COMMISSIONER OF INTERNAL REVENUE v. AVON PRODUCTS MANUFACTURING INC. (Consolidated with EB 663)

Re publi c o f th e Philip p in es COURT OF TAX APPEALS Quezon City EN BANC COMMISSIONER OF INTERNAL CTA EB CASE NO . 661 REVENUE , (CTA Ca se No. 7038) Pe titio n e r, For: Cancel lation of Assessmen t for Deficiency Income Tax -ve rsus- AVON PRODUCTS MANUFACTURING, INC ., Respo nde nt. X------- --- --------- ------- ----- ---------- ------X AVON PRODUCTS CTA EB CASE NO . 663 MANUFACTURING, INC ., (CTA C a se No. 7038) Pe titio n er, Prese nt: ACOSTA , P.J., CASTANEDA, JR. BAUTISTA -ve rsus- UY CASANOVA PALANCA - ENRIQUEZ FABON -VICTORINO MINDARO -GRULLA COMMISSIONER OF INTERNAL COTANGCO -MANALASTAS, JJ . REVENUE .. Pro m ulga ted: ~J,d~ ~~ Resp o nde nt . I/,'~ ~~- hv, NOV 0 2011 X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION MINDARO - GRULLA, J_.: Sub m itted fo r d ecisio n are co nso lid a ted c a ses o f two (2) Pe titi o ns for Revie w be fore th e Court En Bane, se p a rate ly fil e d b y th e Comm issioner o f Inte rn a l Reve nue ("CI R" ) as pe titi o ne r o n Au g ust 16, &.

CIR v . Avon Products Manu fa c turing , tn c. I Pag e 2 o f 45 Avon Produ c ts Manufac turing, tn c . v. CIR C TA EB C ase Nos. 66 1 & 663 (CTA Case No . 7038) D EC ISION 201 0, doc ke ted as CTA EB Case No. 661 1 , and by A von Pro du c ts M a nufa c turi ng, In c. (" A VO N" ) as pe titio ne r o n A ug ust 18, 201 0, doc ke te d as C TA EB C ase No. 6637, und e r Sec tio n 2 (a ) ( 1) , Rule 4 , in re la tion to Sec tio n 4(b), Ru le 8 of the 2005 Revised Rules of the Court of Tax Appea ls, as a m e nded, o f th e D ec i s i o n :~ an d Reso luti o n ~ doted M ay 13, 20 10 and July 12, 201 0, in CTA Case No. 7038 , respec tive ly, re ndered by th e Specia l Firs t Division of this Court. The dispositive p o rti o ns the reo f, res p ec ti ve ly, read as fo ll ows: Decision dated May 13, 2010: "WHEREFORE , th e Petition fo r Review is here by PARTIALLY GRANTED . Accordingly , respond e nt is ORDERED TO CANCEL/ WITHDRAW the Final Demond and Final Assessment Noti ces: (1) Assessment No. LTAID - ET - 99 -00011 fo r de ficiency Exc ise Tax, (2) Assessment No. LTAID - 11 - VAT- 99 -00017 for deficien cy Value Added Tax, (3) Assessment No. LTAID - 11 - WTC - 9900002 for deficien cy Withholding Tax on Compensation - Under Withholding and Later Rem ittance, and (4) Assessment No. LTAID - EWT - 99 -00010 for deficiency Expanded Withhold ing Tax. However, p e titi one r is ORDERED TO PAY res pond e nt the d e fi cie ncy Incom e Tax under Assessment No. LTAID - 11 - IT - 99 - 00018 in the amount of P357,345.88 for taxable year 1999.4 1 File d by Co mm iss io n e r o f tnl e rnol Revenue within !he ex te nded period o f tim e gran led by th e Cou rt En Bone in o Resolution doled July 29, 20 I 0, docketed as C TA EB No. 661. 2 File d by Avon Produc ts Manufac turing , Inc. within !he ex te nd ed p e riod o f tim e gran te d by th e Co ur t En Bone in o Resolu tion do ted August 3, 2010 , docke te d as C TA EB No . 663. 3 Penned by Presiding Justice Ern es lo D. Acosta and co n c urre d in by Associa te Justice Lovell R. Boutislo. Associate Just ice Caesar A. Casa n ova was o n leave . CfA EB No. 66 1, Docket , pp. 35- 73. 4 Penned by hesiding Justice Ern es lo D . Acoslo and co n c urred in by Associate Justices Lo ve ll 1~ . Sout isl o and Caesa r A . Cos onovo , C TA EB No . 661 , Docke t, pp . 74- 81.

CIR v . Avon Products Manufa c turing , Inc. I Page 3 o f 45 Avon Products Manufacturing , In c. v . CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038) DECISION In addition, p e titioner is liable to pay: i) a deficiency interest on the deficiency basic income tax due of P100,7 61 .01 at the rot e of 20% p e r annum from January 31, 2004 until fu lly paid pursuant to Sec tion 249(B) of th e 1997 NIRC and ii) a delinquency interes t on the total amount due (in clus ive of the deficiency inte rest ) at lh e rote of 20% per annum from July 24, 2004 until fully paid pursuant to Section 249( C ) (3) o f the 199 7 NIR C . SO ORDERED ." Resolution dated July 12, 2010: "WHEREFORE , pre mises considered, the respective Motions for Partial Reconsideration of petitioner and respondent ore hereby DENIED for lo ck of merit. SO ORDERED ." In CTA EB Case No. 661, the CIR see ks th e partial nu llification of the aforem e ntioned Decision and Resolution. In CTA EB Case No. 663 , AVO N seeks that judgmen t be re ndered: (1) declaring th e remaining d e fic ien cy In co m e Tax und e r Ass ess ment No. LTA ID-11-IT-99-000 18 in th e amoun t o f P357 ,345.88 for the taxab le year 1999, includ ing incremen ts, as void and/or devoid o f fac tual or leg al basis ; and (2) c an ce lling th e said deficiency tax assessment. Th e antecedent fa c ts as c ull e d from th e Dec ision of th e Court a quo are as fo llows: "Peti ti oner is a corporation duly organized and exis tin g under and by virtue of the lows of the Republic of the Philippines w ith principal office address ol the Co lom bo Premiere Indu strial Pork, Borongay Botino, Colombo Laguna.(

CIR v. Avo n Products Manufac turin g , Inc . I Page 4 o f 45 Avon Pro duc ts M a nufa c turing , Inc. v. CIR CT A EB Case Nos. 661 & 663 (CTA Case No . 7038) DECISION Responden t is th e duly appointed Co mmi ssio ne r of Internal Reve nu e who holds o ffi ce at th e Bureau o f Interna l Revenue, Notional O ffi ce, Dil imon, Quezon City, where he may be served with summons. Petitioner filed its VAT Returns and th e Monthl y Remittance Returns of Income Tax Withheld for th e ta xabl e year 1999 on the following dotes: Return Date Filed 3 rd Qu arte r VAT Re turn Oc tober 25 , 1999 4'h Quar te r VAT Return January 25 , 2000 Monthly Expanded Compensation Remittance Return February 25, 1999 - of Income Taxes Withheld February 25, 1999 January Fe bruary Morc h 25 , 1999 Marc h 25, 1999 Morc h April 26, 1999 April 26, 1999 April May 25 , 1999 M ay 25 , 1999 May June 25, 1999 Jun e 25, 1999 June July 26 , 1999 July 26 , 1999 .July Augus t 25, 1999 August 25, 1999 Augus t Se pt e mber 27 , 1999 Sep te mbe r 27 , 1999 Sep te mbe r Oc tober 25, 1999 Oc to b e r 25, 1999 Nove mbe r 25, 1999 - - - --- - Nove mbe r 25, 1999 Oc to b e r Nov e mber Decembe r 27, 1999 De c e mbe r 27, 1999 Dece mbe r January 2 ~ , 2000 Januory 25, 2000 Petiti o ner signed two Waivers of th e Defe nse of Presc ripti on under the Statute of Limitations of the Notional Internal Revenue Code. O n July 14, 2004, revenue agents from responde nt' s Lorge Taxpayers Co ll ec ti o n & Enforcement Division serve d on petition e r o Collection le tt e r doted July 9, 2004. Th e Co llection Letter required p etitioner to pay on aggregate amount of Eig hty Milli o n Two Hundred Forty Six Thousand Fou r Hundred Fifty Nin e Pesos and Fiftee n Ce ntavos (P80,246 ,459 . 15) rep rese nting deficiency in come ta x, excise tax, value added ta x, w ithh o lding tax on co mpensation and expa nd e d withholding ta x, in clusive(

CIR v. Avo n Produc ts Manu fac turing , Inc . I Page 5 o f 45 Avo n Pro du c ts Manufac turin g, Inc . v. CI R CTA EB Case Nos . 66 1 & 663 (CTA Case No. 7038) DECISION o f inte rest and co mpromise pena lties for the ta xab le year 1999. The amou nt o f P80,246,459.15 deman d ed in the Co ll ec tion Le tte r is bro ke n d o wn as fo ll ows: KIND OF YEAR BASIC TAX INTEREST COMPROMISE TOTAL TAX AMOUNT 1999 I' //,O I /,9B ~ 19 I' l:l,/0/,/90.!J I 1'/!J.OOO.OO l':l!J,/~S./7 ~ ./0 II 1999 91 :l,!l I ~ .B/ 6!JB,6/ !J.!J/ /:l,/00 00 I .6 ~ !J.39CH~ 1999 !JO,OOO.OO :n!J90.I I 1.?9 II 1999 /O./B6,0:l:l.B/ I :l,/!J~.6/ /. ~/ 1999 ~ ./0/, II{>.JB - ~ !J,OOO.OO -- VA I OBI ,345.66 - - - -1. 1-8/,6 10.1lB :l.-0 ~ 0-,//9.-2B- /5,000.00 1,9/7,237.06 we /6~.6/6.IB - P80,246,459 .15 P49 ,102,260.14 - WI P218 ,200 .00 P30 ,925,999 .01 - IO IAI The de fi c ie ncy tax assessmen ts covered b y the Co ll ec ti o n le tt e r ore the very some defic ie ncy taxes covered by the Prelim inary Assessmen t Notice d o ted Nove mb er 29, 2002, w hic h was receive d b y pe titi o ne r on Dece m be r 23, 2002 . In re pl ying to lhe Pre liminary Assess m en t Notice, petitioner reques ted for on ex tension of li me wh ich was g ranted by responde n t. Pe titi o ne r was p ro m p ted to request for exte nsio n o f tim e to rep ly to the Pre li m inary Assessme nt No tice beca use o f th e C hri stm as ho lid ays an d the vo lu m e o f work requ ired to p re p are the reply. On February 14 , 2003, petitioner filed a lette r do ted February 13, 2003 protest ing against the Prelim in ary Assessmen t No ti ce. Wi th ou t rulin g o n th e pro test o f p e titi o ne r to th e Pre li m inary Assessmen t, responden t p repared the Fina l Assessment Notices and Forma l Le tt e r of Demon d , a ll do ted February 28, 2003, copy of wh ich were received by pe titioner on April 11, 2003. Except fo r the am ou nt of interest, the Form a l le tte r of De mond is th e som e as the Pre limin ary Assess m en t No ti ce. The Formal Letter of Demond breaks down the a ll eged deficie ncy taxes as fo ll ows: Assessment No. LTAID - ti - IT99 - 00018 Income Tax p /08,181,930 00 I AXABII INCOMI (I OSS) 1'1 ~ INC: OMI I AX ~I IU~N ADD AI).JLJSIMI NIS 1'6/.911.619.!JB I. I) I SC~ II 'A N C:Y II~ & VAl ~I IU~N SA il S IICU~I S '2. IAXI S & LIC:I NSI S (I ~INCI Ill Nil II lAX) :wy,, lAX 01 M~ . Kl N Cl llSON

CIR v. Avo n Produc ts Manu fac turing , In c . I Page 6 o f 45 Avon Produ c ts M anu fa c turing, Inc. v. CIR CTA EB C as e Nos . 661 & 663 (C TA C as e No . 7038 ) D E CISION 1)1C: l Mil l R 199!3 II\ I I'AYM I N l ADJUS IM I N l 9/1./1 6~J,663, I )0.67 3. DISC: I-ll I, AN C: Y O N I N DIN C INVLN I01-1 11 S I-I LI II C: Il-l) / 13 ,B -1 ~J .0 60.6/ 6!3,/00,031 .00 IN I\ AI AN C: I- Si ll" I I VS. COS I 0 1 SA il S 3 -1-1 ,DL.l.L 90,36!3,!310.02 I AXA I\ 11 INC:OM I 1'1R INVI SIICA l iON INC:OMI lAX RAi l 6!3 3.).) BB5.B3 INC:OM r I A X DU I I' I R INVI SI ICA liON I I SS IN C:OMI I AX I' i\11 ) I'LI-I I-l l IUR N r /2.012.9!3-1 .19 UNSUPI 'OR Il-l) C: RI-1)11AI\ I I I AX Wll l llll I D 1 3,/0I,/90.~J I 1\AS IC: DI-IICI I NC:Y INC:O MI I AX I)U I . 2_,'),000 .00 Al)l) 1' 1NA I Ill S /0% 1NII RI SII RO M DU I I)A II IOA I'i-111 I ~J,/OCJ:l CO MI ' I~O M IS I I0 I AI D l II C: II NC:Y INC:OMI I A X DU I Assessment No. LTAID - ET - 99 -00011 - - .1,~J36,99_6.J)..J Ex c ise Tax 39/,9BI. -1 ~l'l2B SAi l S SUB JI C: II I) 10 I XCIS I I A X J>J R 1\00 K ADD: SA lI S i-l l I UR N /O'!i? SAilS SUI.\.J lC: I 10 I XCISF l AX 1' 11-1 INVI SIICA II O N 1!3,.)9 I ,-1 9 1.!36 IXCISI IAXRAII I XC:ISI l AX DUI 1' 1R INVI SIICAIION I ,621.192.!36 I L.,300,000.00 1\1C. 1\AI ANC: I 1!3,9/1,19/.!39 Dl i' OS II S AVA il A l\ 11 1_,/ -1 3,!3 I ~J.9_() 11-SS I NDINC 1\AI A NC:I 11,6!33,916.99 API'III IJ I XCISI I AX I\ ASI C I) I IICII N C: Y I XCIS I I AX I)UI 913.~) 1-1.!31 ADD: 1' 1N AI Il l S /0'){, INII I< I Sl I RO M D UI DA ile 10 A l'i-1 11 I ~l. /003' /:\,/00 00 131 ,!31.) ..)1 COMI 'ROM ISI 1,6-1 .),390. -1-1 IOIAI DIIIC: II NC:Y INC:OMI l AX DUI Assessment No . LTAtD - It - VAT - 99 - 00017 Value Ad ded Tax 3�o OUAR I I 1-1 -1 1H QUAI-l II 1-1 IO IAI -196,/99 .6/ I.BO I B3,0~J I .YJ9 .00 6/9,!3.) I,/36.!\0 I AXAI\1 1 SAil S 1' 1R i-l l I URN !J/ ,61-1 , 111.!33 !J/ ,6 1-1 , 111.!\3 AI) I) UNSU I'I'OR II I) I XI'OR I SAilS I0 I AI I AXA I\ 1~ SA il S -196 ,199,6/ 1.!30 /-10,66.),6/6.!33 137, -1 6.),3~) -1 .63 OUII'UI l AX -1 9,6/9,96/./B - /- -1 ,066,.)61.68- - 73 , / --1 6,.)3~J. -1 6 ( ---

