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Case Digests in Taxation II


Contex Corporation vs Commissioner of Internal Revenue

(G.R. No.151135, July 2, 2004)


Petitioner Contex Corporation (CONTEX) is a domestic corporation

engaged in the business of manufacturing hospital textiles and
garments and other hospital supplies for export. Petitioners place
of business is at the Subic Bay Freeport Zone (SBFZ). It is duly
registered with the Subic Bay Metropolitan Authority (SBMA) as a
Subic Bay Freeport Enterprise, pursuant to the provisions of RA
7227. As an SBMA-registered firm, petitioner is exempt from all
local and national internal revenue taxes except for the 5%
preferential tax provided in RA 7227. Petitioner also registered with
the BIR as a

The Court of Appeals reversed the CTAs ruling, hence, this petition.


Was COMASERCO engaged in the sale of services, and thus, liable to

pay VAT?


Yes. Section 99 of the National Internal Revenue Code of 1986

provides that: 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 VAT imposed in Sections 100 to 102 of this Code. The
Higher Court clarified the meaning of the term in the course of
trade or business by citing Section 105 of RA 8424 which took
effect on January 1, 1998. 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 non-stock, non-profit organization (irrespective of the disposition
of its net income and whether or not it sells exclusively to members
or their guests), or government entity.

It is immaterial whether the primary purpose of a corporation

indicates that it receives payments for services rendered to its
affiliates on a reimbursement-of-cost basis only, without realizing
profit, for purposes of determining liability for VAT on services
rendered. As long as the entity provides services for a fee,
remuneration or consideration, then the service rendered is subject
to VAT.

Taxation II Atty. D. Acosta-Cajustin

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Case Digests in Taxation II

Secondly, it is a rule that business 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 the VAT, Section 109, RA 8424 clearly
enumerates the transactions exempted from VAT. The services
rendered by COMASERCO do not fall within the exemptions.

Taxation II Atty. D. Acosta-Cajustin

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