G.R. No.

159647 April 15, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioners, vs. CENTRAL LUZON DRUG
CORPORATION, Respondent.
Facts of the case:
- That Central Luzon Drug Corporation is a domestic corporation engages in retailing
pharmaceutical products, and in 1996 it operated drugstores named and styled Mercury
drug.
- From Jan to December 1996, they granted 20% sales discount to qualified senior
citizens, pursuant to R.A. 7432
o R.A. 7432 “An Act to Maximize the Contribution of Senior Citizen to Nation
Building, Grant Benefits and Special Privileges and For Other Purposes”
- From the period of Jan to Dec the amount of 20% sales discount has totalled P
904,769.00
- On April 15 1997, the CLDC filed its annual income tax to the year 1996 declaring the
losses they incurred.
- On January 16 1998, CLDC filed a claim for tax/refund due to the R.A. 7432, and because
the were not able to get a response to CIR they elevated it to the Court of tax appeals
for review.
- On Feb 12 2001, the Tax Courts rendered a decision dismissing the CLDC’s petition for
review for lack of merit.
- The decision of the courts says that for claiming a refund a tax that has been paid to the
government should be erroneously or illegally, or if no amount is due and collectible
from the taxpayer, tax refund or tax credit is unavailing.
o Tax credit is premised on the existence of tax liability on the part of the taxpayer.
- CLDC filed for a motion for reconsideration to the Court of Tax Appeals. It was granted
and ordered the CIR to issue a Tax Credit Certificate.
- The CLDC contended that Sec. 229. Sec. 4[.a)] of R.A. 7432 is applicable not only to
erroneously or illegally paid taxes but to other’s also like excess tax paid by VAT. Or
exercise tax paid on good locally produces or manufactured but actually exported.
- The Court of Appeals affirmed in toto with the resolution of the Court of Tax Appeals.
Ordering the petitioner to issue a tax credit certificate in favor of the CLDC in the
reduced amount of P903,038.00. stating that “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 the petition.
Issues of the case:
- Whether or not the Central Luzon Drug Corporation, despite incurring a net loss, may
still claim the 20 percent sales discount as a tax credit?
Ruling of the case:
- The court Ruled in favor of the Central Luzon Drug Corporation.
- The 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.
Notes:
- Section 4a) of RA 743210 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.
o 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.
o A tax deduction, on the other, reduces the income that is subject to tax in order
to arrive at taxable income.
o A tax credit is used only after the tax has been computed; a tax deduction,
before.
- RA 7432 specifically allows private establishments to claim as tax credit the amount of
discounts they grant. In turn, the Implementing Rules and Regulations, issued pursuant
thereto, provide the procedures for its availment. To deny such credit, despite the plain
mandate of the law and the regulations carrying out that mandate, is indefensible