REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

THIRD DIVISION

HARD ROCK CAFE CTA CASE NO. 9279

(MAKATI CITY), INC.,
Petitioner, Members:

BAUTISTA, Chairperson
-versus- FASON-VICTORINO, and
RINGPIS-LIBAN, JJ.

COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondent.
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DECISION

Fa bon- Victorino, J.:

This Petition for Review 1 filed on February 29, 2016 by

Hard Rock Cafe (Makati City), Inc., prays for the cancellation
of the assessment issued against petitioner by respondent
Commissioner of Internal Revenue (CIR) for alleged
deficiency percentage tax of P27,799,898.28, inclusive of
surcharge and interest, as well as compromise penalty of
P25,000.00, or in the aggregate amount of P27,824,898.28
for calendar year (CY) 2013, pursuant to Sections 125(b)
and 255 of the National Internal Revenue Code (NIRC) of
1997, as amended, in relation to Revenue Memorandum
Circular (RMC) No. 18-2010.

Petitioner Hard Rock Cafe (Makati City), Inc. is a

domestic corporation, with principal office located at Level
III, Glorietta 3, Ayala Center, Makati City. 2 It is registered
with the Bureau of Internal Revenue (SIR) with Tax
Identification Number (TIN) 004-730-226-000 and

1
Docket, vol. 1, pp. 10-39.
2 Exhibit "P-1", docket, vol. 2, p. 776 .

./
DECISION
CTA CASE NO. 9279
Page 2 of 22

Certificate of Registration No. OCN9RC0000218609 issued

on January 31, 1996. 3

Per its Articles of Incorporation, petitioner's primary

purpose is to "establish and maintain restaurants, coffee
shops, refreshment parlors, cocktail lounges, make, cook,
arrange, serve and cater goods, drinks, refreshments and
other foods or commodities commonly served in such
establishments, to offer such other services to the public in
connection with the operation of restaurant and catering
enterprises, including the provision of music, disco dancing
and other forms of entertainment, to buy, sell and generally
deal in souvenir goods, wares, and merchandise of any and
every description related to its restaurant and catering
business, and to do and perform such other acts and things
necessary or incidental to the accomplishment of the
foregoing corporate business and objects in so far as may be
allowed by applicable laws and rules and regulations. " 4

On the other hand, respondent is the Commissioner of

the BIR, with power to decide disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto or other matters arising under
the NIRC, as amended, or other laws or portions thereof
administered by the BIR. He holds office at the BIR National
Office Building, Agham Road, Diliman, Quezon City.

On August 6, 2014, petitioner received Letter of

Authority (LOA) No. LOA-047-2014-00000373 with SN
eLA201100079185 5 dated July 15, 2014, authorizing
revenue officers to examine its books of accounts and other
accounting records for all internal revenue taxes for the
period January 1, 2013 to December 31, 2013.

On December 18, 2014, petitioner received a copy of

the Preliminary Assessment Notice (PAN) Part I, with Details
of Discrepancies and PAN Part II, all dated November 28,

3 Par. 1, Admitted Facts, Joint Stipulation of Facts and Issues (JSFI), docket, vol. 2, p. 656;
Exhibit "P-2", docket, vol. 2, p. 783.
4
Exhibit "P-1", docket, vol. 2, pp. 774-775.
5 Exhibit "R-2", BIR Records, p. 3.
DECISION
CTA CASE NO. 9279
Page 3 of 22

2014 6 issued by BIR Revenue Region No. 8 - Makati,

assessing it for alleged deficiency percentage tax for CY
2013 in the amount of P26,158,906.16, inclusive of
surcharge and interest, as well as, compromise penalty in
the amount of P25,000.00. 7 Petitioner filed a Reply 8 to the
said PAN on January 5, 2015. 9

On May 6, 2015, petitioner received the Formal

Assessment Notice (FAN) Part I, with Details of
Discrepancies and FAN Part II, with Assessment Notices, all
dated May 5, 2015 10 issued by BIR Revenue Region No. 8 -
Makati 11 , assessing it for alleged deficiency percentage tax
this time in a slightly increased amount of P27,799,898.28,
inclusive of surcharge and interest 12 , as well as, compromise
penalty in the amount of P25,000.00 for CY 2013, pursuant
to Sections 125(b) and 255 of the NIRC of 1997, as
amended, in relation to RMC No. 18-2010. 13

On June 5, 2015, petitioner filed a Protest 14 to the FAN

and submitted to BIR Revenue Region No. 8 - Makati
additional documents in support thereof on August 4,
2015. 15

Due to respondent's inaction on the administrative

protest, petitioner filed the present Petition for Review on
February 29, 2016.

