CARGILL PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

Republic of the Philippines COURT OF TAX APPEALS Quezon City SECOND DIVISION CARGILL PHILIPPINES, INC . CTA CASE NO. 7928 Pe tition e r, For: Cance llati on of Assessme nt for Defic iency Va lu e-Ad d e d Ta x - v e rsus- Presen t: CASTANEDA, JR. , Chairperso n COMMISSIONER OF INTERNAL CASANOVA, and REVENUE , MINDARO - GRULLA, JJ. Respond e nt. 2M/ Pro mulgated: AUG MINDARO -GRULLA, :!_.: This is a Petition for Review fil ed by Cargill Philippin es, In c. as petitioner against th e C ommissio ne r o f Inte rnal Reve nu e (CIR) as res pond e nt, for th e Court in Division , pursuant to Rul e 4, Sec tion 3(a) (2) of th e 2005 Re vise d Rules of th e Co urt o f Ta x App ea ls, a s am e nded . Th e said Pe titi o n is an appeal from respo nd e nt CIR' s in ac ti on on petitioner's request for reconsid era tion /pro tes t filed on October 24, 2008, praying for th e cance ll ation of th e undated Final Ass essment No ti ce (FAN) finding petitioner liable for deficiency value-added ta x assessment (VAT) for th e p e riod covering Sep te mbe r 1, 2004 to August 31 , 2005 in th e amount o f P5,469 ,566.85.(

Cargill Philippines, Inc. v. CIR Page 2 o f 18 CTA Case No. 7928 DECISION The facts of the case, based on the Joint Stipulation of Facts and Issues as w e ll as the evidence on record, ore stated hereunder. Petitioner Cargill Philippines, Inc. is a domestic corporation duly organize d and existing und e r Philippine lows, with principal office loca ted at th e 29th Floor, Citibonk Tower, 87 41 Poseo de Roxos Street, Makoti City. l Respondent is the duly appointed Commissioner of the Bureau of Inte rnal Re venue (BIR) vested with authority to corry out the functions , duties and responsibilities of said office, including, inter alia , the power to resolve disputed assessme nts and cancel tax liabilities pursuant to the provisions of the Notional Internal Rev e nue Code (NIRC) of 1997 and other tax lows, rul es and regulations. On September 9, 2008, p etition er rec eived a copy of the Preliminary Assessment Notice (PAN) doted August 1, 2008, assessing petitioner defic iency VAT and co mpromise penalty in the amount of P5,430, 100.29 for the period covering September 1, 2004 to August 31, 2005. 2 On September 24, 2008 , p e titi o ner fil e d with the BIR its Reply to th e PAN.3 < 1 Par. 1, Admi tted Fac ts, Joint Stip ula ti on o f Fac ts and Issues (JSFI) , Docke t, p. 110 2 Exhibit "J" 3 Exhibit "A"

Cargill Philippin es. Inc. v. CIR Page 3 of 18 CT A Case No. 7928 DECISION On Se pte mber 25, 2008, p e titi o ner receive d an undated Final Assessm e nt No ti ce (FAN) tog e th er with an Audit Res ult/Asse ssment No tice (BIR Form No. 0401) date d Se pte mbe r 22, 2008. Respondent fo und p e titi o ne r lia b le for d eficie nc y VAT in the a gg reg ate amount o f P5,469,566 .85. 4 Th e all e g e d d e fi c ie nc y taxes and p e na lti es w e re c o mpute d a s fo llow s: Excess o f Ou tpu t over Input p 5,786 ,90 1.64 Less: All owable In put Tax for zero-ra ted so les 2,392 ,983.86 De fi c ie nc y VAT p 3, 393 ,9 17.78 - 2,045 ,649 .07 30,000 .00 Add: Interest up to Se p te mber 30 , 2008 C o mpro mise p 5,469,566.85 Tota l Res p o nd e nt explain e d his findi ngs o f ta x d e fi c ie nc y in th e De ta ils o f Discre pan c ies. On Se ptember 25 , 2008, p e tition er receive d a le tter of even date from th e BIR ad d ressin g th e ma tte rs raise d in p e titi o ner' s Re ply to th e PAN .5 On O c to b er 24 , 2008, p e titi o ner fil e d its re qu est for reco nsid eratio n/pro tes t a gain st th e FAN iss ue d b y respo nd en t. 6 Respo nd e nt how e ve r fa il e d to re nd e r a d ecisio n o n th e protest fil e d by p e tition e r; he nce, p e titi o ne r fil ed th e instant Pe tition for Re view o n May 15, 2009.l. 4 Exhib its " G" and " H" ; Par. 5, Admi tte d Fac ts, JSFI, Doc ke t . p. 111 s Par. 6, Admitte d Fac ts, JSFI, docke t, p. 111 6 Exhibit "9"

