PEOPLE OF THE PHILIPPINES v. WILLIAM R. VILLARICA (c/o Chavez Miranda Aseoche Law Offices, 8th Floor, One Corporate Plaza, No. 845 Arnaiz Avenue, San Lorenzo Village, Makati City)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION PEOPLE OF THE PHILIPPINES, CTA Crim. No. 0-212 Plaintiff, (NPS Docket# XVI-INV-10G-00225) For: Tax Evasion under Section 254 - versus- of the National Internal Revenue Code of 1997 WILLIAM R. VILLARICA, (c/o Chavez Miranda Aseoche Law CTA Crim. No. 0-213 Offices, 8thFloor, One Corporate (NPS Docket# XVI-INV-10G-00225) Plaza, No. 845 Arnaiz Avenue, San For: Tax Evasion under Section 255 Lorenzo Village, Makati City), of the National Internal Revenue Code of 1997 Accu sed. Members: X- - - - - - - - - - - - - - - - - - - - - - - -X Acosta, Chairperson, PEOPLE OF THE PHILIPPINES, Uy, and Plaintiff, Fabon-Victorino, JJ. -versus - Promulgated: WILLIAM R. VILLARICA, (c/o Chavez Miranda Aseoche Law Offices, 8th Floor, One Corporate Plaza, No. 845 Arnaiz Avenue, San Lorenzo Village, Makati City), Accu sed. x ---------------------------------- - --------------- x RESOLUT ON For reso lution in these conso lidated crimin al cases are the fo llowi ng: 1) the prosecution's "MANIFESTATION (Re: 29 July 2011 Motion Hearing)" fil ed on August 11 ,2011 fil ed in CTA Criminal Case No. 0-213; 2) the accused's "COMMENT [Re: Prosecution's Manifestation dated 09 August 2011 WITH MOTION TO QUASH" fil ed on September 26, 20 11 , by registered mail and subsequently, in open court on September 28, 20 11; and

CTA Crim. Nos. 0-212 and 0-213 Resolution Page 2 of9 3) the prosecution 's "REPLY (to Accused's Comment with Motion to Quash)" filed on October 10,2011 in both conso lidated cases. Records show that prior to the consolidation of the above-captioned criminal cases (both pending before the First Division of this Court) on August 9, 2011 1 a , Resolution was issued on August 2, 2011 in CTA Criminal Case No. 0-213 allowing the state prosecutors representing the People of the Philippines in said case to confer with the investigating prosecutor and to file appropriate pleading, if warranted. This is based on the Court's observation that VAT is collected upon the seller, transferor or lessor of goods or properties in the course of trade or business or upon any person who imports goods; and that the se ller, transferor or lessor is the person statutoril y liable for the payment of the VAT and not the buyer, transferee or lessee. Correspondingly, the subject "Manifestation (Re: 29 July 2011 Motion Hearing)" was filed in Criminal Case No. 0213 by investigating Assistant State Prosecutor Edna A. Valenzuela on August II , 20 II, alleging that: " I. On 29 July 2011, during the hearing of the Accused's ' Omnibus Motion to Conso lidate and to Cancel Arraignment/Suspend Proceedings', an issue was raised concerning the Resolution of the undersigned Investigating Prosecutor dated I June 20 II , insofar as it provides: 'Furthermore, under the Tax Code, respondent is likewise mandated to file Value Added Tax Return and pay the corresponding tax due thereon in view of his acquisition of the Lamborghini luxury sports car. ' 2. The undersigned Investigating Prosecutor would like to clarify that the Value Added Tax ('VAT') stated in the Resolution pertains to the income as mentioned in the preceding paragraph. Respondent in 2007 had undeclared and unaccounted income considering that he was able to purchase and fully pay for an expensive Lamborgini luxury sports car during said taxable year despite his declarations in his 2007 Income Tax Return that he had no income. Such undeclared income should likewise then be liable for VAT. Evidence shows that Respondent is remissed in filing hi s VAT Returns and paying 1 Reso luti on dated August 9, 20 1 I in Cri minal Case No. 0-212

