CTA Case No. 4168 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY JARDINE DAVIES INC., Petitioner, - versus - C.T.A. CASE NO. 4168 COMMISSIONER OF INTERNAL RE.V~NUE, Respondent. X- - .- �- - - - - X �o E C .I 0N In the instant case, petitioner pr ays for the Court to render judgment ordering respondent to refund to it the amount of P18,091.49 in allegedly overpaid tax on subsequent sales for the period January to May, 1986. The facts of the c ase are simple. Petitioner, a duly organized and existing Philippine corporation, timely filed with respondent's Makati-West Revenue District Office- <RDO 32- A) its monthly returns of sales tax on . �' subsequent sales for the months of January to May, 1986, inclusive. The amounts declar~d in such returns as sales subject to tax and the tax due thereon, are hereunder summarized as follows <Exhs. 22

DECISION CTA CASE NO. 4168 - 2- "A", "K", "M", "0" and "Q"; CTA Records, pp. 7, 9, 11, 13, and 15 >: Month Sales Subject Tax Due To Tax Thereon -------- ------------- ----------- January February P15, 415,121. 12 p 231, 226.82 March 16,730, 851. 24 Apr i l 250, 962.76 l'!ay 18,067,332. 90 20,318,641 . 85 271,009.99 20,162,114. 05 304,779.63 ------------- 302, 431. 71 --P�-9-0--,6-94--1-06-1-.-16 ----------- -P-1-,-36--0-1--41-0.-91 The amounts listed above as tax due �or the months January to May, 1986 were duly paid by petitioner, as . shown by the con�irmation receipts and payment orders, photocopies o� which were admitted by the Court in evidence <Exhs. "A-1", "A - 2", "K - 1", "K-2", "M - 1", "M - 2", "0 - 1", "0 - 2", "Q-1", and "Q - 2"; CTA Records, pp. 8, 10, 12, 14, and 16 >. On June 30, 1986, petitioner :filed with respondent's Makati - West Revenue District 0�:fice, ,I its "Amended Monthly Return 0� Sales Tax On Subsequent Sales" covering the period �rom January to May, 1986, inclusive, therein declaring as its taxable second sales, the amount o� ?89,478,961.32. In the same return, petitioner declared a re�undable tax in the amount o� ?18,091.49. 226

DECISION CTA CASE HO. 4168 - 3- On July 23, 1986, petitioner :filed with the chie:f o:f the Appellate Division o:f the BIR a letter dated July 18, 1986, requesting :for the re:fund o:f the amount o:f P18,091.49, representing allegedly ) overpaid tax on subsequent sales for the period January to May, 1986 <Annex �c�, Petition for Review; CTA Records, pp. 19 to 21). Petitioner's grounds for the request are stated in the July 18, 1986 letter, thus: �xxx <T>he amount declared as sales subject to tax <for the month o:f January, 1986> erroneously included the following: 1. The sale of 'Fosferno', a manufactured article, subject to tax on original sale, totalling P296, 221. 77; 2. The sales o:f our Cebu, Bacolod and Davao branches totalling P616,153.70; 3. The sales for December 1985 totalling P253,601.47; 4. Sales returns and allowances totalling P134,564.64. XXX XXX XXX xxx <T >he amount declared as sales subject to tax <for the month o:f April, 1986) erroneously included the sales of the firm's Cebu, Bacolod and Davao Branches totalling P507,133.92. Consequently, the firm made an overpayment for the month of April, 1986. XXX XXX XXX 227

DECISION CTA CASE NO. 4168 - 4- xxx <T>he said amount declared as sales <for the month of May, 1986 > erroneously included the sales of the .firm' a Cebu, Bacolod and Davao branches totalling P328, 917. 64 Hence, the firm made an overpayment for the month of May 1986. XXX XXX xxx" <Letter dated July 18, 198 , paragraphs 3, 5, and 7; 20). CT A Records, pp . 19 and On June . 26, 1987, as respondent had not yet acted on petitioner' a request for re.fund and in order to toll the running of the prescription period, the instant case was instituted by petitioner by filing a petition for rev i ew with the Court. The issue brought before the Court for adjudication is whether or not petitioner' a claim for refund in the amount of P18,091.49 is corr ect. ) Petitioner sets forth .four separate grounds for its claim for refund, each one of which covers distinct portions of the total amount being claimed, and are namely: 1. the inclusion of the sale of "Fosferno", which is allegedly a manu.factured article subject to tax on original sales (for the month of January, 1986>; 2. the inclusion o.f the sales made by petitioner' a separate branc hes or places 228