Cargill Philippines, Inc. v. CIR Page 4 of 18 CT A Case No. 7928 DECISION On July 7, 2009, respondent filed the Answer7, interposing the following counter-arguments: "5. The assessment for the period 1 September 2004 to 31 August 2005 in the amount of P5,469,566.85 was issued in accordance with low and regulations. The factual and legal bases of the subject assessment ore contained in the Final Assessment Notice. 6. The petitioner asserts that there is lock of due process, claiming that there was no compliance with Section 228 of the Ta x Code, Sec 3.1.2 of Revenue Regulation 12-99 and RMO 37-94. They claim that the taxpayer has 15 days from the dote of the receipt of the Preliminary Assessment Notice (PAN) to respond to the PAN. If the taxpayer foils to respond, he sha ll be considered in default and Final Assessment Notice (FAN) will be issued. Petitioner received a copy of the PAN doted August 1, 2008 on September 9, 2008. On September 23, 2008, petitioner filed its Reply to the PAN. There being nothing in the Reply to cred ibly refute the PAN respondent served his Final Assessment Notice (FAN) to petitioner on September 25, 2008. There was no violation of due process as respondent met the requirement provided by low and jurisprudence. 7. As stated in the Details of Discrepancy of the FAN: Verifica tion revealed that your TIN was not indicated in some invoices and official receipts issued to you by your suppliers. This is in violation of the invoicing requirements as provided in Section 237 of this Code which states that 'o il persons subject to on internal revenue ta x shall, for each sole or transfer for merchandise or for services rendered valued at Twenty five pesos (P25.00) or more, issue duly registered receipts or so les or commercial invoices, prepared at least in duplicate, showing the dote of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the case of soles, receipts or c. 7 Docket, pp. 77-81

Cargill Philippines, Inc. v. CIR Page 5 of 18 CT A Case No. 7928 DECISION transfers in the amount of One hundred pesos (P 100.00) or more, or regardless of the amount, where the sole or transfer is mode by a person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment mode as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall allow the nome, business style, if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT - registered person, in addition to the information herein required , the invoice or receipt shall further show the Taxpayer Identification Number {TIN) of the purchasers .' Also, you foiled to secure authority from the Office to use loose leaf invoices for your Pulilon and Villosis branches. Compromise penalty is imposed in accordance with Revenue Memorandum Order 19-2007 doted August 10, 2007. 8. This Honorable Court has decided in Coltex Philippines, Inc. vs. CIR doted October 4, 2000, held that there was a violation of the petitioner's procedural due process when the BIR issued the assessment despite the lock of prior notice for on informal conference and the PAN. In its more recent decisions, however, it declared that the failure of the BIR to issue the PAN cannot be considered a violation of the taxpayer's right to due process. According to the CTA a taxpayer is not obligated to protest a PAN since failure to do so will not result in the finality of the assessment. What the low demands is the issuance of a FAN which should be formally protested to by the taxpayer, otherwise, the assessment shall become final and executory. In considering the notice to the taxpayer of the legal and factual bases of the assessment issued as substantial compliance with the mandate of Section 228 of the Tax Code, the CTA held that so long as the parties ore given the opportunity to explain their side, the requirements of due process ore satisfactorily complied with.'

