LVM Construction Corporation v. F.T. Sanchez/Socor/Kimwa (Joint Venture)
REITERATIONFacts
The Antecedents: Petitioner LVM Construction Corporation (LVM) was awarded the Arterial Road Link Development Project by the DPWH. LVM sub-contracted approximately 30% of the project to respondents, a Joint Venture (JV) composed of F.T. Sanchez Corporation, Socor Construction Corporation, and Kimwa Construction Development Corporation, for a contract price of P90,061,917.25, later reduced to P86,318,478.38. The Sub-Contract Agreement stipulated payment on a per-item-of-work basis, less 9%, with a 10% retention for every billing, and payment within seven days after the DPWH check to LVM has been cleared. The JV submitted 27 billings. LVM paid for Billings 1 to 26, retaining P8,041,469.79 as 10% retention. For Billing No. 27, LVM paid a partial sum of P2,544,934.99, claiming non-payment by DPWH. After completing the work, the JV demanded settlement of unpaid claims and release of retained amounts. LVM, in a letter dated May 16, 2001, informed the JV that its auditors discovered no deductions for E-VAT were made from payments on Billings 1 to 26, and thus LVM intended to deduct 8.5% E-VAT payments from the amount due. The JV replied that it had issued BIR registered receipts and was liable for 10% VAT, and LVM could claim equivalent input tax. Procedural History: The JV filed a complaint for sum of money and damages before the Construction Industry Arbitration Commission (CIAC) as CIAC Case No. 25-2005. The JV amended its complaint, claiming P8,041,469.73 in retention monies, P3,358,845.97 balance on Billing No. 27, and interests. LVM answered, asserting its right to offset E-VAT deductions from the retention money and counterclaimed for liquidated damages due to the JV's delays. The CIAC rendered a decision granting the JV's claims for retention money and interest, and the unpaid balance, totaling P11,307,646.68, finding no contractual or legal basis for LVM's claim to offset E-VAT. The CIAC denied LVM's counterclaim for liquidated damages. LVM appealed to the Court of Appeals (CA). The CA affirmed the CIAC decision in toto, ruling that there was no provision in the Sub-Contract Agreement for LVM to deduct E-VAT and that the JV had already paid 10% VAT on its issued receipts, allowing LVM to claim input tax. LVM's motion for reconsideration was denied. Hence, this petition for review on certiorari. The Petition: LVM seeks to reverse the CA's decision, arguing that Republic Act 8424 (National Internal Revenue Code) is deemed incorporated into the Sub-Contract Agreement, making the JV liable for VAT regardless of stipulation, and that the CA erred in ruling the JV had paid VAT merely by issuing receipts.
Issue(s)
Whether the Sub-Contract Agreement requires an explicit stipulation for the deduction of Value-Added Tax (VAT) from payments made to the sub-contractor. Whether the provisions of Republic Act 8424 (National Internal Revenue Code) are automatically incorporated into the Sub-Contract Agreement, imposing VAT liability on the Joint Venture irrespective of explicit contractual terms. Whether the Joint Venture is deemed to have paid Value-Added Tax solely by virtue of issuing receipts for services rendered.
Ruling
The petition is denied for lack of merit. The Court of Appeals' decision affirming the Construction Industry Arbitration Commission's ruling is affirmed in toto.
Ratio Decidendi
On the necessity of contractual stipulation for VAT deduction: The Court held that for LVM to deduct its supposed E-VAT payments from the retention money owed to the Joint Venture, there must be a clear stipulation in the Sub-Contract Agreement. The Court emphasized that a contract is the law between the parties and must be applied according to its literal tenor when clear and plain. The absence of such a stipulation, coupled with the parties' contemporaneous and subsequent acts, indicated no intention to offset these payments. LVM's unilateral assertion of this intention via a letter dated May 16, 2001, long after the project's completion, was deemed insufficient to create a right to deduct. The Court reiterated that courts cannot alter contracts by construction or supply missing stipulations that contradict the plain import of the agreement. On the incorporation of RA 8424 into the Sub-Contract Agreement: The Court clarified that while RA 8424 imposes VAT liability, the specific context of the sub-contract agreement was crucial. LVM, as the main contractor with the DPWH, was subject to an 8.5% VAT withholding by the DPWH under Section 114(C) of the NIRC. However, this did not automatically translate to a right for LVM to deduct this from payments to its sub-contractor, the Joint Venture. The Sub-Contract Agreement governed the relationship between LVM and the JV. The JV, in turn, issued BIR-registered receipts for payments received from LVM, and as a VAT-registered entity, was liable for 10% VAT on its gross receipts derived from the sub-contracted works, as provided under Section 108 of the NIRC. The Court found no stipulation in the sub-contract agreement that required the JV to share in the VAT deducted and withheld by the DPWH from LVM's payments on the main contract. On whether issuing receipts equates to VAT payment: The Court addressed LVM's contention that the Joint Venture had not shown actual payment of its VAT liability. The Court noted that the Joint Venture issued BIR-registered receipts for payments received from LVM, and Fortunato Sanchez, Sr. filed Monthly VAT Declarations with the BIR. These actions are indicative of the JV's VAT liability. Furthermore, LVM's prior unqualified acceptance of these official receipts, despite the JV's initial issues with SEC registration and BIR authorization for its own receipts, estopped LVM from belatedly challenging their validity. The Court stated that a party performing affirmative acts upon which another relies cannot later refute those acts to the prejudice of the other party. Therefore, the issuance of BIR-registered receipts and the filing of VAT declarations were sufficient indications of the JV's VAT obligations and compliance.
Main Doctrine
Absent any stipulation in the sub-contract agreement, a contractor cannot unilaterally deduct its supposed Value-Added Tax (VAT) payments from the retention money owed to the sub-contractor, especially when the sub-contractor has already issued BIR-registered receipts for payments received, which receipts already account for the VAT liability.