In his Answer 16 posted on April 14, 2016, which the

Court received on April 28, 2016, respondent challenged the
jurisdiction of the Court to review the subject assessment on
the ground that the Petition for Review was filed beyond the
30-day period to appeal to this Court pursuant to Section
228 of the NIRC, as amended. Respondent claimed that

6 Exhibit "P-3", docket, val. 2, pp. 784-788.

7
Par. 3, Admitted Facts, JSFI, docket, val. 2, p. 657.
8 Exhibit "P-4", docket, val. 2, pp. 791-805.
9 Par. 4, Admitted Facts, JSFI, docket, val. 2, p. 657.
10 Exhibit "P-5", docket, val. 2, pp. 806-812.
11
Par. 5, Admitted Facts, JSFI, docket, val. 2, p. 657.
12
Par. 6, Admitted Facts, JSFI, docket, val. 2, p. 657.
13 Par. 7, Admitted Facts, JSFI, docket, val. 2, p. 658.
14
Exhibit "P-6", docket, val. 2, pp. 813-833.
15 Exhibit "P-7", docket, val. 2, pp. 834-835.
16 Docket, val. 1, pp. 257-269.
DECISION
CTA CASE NO. 9279
Page 4 of 22

petitioner received the FAN on May 6, 2015, to which it filed

a protest ·on June 5, 2015. On August 4, 2015, or within 60
days from the filing of the protest, petitioner submitted
supporting documents but such is of no consequence as the
180-day period for him to act on the protest should be
reckoned from the filing of the protest on June 5, 2015 and
not from the submission of supporting documents on the
protest on August 4, 2015. Counting the 180 days from
June 5, 2015, he had until December 2, 2015 to rule on the
protest. Since there was no action on his part, petitioner
had 30 days, or until January 1, 2016 to seek judicial
intervention. Thus, the Petition for Review was filed out of
time on February 29, 2016, depriving the Court of
jurisdiction to determine the case.

Assuming that the Court has jurisdiction, the subject

assessment is proper as during the administrative
investigation, it was shown that petitioner's business
activities rendered it liable for deficiency percentage
tax/amusement tax for CY 2013 pursuant to Section 125(b)
of the NIRC, as amended, in relation to Revenue
Memorandum Circular (RMC) No. 18-2010.

Further, petitioner cannot challenge the validity of RMC

No. 18-2010 which is an interpretation of the law issued by
the administrative agency charged with the interpretation
and application of the said law.

Moreover, the Court does not have jurisdiction to rule

on the constitutionality or validity of any law, or rule and
regulations, such as RMC No. 18-2010.

Petitioner was also appraised of the factual and legal

bases of the assessment in observance of the due process
requirement mandated under Section 228 of the NIRC, as
amended, through the PAN and the FAN, precisely it was
able to file separate protests on both the PAN and FAN.

The assessment was as well timely issued within ten

(10) years after the discovery of the falsity, fraud or
DECISION
CTA CASE NO. 9279
Page 5 of 22

omission, pursuant to Section 222 of the NIRC, as amended.

Respondent opined that since petitioner failed to file
percentage tax return and to pay the corresponding tax, the
10-year period to assess was correctly applied.

To cap the foregoing grounds, respondent invoked the

presumption of validity in favor of the subject tax
assessments.

In its Reply (To Respondent's Answer dated 14,

2016) 17 , petitioner countered that the 180-day period under
Section 228 of the NIRC, as amended, should be reckoned
from its submission of additional supporting documents on
August 4, 2015 and not from the filing of its protest on June
5, 2015, as respondent failed to provide the legal or factual
bases for his contention that the submitted documents were
irrelevant or immaterial. Reckoning from such submission,
the judicial appeal through the instant Petition for Review
was timely filed on February 29, 2016.

Further, contrary to respondent's contention, the Court

has jurisdiction to rule on the constitutionality or validity of
any law, or rule and regulations, such as RMC No. 18-2010.
The Supreme Court has already declared that the Court of
Tax Appeals has the power to review the rulings of
respondent, including Revenue Memorandum Orders (RMO)
and RMCs. More importantly, the instant Petition appeals
respondent's inaction on its protest against the subject
assessment, over which the Court has jurisdiction.

The parties filed their Joint Stipulation of Facts and

Issues 18 on September 2, 2016, thereafter, the Court issued
the Pre-Trial Order 19 on September 15, 2016.

Petitioner's sole witness, Joseph Y. Ang/ 0 testified

that as petitioner's Treasurer and Finance Controller, he is in
17 Docket, val. 1, pp. 271-285.
18 Docket, val. 2, pp. 656-686.
19 Docket, val. 2, pp. 688-704.
20
Minutes of the hearing dated January 24, 2017, docket, vol. 2, p. 749; Amended Sworn
Statement dated January 16, 2017, docket, val. 2, pp. 729-747; with cross examination
conducted, see TSN dated January 24, 2017.
DEOSION
CTA CASE NO. 9279
Page 6 of 22

charge of the entire administrative, finance and accounting

operations of the company, including its tax compliance.