C arg ill Philipp ines, Inc . v . CIR Page 6 o f 18 CTA Case No. 7928 DECISION 9. We ll-settled is th e rul e that tax a ssess m e nts are entitl e d to th e pres ump ti o n o f co rrectn ess and ma d e in good fa ith . Th e ta xp aye r has th e d uty to prove o th erwise. In th e abse nce o f proo f o f any irreg ularities in th e p erform ance o f d uti es, an assess ment duly mad e b y a Bure au o f Inte rnal Revenu e examin er a nd approve d b y his supe ri o r o ffi ce rs w ill no t b e disturbe d. All pres umpti o ns are in favor o f the correctness o f tax assess m e nts. (Sy Po vs. Court o f Tax Appeals, 164 SCRA 52 4). " During trial , both parties presente d d oc um e ntary and testimonial e vid e n ce in support o f th e ir res p ec tiv e c laim s a nd co nte ntions. On Octo b e r 29 , 2010, th e c a se wa s submitte d for d e cision afte r th e submi ssio n o f re spond e nt' s M e morandum o n Se pte mber 13, 2010 and p e titi o n e r's M e m o randum o n O c to b e r 8, 2010 . Th e iss u es8, a s jointly stipulate d by th e parti es, are th e following: " 14. Whe th e r or not Pe titioner is liable fo r the defic ie ncy VAT assess m e nt in th e am o unt of P5,469,566.85 for th e period 0 1 September 2004 to 3 1 Augus t 2005 p lu s su rc harges a nd inte rest thereto. 15. Wh e th e r o r not Petitio ne r's ri g ht to du e process w as deni e d. 16. Whe th e r or not th e assess m e nt for deficie ncy VAT is barred b y presc ri p ti o n. 17. Whe th e r o r not th ere was a valid b asis fo r th e d isa ll owan ce o f Petitioner's in pu t VAT in th e am ou nt o f p 17,452, 126. 14. 18. Whe th e r o r no t Petitio ne r ha d su ffi c ie nt inp ut VAT c arrie d over fro m previous qu arte rs to o ffset its o utput VAT fo r th e p e ri o d 1 Sep te m ber 2004 to 3 1 Au g ust 2005.(. s Doc ke t, pp. 11 4- 115

Cargill Philippines, Inc. v. CIR Page 7 o f 18 CT A Case No. 7928 DECISION 19. Whether or not there was a va lid basis to impose a co mpromise penalty in the amount of Th irty Th ousand Pesos (P30,000.00)." This Court finds it appropriate to address first the issue of due process. Petitioner argues that it was denied due process because respond e nt issued th e Final Ass ess ment Notice before re ading its Reply to the Preliminary Assess ment Notice, without determining first if it had sufficiently es tablished that it had no output VAT liability. On the other hand , respo nd e nt contends that th ere wa s no violation of due process bec au se, technically, the requirements provided for by law and jurisprudence were du ly met. Section 228 of th e NIRC o f 1997, a s am e nded , Revenue Re gulations Nos. 12-85 and 12-99 , and Rev e nue Memorandum Order No. 37-94 provide for the procedural requirements that must be followed in order to sustain th e validity and legality of an assessment, and the same are quoted hereunder, to wit: "SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he sha ll first notify th e ta xpayer of his finding s: Provided, however, That a pre- assessment notice shall no t be re quire d in the following cases : XXX XXX xxx c

Cargill Philippines, Inc. v. CIR Page 8 of 18 CT A Case No. 7928 DECISION The taxpayer shall be informed in writing of the low and the facts on which the assessment is mode; otherwise, the assessment shal l be void. Within a period to be prescribed by implementing ru les and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer foils to respond, the Commissioner or his duly authorized representative shall issue on assessment based on his findings. Such assessment may be protested administratively by filing a request for 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 hove been submitted: otherwise, the assessment shall become final. XXX XXX xxx" Revenue Regu la tions No. 12-85: "SECTION 3. Time to reply. - Venue for filing reply.- (a) Regional Office cases - The taxpayer shall reply within a period of fifteen (15) days from receipt of the pre- assessment notice. In meritorious cases and upon written request of the taxpayer on extension may be granted w ithin which to respond, but in no case shall the extension exceed a total of ten (l 0) days . XXX XXX XXX SECTION 5. Failure to reply to the pre-assessment notices; issuance of assessment. -In the event the taxpayer foils to respond to the pre-assessment notice within the above prescribed period, or when the Commissioner or his duly authorized representative finds the response to be without merit, he should be informed of such fact and the report of investigation shall be given due course." Revenue Regulations No. 12-99: "SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.- XXX XXX

Cargill Philippines, Inc. v. CIR Page 9 of 18 CT A Case No. 7928 DECISION 3.1 .1 . Notice for informal conference. - The Revenue Officer who audited the taxpayer's records shall, among others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer's submitted report for investigation, the taxpayer shall be informed, in writing, by the Revenue District Office or by the Special Investigation Division, as the case may be (in the case of Revenue Regional Offices) or by the Chief of Division concerned (in the case of BIR Notional Office) of the discrepancy or discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose of 'Informal Conference,' in order to afford the taxpayer with on opportunity to present his side of the case. If the taxpayer foils to respond within fifteen (15) days from dote of receipt of the notice for informal conference, he shall be considered in default, in which case , the Revenue District Officer, or the Chief of Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the Notional Office, as the case may be, shall endorse the case with the least possible delay to the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if warranted. 3.1 .2. Preliminary Assessment Notice (PAN}. - If after review and evaluation of the Assessment Division or by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the low, rules and regulations, or jurisprudence on which the proposed assessment is based xxx. If the taxpayer foils to respond within fifteen (15) days from dote of receipt of the PAN , he shall be considered in default, in which case , a formal letter of demand and assessment notice shall be caused to be issued by the said Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. XXX XXX XXX(