DECISION CTA CASE NO. 4168 - 5- of business in the cities of Cebu, Bacolod and Davao (for the months of January, April and May, 1986>; 3. the inclusion of sales allegedly already included in petitioner's December, 1985 monthly tax on subsequent sales return (for the month of January, 1986>; and 4. the inclusion of sales returns and allowances among the taxable sales (for the month of January, 1986>. These grounds shall be discussed by the Court separately, with emphasis put on the facts of the case, as there are no legal controversies herein involved. I. Raised by petitioner as ground for part of its claim for refund is the alleged erroneous inclusion of the sales of the product Methyl Fosferno, in the amount of P296,221.77, as part of petitioner's January, 1986 taxable subsequent sales. Petitioner alleges that said product is manuf'actured by it, and is theref'ore subject to tax on original sales, instead of' on subsequent sales. As stated by petitioner in its memorandum which was f'iled with the Court on November 25, 1991: 229

DECISION CTA CASE NO. 4168 -6- "We respectfully submit that the inclusion by petitioner of ita P296, 221. 77 sales of 'Fosferno' as part of its January, 1986 subsequent sales tax gross sales of P15,415,121.12 is erroneous. This is due to the fact that Methyl Fosferno was a manufactured product of petitioner, and as such it is subject to tax on original sales under the then Section 163 of the Tax Code. In this connection, it should be noted that under Section 164 of the then Tax Code in rel tion to Section 1~b) of Revenue Regulations No. 1 - 86, the tax on eubsequ nt salee is app icable only to a 'domestically acquired rticle where such ~:r.!: iQ!!!L_ Il.as not._..-!!nde.,!:gone __LM_!u~t.!ler proo~-~~qng or trans�Q~~~t~o~" <Memorandum For Petitioner, p.6; CTA Records, p. 133 >. There is no question that, if Methyl Fosferno is, indeed, a product manufactured by petitioner, then it is eubjec , not to the tax on subsequent sales under Section 165 <B) of the 1977 Tax Code, but to that on original sales, as provided by Section 16S<A> of said code. For, according t6 Section 1< b) of Rev. Regs. No. 1 -86 <Sales Tax �' Regulations on Subsequent Sales>, the term "subsequent sale " , xcept in certain sales enumerated in section 3 of the same regulations, refers to "sale, . barter, exchange, transfer or similar transaction for nominal or valuable consideration intended to transfer ownership of or title to any domestically acquired article wheret 230

DECISION CTA CASE NO. 4168 -7- not u~de :t_g_9n e____a llL __;t urther The question which the Court must settle, therefore, is whether or not Methyl Fosferno is ' a product the sale of which is subject to the tax imposed by Section 165<8> of the 1977 Tax Code. In its memorandum, petitioner contends that "<t>he fact that Methyl Fosferno is a manufactured product of petitioner was clearly established. Mr. Julito c. Jose, the Financial Controller of petitioner's Trading and Light Industry Group testified on this matter" <Memorandum For Petitioner, p. 6; CTA Records, p. 133). The Court does not agr ee with petitioner ' s evaluation of the facts. In the instant case, petitioner sought to establish the fact that Methyl Fosferno is a manufactured product solely by pointing to pages 5 to 7, and 32 to 33 of the T.S.N. (dated October 6, 1989> of the testimony of its witness, Mr. Julito C. Jose. The Court has gone through the October 6, 1989 T. 5. N. , particularly the pages specified by petitioner, and We hereinbelow quote the only portions thereof which We find relevant to the issue at hand:

