FACTS:

On 1987, CIR issued VAT Ruling No. 231-88 stating that Philhealth, as a provider of
medical services, is exempt from the VAT coverage. When RA 8424 or the new Tax
Code was implemented it adopted the provisions of VAT and E-VAT. On 1999, the
BIR sent Philhealth an assessment notice for deficiency VAT and documentary
stamp taxes for taxable years 1996 and 1997. After CIR did not act on it, Philhealth
filed a petition for review with the CTA. The CTA withdrew the VAT assessment. The
CIR then filed an appeal with the CA which was denied.
ISSUES:
Whether Philhealth is subject to VAT.
Whether VAT Ruling No. 231-88 exempting Philhealth from payment of VAT has
retroactive application.
RULING:

YES. Section 103 of the NIRC exempts taxpayers engaged in the performance of
medical, dental, hospital, and veterinary services from VAT. But, in Philhealth's
letter requesting of its VAT-exempt status, it was held that it showed Philhealth
provides medical service only between their members and their accredited
hospitals, that it only provides for the provision of pre-need health care services, it
contracts the services of medical practitioners and establishments for their
members in the delivery of health services.
Thus, Philhealth does not fall under the exemptions provided in Section 103, but
merely arranges for such, making Philhealth not VAT-exempt. YES. Generally, the
NIRC has no retroactive application except when:
where the taxpayer deliberately misstates or omits material facts from his return
or in any document required of him by the Bureau of Internal Revenue;
where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based, or
where the taxpayer acted in bad faith.
The Court held that Philhealth acted in good faith. The term health maintenance
organization was first recorded in the Philippine statute books in 1995. It is
apparent that when VAT Ruling No. 231-88 was issued in Philhealth's favor, the
term health maintenance organization was unknown and had no significance for
taxation purposes. Philhealth, therefore, believed in good faith that it was VAT
exempt for the taxable years 1996 and 1997 on the basis of VAT Ruling No. 231-88.
The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal
would result to the prejudice of the taxpayer.