Tax Case Digest: Commissioner of Internal Revenue vs

Central Luzon Drug Corporation GR No 159647

By PactaSuntServanda - July 08, 2014
Commissioner of Internal Revenue vs. Central Luzon Drug Corporation
G.R. No. 159647 April 15, 2005

Facts:
Respondents operated six drugstores under the business name Mercury Drug. From
January to December 1996 respondent granted 20% sales discount to qualified senior
citizens on their purchases of medicines pursuant to RA 7432 for a total of ₱ 904,769.

On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996
declaring therein net losses. On Jan. 16, 1998 respondent filed with petitioner a claim for
tax refund/credit of ₱ 904,769.00 allegedly arising from the 20% sales discount. Unable to
obtain affirmative response from petitioner, respondent elevated its claim to the Court of
Tax Appeals. The court dismissed the same but upon reconsideration, the latter reversed its
earlier ruling and ordered petitioner to issue a Tax Credit Certificate in favor of respondent
citing CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that
Sec. 229 of RA 7432 deals exclusively with illegally collected or erroneously paid taxes but
that there are other situations which may warrant a tax credit/refund.

CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a tax
liability nor a payment of taxes by private establishments prior to the availment of a tax
credit. Moreover, such credit is not tantamount to an unintended benefit from the law, but
rather a just compensation for the taking of private property for public use.

Issue:
Whether or not respondent, despite incurring a net loss, may still claim the 20% sales
discount as a tax credit.

Ruling:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a
20% discount on their purchase of medicine from any private establishment in the country.
The latter may then claim the cost of the discount as a tax credit. Such credit can be
claimed even if the establishment operates at a loss.

A tax credit generally refers to an amount that is “subtracted directly from one’s total tax
liability.” It is an “allowance against the tax itself” or “a deduction from what is owed” by a
taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these is tax
deduction – which is subtraction “from income for tax purposes,” or an amount that is
“allowed by law to reduce income prior to the application of the tax rate to compute the
amount of tax which is due.” In other words, whereas a tax credit reduces the tax due, tax
deduction reduces the income subject to tax in order to arrive at the taxable income.

A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability
before the tax credit can be applied. Without that liability, any tax credit application will be
useless. There will be no reason for deducting the latter when there is, to begin with, no
existing obligation to the government. However, as will be presented shortly, the existence
of a tax credit or its grant by law is not the same as the availment or use of such credit.
While the grant is mandatory, the availment or use is not. If a net loss is reported by, and
no other taxes are currently due from, a business establishment, there will obviously be no
tax liability against which any tax credit can be applied. For the establishment to choose the
immediate availment of a tax credit will be premature and impracticable.

COMMISSIONER OF INTERNAL G.R. No. 159647

REVENUE,
Petitioner, Present:
Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
- versus - Corona,
Carpio Morales, and
Garcia, JJ
CENTRAL LUZON DRUG Promulgated:
CORPORATION,
Respondent. April 15, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

T
he 20 percent discount required by the law to be given to senior
citizens is a tax credit, not merely a tax deduction from the gross
income or gross sale of the establishment concerned. A tax credit is
used by a private establishment only after the tax has been
computed; a tax deduction, before the tax is computed. RA 7432
unconditionally grants a tax credit to all covered entities. Thus, the
provisions of the revenue regulation that withdraw or modify such grant
are void. Basic is the rule that administrative regulations cannot amend or
revoke the law.
 The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of

Court, seeking to set aside the August 29, 2002 Decision [2] and the August
11, 2003 Resolution[3]of the Court of Appeals (CA) in CA-GR SP No.
67439. The assailed Decision reads as follows:

WHEREFORE, premises considered, the Resolution appealed

from is AFFIRMED in toto. No costs.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The CA narrated the antecedent facts as follows:

Respondent is a domestic corporation primarily engaged in retailing

of medicines and other pharmaceutical products. In 1996, it
operated six (6) drugstores under the business name and style
Mercury Drug.