CIR v. Avo n Produc ts M a nufac turing, Inc. I Page 7 o f 45 Avon Produc ts Monu fac turin g, Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CT A Case No. 7038) DECISION II SS All OWAilll INI'LJI lAX ?8.983.8?6.88 (I 0,6/8.6/0.98) 11 0,(.'.!_8,6/0.2ill_ INI'LJ I I AX 1'1 ~ ~I ILJ~N 31\,~J86,639.09 IB,30S, 155.90 52,891,791\.99 INI'LJ I I AX CA ~~II I) OVI ~ (999,B9?.80) ( I , 101\.3? 176) (I 01\,1\?8 96) C~LDII ABLL INPUI 1AX PER VA I Rf ILJ~N I ROM NON VA l SLJI'I'III ~ (1\ ,/MUII /I) INI'LJ I I AX ON I OCAI I'LJ~ C IIASI S All OC:Ailll 10 01111 ~ OLJA~II ~ (??1\ ,681\.00) (~J/0,61\? .00) ( /9 ~J,3?6.00) INI'LJI lAX ON IMI'O~IAII O N All OC:Ailll 10 0111 1~QUA~ II~ (I 8, I ~,6.00) (30./:ll\:39) OVI ~ C: l AIMH) INPLJl lAX 1'1 ~VAl SCIIII)LJII (IB/, IBUll) (113/ , IBI.BI) OVI ~ C: l AIMII) INI'LJ I I ~OM I KS DISAII OW II) INI'LJ I I AX O N l'lW CI IASI S 01 AlJ I OMOiliiiS AIIOWABII INI'LJIIAXI'I~INVISII CAI I ON l'l,0/3,/91 1\0 /,/l(l,l\96.~)/ 38,36/ , 1/?.9~J VAl I'AYAilll I ~J,093,:l?!l.69 3~J.3/9 , 36?.~J I II SS VAl I"AYMI Nl 1'1 ~~I ILJ~N 16,3Y, ,O/ 1.11 I ~J.093,3?8 . 69 llASIC DH-ICII NCY VA I DLJI 3,9?9,96?./ I 16.3~J6,0/ I. I I ?0,286,033 82 Al)l) 1'1 NAI Ill S / ~)' 000.00 I 0Sl0.6? I . 13 l:l , ?~J-1 , 6//.-1/ ?0% IN II ~I Sl I ~OM I)LJI I)AII 10 Al'~ll 6,6/9,0 19.0~J ?~) '000. 00 I ~' � ?Oo:l SO,OOO.OO ?6,91 I ,69?.?1\ COMI'~O MISI IOIAI DLFICII NCY VAl lAX DLJI Assessment No. LTAID - 11 - WTC - 99 -00002 Withholding Tax on Compensation - Under withholding I AX A Ill f BASIS 1'1 ~ ~I I URN/ AII"I IA liS I p 158,891\,693 .86 Al)l): AI).JLJSIMI NIS COMI'I NSAIION NOI SLJI.l.JI Cl 10 WIIIIIIOII)INC lAX l-1 ,l11183CJ I IAXAilll llASIS 1'1 R ALJI) II ll:l, I-13Sl1.3/ lAX I)LJI :13.628.31\ I .2-1 II SS: I'AYM I Nl 1'1 R ~I I URN lli2.�"',230.86 llASIC Dl IICII NCY WII I IIIOIDINC I AX ON COM I' I-NSA liON Al)l): IJI NAI Ill S 1\,10? , I 16.38 /YX, SLJI~CIIARCII) I' 3,0?/.39000� ?0% IN II Rl Sl I ROM I)LJI I) AII 10 AI'RII I~J , ?OO:l'

CIR v. Avon Products Manufac turing , Inc . I Page 8 o f 45 Avon Products Manufac turing , Inc . v. CIR /~J.OOO.OO 3, 0~/,390.0Q CTA EB Case Nos . 66 1 & 663 (CTA Case No. 7038) DECISION P u~ ~ .~D6.JB COMI'I<OMISI I0 1111 Dl IICII NCY WIIIIHOI DINC Ill X ON C:OM I' I_NSIIIION Assessment No . LTAID - 11 -WTC - 99 -00002 Withholding Tax on Compensation - Late Remittance IIIXWIIIIIIIIDI'II<IlOOKIOI< 1111 MONIIIOIDIC:IMI\11< 1999 I' 3 . ~J ~ / . I ~lB.~ I II SS: Rl MIIIIINCI O N .JIINLJIII<Y /~J. /000 /\MOUN I 01 I IIII 1<1 MlriANC:I - 2.960,!\60.21 1<1 Mill I I) ON II lli<LJIII<Y /!\ , /000 sa 1,?913.2~ 1<1 Mil liD ON 111'1<11 /~J . /000 1'1 Nlll Ill SON IIIII 1<1 MII IIINCI ~J06 , I ~JI I ~J /0')(, IN I II-II Sl II< OM I)LJ I Dil l I 10 Dill I 0 1 1< 1MIIIIINCI C O M I ' I < O M I SI I ~.~J~ 1.09 ~81 ,/98./~ I01111 DI-IICII NC:Y WIIIIIIOIDINC Ill X ON COM PI NSIIIION I /,!\39 /B 20,000.00 l' 32.839.28 Assessment No . LTAID - 11 - EWT- 99 -00010 p I ,008,066,/0 I 30 Withholding Tax - Expanded I 1:3,131 CJI9 13 I , I/ I . 9~3.1BCH3 IIIXIII\11 1\IISIS F'l I< Rl I LJI<N ADD: IID .ILJSIMI NIS 13./1 ll.~JO~J. I~ INCOMI I'IIYMI NIS/1 Xl'l NSI S NOI SLJI\.JI C l 10 I WI 1/ , ~J30,1l9~.?1 IIIXII I\11 1\IISIS I'll< INVI SIICIIIION I XI'II NI ) I I) WIIIIIIOIDINC lAX DLJ I I , IBI .610.Bil I I SS: I'IIYMI NIS I'll< RLILJI<N 1\IISIC: DI II CII NCY I XI'IINDID WIIIII-IOIDINC lAX 16~ . 6/6.1!\ IIDI) 1' 1Nlll Ill S /~,000 00 /0% INIII<I Sl II<OM DLJI Dill I 10 111'1<11 I~J . /Oo:l COM I'I<OMIS I l' UL1.23/ .Q6 I 01111 1) 1IICII NCY I XI' liND I f) WIIIIIIOIDINC Ill X The alleged undeclared income of P62,911,619.58 arose from th e discrepancy b etwee n th e soles per Monthly and Quarterly VAT Returns and th e re porte d so les per Fi nancial Sta tement and Income Tax Return . Petitioner paid th e amount of disallowed taxes and licenses of P152,632 . 10 and December 1998 FBT payment adjustment of P927.27 or a total of P153,559.37. In the adjustmen t lo income captioned "Discrepancy on ending inventories reflected in balance sheet vs. cost of soles- P2,597,951.72", respondent is impu ting additiona l income on the'

CIR v. Avon Products Manufa cturing, In c. I Page 9 of 45 Avon Products Manufacturing, In c. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038) DE C ISION alleged difference in th e amount of end ing inventories per balance sheet of P215,793,000 which is higher than th e amount of end in g inventories per Sc hedule of Cost of Goods Manufactured and Sold of P213, 195,572.28. With regard to the "Unsupported Creditable Tax Withheld - P344, 151. 17", respo nd ent alleges that: (a) petitioner over- claimed withholding tax credits by P203,645.89 because the total amount indicated in the certifi ca te of cred itabl e tax is P12,705,654.11 whi le the amount claimed in the Income Tax Re turn is P12,909,300.00 and (b) petitioner's cus tomer over- issued the certifi ca te of c reditable with holding tax by P140,505.28 representin g the withholding tax on soles mode in 1998 but paid in 1999 . With regard to the assessment for deficiency VAT captioned "Unsupported export soles P57,6 14, 119.83 ", respondent alleges tha t exempt and zero-rated soles reported in th e VAT returns and export soles book amounted to P57,6 14, 119.83, however, documents/papers needed to substantiate the export soles were not provided o r furnished to the Revenue O ffi cers. The input VAT in the amount of Pl,l04,321.76 was disa ll owed because it allegedly come from non-VAT taxpayers . With regard to the input VAT disallowance captioned "Input tax on local purchases from other quarters P8,351 ,005.46", respondent disallowed the input tax cred its claimed by petitioner for the 3'd and 41" quarters of 1999 for the sole reason that the supporting supplier's VAT invoice ore doted prior to the particular quarter (Schedule 6 o f Details o f Discrepancy). Respondent argues that under Section 11 O(A) (2) (a) of the Tax Code, input tax on domes tic purchase is creditable to the purchaser upon consummation of the so le of goods o r purchase. Hence, input taxes w ith supporting invoices bearing dotes of the prior quarters shou ld be disallowed. With regard to the input VAT disallowance captioned "Input tax on importation from other quarters - P795,326.00", respondent maintained that the input tax on importation is credi tabl e to the imp orter upon payment o f the VAT prior to the release of the goods from Customs and disallowed the input taxes paid by petitioner in previous quarters. (

CIR v. Avon Produ c ls Manufa c luring , Inc. I Pag e 10 o f 45 Avon Producls Manufac luring , Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No . 7038) DECISION With regard to the input VAT disallowance c aptioned "Ove rcloimed input tax - P30,734.39", res pondent compared the input taxes on importation of goods re fl ec ted in the VAT return for the 4 1 ~' quarte r of 1999 and th e input tax p e r Schedule attached to the Quarterly VAT Return and noted that the amount p e r Schedule is more than the amount per VAT Return. The alleg e d over-c laim e d input tax from LKS of P4,056,052.62 represent s lh e difference between lhe input tax c laimed by petitioner base d on the invo ices issued by LKS Construction and Development Corp. in December 1999 of P5,853, 011.07 and the input tax of P1 ,796,958. 45 dete rmined by respondent from the payments mod e b y the supplier in 1999 of P19,586,8 47. 15 (n et of 1% withholding tax). Respondent disallowed the excess input tax of P10,678,670.98 in the Quarterly VAT Return for the 4n' Quarter of 1999 which was carried over by petitioner to the first quarter of 2000. As detailed in Schedu le "F" of th e De tail s o f Discrepancy, the assessment for defi c ie ncy expanded withholding tax arose from the difference between the balances of the following general ledger accounts and certain in co me paym e nt per Alpholist: j,low Molcrioll'urchoscs lnqrccJienls I' 7B3.6B ~ .OI~J00 Supplies on<J I ocililics C:on loincr ~ lil.B~B. 7 I I .00 l'oc kcrs Ou lsicJe Services l,lol es & MoulcJs 9./~)/,63300 j,lc;poirs on<J Moinlcnoncc ~l. IB/.17?.00 Unilorrn Mql. 171, I~ / 39 Unilorrn j,l oncJ I IB~./ I 1.1 I ledmicol Su pplie s l'rocJuc lion Supplies 7./ ~0 .316.!J~l Non Cop I quiprncnl Ollicc Supplies ~ . ~ OIH~/.1 I !looks oncJ Sut)S(:riplion 9o:u 16.39 9B ~ ,_'l/6.BO 19.~6B.B~ Sccurily 3.6 ~~J .B7 1 . ~/ I ocili ly I xpcnsc Clconinq Ou lsi<Je i\qcncy I otlOr B I ~ .:l:J/.09 7,910,//6.00 j,lcpoirs on<J rnoinl cnoncc lvlolcriols

