CIR vs. Philippine Health Care Providers, Inc.

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
PHILIPPINE HEALTH CARE PROVIDERS, INC., Respondent.

G.R. No. 168129
April 24, 2007

FACTS:

The Philippine Health Care Providers, Inc., a corporation whose purpose is to establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health maintenance organization and to provide for the administrative, legal, and financial responsibilities of the organization, filed a protest questioning the assessment made by the Commissioner of Internal Revenue.

E.O. 273 was issued amending the NIRC by imposing VAT on the sale of goods and services. Before the effectivity of the said E.O., Philhealth inquired whether the services it provides to the participants in its health care program are exempt from the payment of the VAT. On June 8, 1988, CIR issued a ruling stating that respondent, as a provider of medical services, is exempt from the VAT coverage.

However, on October 1, 1999, the BIR sent respondent a Preliminary Assessment Notice for deficiency in its payment of the VAT and documentary stamp taxes for taxable years 1996 and 1997. Subsequently, respondent filed a protest with the BIR.

Petitioner argued that it is entitled to the benefit of non-­retroactivity of rulings guaranteed under Section 246 of the Tax Code, in the absence of showing of bad faith on its part.

The CIR did not take any action on the protests. Hence, a petition for review was filed with the CTA. The CTA declared CIR ruling coverage null and void.

ISSUE:

Should a revocation, modification or reversal of any of the rules and regulations promulgated be given a retroactive effect?

HELD:

NO. It shall not have retroactive application.

Section 246 of the 1997 Tax Code, as amended, provides that any revocation, modification or reversal of rulings, circulars, rules and regulations promulgated by the CIR have no retroactive application if it would prejudice the taxpayer. The exceptions to this rule are: (1) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the BIR;; (2) where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based, or (3) where the taxpayer acted in bad faith.

There is no showing that respondent deliberately committed mistakes or omitted material facts when it obtained VAT Ruling from the BIR. Respondent’s failure to describe itself as a health maintenance organization, which is subject to VAT, is not tantamount to bad faith. Respondent’s letter which served as the basis for the VAT ruling sufficiently described its business. When the CIR ruling was issued the term health maintenance organization was yet unknown or had no significance for taxation purposes. Respondent, therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and 1997. The CIR is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer.

Therefore, the VAT assessment against respondent for the taxable years 1996 and 1997 is hereby withdrawn and set side.

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