From January to December 1996, respondent granted twenty (20%)

percent sales discount to qualified senior citizens on their purchases
of medicines pursuant to Republic Act No. [R.A.] 7432 and its
Implementing Rules and Regulations. For the said period, the
amount allegedly representing the 20% sales discount granted by
respondent to qualified senior citizens totaled P904,769.00.

On April 15, 1997, respondent filed its Annual Income Tax Return for
taxable year 1996 declaring therein that it incurred net losses from
its operations.

On January 16, 1998, respondent filed with petitioner a claim for tax
refund/credit in the amount of P904,769.00 allegedly arising from the
20% sales discount granted by respondent to qualified senior
citizens in compliance with [R.A.] 7432. Unable to obtain affirmative
response from petitioner, respondent elevated its claim to the Court
of Tax Appeals [(CTA or Tax Court)] via a Petition for Review.

On February 12, 2001, the Tax Court rendered

a Decision dismissing respondents Petition for lack of merit. In said
[5]

decision, the [CTA] justified its ruling with the following ratiocination:

x x x, if no tax has been paid to the government, erroneously or

illegally, or if no amount is due and collectible from the taxpayer,
tax refund or tax credit is unavailing. Moreover, whether the
recovery of the tax is made by means of a claim for refund or tax
credit, before recovery is allowed[,] it must be first established that
there was an actual collection and receipt by the government of
the tax sought to be recovered. x x x.
 xxxxxxxxx

Prescinding from the above, it could logically be deduced that tax

credit is premised on the existence of tax liability on the part of
taxpayer. In other words, if there is no tax liability, tax credit is not
available.

Respondent lodged a Motion for Reconsideration. The [CTA], in its

assailed resolution,[6] granted respondents motion for reconsideration
and ordered herein petitioner to issue a Tax Credit Certificate in
favor of respondent citing the decision of the then Special Fourth
Division of [the CA] in CA G.R. SP No. 60057 entitled Central
[Luzon] Drug Corporation vs. Commissioner of Internal
Revenue promulgated on May 31, 2001, to wit:

However, Sec. 229 clearly does not apply in the instant case
because the tax sought to be refunded or credited by petitioner
was not erroneously paid or illegally collected. We take exception
to the CTAs sweeping but unfounded statement that both tax
refund and tax credit are modes of recovering taxes which are
either erroneously or illegally paid to the government. Tax refunds
or credits do not exclusively pertain to illegally collected or
erroneously paid taxes as they may be other circumstances where
a refund is warranted. The tax refund provided under Section 229
deals exclusively with illegally collected or erroneously paid taxes
but there are other possible situations, such as the refund of
excess estimated corporate quarterly income tax paid, or that of
excess input tax paid by a VAT-registered person, or that of
excise tax paid on goods locally produced or manufactured but
actually exported. The standards and mechanics for the grant of a
refund or credit under these situations are different from that
under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet another instance of
a tax credit and it does not in any way refer to illegally collected or
erroneously paid taxes, x x x.[7]
 Ruling of the Court of Appeals

The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA)
ordering petitioner to issue a tax credit certificate in favor of respondent in
the reduced amount of P903,038.39. It reasoned that Republic Act No.
(RA) 7432 required neither a tax liability nor a payment of taxes by private
establishments prior to the availment of a tax credit. Moreover, such credit
is not tantamount to an unintended benefit from the law, but rather a just
compensation for the taking of private property for public use.

Hence this Petition.[8]

The Issues

Petitioner raises the following issues for our consideration:

 Whether the Court of Appeals erred in holding that respondent may
claim the 20% sales discount as a tax credit instead of as a
deduction from gross income or gross sales.

Whether the Court of Appeals erred in holding that respondent is

entitled to a refund.[9]

These two issues may be summed up in only one: whether respondent,

despite incurring a net loss, may still claim the 20 percent sales discount as
a tax credit.

The Courts Ruling

The Petition is not meritorious.

Sole Issue:
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss
Section 4a) of RA 7432[10] grants to senior citizens the privilege of
obtaining a 20 percent discount on their purchase of medicine from any
private establishment in the country.[11] The latter may then claim the cost
of the discount as a tax credit.[12] But can such credit be claimed, even
though an establishment operates at a loss?