Cargill Philippines, In c. v. CIR Page 10 of 18 CTA Case No. 7928 DECISION 3.1 .4 Formal Letter of Demand and Assessment Notice. - The formal le tter of demand and assessment notice sha ll be issued by th e Commissioner or his duly authorized representative . The letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the low, rules and regulations, or jurisprudence, on which the assessment is based, otherwise, the forma/letter of demand and assessment notice shall be void xxx. The same sha ll be sen t to the ta xpayer on ly by registered moil or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand , showing the following: xxx ." Revenue Memorandum Order No. 37-94: "C. Review of Reports of Investigation and Service of Pre-assessment Notices. - XXX XXX XXX 2. The aforementioned reviewing offices, after having reviewed the report of investigation, shall send a pre- assessment notice to the taxpayer, indicating therein the basis of the assessment, and a definite time frame within which he may protest the some if he is not agreeable. If the taxpayer files his protest within the period prescribed in the aforementioned notice, the some reviewing offices sha ll likewise decide whether the protest conforms with existing requirements and whether or not to give due course to the protest. The reviewing office shall then inform the taxpayer in writing of the result of the resolution of his protest. If the pre-assessment notice is not protested within the prescribed period , the reviewing office shall then issue a letter of d e mand and assessme nt notice to the taxpayer." The foregoing provisions of law and regulations clearly illustrate th e process to be followed in assessment cases in order that the taxpayer will be afforded due process. In summary, after the Revenue Officer conducts a re- investigation of the records of a taxpayer for alleged deficiency tax+

Cargill Philippines , Inc. v. CIR Page ll of 18 CTA Case No. 7928 DECISION liability, th e taxpayer sha ll b e notified in writing o f the findings for purposes of an Informal Confe renc e. If th ere exists a suffi cient basis to assess the taxpayer of deficiency tax, a Pre-Assessment Notice shall be issue d and sent to the taxpayer. The taxpa ye r is then given fifte e n days to make a Reply and he is al so permitte d to examine th e records and present his arguments in writing . If th e taxpayer fails to respond to th e PAN , the taxpaye r shall th e n b e se nt a Formal Letter of Demand and Assessme nt Notice, whic h shall state th e facts and the law on which the as sess ment was based. The taxpayer may file a protest based on such assessment within thirty (30) days. After filing the prote st, th e ta xp ayer must submit th e rel eva nt supporting documents within sixty (60) days. Oth erwise, th e assess m e nt sha ll become final and exec utory. As mentioned earlier, petitioner received th e PAN on September 9, 2008, th en pe titioner filed its protest on Sep te mber 24, 2008. On September 25, 2008 , p etition er receive d th e FAN with Audit Result/Assessment Notice as well as a letter from respondent addressing the matte rs rai sed in p e titi oner' s Rep ly to the PAN . Th erea ft e r, on October 24, 2008, petitioner filed its Request of Reco nsid eration/Protest against the FAN , which according to petitioner, re spo nd e nt fail ed to a ct upo n. �

Cargill Philippines. Inc. v. CIR Page 12 o f 18 CTA Case No. 7928 DECISION Applying th e above -quote d provisions of low and rul e s to th e in stant ca se , this Court finds that respond e nt has substantially c omplied with th e re quire m e nts o f du e process , co nsid ering that not only was p e tition e r g ive n th e opportunity to re fute th e PAN issued but respo nd e nt likewi se addresse d and an sw ere d p e tition e r' s Reply to th e PAN. Pe titi o ne r wa s al so abl e to exerc ise its o pti o n to fil e a Pro tes t to th e FAN issu e d by res pond e nt althou g h it wa s not a c te d upo n within th e p e ri o d prescrib e d by low. It ha s b e en he ld that th e esse nce o f du e process is found in th e re a sonabl e o pportunity to b e he ard and submit any evid e nce on e may hove in support o f on e ' s d e fen se. What th e low proscribes is th e lo c k o f o pp ortunity to b e he ard. As lo ng a s th e p a rty is give n th e opportunity to d e fe nd his interests in du e course, he would hove no re a son to co mplain , fo r it is thi s o p portun ity to b e he ard that m akes up th e esse nce o f du e process.9 Pe tition e r cannot cl aim th ere fo re that it was d e nie d du e process . Th e fa c t that th e pro p ose d a ssessm e nt wa s d isc usse d by res p o nd en t with p e tition er in d e tail pri or to th e issuan ce o f notice o f informal co nfe ren ce proves that p e titi o ner was prop e rly notifie d and g ive n th e o pportunity to b e hea rd whi c h is th e esse nce o f du e p roc e ss. ~ 9 Estores, et of. vs. Court of Appeals, et of. , G.R. No. 144755, June 8, 2005

