Facts
CIR found discrepancies in the ITR of Medicard. It then issued a Letter of Notice (LN) to Medicard, then PAN, then FAN. No issuance of LOA to the revenue officer.
Arguments
- CIR: There are discrepancies because the tax base is the gross receipts without deductions because Medicard is only an arranger and not a provider of medical services.
- Medicard: We render medical services. We own laboratory facilities.
CIR, CTA Division, and CTA En Banc ruled against Medicard.
Issue
- Is the absence of LOA fatal?
- Should VAT be imposed on the total amount received by the HMO from its members? Or the diminished amount after payment to healthcare providers?
Ruling
- Yes. (a) The LOA is the only way to establish authority to examine; (b) The purposes of the LN and LOA are different; (c) Even the Court cannot convert LN to LOA; (d) The other methods used by the CIR are insufficient even if they are reasonable and technological.
- It should be imposed on the diminished amount because (a) Sec 108(a) of the NIRC and its IRR provides that the VAT to be imposed on the HMOs should be on the “payment on the services rendered;” (b) as to interpretation, if there is doubt as to the imposition of tax burdens, it should be interpreted strictly against the government; (c) the act of Medicard in earmarking 80% of the amount it received only shows its inchoate right as an administrator or possessor and not an owner.
English