We answer in the affirmative.

Tax Credit versus

Tax Deduction

Although the term is not specifically defined in our Tax Code,[13] tax
credit generally refers to an amount that is subtracted directly from ones
total tax liability.[14] It is an allowance against the tax itself[15] or a deduction
from what is owed[16] by a taxpayer to the government. Examples of tax
credits are withheld taxes, payments of estimated tax, and investment tax
credits.[17]

Tax credit should be understood in relation to other tax concepts. One of

these is tax deduction -- defined as a subtraction from income for tax
purposes,[18] or an amount that is allowed by law to reduce income prior to
[the] application of the tax rate to compute the amount of tax which is
due.[19] An example of a tax deduction is any of the allowable deductions
enumerated in Section 34[20] of the Tax Code.

A tax credit differs from a tax deduction. On the one hand, a tax credit reduces
the tax due, including -- whenever applicable -- the income tax that is
determined after applying the corresponding tax rates to taxable
income.[21] A tax deduction, on the other, reduces the income that is subject to
tax[22] in order to arrive at taxable income.[23] To think of the former as the
latter is to avoid, if not entirely confuse, the issue. A tax credit is used
only after the tax has been computed; a tax deduction, before.

Tax Liability Required

for Tax Credit

Since a tax credit is used to reduce directly the tax that is due, there ought to
be a tax liability before the tax credit can be applied. Without that liability,
any tax creditapplication will be useless. There will be no reason for
deducting the latter when there is, to begin with, no existing obligation to
the government. However, as will be presented shortly, the existence of a tax
credit or its grant by law is not the same as the availment or use of such credit.
While the grant is mandatory, the availment or use is not.
If a net loss is reported by, and no other taxes are currently due from, a
business establishment, there will obviously be no tax liability against which
any tax credit can be applied.[24] For the establishment to choose the
immediate availment of a tax credit will be premature and impracticable.
Nevertheless, the irrefutable fact remains that, under RA 7432, Congress
has granted without conditions a tax credit benefit to all covered
establishments.

Although this tax credit benefit is available, it need not be used by losing
ventures, since there is no tax liability that calls for its application. Neither
can it be reduced to nil by the quick yet callow stroke of an administrative
pen, simply because no reduction of taxes can instantly be effected. By its
nature, the tax credit may still be deducted from a future, not a present, tax
liability, without which it does not have any use. In the meantime, it need
not move. But it breathes.

Prior Tax Payments Not

Required for Tax Credit

While a tax liability is essential to the availment or use of any tax credit, prior
tax payments are not. On the contrary, for the existence or grant solely of
such credit, neither a tax liability nor a prior tax payment is needed. The
Tax Code is in fact replete with provisions granting or allowing tax credits,
even though no taxes have been previously paid.

For example, in computing the estate tax due, Section 86(E) allows a tax
credit -- subject to certain limitations -- for estate taxes paid to a foreign
country. Also found in Section 101(C) is a similar provision for donors
taxes -- again when paid to a foreign country -- in computing for the donors
tax due. The tax credits in both instances allude to the prior payment of
taxes, even if not made to our government.

Under Section 110, a VAT (Value-Added Tax)- registered person engaging

in transactions -- whether or not subject to the VAT -- is also allowed a tax
credit that includes a ratable portion of any input tax not directly attributable
to either activity. This input tax may either be the VAT on the purchase or
importation of goods or services that is merely due from -- not necessarily
paid by -- such VAT-registered person in the course of trade or
business; or the transitional input tax determined in accordance with
Section 111(A). The latter type may in fact be an amount equivalent to only
eight percent of the value of a VAT-registered persons beginning inventory
of goods, materials and supplies, when such amount -- as computed -- is
higher than the actual VAT paid on the said items.[25] Clearly from this
provision, the tax credit refers to an input tax that is either due only or given
a value by mere comparison with the VAT actually paid -- then later
prorated. No tax is actually paid prior to the availment of such credit.