DECISION . CTA CASE NO. 4168 -8- "Q. And, to your knowledge, Mr. Witness, why do you say that the sale of Methyl Fosferno was erroneously included in your subsequent sales tax? A. Well, Methyl Fosferno is a manufactured product and I understand that under the law, manufactured products are subject to manufacturer's sales tax. Q. And hgw do vou know, Mr. Wi tness.L that Methyl Forferno is a manufactured product? A. As the jinancial controller of the compa~y, i t is my duty to_~nQ.~ the nature of our products. Actually~ Methyl Fosferno is �beil}_g_ f.Q.!"_!)'IUlated a~- te_c~nic~_! ~aterials ~re imported and these are blended with locally ~ourq~ materials. " <T. S. N., � October 6, 1989, pp. 6 to 7> <Underscoring Ours) The Court finds the testimony of Mr. Julito C. Jose on the matter of Methyl Fosferno insufficient to prove that such is not subject to the tax on subsequent sales. In the first place, while Mr. Jose, who is the financial controller of petitioner's Trading and Light Industry Group, may be competent to testify on matters concerning the Group's and petitioner's finances, he is certainly not competent to testify on whether or not Methyl Fosferno is, technically speaking, a manufactured product. This, notwithstanding his statement that 232

DECISION CTA CASE NO. 4168 - 9- "as the financial controller of (petitioner>, it is <his> duty to know the nature of <petitioner' a> products. " In the second place, Hr. Jose's testimony, when he was asked by petitioner' a counsel how he <Hr. Jose> knows that Methyl Foaferno is a manufactured product, that: "xxx Actually, Methyl Foaferno is being formulated as technical materials are imported and these are blended with locally source materials." <T.S.N., Octobr 6, 1989, p. 7> is, at beat, equivocal~ and at worst; may be read to mean that Methyl Foaferno is a . raw material which is mixed with imported technical and local material in order to produce a manufactured product. Thus, it is not amiss to say that, even if Hr. Jose were a technically qualified and competent witness <which he is not>, the Court would still not be convinced that Methyl Fosferno is a manufactured product which 1is not subject to tax on subsequent sales. Therefore, petitioner's claim for refund, insofar as its sales of Methyl Foaferno are concerned, must fail.

DECISION CTA CASE NO. 4168 - 10 - II. Also raised by petitioner as the basis for part of its claim for refund is the alleged inclusion of the sales made by petitioner's separate branches or places of business in the monthly second sales tax return for petitioner's principal office in Makati for the months of January, April and May, 1986. The total amount of P1,452,205.26 is alleged by petitioner to have been so erroneously declared, the said amount broken down by months as follows <Memorandum For Petitioner, p. 4; CTA Records, p. 131): Month A1ount of Subsequent Sales Allegedly Misdeclared January, 1986 For Makati April, 1986 May, 1986 p 616,153.70 507,133.92 328,917.M -P1--,-4-52--,-2-05--.-2-6 The Court does not find sufficient basis in petitioner's documentary and testimonial evidence to grant the refund of the said amount of money. ) Petitioner failed to prove to the Court that the said P1,452,205.26 was included by it in its Makati returns for January, April and May, 1986. 2 34

DECISION CTA CASE. NO. 4168 - 11 - For � the month o� January, 1986, petitioner's evidence proves three things: that it had �iled said month's second sales tax returns �or its Bacoloq and Cebu branches <Exhs. "T" and "W"; CTA Records, pp. 89 and 95, respectively>, which returns show net taxable second sales in the amount o� P553,998.19 and P203,026.40, respectively; that its Makati return �or the same period shows net taxable subsequent sales in the amount o� P 15, 415, 121. 12 <Exh. "A"; CTA Records, p. 7 >; and that its records <Exh. "AA" ; CTA Records, p. 109> re�lect the �allowing breakdown o� subsequent sale.s �or the month o� January, 1986: PRODUCT Location Net Sales Oil & Greases Makati P2,019,812.27 Cebu 135,663.96 Bacolod 347,997.09 Davao 132,492.65 P2,635,965.97 Ce1ent Makati 9, 363, 853.25 T0 TAL P11,999,819. 22 This Court �inds, a�ter care�ul analysis, that these �igures cannot be reconciled so as to entitle petitioner to the re�und o� P616,-153. 70, although this amount is the total o� the subsequent sales 235