CIR v. Avon Produ c ts Manufacturing . Inc . I Page I I of 45 Avon Produ c ts Manufacturing , Inc . v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038) DECISION l(epoirs ond rnoinlenonce Cosolinc 169.100./0 1-icpoirs oncj rnoin lenonce Con Iroc I Non cop Sollwore l'urcr1osc 30:3.~)0 .-l .B/ Olher lronspo Miscelloneous Opcro lin(J I xpenses /, 1//, 198./6 Unilorrn M(ll. Unilorrn 1-1 oncj I 30.160./) l'roduc:lion Supplies 5B-1 ,39).B-1 Non-Cop I quiprnenl 1.3/ I ,-1/9 .1/ Ollic:e Supplies /.-lO,B/1.9/ Books ond Sutlscriplion 1-iepoirs cmd rnoinlenonce Cosoline -13.03/.3/ 1-icpoirs ond rnoinlencmce Con lroc: l Repoirs ond rnoinlenonc:e Moleriols 9/./36.90 1-/epoirs ond rnoinlencmce Vehicles I /,B2/.06 Dolo l'roc Moinl I ./~)B./Y).B/ Dolo l'roc: Supplies Non Cop Swore BOO,/~)B.I-1 C:ornp Swore Moinl Acquisilion o f l'roperly, l' lonl cmcj l.quiprnenl B9 -1 .93B.B6 Ac:quisilion ol Cornpuler Sollwore 31 I, 9//.~)6 -1 8~).39 1.3~)/.00 I )0, 190.00 In a letter doted May 9, 2003 which petitioner filed with respondent on the some day, petitioner protested the Final Assessments. In as mu ch as the Preliminary Assessment was th e some as the Final Assessment, petitioner re-submitted its protest to the Preliminary Assessment and adopted the some as its protest to the Final Assessment. Petitioner paid the following portions of the Final Assessment on January 30, 2004: a. Disallowed taxes & licenses/Fringe Benefit Tax adjustment - Pl53,559.37; and b . Withholding Tax on Co mpe nsation Late Remi ttan ce P32,829 .28. Respondent's Revenue Officers prepared a Memorandum doted May 27, 2004 recommending the enforcement and collection o f the defi c iency tax assessments on the sole justifi c ation that p e titioner foiled to subm it supporting documents within the 60-doy p e riod to submi t all relevant supporting documents from the filing of th e protest as required under Section 228 of the Tax Code .(

CIR v. Avon Products Manufacturing , Inc. I Page 12 of 45 Avon Products Manufacturing , Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038) DECISION Based on the Memorandum doted May 27, 2004, the docket of the assessment was forwarded by the LT Audit & Investigation Division II to the LT-Collection & Enforcement Division, under a 1st Indorsement doled May 27, 2004. The LT Collection & Enforcement Division served the Co ll ection Letter doted Ju ly 9, 2004 on petitioner on July 14, 2004. In a lett er to the Deputy Comm ission e r for Lorge Taxpayers Service doted July 27, 2004 which was filed with respondent on the some dote, petitioner requested for reconsideration and withdrawal of the Collection Letter on the ground that it is devoid of any legal on[d]/or factual basis and is premature since the respondent has not issued a decision on petitioner's protest lette r to the Fina l Assessment. Respondent did not oct on petitioner's request for reconsideration and withdrawal of the Collection Letter. Thus, petitioner was constrained to treat the Collection Le tter as the respondent's denial of th e protest. hence, the Petition for Review lo protec1 the interest of petitioner. Peti tioner filed the Petition for Review on August 13, 2004. Thereafter, on August 24, 2004, it filed on Urgent Motion for the Suspension of Collection of Tax. On Oc tob er 15, 2004, respondent filed his Answer, after subm ission of two extensions of time lo submit Answer which were all granted by the Court in the Orders doted September 16, 2004 and October 4, 2009. The BIR Records were also forwarded o n October 26, 2004. In his Answer, respond e nt rais ed th e following special and affirmative defenses: "8. Section 222 of the Tax Code authorizes the taxpayer and the government to extend by mutual agreement the prescriptive periods for lhe assessment and collection of taxes. The assessments, all doted February 28, 2003 and received by Petitioner on April 11, 2003, ore not barred by prescription as Petitioner's executed valid waivers of the defense of prescription doted October 14, 2002 and December 27, 2002� '

CIR v. Avon Products Manufacturing, Inc. I Page 13 o f 45 Avon Products Manufacturing, Inc. v. CIR CT A EB Case Nos. 661 & 663 (CTA Case No. 7038) DECISION waiving the defense of prescription until January 14, 2003 and April 14, 2003, respectively; 9. Th e mere fact that petitioner was not a lleg ed ly furnished with copies of th e accepted waivers did not invalidate the some, because such requirement in Revenue Memorandum Order No. 20-90 is merely formal in nature (Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, CA-GR Sp. No. 72128, August 5, 2003); 10. Th e assessments hod already become final, executory and unappealable in view of the failure of the Petiti oner to submit the pertinenl documents in support of its protest within sixty (60) days from filing th ereof as provided in Section 228 of th e Tax Code; XXX XXX XXX 16. The assessment for deficiency excise tax in th e amoun t of P1,534,821 .84 arose from the fact that Petiti oner foiled to pay excise tax on its so les returns which it admits to be subjec t to excise tax (Paragraph 49, Peti tioner) ; XXX XXX XXX 23. The input tax in th e amount of P187,181 .18 was disallowed, as input tax on purchases of automobiles is not allowed as credi tabl e inpu t tax under Section 11 O(A) (1) (a) (v) of the NIRC of 1997; 24. The assessment for deficiency withhold in g tax 1n the amount of P7,548,386.21 is th e difference between the withholding tax per audit against the amount of such tax withheld and remitted by the ta xpayer; XXX XXX XXX 26. The assessment for deficiency expanded withholding ta x in the amount of P1 ,925, 177.41 arose from income payments/expenses not subjected to w ithh olding taxes as detailed in Schedule F a tta ched to the Final Assessment Notices, in violation of Section 2.57.2 of Revenue Regula ti on No. 2-98; '

CIR v . Avo n Pro du c ts Manufac turi ng , In c. I Page 14 o f 45 Avon Produ c ts M a nu fac turin g, Inc. v. CIR CT A EB Case Nos. 66 1 & 663 (C TA Case No . 7038 ) DE C ISION 27. All p resumptions ore in favo r of the correc tn ess o f tax assess m en ts. The goo d faith o f ta x assessors and th e va lidity o f th e ir a c ti ons ore presu m e d. They w ill b e pres um e d to ho ve toke n into co nsid e ra ti o n all th e fa cts to w hic h th eir a tt en ti on was ca ll ed (C IR vs. Cons truc tio n Resources of Asia, Inc., 145 SCRA 671). It is incumbe nt u p on the taxpayer to p rove the co ntrary (M in danao Bus Company vs. CIR, 1 SCRA 538; C IR vs. Tuazon, In c., 173 SCRA 397) and fail ure to d o so shall ves t leg ality to res p on d e nt 's a c ti o ns an d o ssess m e nts." 5 O n Ma y 13, 2010 , th e Co url a quo re ndere d a Decisio n6 partially gra nting th e Pe titi o n for Re vi ew in so far a s it o rd e re d th e c an ce llatio n o f th e Final De mond and Final Assess m e nt No ti ces for d e fi c ie nc y Exc ise Tax, d e fi c ie ncy Valu e-Add e d Ta x, d e fi c ie ncy Withh o lding Ta x o n Co mpe nsati o n - Und e r Withh o ldin g and Late r Re mittan ce and d e fi c ie nc y Expand e d Withh o lding Ta x for th e ta xabl e ye ar 1999 . It how ever o rd e re d p e titi o ne r to pa y d e fi c ie nc y In co m e Tax in th e am o unt o f P357, 345.88 fo r th e ta xabl e ye ar 1999 includin g 20% de fi c ie ncy inte res t o n d e fi c ie ncy ba sic in co m e ta x du e and an o th e r 20% de fi c ie ncy inte res t o n th e to ta l a moun t du e p ursua nt to Sec tio ns 249 (8) and 249( C ) (3) of th e 1997 NIR C, res p ec tiv e ly . Sig nifica ntl y, th e Co urt a quo m o d e th e fo ll o win g pro no un ce m e nts: a . Th e re wa s no d e privati o n o f du e process in th e iss uan ce by th e CI R o f th e a ssess m e nt fo r de fi c ie ncy in co m e tax, d e fi c ie ncy ( 5 CTA EB No. 661 , Doc ke t, pp. 36-47. 6 Supra note 3.

CIR v. Avo n Products Manufa c turing, Inc . I Page 15 of 45 Avon Produc ts M a nufac turin g, Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CT A Case No . 7038) D EC ISION e xcise tax, deficien c y VAT, defic iency final withholding ta x o n co mpe nsation and d e fi c ie nc y expanded withholding tax against A VO N for th e Iotte r was afforded on opportunity to explain and prese nt its e viden ce; b. Th e Waiv e rs of th e Statute o f Limitati o ns exec uted by A VON ore invalid and in e ffec tiv e as !h e CIR foil ed to provid e th e form er a co py of th e acce pted Waiv e rs, a s re quire d und e r Re ve nue M e m ora ndum O rder No . 20-90. Hence, th e assessment o n AVON's deficiency VAT, deficiency expa nd ed wi thh o lding ta x and d efic ie ncy withholding tax o n co mpens ation is co nsid e re d !o hove presc rib e d ; c . AVON's failure to subm it th e re leva nt doc um e nts in support o f its protest did not make th e assessment final and exec utory; d. As to assessment on AVO N' s deficiency In come Tax, (1) there wa s no und ec lare d so les/in come in th e amount o f P62 ,9 11 ,619.58 p er ITR fo r th e taxabl e year 1999; (2) AVON's liabili ty for disallowed taxes and lice nses and Dece mber 1998 Fring e Be ne fit Tax payment adjustm e nt in th e amount o f P152,632.1 0 and P9 27 .27, respec tiv e ly , o r a total o f P153,559 .37 is ex tin gu ished in view o f the payment mode; (3) th e discrep an c y b e twee n Ending Inven tori es reflec ted Balan ce Sheet and Cos ! of Soles represe nts(

CIR v. Avo n Produ c ts M a nu fa c turing , In c . I Pa ge 16 o f 45 Av o n Pro duc ts M anu fa c turi ng . Inc . v . CIR CT A EB C ase Nos . 66 1 & 663 (C TA C as e No . 7038 ) D E CISION varian ce /adju stm e nts o n standard cos t to a c tual cos t all oc at e d to e ndin g inve nto ri es and no t und e r-d e clarati o n a s all e g e d by CIR ; (4) AVON 's c laim e d tax c re dits 1n th e am o unt o f P203 ,645 .89 wa s disall o w e d a s th e som e was un suppo rte d by withholding tax certifi c ates as re quire d und e r Sec tio n 2.58.3 (B) o f Re ve n ue Reg ulations No . 2-98. Ho w e ve r, th e amount o f P140,505. 28 was uph e ld a s a prop e r d e du c ti o n fro m its 1999 in co m e tax du e; and e. As to a ssess m e nt o n AV O N 's d e fi c ie nc y e xc ise ta x, th e so m e is d ee m e d c an ce ll e d and withdra wn in vi e w o f its Appli c ati o n fo r A bate m e nt over its d e fi c ie nc y exc ise ta x a ssess m e nt fo r th e ye ar 1999 and its c orres p o ndin g paym e nt th e re to . Th e M o ti o ns for Partial Reco nsid e ratio n fil e d by th e parti es o n Jun e 2, 2010 1 a nd Jun e 3, 2010 B, re spec tiv e ly, w e re subse qu e ntly d e nie d for lo c k o f merit in a Re so lution9 dote d July 12, 2010 . Bo th parti es th e re afte r fil e d th e ir res p e dive Pe titi o ns for Re vi e w b e fore th e Court En Ban e . Th e CIR a ssign s th e fo ll o wing is sues , to wit : IO( 7 File d by Avon Pro du c ts M a nu fa c turin g, Inc .. C I A C as e No . 7038, Doc ke t, pp. 69 2-709. 8 File d by Co mm issio ne r o f In te rna l Re ve nue. C rA C as e No . 7038 . Doc ke t. pp. 711 -72 6. 9 Supra no te 4. 1o C TA EB No. 66 1. Doc ke t, pp . 20-2 1.

CIR v. Avon Producls Manufacluring, Inc. I Page 17 of 45 Avon Products Manufac turing, Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038) D E CISION 1. Whether or not respondent is liable for deficiency income tax, exc ise tax, va lue-added tax, with holding tax on compensatio n and expa nded withholding tax assessme nts for taxable year 1999; 2. Whether or not assessments for value-added tax and withholding taxes for taxable year 1999 hove prescribed; 3. Whether or no t the assessmen ts for defic iency income tax, excise tax, va lue-added tax, withholding tax on compensa tion and expanded withholding tax assessmen ts for taxable year 1999 against responden t has become final, executory and demandable. AVO N, in tu rn , ra ises th e sole iss ue o f whe th e r o r no t th e Court a quo e rred in app lyin g th e "presu m p ti o n o f regu la rity" in favor o f the CIR and rul ing that its ri gh t to du e p rocess was no t vio la ted by th e ac tua ti o ns o f CIR's o ffi ce rs and agen ts. 11 In CTA EB Case No. 661, the pe titi on is devoid o f merit. As to the issues o n the peri od of assessme nt and filin g of the pe tition for review, su ffice it to say th a t th e Wa ive rs of th e Sta tute o f Lim ita ti ons execu ted by th e par ti es are defec tive, th e reby re nderi ng th e assess m en t o n AVO N's de fi c ie ncy VAT, expa nd ed wi thh o ldin g tax and wi th hold ing tax o n co m pensa ti on to have presc ri bed. The CIR assevera tes tha i lh e assessmen ts for value added tax and w ithh o ld in g taxes fo r th e taxab le yea r 1999 have no t ye t prescribed because th e wa ive rs on the defense o f p rescrip ti on execu ted by bot h pa rties we re va lid a nd lhe requ ireme nt to furn ish� 11 CT A EB No. 663 , Docket, pp . 17-33.

