal property.21 This finding is confirmed by the Revised Charter22 of the NDC which bears no indication that the NDC was created for the primary purpose of selling real property.23 The conclusion that the sale was not in the course of trade or business, which the CIR does not dispute before this Court,24 should have definitively settled the matter. Any sale, barter or exchange of goods or services not in the course of trade or business is not subject to VAT.

Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87 now relied upon by the CIR, is captioned "Value-added tax on sale of goods," and it expressly states that "[t]here shall be levied, assessed and collected on every sale, barter or exchange of goods, a value added tax x x x." Section 100 should be read in light of Section 99, which lays down the general rule on which persons are liable for VAT in the first place and on what transaction if at all. It may even be noted that Section 99 is the very first provision in Title IV of the Tax Code, the Title that covers VAT in the law. Before any portion of Section 100, or the rest of the law for that matter, may be applied in order to subject a transaction to VAT, it must first be satisfied that the taxpayer and transaction involved is liable for VAT in the first place under Section 99. It would have been a different matter if Section 100 purported to define the phrase "in the course of trade or business" as expressed in Section 99. If that were so, reference to Section 100 would have been necessary as a means of ascertaining whether the sale of the vessels was "in the course of trade or business," and thus subject to VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87 elaborate on is not the meaning of "in the course of trade or business," but instead the identification of the transactions which may be deemed as sale. It would become necessary to ascertain whether under those two provisions the transaction may be deemed a sale, only if it is settled that the transaction occurred in the course of trade or business in the first place. If the transaction transpired outside the course of trade or business, it would be irrelevant for the purpose of determining VAT liability whether the transaction may be deemed sale, since it anyway is not subject to VAT. Accordingly, the Court rules that given the undisputed finding that the transaction in question was not made in the course of trade or business of the seller, NDC that is, the sale is not subject to VAT pursuant to Section 99 of the Tax Code, no matter how the said sale may hew to those transactions deemed sale as defined under Section 100. In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application in this case, the Court finds the discussions offered on this point by the CTA and the Court of Appeals (in its subsequent Resolution) essentially correct. Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions deemed sale those involving "change of ownership of business." However, Section 4(E) of R.R. No. 5-87, reflecting Section 100 of the Tax Code, clarifies that such "change of ownership" is only an attending circumstance to "retirement from or cessation of business[, ] with respect to all goods on hand [as] of the date of such retirement or cessation."25 Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the "change of ownership of business" as only a "circumstance" that attends those transactions "deemed sale," which are otherwise stated in the same section.26 WHEREFORE, the petition is DENIED. No costs. SO ORDERED.