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Held:
The court started out by explaining the difference between direct and
indirect taxes.
Direct taxes are those that are exacted from the very person who, it is
intended or desired, should pay them; they are impositions for which a
taxpayer is directly liable on the transaction or business he is engaged in.
On the other hand, indirect taxes are those that are demanded, in the first
instance, from, or are paid by, one person in the expectation and intention
that he can shift the burden to someone else.
It then went on by saying that VAT is an indirect tax- the amount of which
may be shifted to the buyer, transferee, or lessee of goods and is imposed on
all taxpayers who import goods unless under exempted transactions under S.
109 of the Revenue code.
It was also revealed that VAT on importation replaced advance sales tax paid
by regular importers. The court then explained the concepts of the following:
It further ruled that the liability of indirect tax payment lies only with the
seller who cannot invoke the exemption privileges to avoid passing VAT to
him by manufacturers or suppliers of goods bought. Thus, it is important to
determine if tax exemption includes indirect taxes. Otherwise, the
presumption is such exemption only includes direct taxes.
In this case, the phrase: in lieu of all taxes was immediately followed by:
on this franchise or earnings thereof which is considered as a limiting
phrase.
The SC also used the maxim: Redendo singular singulis which means: take
the words distributively and apply the reference; each word or phrase must
be given its proper connection in order to give it proper force and effect
rendering none of them useless or superfluous.
Hence, the CTA and CA decisions practice of employing the literal meaning
of the provision is entirely fallacious. Tax exemption means a loss of revenue
to the government and should not rest on vague reference.
As for the refund of advance sales tax and compensating tax amounting to
more than 94 M pesos, it was granted by the SC since it was admitted by the
BIR that VAT on importations already replaced these taxes.
Thus, the petition was just partially granted.