CIR v. Avon Produc ls Manufacturing , Inc. I Page 18 o f 45 Avon Products Manufacturing , In c. v. CIR CT A EB Case Nos. 66 1 & 663 (CT A Case No. 7038) DECISION AVON with co pies of a cce pte d waive rs und e r Revenue M e morandum O rde r (RMO) No. 20-90 is m e re ly formal in nature .1? However, AVON claims that th e assessmen ts for va lue-added tax and withholding taxes for th e taxabl e year 1999 have already prescribed in view o f th e CIR's failure to provide AVON with copies of th e accepted Waiv ers o f th e Statute of Limitatio ns as prescribed under RM O No. 20-90. 1:3 Sec tions 203 and 222 of th e NIRC of 1997 provides for a statut e o f limitations on th e assessment and co ll ec ti on of interna l revenue taxes in order to safeg uard th e inte res t o f th e taxpayer against unreasonable in ves ti ga ti on. 1 ~ Unreasonabl e investigation co ntemplates cases w here th e period for assessment extends ind e finit e ly because thi s d epriv es th e taxpayer o f th e assurance that it will no longer be subjec ted to furth e r inves ti ga ti on for ta xes after th e expirati on of a reasonable period of tim e . 1 ~) As a rul e, the government is mandated under Sec tion 203 o f the NIR C of 1997 to assess int erna l revenue taxes with in three years from the la st day prescribed by law for th e filing o f th e tax return or the actual date o f filing of such re turn , whichever comes later. Thus , an (' 12 CTA EB No. 661, Doc kel, pp. 27 -28 . 13 1d. al190- 194. 14 Philippine Journalists, Inc. v. Commission e r of Internal Revenue. G.R. No. 162852, December 16, 200 4 c iting J.C. Vilug and E.D. Acosla , TAX LAW AND JURISPRUDENCE 295 (2nd ed. 2002) , ciling Repor l of !he Tax Commission , Vol. I, p . 98. 15 1d.

Cll~ v . Avon Products Manufa c turing, Inc. I Page 19 of 45 Avon Produc ts Manufac turing , Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CT A Case No . 7038) D EC ISION assessment noti ce issu e d after the three-ye ar prescriptiv e period 1s no longer valid and ef fec tiv e. Howeve r, Section 222 of the NIRC of 1997 p rovides for exceptions to th e above -c ite d rul e. Paragraph B th ereo f c le arly stat es that th e period of limitation o f assessmen t and co ll ec tion of taxes may be exten d e d through execution of a written agreeme nt b e tween th e CIR and taxpaye r b e fore expirati o n of the thre e-year p eriod, thu s: Sec . 222 . Exceptions as to Period of limitation of Assessment and Collection of Taxes.- XXX (b) If before the expira ti on of th e tim e prescribed in Sec tion 203 for th e assessment of th e tax, both th e Co mmissione r and th e ta xpayer hove agreed in writing to its assessm e nt after suc h ti me, th e tax may be assessed within th e peri od ag ree d upon. The period so agreed upon may be extended by subsequent w ritt en agreement mode before the expiration o f the period previously agreed upon. XXX In impl e m e nting th e aforesa id waiv e r o f the stat u te o f li m itations, RMO 20-90 and Revenue Delegation o f Authority Order (RDAO) No. 05- 0 I were issu ed on April 4, 1990 and August 2, 2001, respective ly, in order to d e lin ea te th e pro ce dure for the proper execu tion o f the sa id waiver, viz: 16 "l. The wa iver must b e in th e prope r fo rm prescribed by RMO 20-90 . The phrase "but not after 19 ", which indicates the expiry do te of the peri od agreed upon to assess/collec t th e < 16 Co rnrn issioner of Infe rno/ Revenue v. Kudo s M e tal Corporation , G.R . No. 178087, May 5, 20 10.

CIR v. Avon Produc ts Manufacturing, Inc . I Page 20 o f 45 Avon Produc ts Manufac turing , Inc. v. CIR CT A EB Case Nos. 661 & 663 (CT A Case No. 7038) DECISION tax after the regular three-year period of prescription, shou ld be filled up. 2. The wa iver m ust be signed by the taxpayer himself or his duly authorized represen ta tive. In the case of a corporation, the wa iver must be signed by any of its responsible officials. In case the authori ty is delegated by the taxpayer to a representative , such delegation should be in writing and duly notarized. 3. The waiver should be duly notarized. 4. The CIR or the revenue official authorized by him must sign the waiver indica ti ng that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR shou ld be indicated. However, before signing the waiver, the CIR or the revenue offic ia l au thorized by him must make sure that the wa iver is in th e p resc ri bed fo rm, duly notarized, and executed by the taxpayer or his du ly authorized represen ta tive . 5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of p resc ri p ti on o r before the lapse o f the pe riod agreed upon in case a subsequent agreement is executed. 6. The waiver must be executed in three copies , the original copy to be attached to th e docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement." 11 [Emphasis supplied.] Sign ificantly, th e stric t comp liance wi t h the procedure fo r prope r execu tion of the wa iver of the st a t ute o f li m ita ti ons h as bee n underscored by th e Supreme Court in the case of Philippine Journalists, Inc . v. Commissioner of Internal Revenue Ill , the p erti nen t porti on o f which reads: C. 17 Jd. IB G.R. No . 162852, December 16, 2004.

CIR v. Avon Products Manufa cturing, Inc. I Page 21 of 45 Avo n Prod uc ts Manufacturing, In c. v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038) DECISION "A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers ' right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed [S ee Oua no v. Court o f Appeals, G.R. No. 129279, 4 March 2003, 398 SCRA 525, c iting People v. Donato, G.R. No. 72969, 5 June 1991 , 198 SCRA 130]. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as e rroneously held by th e Court o f Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain . The waiver do es not m ean that th e taxpay e r re linqui shes th e right to invoke presc ripti o n unequivocal ly particularly where the language of the do cu m e nt is e quivoc al. For th e purpose of safeguarding ta xpayers from any unreasonable examin ati on, investigation o r assessment , our tax low prov ides a slo lule of limitations in the col lection of tax es. Thus, t he low on prescription, being a remed ial measure, should b e liberal ly cons trued in o rd e r to afford such protection . As a c orollary, th e exce ptions to th e low on p resc ription should perforce b e stri c tly construed . xxx" 19 [Emphasis suppli ed. ] Therefore, con trary to th e CIR's stan ce that th e re quirement to furnish AVON with copies o f accepted waivers und e r RMO No. 20-90 is m e re ly formal in nature, th e Supreme Cour t in th e same c ase of Philippine Journalists , Inc . v. Commissioner of Internal Revenue 70 emp ha sized th e importan ce o f th e taxpaye r' s actual receipt of th e a ccep ted waiv e r; o th e rwis e, fa ilure to do so sha ll re nd e r th e waiv e r in va lid and in e ff e ctive, thu s: "Fi nally, th e records show tha t petitioner was not furnish ed a copy of th e waive r. Under RMO No. 20-90, th e waiver must b e executed in three copies wi th th e second copy fo r th e taxpaye r. The Cou rt of A pp eals did not think th is was important because th e p e titi oner need not ho ve a copy of th e document it knowingly executed. It stated that th e reason C 19 fd . 20 /d .

CIR v. Avon Products Manufacturing , In c . I Page 22 of 45 Avon Products Manufacturing, Inc . v. CIR CT A EB Case Nos. 661 & 663 (CTA Case No. 7038) DE C ISION copies ore furnished is for a party to be notified of the existence of a document, event or proceeding. The flaw in the appellate court's reasoning stems from its assumption that th e waiver is a unilateral act of the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioner's comptroller signed the waiver on September 22, 1997, it was not yet comple te and final because th e BIR had not assented. There is compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy of the waiver accepted by the BIR . The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement."?' [Emphasis supp li ed .] Simi larly, the CIR's argument that AVON is already estopped to repudiate th e waiver of th e statute of limitation s and to raise th e issue of prescription because it has benefited from iF2 is totally mispla ce d. Th e Supreme Court held in th e recent case of Commissioner of Internal Revenue v. Kudos tal Corporation 73 thai Ihe BIR can no! apply the doctrine of es toppel to cover ils failure lo comply with the procedures for proper execu tion of the waive r of statute of limitations unde r RMO 20-90 and ROAO 05-0 I. The pertinenl portion o f which reads: "The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. As we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right [La Naval Drug Corporation v. Court of Appeals, G.R. No. 103200, August 31, 1994, 236 SCRA 78, 87]. As such, the doctrine o f estoppel cannot give validity to an act that is prohibited ( .'I ld. 22 C TA EB No. 661 , Doc ke t, p. 123, th e CIR's M e morandum. 23 G.R . No. 178087, May 5, 2010.

CIR v . Avon Products Manufa c turing , Inc. I Page 23 o f 45 Avon Produc ts Manufac turin g, Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038) DECISION by low or one that is against public policy [Ouano v. Court of Appeals, 446 Phil. 690, 708 (2003)]. It should be resorted to solely as a means of preventing injustice and should not b e permitted to defeat the administration of the low, or to accomplish a wrong or secure on undue advantage, or to extend beyond them requirem ents of the transactions in which they originate [C & S Fishfarm Corporation v. Court of Appeals, 442 Phil. 279, 290 (2002)] . Simply put, the doctrine of estoppel must be sparing ly applied. Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05 -01 , which the BIR itself issued. As sta ted earlier, the BIR fo iled to verify whether a notarized written authori ty was given by the respondent to its accountant, and to indicate the dote o f acceptance and the receipt by the respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of th e statute o f limitations, being a derogation of the taxpayer's righl to security against prolonged and unscrupulous investigations, must be c are fully and strictly constru ed [Philippine Journalist, Inc. v. Commissioner of Internal Revenue, supra note 19 at 231-232]." 7~ [Emphasis supplied.] Bas ed on the foregoing, it is e vid e ntly c lear that th e CIR's fai lure to furni sh th e taxpaye r of co pi es of th e a cce pte d Waiv e rs of th e Statute of Limitati ons rend e rs th e said wa1ver invalid and unenforceabl e. Hence, it does n o t to ll th e running of th e three (3) -year period o f prescription und e r Section 203 of th e NIR C of 1997. A close sc ru tiny o f th e record s o f thi s c a se re v e al s that th e CIR and AVON exec uted two (2) waiv ers o f th e st atute o f limitations on Oc tober 14, 2002 and Dece mbe r 27, 2002 which expired on January 14, 2003 and Ap ril 14 , 2003, resp ec ti vely. Howeve r, AVON was able to ' 24 /d .

CIR v. Avon Produc ts Manufacturing , Inc. I Page 24 o f 45 Avon Produc ts Manufac turin g , Inc. v . CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No . 7038 ) DECISION prove that it was not furnished with copies of the accepted Waivers of th e Statute of Limitations con trary to th e procedural mandate provid e d under RMO No. 20-90 /l Thus , the aforesa id waivers ore incomplete and defective and did not toll th e running of th e 3-yeor prescriptive p e ri od. Accordingly, and as correctly observed by the Court a quo , th e a ssess m en ts on d e fi c ie ncy VAT, expanded withholding tax and withholding lox on compe nsati o n shall hove prescribed on the fo llowing dotes : VAT Return Date Filed 26 Prescription Date Oc tober 25, 1999 Oc tober 25, 2002 3rd Quarter of 1999 January 25, 2000 January 25, 2003 - 4'h Quorl e r o f 1999 Monthly Expanded 27 Compensation 2B Prescription Date Remittance Return (Date Filed) (Date Filed) of Income Taxes Withheld {JY 1999) February 25, 1999 February 25, 1999 February 25, 2002 _ Marc h 25, 1999 March 25, 1999 January April 26, 1999 April 26, 1999 Marc h 25, 2002 February May 25, 1999 May 25, 1999 June 25, 1999 Jun e 25, 1999 ~P!i l 26!_29QI _ Marc h July 26, 1999 July 26, 1999 April Augusl 25, 1999 May 25, 2002 M gy - Jun e Sep te mbe r 27, 1999 June 25, 2002 - - July Oc tober 25, 1999 Augus l 25, 1999 - July_1 6, 2002 Sept e mbe r 27, 1999 Augus t Nove mbe r 25, 1999 Augu.?_t 2~, 2002 _ Sep te mbe r December 27, 1999 Oc to b e r 25, 1999 Novemt)er 25, 1999 Seple~J?er:_]7, 2001_ Oc tober January 25, 2000 Decemt)er 27, 1999 November Oc lob er 25, 2002- December January 25, 2000 - November 25, 2002 December 27, 2002 January 25, 2003 ~ 25 CTA Case No. 7038, Docket, p. 424; Exhibit s "0-3" and " P-2", Formal O ffe r of Evidence do l ed February 7, 2008. 26 ld. , Joint Sti pu lation of Fac ts and Issues, par. 17, p . 133. 27 /d. 28 /d.