Cargill Philippines, Inc. v. CIR Page 13 o f 18 CT A Case No. 7928 DECISION Thereafter, petitioner filed its Protest to the assailed FAN. Clearly, petitioner wa s accorded du e process. Proceeding to the other issues at hand , petitioner contends that th e right of respondent to assess it of deficiency VAT for the second, third , and fou rth quarters of th e fi sca l yea r 2005 had already lapsed pursuant to Section 203 of th e NIRC of 1997, whi c h states: "SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Sec ti on 222, internal revenue taxes shall be assessed wi thin three (3) years after th e last day presc ribed by low for th e filing of th e return, and no proceeding in cou rt w ith ou t assessment for th e coll ec tion o f suc h ta xes shall b e begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, th e three (3)-year period sha ll be counted from the day the re turn was filed. For purposes of this Section, a return filed before the last day prescribed by low for the filing thereof shall be considered as filed on such last day." Corollary th e re to, Sec ti on 114(A) of th e NIRC o f 1997 provides that: "SEC. 114. Return and Payment of Value-Added Ta x.- (A) In General. - Every person liabl e to pay the value-added tax imposed under th is Title shall file a quarterly re turn of th e amount of his g ross sales o r receipts within twen ty- fi ve (25 ) days fo ll owing the close of eac h ta xable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the va lue-added tax on a monthly basis. XXX XXX xxx" Ba sed on th e foregoing , th e three-yea r period to assess co mm e nces fro m th e date of actual filing of th e re turn or from the last (

Carg ill Philippines, Inc . v. CIR Pa ge 14 o f 18 CT A Case No. 79 28 DECISION day pres c rib e d by low for th e filing of suc h return , whichever comes later. In c as e of VAT, the fi ling of Quarterly VAT Returns must be mode within twe nty-five (25) days afte r th e cl ose of ea c h ta xable quarter prescrib e d for e a c h taxpaye r. He nce, if th e re turn was fil e d earlier than th e lo st day a ll owed by low, the period to assess shal l stil l be counted from the lost day prescribe d by low for filing of the return . How e ver, if th e re turn was fil e d b eyo nd th e p e riod pre sc ribe d by low, th e three-ye ar period sha ll b e c ounte d from the day the return was fil e d. App lying Se ction 114(A) o f th e NIRC o f 1997, re spondent, th ere fore , ho d unti l th e fol lowing dotes within whic h to assess petition e r fo r d e fi c ie nc y VAT: Ex h. Period Covered Quarter Date of Filing Last Day to File Last Day to Se pt. 1 lo Nov . 30, 2004 2nd Q tr FY 2005 of Return Re turn As sess c 3rd Qt r FY 2005 Dec . 28, 2004 Dec. 25, 2004 Dec . 28, 2007 D Dec . 1, 2004 to Feb. 28, 2005 41h Q tr FY 2005 Marc h 28, 1st Q tr FY 2006 Mar. 28, 2005 March 25, 2005 2008 E Mar. 1 to May 3 1, 2005 Aug . 24, June 25, 2005 Aug . 24, 2008 F Jun . 1 to Aug . 3 1, 2005 2005 Se p . 25, 2005 Sep. 28, 2008 Se p . 28, 2005 It mu st b e p ointe d out that co ntrary to res p o nd e nt 's argum e nt, p e tition e r's am e ndm e nt o f its Quarterly VAT Re turn for th e second quarter of fiscal year 2007 10 ha s no bearing o n th e presc ription p eriod to a ssess p e titi o ne r o f d e fi c ie nc y VAT for th e p e ri o d covering Se pte mber 1, 2004 to Augu st 3 1, 2005. ( 1o Exhi b it " 11"