CTA Crim. Nos. 0-2 12 and 0-2 13 Reso lution Page 3 of9 VAT. Respondent 's total VAT defi ciency for 2007 amounted to Php 6,257,950.68, inclusive of increments. Respondent is thus found to have viol ated Section 255 of the NIRC of 1997, as am ended (Failure to File VAT Return and Pay VAT)." A "COMMENT [Re: Prosecution 's Manifestation dated 09 Augu st 2011 WITH MOTION TO QUASH" was fil ed by accused, through counsel, on September 26, 20 11 , by registered mail , and subsequentl y furni shing opposing coun se l hi s co py thereof in open court during the hearin g held on September 28, 2011. In said Comment, accused, while pray ing for the quashal of the In fo rmation dated June I, 20 11 and di smi ssal of CTA Criminal Case No. 0-213, argues, inter alia, as follows: "4. The tenor of the Resolution dated 01 June 2011 is quite unambiguous, parti cularl y in the portion where it ratiocinates that acc used is supposedl y liable to fil e Value Added Tax Return and pay the corresponding value-added tax, apparentl y and allegedl y 'in view of his (accused's) ACQUISITION of the Lamborghini luxury sports car.' Measure against the aforequoted prov ision of law,2 acc used is not liabl e to pay value-added tax by reason of an all eged 'ACQUISITION of the Lamborghini luxury sports car. "' Accordin g to acc used, he is not li abl e to pay value-added tax and should not have been indi cted for an otherwise baseless charge of fa ilure to fi le va lue-added tax return and pay corresponding value-add ed tax, and therefore there is all egedl y no bas is, legal or factual, to proceed with the prosecution of accused in CTA Crim . Case No . 0-2 13. Under the premi ses, there is allegedl y suffi cient bas is for the Honorable Court to quas h the criminal Informati on dated 01 June 2011 in CTA Crim . Case No. 0-2 13, indi ct ing accused fo r the offense of tax evasion under Secti on 255 of the NlRC of 1997, for fa ilure to fil e value-added tax return and pay value-added tax citing I Section 4 of Rul e 117 of the Rev ised Rul es of Criminal Procedu re. Moreover, 2 T hat is, Sectio n 105 of the National Interna l Revenue Code of 1997.

CTA Crim. Nos. 0-212 and 0-213 Resolution Page 4 of9 accused contends that the prosecution virtually insisted to maintain the criminal Information dated 01 June 2011 by opting to merely file a Manifestation dated 09 August 2011, which allegedly expresses its choice not to make an amendment of the criminal information as allowed under the Revised Rules of Criminal Procedure. In the subject Reply, the prosecution imputes procedural defects that were committed by the accused in the filing of his Comment with Motion to Quash . Particularly, the prosecution points out that the Comment should be considered as not filed for failure of the accused to state an explanation why the filing and service ofthe same was not personally made, in violation of Section 11 , Rule 13 of the Rules of Court; and that the Motion to Quash should be considered as a mere scrap of paper, since it did not comply with the three-day notice rule, pursuant to Section 4 Rule 15 of the same Rules. After due deliberation and careful consideration of the parties' respective allegations in their subject pleadings, the Court finds that, while it may be true that accused failed to offer any written explanation as to why the service and the filing of his Comment was done by registered mail, such defect, however, was cured when defense counsel furnished this Court and the prosecution copies thereof during the hearing held on September 28, 2011. In the same vein, the Court, in the exercise of its judicial discretion , hereby disregards late filing of the said Comment, in the interest of substantial justice. Furthermore, in Jehan Shipping Corporation vs. National Food Authority,3 the Supreme Court stated the purpose ofthe three-day notice rule, viz: "As an integral component of procedural due process, the three-day notice required by the Rules is not intended for the benefit of the movant. Rather, the requirement is for the purpose of avoiding surprises that may be sprung upon the adverse party, who must be 3 G.R. No. 159750, December 14, 2005 .

CTA Crim. Nos. 0-212 and 0-213 Resolution Page 5 of9 given time to study and meet the arguments in the motion before a resolution by the court. Principles of natural justice demand that the right of a party shou ld not be affected without giving it an opportunity to be heard. The test is the presence of the opportunity to be heard, as well as to have time to study the motion and meaningfully oppose or controvert the grounds upon which it is based." (Emphases supplied) In this case, the hearing of accused's Motion to Quash set on September 30, 2011 was cancelled by the Court, and in lieu thereof, the prosecution was given a period often (10) days to file comment or opposition thereto. Having been given the opportunity to be heard and ample time to intelligently oppose the same, the purpose behind the three-day notice rule is deemed duly served. Therefore, We find no reason not to admit and cons ider accused 's Comment with Motion to Quash as the filin g of same was directed in the Resolution dated September 12, 20 II . Technicality aside, We shall now resolve the prosecution ' s Manifestation vis- a-vis the accused 's Comment with Motion to Quash. We find for the accused in CTA Criminal Case No. 0-213. Pertinent provisions of the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act (RA) No. 9337, state: "SEC. 105 . Person Liable.- Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections I06 and I08 of thi s Code. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. xxx. The phrase ' in the course of trade or bu siness ' means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income