In Section 111(B), a one and a half percent input tax credit that is merely
presumptive is allowed. For the purchase of primary agricultural products
used as inputs -- either in the processing of sardines, mackerel and milk, or
in the manufacture of refined sugar and cooking oil -- and for the contract
price of public work contracts entered into with the government, again, no
prior tax payments are needed for the use of the tax credit.

More important, a VAT-registered person whose sales are zero-rated or

effectively zero-rated may, under Section 112(A), apply for the issuance of
a tax credit certificate for the amount of creditable input taxes merely due --
again not necessarily paid to -- the government and attributable to such
sales, to the extent that the input taxes have not been applied against
output taxes.[26] Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or
exempt sales, the amount of creditable input taxes due that are not directly
and entirely attributable to any one of these transactions shall be
proportionately allocated on the basis of the volume of sales. Indeed, in
availing of such tax credit for VAT purposes, this provision -- as well as the
one earlier mentioned -- shows that the prior payment of taxes is not a
requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another
illustration of a tax credit allowed, even though no prior tax payments are
not required. Specifically, in this provision, the imposition of a final
withholding tax rate on cash and/or property dividends received by a
nonresident foreign corporation from a domestic corporation is subjected
to the condition that a foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that are merely deemed
paid.[27]Although true, this provision actually refers to the tax credit as
a condition only for the imposition of a lower tax rate, not as a deduction from
the corresponding tax liability. Besides, it is not our government but the
domiciliary country that credits against the income tax payable to the latter
by the foreign corporation, the tax to be foregone or spared.[28]

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b),

categorically allows as credits, against the income tax imposable under Title
II, the amount of income taxes merely incurred -- not necessarily paid -- by
a domestic corporation during a taxable year in any foreign country.
Moreover, Section 34(C)(5) provides that for such taxes incurred but not
paid, a tax credit may be allowed, subject to the condition precedent that the
taxpayer shall simply give a bond with sureties satisfactory to and approved
by petitioner, in such sum as may be required; and further conditioned
upon payment by the taxpayer of any tax found due, upon petitioners
redetermination of it.

In addition to the above-cited provisions in the Tax Code, there are also
tax treaties and special laws that grant or allow tax credits, even though no
prior tax payments have been made.

Under the treaties in which the tax credit method is used as a relief to avoid
double taxation, income that is taxed in the state of source is also taxable in
the state of residence, but the tax paid in the former is merely allowed as a
credit against the tax levied in the latter.[29] Apparently, payment is made to
the state of source, not the state of residence. No tax, therefore, has
been previously paid to the latter.

Under special laws that particularly affect businesses, there can also be tax
credit incentives. To illustrate, the incentives provided for in Article 48 of
Presidential Decree No. (PD) 1789, as amended by Batas Pambansa Blg.
(BP) 391, include tax credits equivalent to either five percent of the net value
earned, or five or ten percent of the net local content of exports.[30] In
order to avail of such credits under the said law and still achieve its
objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are
not indispensable to the availment of a tax credit. Thus, the CA correctly
held that the availment under RA 7432 did not require prior tax payments
by private establishments concerned.[31] However, we do not agree with its
finding[32] that the carry-over of tax creditsunder the said special law to
succeeding taxable periods, and even their application against internal
revenue taxes, did not necessitate the existence of a tax liability.

The examples above show that a tax liability is certainly important in

the availment or use, not the existence or grant, of a tax credit. Regarding this
matter, a private establishment reporting a net loss in its financial statements
is no different from another that presents a net income. Both are entitled to
the tax credit provided for under RA 7432, since the law itself accords that
unconditional benefit. However, for the losing establishment to
immediately apply such credit, where no tax is due, will be an improvident
usance.

Sections 2.i and 4 of Revenue

Regulations No. 2-94 Erroneous

RA 7432 specifically allows private establishments to claim as tax credit the

amount of discounts they grant.[33] In turn, the Implementing Rules and
Regulations, issued pursuant thereto, provide the procedures for its
availment.[34] To deny such credit, despite the plain mandate of the law and
the regulations carrying out that mandate, is indefensible.