As indicated in its Amended Articles of Incorporation,

petitioner is mainly into the establishment of restaurants,
coffee shops, refreshment parlors, and cocktail lounges.

The instant case pertains to the assessment against

petitioner for deficiency percentage tax for CY 2013 as
stated in the PAN dated November 28, 2014, and the FAN
dated May 5, 2015. Petitioner filed its protest to the FAN on
June 5, 2015, through a Letter dated June 4, 2015, and
submitted supporting documents thereto by registered mail
on August 4, 2015, and by personal service on August 5,
2015. Due to respondent's inaction on the protest,
petitioner filed this Petition for Review on February 29,
2016.

The deficiency percentage tax assessment was basically

based on Section 125(b) of the NIRC, as amended, and as
implemented by RMC No. 18-2010, which imposes
amusement tax on cabarets, and night or day clubs.
Petitioner however operates a themed restaurant, evidenced
by its Amended Articles of Incorporation, Audited Financial
Statements (AFS) for CY 2013, its webpage, and its license
to operate/Certification issued by the City Government of
Makati, its menu and the services it offers, its Certification of
Accreditation issued by the Department of Tourism, a
brochure map entitled " A Walking Map and Guide, Makati in
10 Minutes." Thus, it does not fall under the category of
cabarets, and night or day clubs, consequently, it is not
liable for percentage tax/amusement tax under Section
125(b) of the NIRC, as amended.

He added that petitioner's 2013 AFS shows that its

sales transactions for the period comprised of food,
beverages, merchandise, and banquet sales, which indicate
that it operates as a themed restaurant. Even petitioner's
floor plan, containing a main dining area, merchandise store,
mezzanine floor, guitar bar, piano bar, and saxophone bar,
is consistent with the fact that it is a themed restaurant.
DECISION
CTA CASE NO. 9279
Page 7 of 22

The guitar, piano, and saxophone bars are simply areas in

which the said musical instruments are on display providing
the theme for each but all serve as dining areas for its
customers.

A live band at certain times performs on the stage but

no tickets are sold to view such performance as they are for
the entertainment of the diners. Recorded music is also
played at times. The restaurant has no dance floor. All
these, according to the witness, prove that petitioner is not
into the entertainment business, hence, not liable for
amusement tax.

Finally, petitioner's philanthropic and charitable

activities negate respondent' classification of petitioner as a
night club or cabaret, or a place of vices, to justify the
imposition of amusement tax.

Petitioner rested its case after its Formal Offer of

Evidence 21 was resolved by the Court in the Resolution dated
March 24, 2017 22 •

Respondent's sole witness, Revenue Officer (RO) Erwin

G. Mallari testified 23 that he was part of the group that
conducted the audit to determine petitioner's tax liability for
CY 2013 pursuant to a Letter of Authority (LOA) issued by
the Regional Director of BIR Revenue Region 8, Makati City.
Their investigation and inspection of petitioner's business
premises revealed that it is an "amusement place" within the
definition of 'night and day club and cabaret' under RMC
No. 18-2010 mainly because it serves liquor and food to its
customers, with stage performances by musicians and
dancers. It is also a venue for dancing which encourages
prolonged stay resulting in more revenue from sales of food
and drinks to its customers.

21
Docket, vol. 2, pp. 752-770.
22 Docket, vol. 2, pp. 926-927.
23
Minutes of the hearing dated April 3, 2017, docket, val. 2, p. 928; Judicial Affidavit dated
August 3, 2016, docket vol. 1, pp. 311-317; with cross examination conducted, see TSN dated
April 3, 2017.
DECISION
erA CASE NO. 9279
Page 8 of 22

The conclusion that customers go to petitioner's

establishment for entertainment or amusement rather than
for food is merely his personal opinion. He did not also
verify if tickets are sold to the customers for the
performances of the live band inside the restaurant.

Being a place of amusement, petitioner is subject to

amusement/percentage tax on its gross sales of food,
refreshment, services, and merchandise served to its
customers as imposed under Section 125(b) of the NIRC, as
amended. More specifically, petitioner failed to subject its
gross sales/receipts amounting to P100,835,374.21 to 18°/o
percentage/amusement tax, and failed to file percentage tax
return and pay amusement tax, for CY 2013.

The Memorandum Report dated January 6, 2015

contained their finding and upon their recommendation, the
FAN Parts I and II both dated May 5, 2015 with Details of
Discrepancies were issued, assessing petitioner for
deficiency percentage tax for CY 2013.

Since petitioner failed to file amusement tax return and

pay the corresponding tax, the ten (10) year period to
assess commencing from the recovery of such omission shall
apply pursuant to Section 222 of the NIRC, as amended.