DECISION CTA CASE HO. 4168 - 12 - recorded by petitioner in its Exhibit "AA", as summarized above. The figures recorded in said Exhibit "AA" do not tally with the amounts declared by petitioner as taxable second sales for its Makati, Bacolod and Cebu branches. <As far as petitioner's claim for refund of its Davao branch sales is concerned, We note that the petitioner failed to submit evidence that it filed any second sales tax return covering the same. ) Thus, the Court does not have any basis to decide whether the amount claimed for refund was included in both petitioner's January Makati return and in its respective branch returns. As claims for refund are like tax exemptions and must be construed strictly against the claimant (petitioner in this case>, the Court must find against the petitioner, which has failed to prove its entitlement to the amount claimed for. The same holds true for petitioner's claim for refund under this second ground for the months of April and May, 1986. With respect to its claim for the month of April, 1986, We note that petitioner failed even to . submit any documentary evidence showing the breakdown of its sales for that month among its different branches. With regard to its May, 1986 claim, on the other hand, the evidence 236

DECISION CTA CASE HO. 4168 - 13 - ) submit ted by petitioner in support o� the same, like those submitted in support o� the January, 1986 claim is, at best, inconclusive. Thus, the claim �or re�und �or said months must also �ail. III. The third ground raised by petitioner is the alleged erroneous inclusion in its January, 1986 monthly subsequent sales tax return o� sales allegedly already included in petitioner's December, 1985 monthly return. Petitioner, in order to prove its allegation, submitted to the Court in evidence certain documents and papers, and emphasized the testimony o� its sole witness, Mr. Julito C. Jose, on this matter. Using these documentary and testimonial evidence, petitioner sought to show the �allowing: that in December, 1985, it made, among others, certain sales amounting to P253,601.47; that such sales were booked by it as sales in the month o� December, 1985 and were allegedly declared by it in the � subsequent sales tax return �or that month; that the products sold under such sales remained undelivered as o� December 31, 1985; that on that date, it made a reversing entry in its books, thereby debiting the sales and crediting accounts )-

DECISIOH CTA CASE HO. 4168 - 14 - receivables both in the amount of P253,601.47; .J that the products subject of such sales were finally delivered in January, 1986; that due to such delivery, it booked the P253, 601.47 sales in its books for the month of January, 1986; and that it included the said amount among the taxable sales which it declared in its monthly second sales return for the month of January, 1986. Based on the foregoing, petitioner contends in its memorandum that: "During the hearings of the case, petitioner . presented as evidence its records that establishes (sic> the fact that its December, 1985 sales were recognized in its books of accounts and reported for subsequent sales tax purposes in December, 1985 and January, 1986. xxx. This point was extensively testified on by petitioner's witness. xxx. " (Memorandum For Petitioner, p. 9; CTA Records, p. 136> The Court, once again, cannot agree with petitioner's conclusion. The evidence submitted by petitioner <and, it must be pointed out at this juncture that its Exhibit "J" is not its monthly subsequent sales return for the month of December,1985, but its return for the month o� November, 1985> only shows that there were, indeed, sales amounting to P253,601.47 which were recorded in petitioner's books for the month o� December, 238

DECISION CTA CASE NO. 4168 - 15 - 1985, and that the same were again booked by petitioner in the month of January, 1986. However, the evidence does not, by any means, prove that such sales were included by petitioner in its subsequent sales tax return for the month of December, 1985. If at all, it shows the complete opposite of that which petitioner wishes to prove. Petitioner's Exhibit "E", which is its Journal Voucher No. 134 dated December 31, 1985 shows that, on that date, petitioner reversed its entry crediting the amount of P253, 601. 47 as sales for the month of December, 1985. In other words, as of December, 1985, the said amount was no longer recognized as sales in the books of petitioner; and it is, therefore, inconceivable, as petitioner contends, that the same would be included in its December, 1985 return as sales subject to the tax on subsequent sales. That petitioner had, prior to December 31, 1985 booked the said P253, 601. 47 as sales is of no moment, as it could not have made J its second sales tax return for the month of December, 1985 prior to the end of the month. Thus, petitioner's claim on this third ground must likewise fail. 239