First, the definition given by petitioner is erroneous. It refers to tax credit as

the amount representing the 20 percent discount that shall be deducted by
the said establishments from their gross income for income tax purposes and
from their gross sales for value-added tax or other percentage tax
purposes.[35] In ordinary business language, the tax credit represents the
amount of such discount. However, the manner by which the discount
shall be credited against taxes has not been clarified by the revenue
regulations.

By ordinary acceptation, a discount is an abatement or reduction made

from the gross amount or value of anything.[36] To be more precise, it is in
business parlance a deduction or lowering of an amount of money;[37] or a
reduction from the full amount or value of something, especially a
price.[38] In business there are many kinds of discount, the most common
of which is that affecting the income statement[39] or financial report upon
which the income tax is based.

Business Discounts
Deducted from Gross Sales

A cash discount, for example, is one granted by business establishments

to credit customers for their prompt payment.[40] It is a reduction in price
offered to the purchaser if payment is made within a shorter period of time
than the maximum time specified.[41] Also referred to as a sales discount on
the part of the seller and a purchase discount on the part of the buyer, it may
be expressed in such
terms as 5/10, n/30.[42]

A quantity discount, however, is a reduction in price allowed for purchases

made in large quantities, justified by savings in packaging, shipping, and
handling.[43] It is also called a volume or bulk discount.[44]

A percentage reduction from the list price x x x allowed by manufacturers

to wholesalers and by wholesalers to retailers[45] is known as a trade discount.
No entry for it need be made in the manual or computerized books of
accounts, since the purchase or sale is already valued at the net price actually
charged the buyer.[46] The purpose for the discount is to encourage trading
or increase sales, and the prices at which the purchased goods may be
resold are also suggested.[47] Even a chain discount -- a series of discounts
from one list price -- is recorded at net.[48]
Finally, akin to a trade discount is a functional discount. It is a suppliers price
discount given to a purchaser based on the [latters] role in the [formers]
distribution system.[49]This role usually involves warehousing or advertising.

Based on this discussion, we find that the nature of a sales discount is

peculiar. Applying generally accepted accounting principles (GAAP) in the
country, this type of discount is reflected in the income statement[50] as a line
item deducted -- along with returns, allowances, rebates and other similar
expenses -- from gross sales to arrive at net sales.[51] This type of presentation
is resorted to, because the accounts receivable and sales figures that arise
from sales discounts, -- as well as from quantity, volume or bulk discounts-- are
recorded in the manual and computerized books of accounts and reflected in
the financial statements at the gross amounts of the invoices. [52] This
manner of recording credit sales -- known as the gross method -- is most
widely used, because it is simple, more convenient to apply than the net
method, and produces no material errors over time.[53]

However, under the net method used in recording trade, chain or functional
discounts, only the net amounts of the invoices -- after the discounts have
been deducted -- are recorded in the books of accounts[54] and reflected in the
financial statements. A separate line item cannot be shown,[55] because the
transactions themselves involving both accounts receivable and sales have
already been entered into, net of the said discounts.

The term sales discounts is not expressly defined in the Tax Code, but one
provision adverts to amounts whose sum -- along with sales
returns, allowances and cost of goods sold[56]-- is deducted from gross sales to come
up with the gross income, profit or margin[57] derived from business.[58] In
another provision therein, sales discounts that are granted and indicated in the
invoices at the time of sale -- and that do not depend upon the happening
of any future event -- may be excluded from the gross sales within the same
quarter they were given.[59] While determinative only of the VAT, the latter
provision also appears as a suitable reference point for income tax
purposes already embraced in the former. After all, these two provisions
affirm that sales discounts are amounts that are always deductible from gross
sales.

Reason for the Senior Citizen Discount:

The Law, Not Prompt Payment

A distinguishing feature of the implementing rules of RA 7432 is the

private establishments outright deduction of the discount from the invoice
price of the medicine sold to the senior citizen.[60] It is, therefore, expected
that for each retail sale made under this law, the discount period lasts no
more than a day, because such discount is given -- and the net amount
thereof collected -- immediately upon perfection of the sale.[61] Although
prompt payment is made for an arms-length transaction by the senior
citizen, the real and compelling reason for the private establishment giving
the discount is that the law itself makes it mandatory.