CIR v. Avon Produc ts M anufacturing, Inc. I Page 25 of 45 Avon Products Manufacturing, Inc. v. C IR CTA EB Case Nos. 66 1 & 663 (CT A Case No. 7038) D EC ISION Th e records disclose that A VON receive d th e Final Ass ess m e nt No ti ces and Fo rmal Le tt e r o f Demand, all date d February 28, 2003, only on April l l , 2003 or way beyond !h e 3-year period provid ed by law to a ssess AVON over its d e fi c ie ncy VAT, ex pand e d withholding tax and withholding tax o n co mpe nsation as shown in th e tabl e above. Consequen tly , th e assessments fo r AVON's deficiency VAT, expand ed withholding tax and withholding tax on com p e nsa tion iss ue d by th e BIR beyond th e three-yea r p eriod have already presc rib ed. The CIR res tat es tha1 th e assessments for deficiency in co m e lax, excise tax, value added tax, withholding tax o n compe nsation and expa nd ed withholding ta x for taxabl e year 1999 against AVON have become final and exec utory for failure lo appeal its administrative protest within th e 30-day period recko ned fro m th e lapse of th e 180- day period before th e Court o f Tax Appeals pursuant 1o Sec tion 228, NIRC o f 1997.79 However, A VON co unte rs that th e foregoing assessments did not become final, exec utory , and demandable because i1 had tim e ly filed th e Petition fo r Review b e fore th e Court of Tax Appeals within 30 days following th e CIR's final d ecisio n on th e disputed assessment pursuan1( 29 CTA EB No . 66 1, Docke t, pp. 28-29.

CIR v . Avon Produ c ts Manufacturing , Inc. I Page 26 o f 45 Avon Produ c ts Manufac turing , Inc. v. CIR C TA EB Case Nos. 66 1 & 663 (CTA C as e No. 7038 ) DECISION to Sec tion 3, Rule 4 of the Revise d Rules of the Court of Tax Appeols.:lo Also , th e CIR's belated attack o n th e tim e lin ess of its filing of th e Petition for Review and the CTA 's jurisdic ti o n over th e case w ill indubitably transgress its right to due process.3 1 We agree with AVON. The re m ed ies of taxpaye rs in c a ses of admini strativ e prot es ts on th e defic iency tax assessments ore laid down in Section 228 o f the NIRC o f 1997, whi c h reads: Sec. 228. Protesting of Assessment.- XXX Such assessment may be protes te d administratively by filing a request for re cons id e rati on o r re investigati o n with in thirty (30) days from rece ipt of th e assessment in such form and manner as may be presc ribed by im plementing rule s and reg ulati o ns. Within sixty (60) days from filing of the protest, a ll relevant supporting documents shall hove been subm itted; otherwise, the assessment sha ll become final. If th e protest is denied in whole or in port, o r is not acte d upon within one hundred e ighty days from subm ission of doc um e nts , 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 sh all become final, execu tory and demandable. [Emphasis suppli ed. ] Coro ll ary lh e re lo, Sec tion 7 o f Republic Act (R.A.) No . 9282,37( 30 /d . at 194- 195 . 31 /d. a t 196- 19 7. 32 An Act Expanding th e Jurisd ic tion o f th e Cour t o f tax Appea ls (CTA) , Eleva ting its Rank to th e Level o f a Collegiat e Court wi th Specia l Jurisdic ti o n and Enlarging its M e mbership, Amend ing fo r th e Purp ose Certain Sec ti ons of Repub lic Act No. 11 25, as amended, o th e rwi se kn own as the Law C rea ti ng the Court o f Tax Appea ls, and for o th er purposes.

CIR v. Avon Produc ls Monufoclurin g, Inc. I Page 27 of 45 Avon Producls Monu fo c luring, Inc. v. CIR CT A EB Case Nos . 66 1 & 663 (C TA Case No. 7038) DECISION am e nding R.A. No. 11 25, otherwise known as th e Low C re ating th e Court of Tax Appeals, provides: "Sec . 7. Jurisdictio n. - The CTA shall exercise : (a) Exclusive appellate jurisdiction to rev1ew by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases in vo lving disputed a ssess m e nts, refunds o f inte rnal reve nu e taxes, fees or o th er charges , penalties in re lation th e reto, or o th e r matters arising under the Notional Inte rnal Revenue or o th e r lows administered by the Bureau of In ternal Revenue; (2) Inaction by th e Comm issio ne r o f Inte rnal Revenue in cases involving disputed assessments, refunds o f internal reve nu e ta xes, fees or o th e r charges, penalties in relation th e reto, or o th e r matte rs arising under the Notional Interna l Revenue Code o r o th e r lows odminislered by th e Bureau of Internal Reven ue, where the Notional Interna l Revenue Code provides a specific period of action, in w hich case the ina c ti on sh all be deemed a d enia l; XXX Similarly, Section 3, Rule 4 and Section 3(a), Rule 8 o f th e Re vise d Rules of the Court of Tax Appeals provide s: RULE 4 JURISDICTION OF THE COURT XXX SEC. 3. Cases within the jurisdictio n of th e Court in Division. - The Court in Division shall exe rc ise: (a) Exc lusive o rigin al o r appella te ju ri sdic ti on to review by appeal th e following: ( 1) Decisions of th e Comm issione r o f Inte rnal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in re lati on the re to , or o th e r matters arising under th e Notional Internal Reve nue Code or other lows odminislered by the Bureau of Internal Revenue; (

C IR v. Avon Products Manufac turing , In c . I Page 28 of 45 Avon Products Manufacturing , Inc. v. CIR CT A EB Case Nos. 661 & 663 (CT A Case No. 7038) DECISION (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Cod e or other laws administered by the Bureau o f Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, th e inaction of the Commissioner of Internal Revenue within the one hundred eig hty day-p e riod under Sec ti on 228 of the Nati ona l Internal Revenue Code shall be deemed a denial for purposes of allowing th e taxpayer to appeal his case to th e Court and does not necessarily co nstitute a formal dec ision of th e Comm ission e r o f Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a) , Rule 8 of these Rules ; and Provided, still further, that in the case of claims for refu nd of ta xes e rron eous ly or illegally collec ted, the ta xpaye r must file a petition for review with th e Cou rt prior to th e expi ration o f th e tw o -year period under Sec ti on 229 of th e National Internal Reve nu e Code; x x x [Emphasis su ppli ed .] RULE 8 PROCEDURE IN CIVIL CASES XXX SEC. 3. Who may appeal; period to file petition. - (a) A party adversely affected by a decision , ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes , or by a decision or rulin g of the Commissioner of Cus toms, th e Secre tory of Finan ce, !h e Sec re lory o f Trade and Industry, th e Secretory of Agriculture, or a Reg io nal Trial Cou rt in th e exercis e of its original jurisdi ction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling , or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessme nts. In case of inaction o f th e Comm issioner of Inte rnal Revenue on claims for refund of internal revenue ta xes e rron eously or illegally co ll ected, th e taxpayer must fil e a petition for revi ew within th e tw o -year p e ri od presc rib ed by low ~

CIR v. Avon Products Manufacturing . Inc. I Page 29 of 45 Avon Produc ts Manufacturing . Inc. v. CIR C IA EB Case Nos. 661 & 663 (C TA Cas e No. 7038) D EC ISION from payment or coll ection of th e ta xes. (n) x x x [Emphasis supplied .] In Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue ,J:l th e Supreme Court hod on occasion to interpret th e foregoing provisions and ca tegorica lly ruled thai the jurisdicti on of the Court of Tax Appeals has been expanded to include not only decisions o r rulings but inaction as well of th e Commissioner of Internal Revenue, thu s: "From the foregoing, it is clear that the jurisdiction of the Court of Tox Appeals has been expanded to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal , provided it is filed within 30 days after the receipt of such decision or ruling , or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to act on the disputed assessments . This 30-doy period within which to file on appeal is jurisdictional ond failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely directory but mandatory and il is beyond the power of the courts to extend the some. In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period ; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options ore mutually exclusive. and resort to one bars the application of the other." [Emphasis supplied.] ( 33 G .R . No. 168498, /\pril24 , 200 7.

CIR v. Avon Produ c ls Manufo c luring , In c . I Page 30 o l 45 Avon Produc ls Manufacluring , Inc. v. Cl l~ C TA EB Case Nos. 661 & 663 (CTA Case No. 7038 ) DECISION To re ite rate , Section 228 of th e NIRC of 1997 provid es two mutually exclusive options on th e part of the taxpayers aggrieved by th e inaction of the CIR on disputed assessments within the 180-day period from sub mission of co mpl e te docume nts. First, a taxpayer may file a Petition for Review before the CTA within 30 days from th e lapse of th e 180-day period. Second, a taxpaye r may opt to await th e final decision of th e CIR on dispute d assessments and appea l such final decision within 30 days from receipt th e reof. In th e inslant case, A VON opted to resort to the second remedy, i. e., lo await th e final d ec ision of th e CIR and appeal th e said d ecision b e fore the CTA within 30 days from receipt thereof. Considering that AVON only recei ved th e Collection Le it er doled July 9, 2004 on July 14, 2004, :3~ whi c h also served as a final decision d e nying th e prot es t, th e filing of the Petition for Review before this Court on August 13, 2004 was well within th e 30-day p e riod provid e d und e r Sec tion 228 of the NIRC of 1997. He nce, this Court has jurisdic tion over th e present co ntrove rsy. Evidently, it is established that the ass ess ments on deficiency VAT, expan ded wilhholding tax and withholding tax on compe nsation have alre ady prescribed and that the Pe tition for Review b e fore this Court was lim e ly fil ed. {. 34 CTA C ase No. 7038, Join! Stipul a lion o f Facts and Issues, par. 13, Docke 1, p . 132.

CIR v. Avon Products Manufa c turing, Inc. I Page 31 of 45 Avon Produc ts Manufa c turing , Inc. v. CIR CT A EB Case Nos. 661 & 663 (CTA Case No . 7038) DECISION On th e re maining assessm e nts o n d e fi c ie ncy in co me tax and excise tax, AVON's defic ien c y in co me tax assessment in the amount of P35,245,77 4.70 may be summarized as fol lowsTl : I._Qiscrepo ncy I IR ~ & VAT Return Sa tes Figures p 62,91 1,619.58 2-'-Toxes & ~~e n sesjFrin ge 12_~ n e fit Tax) -� 34% Tax of Mr. ke n G ibso n 152,632. 10 Decem b e r 1998 FB f Paymen t Adjustment 927.27 3. Discrepancy o n Ending Inventori es refl ,c ted in Balance Shee t vs. Cos t o f Sol es 2,597 ,95 1.72 4.:__UnsupporleQ_ C re ditable Tax Withh eld 344 , 15 1.1 7 As to th e discrepancy between the ITR and VAT Re turn Sales Figures, th e CIR asserts lha I th e all eged und eclare d income of P62 ,911 ,619.58 arose from the d iscrepancy between the sales per M on thly and Quarterly VAT Returns and th e reported sa les p e r Finan c ial Stat e ment and Income Tax Re lurn .:ltJ The CIR's argument is not tenabl e. As aptly disc usse d by th e Court a quo, th e discre pan cy al le ged by th e CIR does not amount to under-d e claration of sal es per ITR for th e taxable year 1999 and shou ld b e a ccording ly c ancelled . The pertinent portion of th e d ecision rea d s: "A sc rutiny of petitioner's Quarterly VAT Returns for the year 1999 shows that the so les figure of Pl ,453,792,238. l 2 used by the BIR examiner in arriving a t th e a ll eged undeclared so les o f P62,9ll,619.58 was higher by Pl76,44l,375.60 when com pare d lo th e a c tual sol es amount of Pl ,277,350,862.52 declared by petition er in its Quarterly VAT Returns, as shown below: ( 35 td. , par. 8, p. 129- 130. 36 /d. , par. 18, p. 133.

CIR v. Avo n Pro duc 1s Monufo c luring, Inc. I Pag e 32 o f 45 Avo n Pro du c ls M o nufoc luring, In c. v. CI R Cl A EB Case Nos. 66 1 & 663 (CTA Case No. 7038) DECISION Sales per VAT Return Pe r BIR ----- Diffe re nc e Investigation Per VAT Return loxotJIC - - I I 6,11-11 ,3/ ~J.60 I'' quorlcr (I xh itJilllll 6) _ I' /WJ,/90.M0.90 I' 109 ,:3 -19 ,/B~dO lj /nd quorlcr (I xflitJil llll_/) /9 ~J.6/9. /il -1 .~)() /9 ~J.6/9. /B tl .~JO 3'd quorler (I xhitJil llH-B) -196,/99,6//.130 -196,/99 ,6//.130 t1'h < u~ r~;r (I xr1itJi l l}ll -9 113:l.O~l I-.5~J-9 . 0-0 - I-B3.0~J-I .~-J59 -.00 Su tJio lo l I' 1 ,/61,/7 1 ,{~13/.:.20 - I' I ,OB-1.B3(J.:l06 .60 10 I /6, -1-1 I ,37~J.60 I xernpl (exporl) I' /6.1 //,6/:3.!36 I' /6, I //.6/:3.!36 - I st quorler (I xhitJil llll 6) :31.-191.-19:3.9/ :31.-191.-19:3 9/ )nd quorler (I xh itJi l Ill} /) I I :3,:3/-1 .~J9 ~l.~l9 p 176 441 375 .60 3'd quorlcr (I xr1itJi l ll~ -BJ 11:3,37-1.~J9~J.~l9 /I .~JB I .B-1/.~JO t1 1h~ orler (I xhitJil llH-9) 19/ .~) /Q.~)~)~). 9/ SutJiolol /I .~lB I ,Bt12.~J0 Total p 1,277,350,862 .52 J92.~J/0,525.92 P1.453,792,238. 12 As co rrec tl y foun d b y th e Co urt-c ommissio ne d ind e p e ndent CPA. the di sc re pan cy o f P176 ,441 .375. 60 re pre se nts p e titi o ner' s sol es for th e m o nths of January and Fe bruary 1999 whi c h w e re no t includ e d in th e first Q uarte rl y VAT Re turn bu t we re dec lared in the res p ec ti ve M on thl y VAT Decl aro li o ns, os shown b e low : January Fe bruary To tal I xhitJi I 1313 10 I x/lit)i/ 1313 I I I /,6 -1 -1, I :l/.~J6 176.441 ,37 5. 60 Oulpul lox m rellec le<J P /,13?/,:3?0. I t1 I' 9,B?I,BI/.t1/ I' Soles Nel ol V 1\ I /B,?/:3./0 1.-10 9B,/IB, I/t1./0 Moreover, to a d opt responden t 's compu tatio n of th e a ll eged und e clare d sol es of P62,9 11,6 19.58 and d e du c t th e a c tual sol es figure o f P1.277,350,862 .52 show n in th e Qu arte rl y VA T Re turn s from th e sol es/inco m e o f P1,390 ,880,618. 54 re fl ec te d in petiti o ne r's in co m e ta x re turn fo r th e ye ar 1999 will even show on ove rsta te m e nt o f soles per ITR in th e a m ou nt o f P113.529,7 56 .02 os show n b elow : Soles per V 1\ I Rclurn Pe r BIR Per VAT Re turn Diffe re nce I' I,/// ,3 ~JO,B6?.~J? I' l/6,-1t11 ,3/~J.60 lnv_~ t i gat io n I' l,t153,/9?,2:3B.I/ Pe r BIR Per VAT Re turn Diff e re nce Inv e stigation I ess: Soles reporle<J per II R I' I .7~Jt1,/B9.-1~J~l.-1~J I' I .7~J t1,/B9 , -1 ~l~l. -1~J Dornes lic Soles (I xr1itJi l llll ?) I :30,096,0YJ. I :3 130 ,0 96.0~)~) 13 I x Jorl Soles (I xhi!?il 1\1\<3) ._,j .B I(J.:lB?. 96 t1.~.3B?._26_ __!::xporl no l lo II C_(_Sxr1it:2!.1. 1313 tlj SutJ io lol ~ ,3�9,69~J.I393.~Jt1 I' 1.3B9.69 ~J.B9:3.~J t1 1\<j<J: Olhcr Income (I xhitJil llll ~l) Olr1er Income I' -16/ . 1/6.00 I' -16/ , I /6.00 Coin on sole ol properly I oreign exchonge goin /6-1 . ~J I /.00 /6~.~) I/ 00 tlYl .OB/.00 t1Y3 ,013/ 00