DECISION CTA CASE HO. 4168 - 16 - IV. Finally, petitioner puts �orth as basis �or its claim �or re�und, the alleged erroneous inclusion o� sales returns and allowances in the amount o� P134, 564. 64 in its monthly second sales tax return �or the month o� January, 1986. The Court agrees with petitioner that under Section 4 o� Rev. Regs. No. 1-86, petitioner is allowed to deduct �rom its gross sales �or any given month any and all sales returns and allowances made during the same month. However, ) the Court believes that petitioner has not su��iciently proven its right to claim �or the alleged sales returns in the amount o� P134,564.64 for th'e month of January, 1986. To prove its claim for re�und, petitioner merely submitted in evidence two Invoices one numbered 0015 and dated January 14, 1986 (which has marked across its face the word "CANCELLED">, and the other number 0056 and dated January 22, 1986 <which contains the note "This cancels & supersedes Inv. No. 0015 1/14/86") and Mr. Julito C. Jose's testimony on the matter. As far as the Court is concerned, the only thing which petitioner managed to prove with its 2 40

DECISION CTA CASE NO. 4168 - 17 - documentary and testimonial evidence is that the later invoice (No. 0056) cancelled and superseded the earlier one <Invoice No. 0015 >. Petitioner, however, �ailed to prove that, in the :first place, the amount covered by the cancelled invoice was included among the sales declared in its January, 1986 second sales tax return. Absent such showing, the Court cannot allow petitioner to claim the amount o� P134, 564. 47 as deduction �rom its gross taxable sales subject to tax on subsequent sales �or the month o� January, 1986. (It must be noted that the amount invoiced in Inv. No. 0015, is P134,510.70, and not P134,564.47, which is the amount claimed by petitioner as return based on the cancellation o� said invoice. There�ore, the claim o� petitioner under this :fourth ground, too, must :fail �or lack o� su��icient evidence. As a :final note, the Court points out the �act that while petitioner ' s claim :for re�und is only �or the amount o� P18,091.49, the amount o� sales which it alleged in its pleadings to have erroneously included in its monthly returns �or the months o� January, April and May, 1986 total P2, 136, 593. 14, which amount corresponds to a 1. 5Y. 241

DECISION CTA CASE NO. 4168 - 18 - tax o� P32,048.90. This discrepancy �urther bolsters the Court's � conclusion that the instant claim �or re�und is not correct. In view o� the �oregoing, the Court �inds and so holds that petitioner is not entitled to a re�und �rom tax on ~ubsequent sales �or the months o� January to May, 1986 in the amount o� p 18, 091. 49. WHEREFORE, �inding the instant peti ticm�-:. .. �or review without merit, the same is hereby DISMISSED, and petitioner's claim �or re�und is hereby DENIED. With costs . against the petitioner. SO ORDERED. Quezon City, Metro Manila, April 10, 1992. (/ 7'ft1t J'---- ANTE �!. ROAQUIH Judge WE CONCUR: ~~ \Q. C:vrJ\. ERHESTO D. ACOSTA Presiding Judge S ~;;;~A~D~A~D~I~V~AL'CS:!:-~a-D'I~~S Associate

--- DECISION CTA CASE NO. 4168 - 19 - CERTIFICTATION I he~eby ce~tify that this decision was ~�ached aft�~ due consultation among the membe~s of the Cou~t of Tax Appeals in acco~dance with Section 13, A~ticle VIII of the Constitution. @~IQ,~ - ERNESTO D. ACOSTA P~��iding Judge Cou~t of Tax Appeals ) 243