The witness further declared that on June 5, 2015,

petitioner filed with the BIR a Letter Protest dated June 4,
2015 against the FAN. It was however denied through the
Letter dated April 20, 2016, received by petitioner on April
25, 2016.

In the Resolution dated May 30, 2017 24 , the Court

admitted all the exhibits formally offered 25 by respondent.
Thereafter, the case was submitted for decision 26 .

24 Docket, vol. 2, pp. 947-948.

25
Docket, vol. 2, pp. 934-938.

/
26
Resolution dated August 30, 2017, docket, vol. 2, p. 1012.
DECISION
erA CASE NO. 9279
Page 9 of 22

STATEMENT OF THE ISSUE

The parties submitted the following issue for the

disposition of the Court:

Whether respondent's assessment for

deficiency percentage tax against petitioner for
CY 2013 should be cancelled and withdrawn for
lack of legal and factual bases. 27

DISCUSSION/RULING

On the timeliness of the filing of instant Petition for

Review, Section 228 of the NIRC of 1997, as amended, is
instructive, thus:

SEC. 228. Protesting of Assessment. - When

the Commissioner or his duly authorized
representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a
preassessment notice shall not be required in the
following cases:

XXX XXX XXX

The taxpayers shall be informed in writing of

the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.

Within a period to be prescribed by

implementing rules and regulations, the taxpayer
shall be required to respond to said notice. If the
taxpayer fails to respond, the Commissioner or his
duly authorized representative shall issue an
assessment based on his findings.

Such assessment may be protested

administratively by filing a request for

27
JSFI, docket, vol. 2, p. 667.
DECISION
erA CASE NO. 9279
Page 10 of 22

reconsideration or reinvestigation within thirty

(30) days from receipt of the assessment in such
form and manner as may be prescribed by
implementing rules and regulations. Within sixty
(60) days from filing of the protest, all relevant
supporting documents shall have been submitted;
otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or

is not acted upon within one hundred eighty (180)
days from submission of documents, the taxpayer
adversely affected by the decision or inaction may
appeal to the Court of Tax Appeals within thirty
(30) days from receipt of the said decision, or
from the lapse of the one hundred eighty (180)-
day period; otherwise, the decision shall become
final, executory and demandable.

The above provision states that the taxpayer has thirty

(30) days from receipt of the FAN within which to file its
administrative protest. It has sixty (60) days from filing of
such administrative protest to submit all relevant supporting
documents. Petitioner then has thirty (30) days from receipt
of the BIR Commissioner's adverse decision, or from the
lapse of one hundred eighty (180)-day period from
submission of documents, for it to file a Petition for Review
with the Court of Tax Appeals (CTA).

It was established that petitioner received the FANs

Part I and II, both dated May 5, 2015 28 , issued by BIR
Revenue Region No. 8 - Makati 29 on May 6, 2015.

Petitioner had thirty (30) days from receipt of the FANs

on May 6, 2015 or until June 5, 2015 within which to file its
administrative protest. Clearly, petitioner timely filed its
Protest to the FAN on June 5, 2015. From June 5, 2015,
petitioner had sixty (60) days or until August 4, 2015 to
submit additional documents to substantiate its protest. On
August 4, 2015, which was within the 60-day period from

28 Exhibit "P-5", docket, vol. 2, pp. 806-812.

29 Par. 5, Admitted Facts, JSFI, docket, val. 2, p. 657.
DECISION
CTA CASE NO. 9279
Page 11 of 22

the filing of the protest, petitioner submitted additional

supporting documents to its Protest.

To be sure, respondent cannot just ignore the filing of

these additional documents on the pretext that they are
irrelevant. Note that the term "relevant supporting
documents" must be understood as those documents
necessary to support the legal basis in disputing a tax
assessment as determined by the taxpayer. x x x The BIR
cannot demand what type of supporting documents should be
submitted. Otherwise, a taxpayer will be at the mercy of the
BIR, which may require the production of documents that a
taxpayer cannot submit. 30

From the submission of supporting documents on

August 4, 2015, respondent had 180 days or until January
31, 2016 within which to act on the protest. Respondent
obviously failed to act on the protest within the period of
180 days allowed by the rules. There being no action on his
part, petitioner had thirty (30) days from the lapse of 180
days from submission of documents on January 31, 2016 or
until March 1, 2016, within which to seek judicial
intervention from this Court. Hence, the Petition for Review
was timely filed by petitioner on February 29, 2016.