What RA 7432 grants the senior citizen is a mere discount privilege, not
a sales discount or any of the above discounts in particular. Prompt payment
is not the reason for (although a necessary consequence of) such grant. To
be sure, the privilege enjoyed by the senior citizen must be equivalent to
the tax credit benefit enjoyed by the private establishment granting the
discount. Yet, under the revenue regulations promulgated by our tax
authorities, this benefit has been erroneously likened and confined to a sales
discount.

To a senior citizen, the monetary effect of the privilege may be the same as
that resulting from a sales discount. However, to a private establishment, the
effect is different from a simple reduction in price that results from such
discount. In other words, the tax credit benefit is not the same as a sales
discount. To repeat from our earlier discourse, this benefit cannot and
should not be treated as a tax deduction.
To stress, the effect of a sales discount on the income statement and income tax
return of an establishment covered by RA 7432 is different from that
resulting from the availment or use of its tax credit benefit. While the former
is a deduction before, the latter is a deduction after, the income tax is
computed. As mentioned earlier, a discount is not necessarily a sales discount,
and a tax credit for a simple discount privilege should not be automatically
treated like a sales discount. Ubi lex non distinguit, nec nos distinguere debemus.
Where the law does not distinguish, we ought not to distinguish.

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as
the 20 percent discount deductible from gross income for income tax purposes,
or from gross salesfor VAT or other percentage tax purposes. In effect,
the tax credit benefit under RA 7432 is related to a sales discount. This
contrived definition is improper, considering that the latter has to be
deducted from gross sales in order to compute the gross income in the income
statement and cannot be deducted again, even for purposes of computing
the income tax.

When the law says that the cost of the discount may be claimed as a tax
credit, it means that the amount -- when claimed -- shall be treated as a
reduction from any tax liability, plain and simple. The option to avail of
the tax credit benefit depends upon the existence of a tax liability, but to
limit the benefit to a sales discount -- which is not even identical to the
discount privilege that is granted by law -- does not define it at all and
serves no useful purpose. The definition must, therefore, be stricken down.

Laws Not Amended

by Regulations

Second, the law cannot be amended by a mere regulation. In fact,

a regulation that operates to create a rule out of harmony with
the statute is a mere nullity;[62] it cannot prevail.

It is a cardinal rule that courts will and should respect the

contemporaneous construction placed upon a statute by the executive
officers whose duty it is to enforce it x x x.[63] In the scheme of judicial tax
administration, the need for certainty and predictability in the
implementation of tax laws is crucial.[64] Our tax authorities fill in the details
that Congress may not have the opportunity or competence to
provide.[65] The regulations these authorities issue are relied upon by
taxpayers, who are certain that these will be followed by the
courts.[66] Courts, however, will not uphold these authorities interpretations
when clearly absurd, erroneous or improper.
In the present case, the tax authorities have given the term tax
credit in Sections 2.i and 4 of RR 2-94 a meaning utterly in contrast to what
RA 7432 provides. Their interpretation has muddled up the intent of
Congress in granting a mere discount privilege, not a sales discount. The
administrative agency issuing these regulations may not enlarge, alter or
restrict the provisions of the law it administers; it cannot engraft additional
requirements not contemplated by the legislature.[67]

In case of conflict, the law must prevail.[68] A regulation adopted pursuant

to law is law.[69] Conversely, a regulation or any portion thereof not adopted
pursuant to law is no law and has neither the force nor the effect of law.[70]

Availment of Tax
Credit Voluntary

Third, the word may in the text of the statute[71] implies that the
availability of the tax credit benefit is neither unrestricted nor
mandatory.[72] There is no absolute right conferred upon respondent, or any
similar taxpayer, to avail itself of the tax credit remedy whenever it chooses;
neither does it impose a duty on the part of the government to sit back and
allow an important facet of tax collection to be at the sole control and
discretion of the taxpayer.[73] For the tax authorities to compel respondent
to deduct the 20 percent discount from either its gross income or its gross
sales[74] is, therefore, not only to make an imposition without basis in law,
but also to blatantly contravene the law itself.