C IR v. Avon Produ c ts Manufa c turing , Inc. I Page 33 o f 45 Avon Produ c ts M anu fac turin g, In c . v. CI R CTA EB C ase Nos . 66 1 & 663 (CTA Case No . 7038) DECISION Sublolol I' I , I B ~ . I7~J.00 I' l , lil~ .I7~J.00 p 176441 ::, 60~1 l olo l Understate d (ov e rstate d) sal e s I' 1.390.B!l0.6 I B.~l~ I' 1.390.BB0.6 I B.~l ~ p 62911619 .58 p ( 113,529.756 .02) Poten tly , it is erroneous for the respondent to conclude hastily that petitioner hod under-declared its soles for income purposes in th e amount of P62,911,619.58 merely on th e basis of co mparing th e so les figure per petitioner's VAT returns and those reflected in its ITR. A further inves ti ga ti on shou ld hove been performed by the BIR to support its c laim of under-declarati on. Cle arly, as per th e reconciliation establi shed by the Court-co mmissioned Independent CPA (I CPA ), the P62,9 11,619.58 soles discrepancy does not co nstitute taxable 1ncome on th e port of th e petition e r for income tax purposes, thus: Iolol Soles per VA I Relurn _ Add: (deduc l) reconciling ilcrns: _ I,, ond ?nd quorler e xpo rl so les per Cl inc luded in lr1 e 3�d quorler e xporl mles ornounl per V AI relurn Annex I l)orneslic: soles lo Al c os lo r lr1e 1"� 3�d oncJ ~ ~h Annex? qumlers inclucJecJ in tJOih e xpor I oncJ Annex 3 loble ? cJorneslic soles orn oun l per VII I relurn 1.11.1 (? , /79 , 1~J6 .09) Sole o l obsole le in ~jrec:Jienl s ond conloin e rs Annex~ (?. 1? ~ .O~J/.?B) c:Jircclly c mcJi le cJ lo invenlory o ccoun l oncJ Annex :l ? I ,6/3.16 Annex 3 (0.~ reporlecJ os dornes lic sole in lhe 3�d onc:J ~th Annex ~J (0 l{l) Annex 3 3 quorler VIll relurm. (6?.91 1.6 19 .~JB) I' I ,390.Bil0,6 I B. ~l~ I o rei(Jn exc hon ~je (JOin subjec lecJ lo in c ome lox tllJ I n o l sutlje c: lecJ lo VIII since lr1ese ~ resul lecJ lro rn exporl soles. Nel tJOok volue o l osscls solcJ subjec: lecJ lo ~J VAl bu l nol subjec l lo income lox . Diflercnce in sole lo Avon Cosrn c lics Inc. (ACI) tlelween VIII relurns vs. G l / III-I (VIII 6 lowe r) . O lr1 er income ornoun l per Cl nol included in I VII I relurn. V Ill o ulpul on lully cJe pr ec iolecJ lixecJ ossels B (I 6.~J00.00) l)iflcrence in lllcos ornounl recorcJecJ in VIll 9 relurns vs. Q.t:noun l in exporl Cl (VAI_higher) . I0 Rounding o ff cJiflcrence lolol reconc iling ilerns lolol Sole~ per II R Based o n th e above rec onciliation. th e discrepancy of P62,911 ,619.58 was largely due to th e amount of P58,408,045.61 representing the sum of th e export soles for th e first and second quarters of 1999 in the respec tiv e amounts of P26, 122,623.86 and P32,285,42 1.75 as recorded in p e titioner's General Ledger (GL) . It is to be noted that th e soles figures rec orded in petitioner 's GL make up th e total amount of so les d ec lared b y petition e r in its income tax re turn for the year 1999 .(

CIR v. Avon Products Manufacturing, Inc. I Page 34 of 45 Avon Products Manufacturing, Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038) DECISION Aside from declaring the amount of P58,408,045.61 in the first and second Quarterly VAT Returns, petitioner also reflected the some amount in the third Quarterly VAT Returns because the amount of P113,324,595.59 declared therein by petitioner represents the export soles balance per GL as of September 30, 1999 which covers the first, second and third quarters of 1999. Clearly, petitioner did not under-declare its soles per ITR but erroneously overstated its soles per VAT returns in the amount of p 58,408,045.61 . However, it was noted that the export soles for the first and second quarters per GL in the amount of P58,408,045.61 do not tally with the export soles of P57,61 4, 117.83 reflected per petitioner's Quarterly VAT Returns for the some periods. The difference of P793,927.78 pertains to petitioner's domestic soles to Alcos Global Corporation for the second quarter of 1999 which was erroneously booked under the "Gross Soles - Others - Export" account in the GL but correctly included in the domestic soles and excluded from export soles in the second Quarterly VAT Return. As to the reconciling item amounting to P2,729, 156.09. the some pertains to petitioner's domestic soles to Alcos Global Corporation for the first. third and fourth quarters which were included in both export and domestic soles per VAT returns. Again, petitioner did not under-declare its soles per income tax return but erroneously overstated its soles per VAT returns in the amount of P2,729, 156.09. As to the reconciling item amounting to P2, 124.057.28, it actually pertains to petitioner's sole of obsolete ingredients and containers directly credited to inventory account and reported as domestic soles in its third and fourth Quarterly VAT Returns for the year 1999. Since these items were sold at cost. there was neither a gain nor loss to be reported for income tax purposes. As to the foreign exchange gain of P453,087.00 which represents the difference between the peso equivalent of petitioner's US denominated export soles at the time of sole and at the time of collection, the some was not subjected to VAT but was included in petitioner's taxable income for the year 1999. With regard the reconciling amount of P280,903.30, records show that the some represents the net book value Qf assets sold by petitioner for the year 1999, computed as follows: <

CIR v. Av o n Pro du c ts M a n ufac turin g , In c. I Page 35 o f 45 Av o n Produc ts M a nufac turin g , Inc. v. CIR CTA EB C ase Nos. 661 & 663 (C TA C as e No . 7038 ) DECISION I ----- ~~ixc <J Asse ts I' I ,23~J. I 4 ~J.33 css: Accu rn uto tccJ Dc prcc: io tr on Ne t Book Value of Ass e ts Sold 9~J -1 ,2 -1 ?.? ~J p 280 903.08 The ne t b oo k va lue of P280,903 .08 is no t subjec t to incom e tax. Howeve r, the proceeds fro m th e afo resaid so le a m oun tin g to P545.41 5.29 fo rm ed p ort o f the P561.915 .30 so les of fixed assets th at were subjec ted to VAT in petitioner's 1999 fo urt h Quarte rly VAT Re turn whi le the re la te d gain in th e amount of P264 ,51 2. 21 was includ e d in p e titi o ne r' s taxab le in c ome fo r 1999 : - I' ) .-l ~J. -1 I ~J . ?9 tJroc:cecj s Ne t o f VA I ?B0,9Cl:30B l I css Ne t lloc~Vol uc Sold p 264 512 .21 Ne t Book Value of Ass e ts Sold With re fe re nce to th e reco nc ili ng am o unt of P172,283. 55, th e som e perta in s to t he d iffere nce in sol e s to Avon C osme tics, Inc. (ACI ) as re fl ec te d in the VAT retu rn s and as declared in the in co m e tax re tu rn fo r 1999, c o m pu ted as follows: 1999 Sal e s Pe r VAT Sal e s Pe r Gl / ITR Sat e s p e r I"Oir Re turn I' ?B -1 ,1 -1 ?,?/?93 Gl/ ITR is ov e r(und e r) IJ ?B-1, I -1 ?.~J 16.00 I' (? -1 3.0/) ?nd O lr 29 -1 ./0~J. ~)!? .30 ?9 -1 ,///, .-l BO BJ I I ,9013.~J3 J �d Otr - -- - (0.02) - -1 9 ~J.690,693. I 0 -1 9 ~J.690,693.0B 100.6 lB. I I - - - - - - -- - lBO. 11'.1 ,0086 I P 172,283.55 IBO,O/B,:l'JO ~JO -1 'h O tr Total P 1,254.617 , 171.90 P 1,254 ,789,455.45 Pe titione r's soles to ACI, as reporte d in its ITR , was hig her by P172,283.55 due to the d ifference in so les amountin g to P71,908.53 w hic h was subj e c ted to in c om e tax but was no t subjec ted to VAT and sol e s returns am o unting to PI 00,618.1 1 e rron e o usly debite d 1o lngre dien1 s in ve nt o ry a cc ount in the GL ins tead of so les re turns and allowan ces subj ec te d to in co m e tax as fo u nd by the ICP A. Wi th regard the re c o nci ling amount of P2 1,673.16, the som e re fe rs to th e oth e r in c om e (s c rap soles to pe titi on e r's e mployees) no t subj ec te d to VAT; b u1 inc lud e d as port of p e titio ne r's gross in c om e p e r ITR, co mpute d as fo ll o ws : 1999 Sates to APMI Employ ee s - Scrap fs'O ir -- ---� ------ ?nd Olr Sates p e r Sates Per VAT Sal e s Pe r Gl / ITR Gl/ ITR is Re turn ov e r( und e r) I' I V>./~J-1 10 I' 16-1 , /!B.~J9 I' /,%-1.-19 I :lO.?!l-1 -10 I :lO.?B3.B6 (O.~J -1') (

CIR v. Avon Pro du c ls Monufoc luring , In c . I Page 36 of 45 Avon Produc ls Monufo c luring, Inc . v. CIR CTA EB Case Nos . 661 & 663 (C TA Case No . 7038) D E CISION :l�d Otr 66.736.67 /6,/69.76 IOSl/.6 ~ ~� h Olr 97, II 1.90 Tota l p 44 5 45 3. 02 9!d!J~.~/ :l. I /6.!J/ p 2 1 673. 16 p 46 712 6. 18 Regarding the reconciling item amounting to P16,500.00, the same refers to th e 10% output VAT due on th e P165,000.00 sa le o f fully-depreciated fixed assets, co mputed as follows: Soles per V/\1 Return I' 16!J ,000 ()() Coin on Sole per III-I VAT Output I ~il.!JOO.OO p 16 500.00 The taxable sale for VAT purposes is the gross amount o f P165,000.00 wh il e the taxabl e income for income tax purposes is base d on the gain on sale of P148,500.00, resulting to a recon c iling amount of P16,500.00 . In summary, th e re fore, it was establis hed that petitioner had no undeclared sales per ITR for taxable year 1999 . The P62,9 11 ,6 19.58 undeclare d sa les/ in come b e ing ch arg e d by res pond ent against petiti oner is e rron eous and should b e c anc e ll ed.'' 31 Consequently, we see no coge nt reaso n to d e viate from the factua l finding s of th e Court a quo in dismissing th e CIR's claim of under-declara ti on of sa les solely bas ed on th e existe nce of disparity b e tween th e sa les p e r Monthly and Quarte rly VAT Re turn s and th e report e d sa les per Finan c ia l Statem e nt and In come Tax Return. Evidently, th e re is no basis to assess AVON of undec lared sa les/income in th e amoun t of P62 ,9 11,619 .58; hence, th e same shou ld th erefore be ca nce ll ed. On th e Taxes & Li censes (Frin ge Bene fit Tax) , as stipu lated upon by the parti es, A VON has paid th e amoun t of th e disallowed taxes and< 37 C TA EB No . 66 I , Docke l , pp. 62-68.