On the merits of the instant Petition for Review, Section

125 of the NIRC of 1997, as amended, relevantly provides:

SEC. 125. Amusement Taxes. - There shall be

collected from the proprietor, lessee or operator of
cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Aiai and racetracks, a
tax equivalent to:

(a) Eighteen percent (18°/o) in the case of

cockpits;

(b) Eighteen percent (18°/o) in the case of

cabarets, night or day clubs;

°
3
Commissioner of Internal Revenue vs. First Express Pawnshop, G.R. Nos. 172045-46, June /
16, 2009. fl./
DECISION
CTA CASE NO. 9279
Page 12 of 22

(c) Ten percent (10°/o) in the case of boxing

exhibitions: Provided, however, That
boxing exhibitions wherein World or
Oriental Championships in any division is
at stake shall be exempt from amusement
tax: Provided, further, That at least one of
the contenders for World or Oriental
Championship is a citizen of the
Philippines and said exhibitions are
promoted by a citizen/s of the Philippines
or by a corporation or association at least
sixty percent (60°/o) of the capital of which
is owned by such citizens;

(d) Fifteen percent (15°/o) in the case of

professional basketball games as
envisioned in Presidential Decree No.
871: Provided, however, That the tax
herein shall be in lieu of all other
percentage taxes of whatever nature and
description; and

(e) Thirty percent (30°/o) in the case of Jai-

Aiai and racetracks of their gross receipts,
irrespective, of whether or not any amount
is charged for admission.

For the purpose of the amusement tax, the

term "gross receipts" embraces all the receipts of the
proprietor, lessee or operator of the amusement place.
Said gross receipts also include income from television,
radio and motion picture rights, if any. A person or entity
or association conducting any activity subject to the tax
herein imposed shall be similarly liable for said tax with
respect to such portion of the receipts derived by him or it.

The taxes imposed herein shall be payable at the end

of each quarter and it shall be the duty of the proprietor,
lessee or operator concerned, as well as any party liable,
within twenty (20) days after the end of each quarter, to
make a true and complete return of the amount of the
gross receipts derived during the preceding quarter and
pay the tax due thereon.

The cited amusement tax imposed on the gross

receipts of the proprietor, lessee, or operator of cockpits,
racetracks and cabarets was first imposed in Section 260 of
DECISION
CTA CASE NO. 9279
Page 13 of 22

the 1939 Tax Code. 31 It was carried over to Section 123 of

the 1977 Tax Code, as amended, 32 which included, among
others, night or day clubs in the coverage of amusement
tax. Thereafter, the provision imposing amusement tax on
cabarets, night and day clubs under the 1977 Tax Code was
further carried over to Section 125 of the NIRC of 1997, as
amended.

Per the issued FANs, respondent assessed petitioner for

deficiency percentage tax (amusement tax) in the amount of
P27, 799,898.28, inclusive of surcharge and interest, as well
as, the amount of P25,000.00 as compromise penalty, or in
the aggregate amount of P27,824,898.28 for CY 2013.
Respondent allegedly found that petitioner failed to subject
its Gross Sales/Receipts of P100,835,374.21 to 18°/o
amusement tax imposed on proprietors, lessees or operators
of cabarets, night or day clubs, as mandated under Sections
125(b) and 255 of the NIRC of 1997, as amended, in
relation to RMC No. 18-2010.

In other words, to hold petitioner liable for percentage

or amusement tax, there must be sufficient proof that
petitioner operates as a cabaret, night or day club.

Section 2 of Revenue Regulations (RR) No. 14-67,

defines cabarets, night and day clubs, as follows:

(m) "Cabaret" includes cafes, restaurants and

all similar establishments where patrons are
entertained by performers who dance and sing
and/or where the patrons are allowed to
dance with said performers or entertainers
who are ordinarily professional hostesses.

(n) "Night Clubs" are resorts frequented by

pleasure seekers at night where foods and wines
and drinks are served and music furnished and
the patrons allowed to dance whether with

31 Commonwealth Act No. 466.

32 Presidential Decree No. 1158.
DECISION
CTA CASE NO. 9279
Page 14 of 22

their own partners or professional hostesses

furnished by such resorts.

( o) "Day Clubs" are resorts frequented by

pleasure seekers during the day where foods and
wines and drinks are served and music furnished
and the patrons allowed to dance whether
with their own partners or professional
hostesses furnished by such resorts.

(p) "Professional hostess" shall include any

woman employed in public resorts, such as
cabarets, night clubs, and day clubs, to provide
partners for pleasure seekers who may desire for
one, usually for an honorarium in an amount
discretionary to the pleasure seekers.

( q) Professional dancer" shall include any

woman employed in cabarets or similar
establishments who offers herself as dancing
partner for a fixed fee for all such who may pick
her. (Emphasis supplied)

The foregoing definitions of cabarets, night and day

clubs have been upheld by no less than the Supreme Court
in relation to gross receipts of the establishments.