CTA Crim . Nos. 0-2 12 and 0-2 13 Reso luti o n Page 6 of9 and whether or not it se ll s exclusively to members or the ir guests), or gove rnment entity. XXX XXX xxx." (Emphasis supplied) "SEC. I07. Value-added Tax on Importation ofGoods.- (A) In General.- There shall be levied, assessed and co ll ected on every importation of goods a value-added tax equi valent to ten percent (10%) based on the total value used by the Bureau of Custom s in determinin g tan ff and custom s duties, plus customs duti es, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the bas is of th e quantity or vo lume of the goods, the value-added tax shall be based on the land ed cost plus excise taxes, if any: xxx. (B) Transfer ofGoods by Tax-exempt Persons.- In the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subsequently so ld , transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation . The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods, irrespecti ve of the possessor thereof." (Emphases supplied) "SEC. 11 4. Return and Payment of Value-added Tax.- (A) In General.- E very person liable to pay the value- added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days followin g the close of each taxable quarter prescribed for ea ch ta xpayer: Provided, however, That VAT-registered persons shall pay the va lue-added tax on a monthl y basis. XXX XXX XXX." (Emphasis supplied) It is clear fro m the fo rego ing provisions th at the persons who are liabl e for the payment of the VAT, and thu s, are required to fi le the correspondin g Quarterl y VAT Return , are ( I ) those who se ll , barter, exchange, lease goods or properties, or render service, in the co urse of trade or bu siness, and (2) th ose w ho import goods. However, when the importation of goods was made by a tax-exempt person or entity and such goods are subsequently sold , transferred or exchanged in the Philippines to non-

CTA Crim. Nos. 0-212 and 0-213 Resolution Page 7 of9 exempt persons or entities, the VAT shall instead be imposed on the purchaser, transferee or recipient thereof. Nevertheless, it must be emphasized that there are transactions which may not be subject to VAT, as when the same were not made " in the course of trade or business". Accordingly, while in a sale, barter, exchange, lease of goods or properties, or in rendering service, income usually accrue and thus, may be subject to income tax, it does not follow that the same should also be subject to VAT, for it may not be made " in the course of trade or business" . In this case, the prosecution relied mainly on an acceptable method (i. e., the net worth method)4 of determining the supposed undeclared income of the accused for income tax purposes. For that reason, it was not able to identify from which transaction or series of transactions the income under consideration was derived. Thus, such lack of identification in the Resolution dated June I , 2011 of the Assistant State Prosecutor Edna A. Valenzuela fails to convince the Court that accused should be held responsible for his failure to file the required VAT Return, since it is possible that said income was derived from a transaction or transactions not " in the course of trade or business". Furthermore, a careful reading of the same Resolution will readily disclose that while the accused is allegedly the purchaser or transferee of an imported Lamborghini luxury sports car, there is likewise no indication or allegation that said motor vehicle was imported by a tax-exempt person or entity, before it was allegedly sold to the accused. The accused , therefore, was not required by law to file the corresponding Quarterly VAT Return, since it is not shown that he is liable for the 4 Revenue Audit Memorandum Order No. 1-00 dated March 17, 2000 [Updated Handbook on Audit Procedures and Techniques-Volume I (XIII, B)] . See al so Ave/in a vs. Collector of Internal Revenue, G.R. No . L-17715 , July 31 , 1963 .

CTA Crim. Nos. 0-212 and 0-213 Resolution Page 8 of9 payment of the VAT on the alleged undeclared income of the accused, nor of his alleged acquisition of the subject imported motor vehicle. There being no requirement to make a return or to "supply correct and accurate information" on the part of the accused under the premises, it cannot be said that the accused violated Section 255 of the NIRC of 1997. Additionally, and as correctly pointed out by accused in his Comment, that although the filing of a motion to quash calls for the operation of Section 4, Rule 117 of the Revised Rules on Criminal Procedure5 wherein amendment of complaint or information may be allowed, it appears that the prosecution virtually insisted to maintain the criminal Information dated 01 June 2011 by opting to merely file a Manifestation dated 09 August 2011 and a Reply dated October 10, 2011, which allegedly expresses its choice not to make an amendment of the criminal information as allowed under the said Rules. Thus, the Court is left with no recourse but to dismiss without prejudice CTA Criminal Case No. 0-213. As regards CTA Criminal Case No. 0-212, considering the lapse of the sixty (60) day period (from July 8, 2011 or until September 6, 2011) given to the Department of Justice within which to resolve the Petition for Review (with NPS Docket No. XVI-INV-1 OG-00225) filed thereat by accused, the arraignment of accused in CTA Criminal Case No. 0-212 must perforce proceed as scheduled. WHEREFORE, in view of the foregoing considerations, CTA Criminal Case No. 0-213 is hereby DISMISSED WITHOUT PREJUDICE. 5 " SEC. 4. Amendment of complaint or information. - If the motion to quash is based on an alleged defect of the complaint or information which can be cured by amendment, the court shall order that an amendment be made. Jf it is based on the ground that the facts charged do not constitute an offense, the prosecution shall be given by the court a n opportunity to correct the defect by amendment. The motion shall be granted if the prosecution fail s to make the amendment, or the complaint or information still suffers from the same defect despite the amendment." (Emphases supplied)

CTA Crim. Nos. 0-2 12 and 0-213 Resolution Page 9 of9 On the other hand, the arraignment of accused in CTA Criminal Case No. 0- 212 is set on October 13, 2011 at 9:00a.m., as previously scheduled. SO ORDERED. 9._~-- """'� Q...._..~.-_ ERNESTO D. ACOSTA Presiding Justice E Ass~~~s.tUicYe