CIR v. Avo n Produc ls M a nufac luring. Inc. I Page 37 of 45 Avon Prod uc ls M a nu fac turin g, Inc . v . CIR CTA EB Case Nos. 66 1 & 663 (C TA Case No. 7038) DECISION licenses of P152, 632 .10 and Dece mb e r 1998 FBT paym e nt adjustm e nt o f P9 27 .27 or in th e total amount of P153,559.37 .:m In e ff ec t, A VON ha s a c kn o wl e dg e d th e disallowan ce o f th e fo re g o ing taxes, and in vi e w o f th e p a ym e nt th e re of, its liability in so far a s th ese taxes are co nce rn e d is th e re fo re extin g uish e d . As to th e disc re pan c y on e ndi ng In ve nt o ri es reflec te d in th e Ba la nce Sheet vs . C os t o f Sa les, th e CIR maintain s th a t th e all ege d disc re pan c y aro se from th e diffe re nce in th e am o unt o f e ndin g in ve nto ri es p e r balan ce shee t of P2 15,7 93, 000 .00 whi c h is high e r th a n th e am o unt o f e nding inve nto ri es p e r Sc he dul e o f C os t o f G ood s M a nufac ture d and Sold o f P213, 195,572 .2s .:w Ho w ever, A VON clai ms th a t th e a ll ege d disc re pan cy re prese nts va riati o ns o f a c tual cos t fro m standard cos t all oc ate d to e nding inve nto ri es an d is part o f ite m "V ari a ti o ns- P15 ,798 ,844.41 ".~o AVO N 's c la im is te na b le . A s c orrec tly o b serv e d by th e C o urt a quo, th e re wa s no unde r- decl arati o n o n th e part o f AVO N in !h e a lleged disc repa nc y b e twee n en din g inve nto ri es re fl ec te d in the Bal a nce Shee t and C os t of Goods Manufa c ture d and Sold a s th e all e g e d inve nto ry o ve rstate m e nt m e re ly rep rese nts va ri a nce/ adju stme nts on sta ndard cos t to ac tual cos t( 38 CT A Case No. 7038, .Join! Sli pulalion of Fac ls and Issues. par. 19 , Docke l , p . 133 . 39 /d. , par. 20, p. 133. 4o CTA EB Case No. 66 1, AVO N 's Memorandum, par. 65, Doc ke l , p. 164 .

CIR v. Avon Produc ts Manufacturing, Inc. I Page 38 of 45 Avon Produc ts Manufacturing , Inc . v. CIR CT A EB Case Nos. 661 & 663 (C TA Case No. 7038) DECISION allocated to e nding inve ntories. -1 1 Ind ee d , a s re cords of th e case would revea l, th e apparent discrepancy arose from th e diffe ren ce in the presentation o f e ndin g inve ntori es per Balance Sheet and p e r Sched ule of Cost of Good s Manufa c tured and Sold. He nce, th e said assessmen t must necessarily be cance ll ed. On lh e unsupported Cred itabl e Tax Withh e ld , th e CIR re ite rates her argument that AVON over-cla im ed its tax cred it in th e amount o f P344 , 15 1.1 7, bro ken d own as follows-1 7: a. Over-claimed withholding tax cred its by P203 ,645.89 arising from th e difference between th e to tal amounts stated in th e ce rtifi ca te of cred itabl e tax (P 12,7 05 ,654 .11) and th e amount c laim ed in th e ITR (P1 2,909,300.00) ; and b. Ov e r-issuance o f ce rtifi c a le o f c re ditabl e tax withheld by Avon Cosmetics , In c. (ACI) by P140,505.28 represe nting withholding tax o n sa les made in 1998 but paid in 1999 in vio la ti on of Sec. 2.58 .3 (A) o f Revenue Regulations No. 2-98. But Avon maintains that the vanan ce be tween th e amount o f cred itabl e tax per ce rtifica tes o f ta x withheld issued by th e withholding ag e nt and th e amoun t p e r books as re fl ec te d in its ITR are mere timing differences between th e issua nce of the ce rtifi ca te of withholding tax by th e withholding agent a nd its recording of the c re ditabl e wi thh o ldin g lax when in co m e is co ll ected.~ :~ ( 4 1 ld. a t 68-69. 42 /d. , lh e Cll~'s M e rnorondurn , pp. 119- 120 . 43 /d. , AVO N 's M e rnorondurn , par. 70, p . 167.

CIR v. Avon Produc ts Manufacturing , Inc. I Page 39 of 45 Avon Produc ts Manufacturing , Inc . v. Cll~ C TA EB Case Nos. 661 & 663 (CTA Cas e No. 7038) D E CISION We affirm the ruling of the Court a quo in finding the CIR's disallowance o f AVON's claimed tax c red its amounting to P203 ,645 .89 proper but not as to the amount of P140,505.28. Sec tion 2.58.3 (B) o f Revenue Regulations No. 2-98 provides: SECTION 2.58.3. Claim for Tax Cre dit or Refund. - (B) Cla ims for tax c redit or refund of any credi tabl e income tax which was deducted and w ithheld on income payments sha ll be given due course on ly when it is shown that th e income payment has been declared as port of the g ross income and the fact of withholding is established by a copy of the withholding tax statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. Proof o f remittance is the responsibility of the w ithh o ldin g agent. [Emphasis supplied.] It is clear from th e foregoing that a copy o f th e withholding tax certifi ca te duly issue d by th e payor to th e payee is a req uisite in c laiming c re ditabl e withh o ldin g lox. In th e instant case, records would re ve al that A VON foil ed to present th e withholding tax certifi c ates in its c laim ed tax c redits in th e amount of P203 ,6 45 .89 . Instead, in a futile attempt to prov e its e ntitle m e nt to the claimed c reditabl e withholding tax, AVON submitl ed a print-out o f "Browse Account Document Details of Accrued In come Tox-ACI" ~~ for th e year 1999. However, a close sc rutiny of th e records revea ls that AVON 's customer, ACI, issued AVON ( 44 C TA C ase No. 7038, Avon 's Formal Offe r of Evid e nce , Exhibit "CC " , Dock e t, p. 428.

CIR v. Avon Produc ls Manufacluring , Inc. I Page 40 of 45 Avon Producls Manufacturing , Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038) DECISION a withholding tax c re dit ce rtifi ca te amounting to P140,505.28 in 1999 for sales made in 1998 but paid in 1999. Therefore, con trary to AVON's claim, ACI in fa c t recogni zes th e withholding tax not from accrual of sa les but upon payment. C learly th en, the liming difference in th e recogn ition of tax c red its as alleged by AVON is unwarranted. Hence, th e CIR is correc t in disal lowing th e same as a deduction from AVON's in come tax liability. As to th e Deficiency Excise Tax, th e CIR a ssesse d AVON of its deficiency excise tax in the amount o f P1,645,390.44, in c lusive of interes l and comp romi se for th e taxable year 1999. ~ ~) However, during th e pendency o f th e in sta nt Petition, A VON fil ed an Application fo r Abatemen t over its deficiency excise lax pursuant to Revenue Regulations (RR) No . 15-2006 and paid 100% of the basic deficiency excise tax due in th e amount of P913,514 .87. Consequently, th e parties filed a Jo int Manifestation~ 6 on February 2 1, 2007 statin g the re in AVON's application for abatement of its deficiency excise tax and payment th e reof. The Court a quo noted th e joint manifestation fil ed by th e par ti es and ordered th e ca nce llation o f th e deficiency exc ise lax assessment o f AVO N for th e taxabl e year 1999.'- 45 /d. , .Join! Slipulolion o f Focls and Issues, par. 8, p. 130. 46 /d. ol 284 -289.

CIR v. Avo n Produc ls Monufoc luring, Inc. I Page 41 of 45 Avon Produc ls Monufo c luring, Inc. v. CIR CT A EB Case Nos. 66 1 & 663 (CTA Case No. 7038) DECISION Consid e ring AVON 's ovoilm e nt of th e abate m e nt program pursuant to RR No. 15-2006 and its corresponding payment of the basic deficiency exc ise tax, th e interest and co mpromise there in w e re abated. Thus, th e a ssess m e nt fo r deficiency exc ise tax against AVON for th e taxabl e ye ar 1999 is dee m e d ca nce lle d and withdrawn . In CTA EB No. 663 , AVON's p e tition similarly lo c ks merit. On th e iss uan ce of th e assessments fo r deficiency in co m e tax, excise tax, valu e add e d tax, withholding tax on compensation , and expa nd e d withholding tax , AVON res tat es !hat it wa s deprived o f its right to due process when th e CIR iss ue d id e ntica l Pre liminary Assessment No ti ce (PAN) , Final Assessment Noti ce (FAN) , and Co ll ection Le tt er d espite its protests , supporting docume nts and con fe re nc es with the BIR e xaminers. ~~ Thus , it ass everates thai th e pres umption o f reg ularity ca nn o t be applied in favor o f th e CIR as th e latte r's inacti on and failure to give du e cons id e ration lo the e vid e nce submitted b e fore it is a blatant transgression of its right to due proc ess as e xplained in Ang Tibay v. Court o f Industrial Relations ~ B and M endoza v. Com miss io n on Elec tions~ 'l . :lo We disagree ., 4 7 C r!\ EB No . 663 , Docke l , p. 31. 48 69 Phil. 635 (1 940). 49 c; .R. No. 188308 , 603 SCRA 692, October 15, 2009. so CTA EB No. 663 , Docke l. p. 33 .

CIR v. Av o n Pro du c ts Manufac turin g , In c . I Page 42 o f 45 Avo n Produ c ls Manufa c turing , Inc . v . CIR CT A EB Case Nos . 66 1 & 663 (C TA Case No . 7038 ) DECISION We ll -se tll e d is th e rul e that tax as se ssments by tax e xamin e rs are prima fa c ie pres umed c orrec t and mad e in g o od failh. ~> 1 Abs e nt any proof of any irregularities in the performance of official dutie s, an a sses sm e nt will not b e disturb e d . ~>7 Like wise, th e e sse nce of du e process 1n admini strativ e procee dings is that a party b e afford e d a re asonabl e opportunity to b e he ard and to submit any e viden ce he may have in support of his d e fe n se. ~>3 It must b e und e rsc ore d that "[w] hat th e law pro sc rib es is th e lack of opportunity to b e he ard. As long as a party is give n th e o pportunity to d e fe nd his int e res ts in du e co urse, he w o uld have no re as o n to complain, for it is thi s opportunity to b e he ard that makes up th e esse n ce of du e proc es s . " ~>~ In th e in stant c as e, th e rec ords cl e arly show that AVON wa s a cc ord e d by th e CIR a reasonab le opportunity to explain and pres e nt its e vid e nc e c onsisting of its le tt e r-reply , finan c ial stat e m e nts and other supporting d oc um e nts. II c ann o t th e re fo re b e argu e d that AVON wa s d e nie d of du e proc ess .{ 5I C ommission o f In fe rn a l Revenue v. Ho nte x 7roding C o. , Inc., G.R. No . 136975 , M arch 3 1' 2005 . 52 .J. C. Vitug and E.D. Acos la , TAX LAW A ND JURISPRUDENCE, (3�d e d. 2006 ), p. 293. 53 Aqu ilin o T. Lorin v. Th e Exec utive Secre tory, e t a /. , G.R . No. 11 27 45, Oc to b e r 16, 199 7 c i ting M idas Touch Food Corp. vs. NLRC G .R. No . 111639, Ju ly 29, / 996, 259 SCRA 652. 54 Spouses Estore s v. Co urt of Appea ls, e l o l., G.R . No. 144 755 , Jun e 8 , 200 5.

CIR v. Avon Produ c ts Manufac turin g, Inc. I Page 43 o f 45 Avon Prod uc ts Manufacturing, Inc. v . CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038) DECISION Further, as correc tly pointed out by the Court a quo , th e CIR's failure to apprecia te th e suppo rting doc um e nts prese nte d by A VON b e fore her is not tantam ount to d e nial of du e pro cess, thus: " It is not th e lo c k o f opportunity to present its side, but th e res p o nd ent's failure to appreciate the documents sub mitted by petitioner that beset th e Iotter. The difference in the appreciation by the respondent of petitioner's supporting documents which led to respondent 's assessment of petitioner 's deficiency taxes is not violative of due process. The respondent has the duty to receive the c larifi ca ti ons, explan a ti ons and conjectures forwarded to him by the taxpayer, however, he does not ho ve th e du ty to accept them on face value . The determination of the actual liability of a taxpayer in on assessment re li es on respo nd en t 's apprecia tion of the evide nce presented before him. And absent any arbitrariness, th e presumption is that respondent has mode th e assessment based on his findings and in good faith. As a log ica l outgrowth o f th e presumption in fa vor o f the valid ity of the assessmen ts, when suc h assessments ore assa il ed, th e burden of proof is upon th e com plaining party. It is in cumbent upon th e property owner clearly to show that the assessment was erroneous, in order to relieve himself fro m it."~'~' [Emp hasis suppli ed. ] In fin e, this Court finds that th e CIR's non-appreciation of AVON 's argumen ts and suppo rtin g documents subm itted b e fo re he r which led to th e su b seque nt issuan ce o f id e ntic al PAN , FAN, and Co ll ec ti on Le tte r ca nnot in any way be cons tru e d as d e privation of AVON's right to du e process absen t any proof o f any irregu larity in th e performance of he r duties. Thus , th e pres umption o f reg ularity in th e p e rforman ce of th e CIR's offic ial duti es shal l th e re fore stand.� 55 CT A EB No. 661 , Docket. pp. 52-53.