In one case, the High Court defined a cabaret as a

place of amusement where customers go because of their
desire to dance and where the "bailarinas" are the main
attraction. Dancing is the main business and
customers patronize the place attracted by the
"bailarinas". As a matter of fact, "bailarinas" are the
indispensable factor in the operation of the business.
Whatever is paid to them should, therefore, be considered
as paid on account of the business, and as such it should be
considered as part of petitioner's gross receipts. 33

33
Chiuco vs. Collector of Internal Revenue, G.R. No. L-13387, March 28, 1960.
DECISION
CTA CASE NO. 9279
Page 15 of 22

On the other hand, the Supreme Court defined a night

club as "a place or establishment selling to the public food or
drinks, where the customers are allowed to dance." 34

It appears from the definitions that the primary and

common activity to cabarets, night and day clubs is dancing.
In the said places, the customers are allowed to dance either
with their own partners or with professional hostesses
provided by the cabarets or clubs.

The definitions of cabarets, night and day clubs have

remained unchanged in this jurisdiction since the enactment
of the 1939 Tax Code until the enactment of the NIRC of
1997.

Accordingly, the scope of the terms cabarets and night

and day clubs has likewise remained unchanged since the
enactment of the 1939 Tax Code, until the provision on
amusement tax on cabarets, night and day clubs was carried
over to Section 125 of the NIRC of 1997, as amended.

The principle of stare decisis et non quieta movere, as

embodied in Article 8 of the Civil Code of the Philippines,
enjoins adherence to judicial precedents. It requires our
courts to follow a rule already established in a final decision
of the Supreme Court. That decision becomes a judicial
precedent to be followed in subsequent cases by all courts in
the land 35 , this Court included.

Thus, for petitioner to be deemed a cabaret, or night

and day club, it must be established that its operations
involve dancing as the main business and customers
patronize the place in order to dance either with their own
partners or with professional hostesses engaged by
petitioner for that purpose.

34
Collector of Internal Revenue vs. Junior Women's Club of the Philippines, G.R. No. L-6992,
February 28, 1956.
35 Filinvest Development Corporation vs. Commissioner of Internal Revenue and Court of Tax

Appeals, G.R. No. 146941, August 09, 2007. V

DECISION
CTA CASE NO. 9279
Page 16 of 22

The evidence however show that the business activities

of petitioner do not fall within the scope or coverage of
cabarets and/or night or day clubs, since there is no
indication that its customers frequent its establishment to
dance, either with their own partners, or with professional
hostesses provided by petitioner.

This is evident in the testimony of petitioner's witness

Joseph Y. Ang, who testified that petitioner has no dance
floor, nor does it encourage its customers to dance.
Admittedly, petitioner provides entertainment to its
customers through live bands and singers, but these are
incidental to the main restaurant business of providing food
and drinks to its diners and are merely for the purpose of
advertisement and promotion of petitioner's restaurant. 36

Even the documents presented indubitably show that

petitioner operates as a restaurant, chiefly serving food and
drinks to its customers.

Petitioner's Amended Articles of Incorporation states

that its primary purpose 37 is to establish and maintain
restaurants, coffee shops, refreshment parlors, cocktail
lounges, and in the furtherance of such business, to provide
its customers with entertainment, including music, and disco
dancing, as well as the selling of souvenir items and goods,
and catering services in relation to its restaurant business.

The Articles of Incorporation has been described as one

that defines the charter of the corporation and the
contractual relationships between the State and the
corporation, the stockholders and the State, and between
the corporation and its stockholders. 38 The contents of the
Articles of Incorporation bind the corporation and its
stockholders. Its contents cannot be disregarded
considering that it was the basic document which legally
triggered the creation of the corporation. 39

36 Exhibit "P-20," Amended Sworn Statement of Mr. Joseph Ang dated January 16, 2017,

docket, val. 2, pp. 743-744.

37 Exhibit P-1, docket pp. 774-775.
38
Lanuza, et al. vs. Court of Appeals, et al., G.R. No. 131394, March 28, 2005.
39 Nautica Canning Corporation, et al. vs. Yumul, G.R. No. 164588, October 19, 2005 ..
DECISION
CTA CASE NO. 9279
Page 17 of 22

The City Government of Makati itself licensed petitioner

to operate as a restaurant and recognized it as such in its
Certification 40 dated February 17, 2014. Likewise, petitioner
has been accredited by the Department of Tourism as a
restaurant with Accreditation No. RST-NCR-00000190-
201341.

More importantly, the evidence presented show that

the actual business activities of petitioner are those of a
restaurant, with the entertainment usually by the
performances of live bands, which is merely incidental to its
main business to encourage or attract customers with the
end in view of promoting sales of food and drinks served in
the restaurant. Moreover, witness Joseph Y. Ang
categorically declared that no tickets are sold by petitioner
to its customers to view the live band as it is but a part of
the service to customers as they dine. 42

Petitioner's menu 43 as well indicates that petitioner

operates as a restaurant whose main line of business is to
serve food and drinks to its customers. The Notes to
Financial Statements, 44 which is an attachment to
petitioner's Financial Statements45 for December 31, 2013
and 2012 shows that petitioner's revenues are generated
from its sales of food and drinks to its customers or
habitues.