What Section 4.a of RA 7432 means is that the tax credit benefit is merely
permissive, not imperative. Respondent is given two options -- either to
claim or not to claim the cost of the discounts as a tax credit. In fact, it may
even ignore the credit and simply consider the gesture as an act of
beneficence, an expression of its social conscience.

Granting that there is a tax liability and respondent claims such cost as
a tax credit, then the tax credit can easily be applied. If there is none, the
credit cannot be used and will just have to be carried over and
revalidated[75] accordingly. If, however, the business continues to operate at
a loss and no other taxes are due, thus compelling it to close shop, the
credit can never be applied and will be lost altogether.

In other words, it is the existence or the lack of a tax liability that

determines whether the cost of the discounts can be used as a tax credit. RA
7432 does not give respondent the unfettered right to avail itself of the
credit whenever it pleases. Neither does it allow our tax administrators to
expand or contract the legislative mandate. The plain meaning rule or verba
legis in statutory construction is thus applicable x x x. Where the words of a
statute are clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation.[76]

Tax Credit Benefit

Deemed Just Compensation

Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its
power of eminent domain. Be it stressed that the privilege enjoyed by
senior citizens does not come directly from the State, but rather from the
private establishments concerned. Accordingly, the tax credit benefit granted
to these establishments can be deemed as their just compensation for private
property taken by the State for public use.[77]

The concept of public use is no longer confined to the traditional notion

of use by the public, but held synonymous with public interest, public benefit, public
welfare, and public convenience.[78] The discount privilege to which our senior
citizens are entitled is actually a benefit enjoyed by the general public to
which these citizens belong. The discounts given would have entered the
coffers and formed part of the gross sales of the private establishments
concerned, were it not for RA 7432. The permanent reduction in their total
revenues is a forced subsidy corresponding to the taking of private
property for public use or benefit.

As a result of the 20 percent discount imposed by RA 7432, respondent

becomes entitled to a just compensation. This term refers not only to the
issuance of a tax creditcertificate indicating the correct amount of the
discounts given, but also to the promptness in its release. Equivalent to the
payment of property taken by the State, such issuance -- when not done
within a reasonable time from the grant of the discounts -- cannot be
considered as just compensation. In effect, respondent is made to suffer the
consequences of being immediately deprived of its revenues while awaiting
actual receipt, through the certificate, of the equivalent amount it needs to
cope with the reduction in its revenues.[79]

Besides, the taxation power can also be used as an implement for the
exercise of the power of eminent domain.[80] Tax measures are but enforced
contributions exacted on pain of penal sanctions[81] and clearly imposed for
a public purpose.[82] In recent years, the power to tax has indeed become a
most effective tool to realize social justice, public welfare, and the equitable
distribution of wealth.[83]
While it is a declared commitment under Section 1 of RA 7432, social
justice cannot be invoked to trample on the rights of property owners who
under our Constitution and laws are also entitled to protection. The social
justice consecrated in our [C]onstitution [is] not intended to take away
rights from a person and give them to another who is not entitled
thereto.[84] For this reason, a just compensation for income that is taken
away from respondent becomes necessary. It is in the tax credit that our
legislators find support to realize social justice, and no administrative body
can alter that fact.

To put it differently, a private establishment that merely breaks even[85] --

without the discounts yet -- will surely start to incur losses because of such
discounts. The same effect is expected if its mark-up is less than 20
percent, and if all its sales come from retail purchases by senior citizens.
Aside from the observation we have already raised earlier, it will also be
grossly unfair to an establishment if the discounts will be treated merely as
deductions from either its gross income or its gross sales. Operating at a loss
through no fault of its own, it will realize that the tax credit limitation under
RR 2-94 is inutile, if not improper. Worse, profit-generating businesses will
be put in a better position if they avail themselves of tax credits denied those
that are losing, because no taxes are due from the latter.