Cargill Philippines, Inc . v. CIR Page 15 of 18 CTA Case No. 7928 DE C ISION Considering that the Preliminary Assessment Notice 11 , and the Final Assessment Notice with Audit Result/ Assessment Notice 12, and Final Decision on Disputed Assessment 13 for deficiency VAT covering the period September 1, 2004 to August 31 , 2005 were issued only on September 9, 2008 , September 25, 2008 and September 10, 2009 , respectively, the deficiency VAT assessment for the second , third , and fourth quarters of fiscal year 2005 is already barred by prescription. Pe titioner further asserts that ev e n if its valid input tax for the period covered by the assessment only amounts to P2,424,460.75 , it has sufficient input tax carried over from pre vious quarte rs in the amount of P31 ,915,642.26 to cover its output tax liability for the same period. On the other hand , respondent states that in the Final Decision on Disputed Assessment it issued , petitioner's input taxes from previous quarters were not ignored but was in fact validated since the excess input tax amounting to P23, 125,125.98 was carried over to the succeeding quarters (BIR Form 2550Q from Septe mber 1, 2005 to November 30, 2005). H This Court finds merit in petitioner's arguments . As may be inferred from respondent's statements, respondent admits that input taxes carried over from previous quarters amounting ( 11 Exhibit " J" and Exhibit " 4" 12 Exhibits " G", " H" , and Exhibit "7" 13 Exhibit " 12" 14 Pag e 2, Exhib it " 12"

Cargill Philippines, Inc. v . CIR Page 16 of 18 CT A Case No. 7928 DECISION to P31 ,915,642.26 were valid and that out of the said amount, only the amount of P23, 125,125.98 was carried over to the succeeding quarters. An examination of petition er's Quarterly VAT Returns for the period from September 1, 2004 to August 31, 2005 shows that the input tax carried over to the succeeding quarters is computed as follows: Input tax c arri e d over from previous quarters p 31,9 15,642.26 19 ,876,586.89 Add: Total input tax for the period p 51,792,229.15 Tota l availabl e input ta x 28,667,103. 17 Less: Ou tput ta x for th e period p 5,8 14,057.53 p 23,125,125.98 VAT Refund/TCC C laimed 22,853,045.64 Input tax carri ed over to succeeding quarter In fin e, th e amount of P23, 125,125.98 carried over to the succeeding qua rter represents excess unutilized input taxes. Thus , petitioner cannot be assessed of any deficiency outpu t VAT for the period coverin g September 1, 2004 to August 31, 2005. On this basis a lone, respondent's deficiency VAT assessment should be cancelled. Finally, with respect to the issu e of imposition of a compromise pena lty in th e amount of P30,000.00, respo nd en t argues that such imposition was due to p e titioner 's failure to secure authority to use loose leaf invoices for its Pulilan and Villasis branches. 15 Respondent's imposition of com promis e penalty is not proper. This Court will not compe l th e taxpayer to pay the compromise penalty because by its very nature, it implies a mutual agreemen t between th e ( 1s Page 2, Exhibit " 12"

Cargill Philippines . Inc. v. CIR Page 17 o f 18 CTA Case No. 7928 DECISION parties in res pect to the thing or subject matter which is so compromised, and the choice of paying or not paying it distinctly b e longs to the taxpayer.16 Th e imposition of th e co mpromise penalty without th e co nformity of the taxpaye r is ill e gal and unauthorized. 17 Since respon d e nt fai led to show that p e titioner agreed to the imposition of th e co mpromise penalty, th e co mpromise penalty will be d e le ted . WHEREFORE , th e instant Pe titi o n for Review is hereby GRANTED . Accordingly, th e d e fic ie nc y VAT assessment in th e amount of P5,469 ,566.85 is hereby CANCELLED or WITHDRAWN for being erroneous and with out basis. SO ORDERED . ~ N. M~N- - G'~ CIELITO N. MINDARO -GRULLA Associate JUzs ti ce WE CONCUR: ~~z;- C.~ C1... _@ JUANITO c . CASTANEDAYJR. CAESAR A. CASANOVA Associate Justic e As sociate Justice 16 The Philippin es Inte rnatio nal Fair, Inc. vs. The Co llector of Inte rnal Revenue, e t. of ., G.R . Nos . L- 12928 a nd L- 12932, Marc h 3 1, 1962 17 Commissioner o f Internal Revenue vs. Lianga Bay Logging Co., inc., e t o f. , G.R. No. 35266, January 2 1. 1991

Cargill Philippines, Inc. v. CIR Page 18 o f 18 CT A Case No . 7928 DECISION CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, 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. ~8 c~ c~ANiti,~~ Acting Presiding Justice Chairperson , 2 nd Division