Anent RMC No. 18-201046 or the Clarification on the

Coverage and Taxability of Amusement Places under Section

4
0Exhibit "P-10," docket, vol. 2, p. 876.
41
Exhibit "P-14," docket, vol. 2, p. 888.
42 TSN dated January 24, 2017, pp. 16-17.
43 Exhibit "P-16", docket, vol. 2, pp. 889-906.
44
Exhibit "P-9-1", docket, vol. 2, p. 862.
45
Exhibit "P-9," docket, vol. 2, pp. 840-848.
46 Section 125 (b) of the Tax Code, as amended, provides that an 18% amusement

tax be imposed on proprietors, lessees or operators of cabarets, night or day clubs.

Night and day clubs are drinking, dancing and entertainment venues which oftentimes
also serve food and provide entertainment. Cabarets, on the other hand, are
restaurants or clubs where liquor and food are served, with a stage provided for
performances by musicians, dancers or comedians, including a venue for dancing by
patrons/customers, similar to that of nightclubs. With the advent of modern interactive
entertainment, along with recorded music (and/or music video) using a microphone
and public address system, the proprietors/lessees or operators of these amusements
places have pursued a new form of lounge and club entertainment. Most of these
establishments provide facilities to allow patrons to sing with the expectation that
DECISION
erA CASE NO. 9279
Page 18 of 22

125(b) of the NIRC of 1997, as amended, issued on March 1,

2010, it undeniably expanded if not widened the scope of
cabarets, night and day clubs under Section 125(b) of the
NIRC of 1997, as amended. By virtue of the said RMC, the
terms cabarets, night and day clubs now include other
places which offer similar pleasurable diversion
entertainment and function such as videoke bars, karaoke
bars, karaoke televisions, karaoke boxes and music lounges,
for purposes of imposing amusement tax.

With such inclusion of other places or enterprises,

petitioner would seem to fall under the terms cabarets, night
and day clubs.

While it is true that revenue memorandum circulars are

considered administrative rulings issued from time to time
by the CIR, they are actually opinions of the CIR issued in
connection with the implementation of the provisions of the
internal revenue law as authorized under Section 4 of the
NIRC of 1997, as amended. 47

Although "[i]t is widely accepted that the interpretation

placed upon a statute by the executive officers, whose duty
is to enforce it, is entitled to great respect by the courts,"
this interpretation is not conclusive and will have to be
"ignored if judicially found to be erroneous48 " and "clearly
absurd x x x or improper." An administrative issuance that
overrides the law it merely seeks to interpret, instead of
remaining consistent and in harmony with it, as obtaining in
this case, will not be countenanced by this Court. 49

sufficient revenue will be made selling food and drinks to the customers. The 'terms'
night and day clubs and cabarets have become passe. Amusement places which offer
the same pleasurable diversion entertainment and function now include videoke bars,
karaoke bars, karaoke televisions, karaoke boxes and music lounges.

As such, the proprietors, lessees or operators of the aforementioned establishments

are deemed also subject to the 18% amusement tax under Section 125 (b) of the Tax
Code of 1997, as amended, and not to the 12% VAT on gross receipts.
47
Bloomberry Resorts and Hotels, Inc. vs. Bureau of Internal Revenue, Represented by
Commissioner Kim S. Jacinto-Henares, G.R. No. 212530, August 10, 2016.
48
Philippine Bank of Communications vs. Commissioner of Internal Revenue, G.R. No.
112024. January 28, 1999.
49 Commissioner of Internal Revenue vs. American Express, G.R. No. 152609, June 29, 2005.
DECISION
CTA CASE NO. 9279
Page 19 of 22

It is undisputed that the definition of cabarets, night

and day clubs in RMC No. 18-2010 is a radical departure
from the previous definition of the said terms. Simply put,
RMC No. 18-2010 unilaterally changed and expanded or
widened the scope or meaning of the terms cabarets, night
and day clubs as defined under the Tax Code and in existing
jurisprudence.

Further, when there is a conflict between administrative

issuances and jurisprudence, it is the latter which shall
prevail.

As part of the legal system, administrative issuances

must be interpreted and implemented in a manner consistent
with statutes, jurisprudence, and other rules. 50 Judicial
decisions, though not laws, are nonetheless evidence of what
the laws mean, and it is for this reason that they are part of
the legal system of the Philippines. Judicial decisions of the
Supreme Court assume the same authority as the statute
itself. 51 Article 8 of the Civil Code recognizes judicial
decisions, applying or interpreting statutes as part of the
legal system of the country. But administrative decisions do
not enjoy that level of recognition. 52