Grant of Tax Credit

Intended by the Legislature

Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are
assisted by the community as a whole and to establish a program beneficial
to them.[86] These objectives are consonant with the constitutional policy of
making health x x x services available to all the people at affordable
cost[87] and of giving priority for the needs of the x x x
elderly.[88] Sections 2.i and 4 of RR 2-94, however, contradict these
constitutional policies and statutory objectives.

Furthermore, Congress has allowed all private establishments a simple tax

credit, not a deduction. In fact, no cash outlay is required from the
government for the availmentor use of such credit. The deliberations on
February 5, 1992 of the Bicameral Conference Committee Meeting on
Social Justice, which finalized RA 7432, disclose the true intent of our
legislators to treat the sales discounts as a tax credit, rather than as a deduction
from gross income. We quote from those deliberations as follows:

"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about
deductions from taxable income. I think we
incorporated there a provision na - on the
responsibility of the private hospitals and
drugstores, hindi ba?
SEN. ANGARA. Oo.

THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a

provision here about the deductions from taxable
income of that private hospitals, di ba ganon
'yan?

MS. ADVENTO. Kaya lang po sir, and mga discounts po nila

affecting government and public institutions, so,
puwede na po nating hindi isama yung mga less
deductions ng taxable income.

THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private
hospitals. Yung isiningit natin?

MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did

not use the microphone).

SEN. ANGARA. Hindi pa, hindi pa.

THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?

SEN. ANGARA. Oo. You want to insert that?

THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator

Shahani, e.
SEN. ANGARA. In the case of private hospitals they got the grant of
15% discount, provided that, the private hospitals
can claim the expense as a tax credit.

REP. AQUINO. Yah could be allowed as deductions in the

perpetrations of (inaudible) income.

SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?

REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng

establishments na covered.

THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private

hospitals lang.

REP. AQUINO. Ano ba yung establishments na covered?

SEN. ANGARA. Restaurant lodging houses, recreation centers.

REP. AQUINO. All establishments covered siguro?

SEN. ANGARA. From all establishments. Alisin na natin 'Yung

kuwan kung ganon. Can we go back to Section 4
ha?

REP. AQUINO. Oho.

 SEN. ANGARA. Letter A. To capture that thought, we'll say the grant
of 20% discount from all establishments et cetera,
et cetera, provided that said establishments -
provided that private establishments may claim
the cost as a tax credit. Ganon ba 'yon?

REP. AQUINO. Yah.

SEN. ANGARA. Dahil kung government, they don't need to claim it.

THE CHAIRMAN. (Rep. Unico). Tax credit.

SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction,

Okay.

REP. AQUINO Okay.

SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter

A".[89]

Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should prevail over the Tax
Code -- a general law. x x x [T]he rule is that on a specific matter the
special law shall prevail over the general law, which shall
be resorted to only to supply deficiencies in the former.[90] In addition,
[w]here there are two statutes, the earlier special and the later general -- the
terms of the general broad enough to include the matter provided for in
the special -- the fact that one is special and the other is general creates a
presumption that the special is to be considered as remaining an exception
to the general,[91] one as a general law of the land, the other as the law of a
particular case.[92] It is a canon of statutory construction that a
later statute, general in its terms and not expressly repealing a prior
special statute, will ordinarily not affect the special provisions of such earlier
statute.[93]

RA 7432 is an earlier law not expressly repealed by, and therefore remains
an exception to, the Tax Code -- a later law. When the former states that
a tax credit may be claimed, then the requirement of prior tax payments
under certain provisions of the latter, as discussed above, cannot be made
to apply. Neither can the instances of or references to a tax deduction under
the Tax Code[94] be made to restrict RA 7432. No provision of any revenue
regulation can supplant or modify the acts of Congress.
 WHEREFORE, the Petition is hereby DENIED. The assailed Decision
and Resolution of the Court of Appeals AFFIRMED. No pronouncement
as to costs.

SO ORDERED.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

W E C O N C U R:

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice
CONCHITA CARPIO MORALES CANCIO C. GARCIA
Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above decision had been reached in

consultation before the case was assigned to the writer of the opinion of

the Courts Division.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the

Chairmans Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

HILARIO G. DAVIDE, JR.

Chief Justice