Cll\ v. Avon l'rodu c l s Monulocluring, Inc. I /\von l)roducls Mcmu foc luring , Inc . v. Cll~ CIA I I) Coso Nos. 661 & 663 (C I A Coso No . 703B) DEC ISION WHEREFORE prem 1ses co nsidered, the res p e cli ve Pe titio ns for Review o f lh e CI R and AVO N 1n C TA EB C a se Nos . 66 1 a nd 663 ore hmeby DENIED . Th e Decision and Reso lu ti on o f th e Sp ec ia l Firs t Division of !his Cou rt in CTA Case No. 7038 doled May 13,2010 and July 12, 20 10 o re AFF IRMED . No p ro no un ce m e nt as to cos ts. SO ORDERED. WE CONCUR : ~ N. M,.;.N-~ ~~ CIELITO N. MINDARO-GRU LLA Assoc ia te Jus ti ce t:J..-..'- cL., ~ ERNESTO D. ACOSTA Presid in g Justice ~~~- <EAs~~R.~. TISTA Assoc ia te Ju sti ce ' CAESAR A. CASANOVA Assoc ia te Jus ti ce w I A~ sE~~~.~uU~ Ystice ~ [}_ _.. _ - (wil*;;ia~u~~ (on wei/n ess le ave) O LGA PALAN CA-ENRIQUEZ ESPERANZA R. FABON-VICTORINO Assoc ia te Ju sti ce Assoc io 1e Jus ti ce ~~-~~,-/~ AMELIA R. COTANGCO -MANA LASTAS Assoc iate Ju sti ce

CIR v. Avo n Produ c ls M o nu fo c luri ng , In c . I Pag e 45 o f 45 Avo n Pro duc ls M o nu foc l uri ng , Inc. v . CIR CT A EB Cas e Nos . 66 1 & 663 (C TA Cas e No . 7038) D EC ISION CERTIFICATION Pursuant to Articl e VIII , Sec lion 13 of th e Con stitution , it is he re by ce rtifi e d that th e c on c lusion s in th e abo ve Dec ision w e re re a c he d in c onsu ltation among th e m e mbe rs of th e C o urt En Bone before the c a se wa s a ssign e d to th e writ e r o f th e o pini o n o f th e C o urt En Bon e. c ~"lie , -..L- ERNESTO D. ACOSTA Presiding Ju sti ce

RE PU BLI C OF THE PHI LIPPINES Court of Tax Appeals QUEZON CITY ENBANC COMM ISS IONER OF INTERNAL C.T.A. EB N0.661 REVENUE, (C.T.A. CASE 0. 7038) Petition er, -ve r sus- AVON PRODUCTS M ANUFACTU RI NG, C.T.A. EB N0.663 INC., (C.T.A. CASE NO. 7038) Respondent. Presen t: )(-----------------------------------------)( AVON PRODUCTS MANUFACTU RI NG, INC., P etition er, -vers us- ACOSTA, Pres iding Ju stice, CASTANE DA, JR., COMM ISS IONER OF INTERNAL BAUTISTA, REVENUE, UY, CASANOVA, Respondent. PALANCA-EN RI QUEZ, FA BON -V ICTO RI NO, MIN DA RO-G RULLA, and COTANGCO-MANALASTAS, JJ. Promulgated: N.n..., v 0 9 2011 ~.~. ~"'/v~/"".d"-2!-...-c -~~ , .... t:' ""' . """"" , X ------------------------------------------------------------------------------------ X SEPARATE CONCURRING OPINION PALANCA-ENRIQUEZ, J.: Pri or to the enactment of RA 8424, otherwise known as the N!RC of I 997, as amended, taxpayers were required to wait fo r the dec ision of the

C.T.A . EB Nos . 66 1 and 663 2 (C.T.A . Case No. 7038) Separate Concurrin g Opini on Commi ss ioner before they may appeal to th e CTA, as the inacti on of the Co mmi ss ioner to their protests was then not appea lable to the CTA. Thus, Coll ections Letters were considered as a deni al of the tax payer' s protest on the assessment that may be appea led to the CTA. However, w ith the amendment on the inclusion of the prov ision on inacti on of the Commi ss ioner w ithin a peri od of 180-days , introduced in Section 228 of the NIR C of 1997, as amended, the lawmakers clearl y intended to add another ground when the taxpayer may appeal to the CTA and when an assess ment may become fin al. As a consequence thereof, Co ll ection Letters issued after the lapse of the 180-day peri od cannot be co nsidered as the dec ision of th e Commiss ioner on the taxpayer' s protest on the assess ment that is appea lable to the CTA. Section 228 ofthe NIR C of 1997, as amended, prov ides: "xxx xxx Such assess ment may be protested admini strati vely by filin g a request for reconsiderati on or reinvesti gati on w ithin thirty (3 0) days from receipt of the assessment in such fo rm and manner as may be prescribed by implementing rul es and regul ati ons. Within sixty (60) days from filing of the protest, all relevant supporting docum ents sha ll have been submitted; otherw ise, the assessment shall beco me fin al. lf the protest is deni ed in whole or in part, or is not acted upon w ithin one hundred eighty ( 180) days from submi ss ion of docum ents, th e taxpayer adversely affected by

C.T.A. EB Nos . 66 1 and 663 3 (C.T.A. Case No. 7038) Separate Concurrin g Opinion the decision or inaction may appeal to the Co urt of Tax Appeals within thirty (30) days from receipt of th e said deci sion, or from the lapse of the One Hundred Eighty ( 180)- day period ; otherwise the decision shall become fin al, executory and demandable." Pursuant to the above provision, it is clear th at a tax payer adverse ly affected by the decision or inaction of th e CIR within the 180-day peri od, may appeal to the Court of Tax Appeals ("CTA"), within thirty (3 0) days from receipt of the decision, or from the lapse of the 180-day peri od; otherwise, the decision shall become fin al, executory and demandabl e. Settled is the rul e that if a statutory remedy prov ides as a conditi on precedent that the action to enforce it must be commenced within a prescribed time, such requi site is jurisdictional and failure to co mpl y therew ith may be raised in a moti on to di smi ss (Rizal Commercial Banking Corporation vs. Commissioner ofInternal Revenue, 49 1 SCRA 221) . Moreover, it is a well-settled rul e th at if the words of the law are clear and free of ambiguity, it must be given its literal meaning and applied without any interpretati on (Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, 554 SCRA 398, 409) . The general rul e of requiring adherence to the letter in construing statutes applies with particular strictness to tax laws and provisions of a tax ing act is not to be extended by imp) icati on (Commissioner ofInternal Revenue vs. Ariete, 610 SCRA

C.T.A. EB Nos . 66 1 and 663 4 (C.T.A. Case No. 7038) Separate C o nc urrin g O pini o n 472) . Cl early, the period to appeal w ithin 30-days after the lapse of the 180-day peri od und er Section 228 of the NIR C of 199 7, as amended, is mandatory and jurisdictional. On the other hand, Section 3, Rule 4 of the 2005 Revised Rules of the CTA, as amended, prov ides, as follows : " SEC . 3. Cases Within the Juri sdiction of the Court in Div is ion. - The Court in Division sha ll exerc ise: (a) Exc lus ive orig inal or appe ll ate jurisdi ction to rev iew by appeal the fo ll ow ing: XXX XXX (2) Inacti on by the Commi ss ioner of Interna l Revenue in cases involving disputed assessments, refunds of internal revenue taxes , fees or other charges, pena lti es in re lati on thereto, or oth er matters arising under the Nati ona l Internal Revenue Code or other laws administered by the Bureau of Interna l Revenue, where the Nati ona l Interna l Revenu e Code or other applicabl e law provides a speci fic peri od fo r acti on: Prov ided, that in case of di sputed assessments, the inacti on of th e Co mmi ss ioner of Intern al Revenue w ithin the one hundred e ighty day- period under Secti on 228 of the Nati ona l Interna l R evenue Code shall be deemed a deni a l fo r purposes of allow ing the taxpayer to appeal his case to the Court and does not necessarily constitute a fo rm al dec is ion of the Comm iss ioner of Interna l Revenu e on the tax case; Prov ided, further, that should th e taxpayer opt to awa it the fin a l decis ion of the Co mmi ssioner of Intern a l Revenue on the disputed assessments beyond the one hundred e ighty day-peri od abovementi oned, the tax payer may appea l such fi na l dec is ion to the Court under Secti on 3(a), Rul e 8 of

C.T.A. E B Nos. 66 1 and 663 5 (C.T.A. Case No. 7038) Separate Co ncurrin g O pinio n these Rul es; and Prov ided, still furth er, that in the case of claims fo r refund of taxes erroneously or illega ll y co ll ected, the taxpayer must fil e a petiti on fo r rev iew w ith the Court pri or to the expirati on of the two-year peri od under Secti on 229 of the N ati onal Internal Revenue Code. XXX XXX." The above prov ision was applied by the Supreme Co urt in the case of RCBC vs. Commissioner of Internal Revenue, 522 SCRA 152- 153 , as fo ll ows : "From the fo rego ing, it is clear that the j urisdi cti on of the Court of Tax Appeals has been expanded to include not onl y dec isions or rulings but in action as we ll of the Commi ss ioner of Internal Revenue. The decis ions, rulings or inacti on of th e Co mmiss ioner are necessary in ord er to vest the Court of Tax Appeals w ith j uri sdi cti on to entertain the appeal, prov ided it is fil ed w ithin 30 days after the receipt of such dec ision or ruling, or w ithin 30 days after th e exp irati on of the 180-day peri od fi xed by law fo r the Commi ss ioner to act on the disputed assess ments. Thi s 30-day peri od w ithin whi ch to fil e an appeal is jurisdi cti onal and fai lure to comply therew ith would bar th e correctness of the assess ments. Such period is not merely directory but mand atory and it is beyond th e power of the courts to extend th e same . In case the Commiss ioner fa il ed to act on the di sputed assess ment w ithin the 180-day peri od from date of submi ss ion of documents, a taxpayer can either: 1) fi le a petiti on fo r rev iew with the Court of Tax Appea ls w ithin 30 days after the expirati on of the 180-day period; or 2) awa it the fi nal decision of the Commiss ioner on the di sputed assess ments and appeal such fi nal dec ision to th e Court of Tax Appeals w ithin 30 days after receipt of a copy of such dec ision . However, these options are mutuall y exc lusive, and resort to one bars the applicati on of the oth er."

C.T.A. EB Nos. 66 1 and 663 6 (C.T.A. Case No. 703 8) Separate Concurrin g Opini on Hence, based on the RCBC case and the aforequoted Section 3, Rule 4 of the 2005 Revised Rules of the CTA, as mnended, in case of inaction of the CIR to decide the protest within th e 180-day peri od, a second option is afford ed to the taxpayer, to wit: to wait fo r the fin al decision of the CIR on the di sputed assess ment even after th e ex pirati on of the 180-day peri od and appeal such fin al decision to the CTA, within 30 days from receipt of the decision. However, nowhere in Section 228 of the NJR C of 1997, as amended, is there a prov ision that th e taxpayer is given a second option to wait for the CIR's decision even after th e expirati on of the 180-day period . Section 228 is explicit in providing that should the taxpayer fail s to appeal within 30 days after the expirati on of the 180-day period, the decision shall become fin al, executory and demand abl e. It is my humble opinion that the second option afforded to the taxpayer in Section 3, Rule 4 of the 2005 Revised Rules of the CTA , as amended, is without legal bas is as it would render nugatory th e 180-day period fo r the CIR to decide the protest under Section 228. Well-settled is the rul e that rul es and regul ati ons adopted and promul gated must not, however, subvert or be contrary to existing statutes. Thus, in the recent case of Lakin, Jr. vs. Commission on Elections, G. R. Nos. 17943 1-32 and

C.T.A. EB Nos. 66 1 and 663 7 (C.T.A. Case No. 7038) Separate Conc urri ng Opi nio n 180443, June 22, 2010, the Supreme Court rul ed, as fo ll ows: "The authority to make IRRs in order to carry out an ex press legislati ve purpose, or to effect the operati on and enfo rcement of a law is not a power exc lusive ly legis lati ve in character, but is rather admin istrative in nature. The rul es and regul ations adopted and pro mul gated must not, however, subvert or be contrary to ex isting statutes . The functi on of promul gating IRRs may be legitimately exercised onl y fo r the purpose of carry ing out the prov isions of a law. The power of admini strative agenc ies is confi ned to impl ementing the law or putting it into effect. Coro ll ary to thi s is that admini strative regul ati on cann ot ex tend the law and amend a legislati ve enactment. It is axiomati c that the clear letter of the law is controlling and cannot be amended by a mere admini strati ve rul e issued fo r its im plementat ion. Indeed, admini strati ve or executive acts shall be valid onl y w hen th ey are not contrary to the laws or the Const itution." There is abso lute ly no legal bas is to rul e that taxpayers may wait indeterminate ly fo r the dec ision of the Commi ss ioner, as the inev itab le conseq uence thereof would nulli fy the intent of the law in prov iding for the 180-day and 30-day periods under Section 228 and make the assess ments, w hi ch are subj ect to the recons iderati on of the Commi ss ioner, imprescriptibl e. Moreover, it w ill j ust encourage taxpayers to s leep on their duti es and hope that the BIR fo rgets to co ll ect or co ll ects after the prescriptive period of co ll ection. In view, however, of th e ruling of the Supreme Co urt in the RCBC case, and the Supreme Court, being the court of last resort, and is the fi na l

C.T.A. EB Nos . 661 and 663 8 (C.T.A. Case No. 7038) Separate Concurri ng Opinion arbiter of all legal questions properly brought before it, and considering that its dec ision in any g iven case constitutes the law of that particular case; I have no alternative, but to follow the ruling of the Supreme Court in the RCBC case . For all the foregoing, I am therefore constrained to concur with the Majority in ruling that the Petition for Rev iew filed in C.T.A. Case No. 7038 was fi led on time. ~~~ 'P OLGA ALANCA-ENRIQUEZ Associate Justice