Further, the basis for the imposition of amusement tax

is Section 125 of the NIRC of 1997, as amended. As earlier
discussed, from the inception of Section 125 of the NIRC of
1997, with its previous incarnation in Section 260 of the
1939 Tax Code, and subsequently Section 123 of the 1977
Tax Code, the same has remained unchanged, with the
implication that the interpretation and definition of the terms
therein as well remained the same.
50 Saturnino C. Ocampo, et al. vs. Rear Admiral Ernesto C. Enriquez, et al., G.R. No. 225973;
Rep. Edcel C. Lagman, et al. vs. Executive Secretary Salvador C. Medialdea, et al., G.R. No.
225984; Loretta Ann Pargas-Rosales, et al. vs. Executive Secretary Salvador C. Medialdea, et
al., G.R. No. 226097; Heherson T. Alvarez, et al. vs. Executive Secretary Salvador C.
Medialdea, et al., G.R. No. 226116; Zaira Patricia B. Baniaga, et al. vs. Secretary Of National
Defense Delfin N. Lorenzana, et al., G.R. No. 226117; Algamar A. Latiph vs. Secretary Delfin
N. Lorenzana, et al., G.R. No. 226120; Leila M. De Lima vs. Hon. Salvador C. Medialdea, et al.,
G.R. No. 226294, all promulgated on November 08, 2016.
51
Columbia Pictures, Inc., Orion Pictures Corporation, Paramount Pictures Corporation,
Twentieth Century Fox Film Corporation, United Artists Corporation, Universal City Studios,
Inc., The Walt Disney Company, and Warner Brothers, Inc., vs. Court of Appeals, Sunshine
Home Video, Inc. and Danilo A. Pelindario, G.R. No. 110318, August 28, 1996.
52
Philippine Bank of Communications vs. Commissioner of Internal Revenue, G.R. No. /
112024, January 28, 1999.
DECISION
CTA CASE NO. 9279
Page 20 of 22

The amusement tax imposed on the gross receipts of

the proprietor, lessee, or operator of cockpits, racetracks
and cabarets was first imposed in Section 260 of the 1939
Tax Code. 5 3 It was carried over to Section 123 of the 1977
Tax Code, as amended, 54 which included, among others,
night or day clubs in the coverage of amusement tax.
Thereafter, the provision imposing amusement tax on
cabarets, night and day clubs under the 1977 Tax Code was
further carried over to Section 125 of the NIRC of 1997, as
amended.

Not being expressly covered by the terms "cabaret"

and "night or day club", pursuant to RR No. 14-67 and the
cited relevant decisions of the Supreme Court, petitioner
thus cannot be held liable for the payment of percentage tax
(amusement tax) under Section 125(b) of the NIRC of 1997,
as amended.

For a law will not be construed as imposing a tax unless it

does so clearly, expressly, and unambiguously. x x x Thus,
unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled rule that
the imposition of a tax cannot be presumed. In fact, in case of
doubt, tax laws must be construed strictly against the
government and in favor of the taxpayer. 55

The rule that tax exemptions should be construed

strictly against the taxpayer presupposes that the taxpayer
is clearly subject to the tax being levied against him. Unless
a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled rule
that the imposition of a tax cannot be presumed. Where
there is doubt, tax laws must be construed strictly against
the government and in favor of the taxpayer. This is
because taxes are burdens on the taxpayer, and should not

53 Commonwealth Act No. 466.

54 Presidential Decree No. 1158.
55
Commissioner of Internal Revenue vs. SM Prime Holdings, Inc. and First Asia Realty Development
Corporation, G.R. No. 183505, February 26, 2010.
DECISION
CTA CASE NO. 9279
Page 21 of 22

be unduly imposed or presumed beyond what the statutes

expressly and clearly import. 56

WHEREFORE, the Petition for Review dated February

29, 2016 filed by Hard Rock Cafe (Makati City), Inc. is
GRANTED.

Accordingly, the Formal Assessment Notices Part I and

Part II both dated May 5, 2015 issued by respondent
Commissioner of Internal Revenue against petitioner Hard
Rock Cafe (Makati City) for alleged deficiency percentage tax
for the calendar year 2013, are hereby CANCELLED and
SET ASIDE.

SO ORDERED.

We Concur:

-
LOVEL~.
~.~ ->~''-
BAUTISTA MA. BELEN M. RINGPIS-LIBAN
Associate Justice Associate Justice

56 Commissioner of Internal Revenue vs. The Philippine American Accident Insurance

Company, Inc., The Philippine American Assurance Company, Inc., and The Philippine
American General Insurance Co., Inc., G. R. No. 141658. March 18, 2005.
DECISION
CTA CASE NO. 9279
Page 22 of 22

ATTESTATION

I attest that the conclusions in the above Decision were

reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.

LOVELL~. BAUTISTA
Asso~\fate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13 of Article VIII of the

Constitution, and the Division Chairperson's Attestation, it is
hereby certified that the conclusions in the above Decision
were reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.

ROMAN G. DEL OSARIO

Presiding Justice