CTA Case No. 2740 (Decision)

A!J>UBLIC OP 'filE fH.IUJ'PINI'' (!OU.RT OF X ..... P.EALS. QUEZO~ Cl ~ PROCTE...l={ & GAMBLE PHILII'PI:t-J""E NANUF.ACTURING CORPORATION, Petitioner, - versus - C., T .A .. CASE NO�. 274-0 'l'HE COMMISS n.~J.'viE...li OF INTK NAIJ REVEJ'JUE, Respondent., X- - - - - - - - - - - - - X DE C I S I 0 N This is a pe~ition to review the decision of res- pondent Commissioner of Internal Revenue holding petitioner Procter & Gc:.mble Philippine Hanufacturing Corporation liable for defj_ciency 7% s ales tax on lard, mare;arine, soap, etc~ in the amount of R1, 032,257 .38 and deficiency sales tax (difference between 7% and 2%) on cooking oil for the year 1967 in the amount of !7263 ,570.91, or a total of �'1 , 295,828.30, inclusive of 25;-6 surcharge for .. late payment'. Petitioner, Procter & Gamble Philippine Manuf~ turing Corporation, hereinafter referred to as Procter & Gamble~ PHC, for brevity�, a domestic corporation organized and existing under Philippine La~rs, is engaged among others, in the manJfac ~uro of lard, margarine, soap, detergents, palm oil, glycerine, cooking oil and crude coconut oil.4 "� .. �. lt'�i

------~~~======= - --~-- DECISION - CTA CASE NO . 2740 - 2 ~-~ Sometime in February 26, 1968, Revenue Examiner Ruperto Estrada examined the books of account and other accounting records of petitioner fo~ business tax pur- poses for the year 1967. After investigation, petitioner received on September 17, 1971 a letter of ass e ssment dated August 19, 1971 demanding against petitioner for �i 967 the payment of' deficiency 7% sales taL on l~rc. , Jargarine, soap, etc. in the amount of ~1,032,257 o38~ and deficiency sales tax (difference betvreen 7% and 2%) on cooking oil in the amount of F263 ,570$91, or a total of �1,295,828.30, inclusive of 25% surcha!'ge for late payment (pp.c 62 .(9 7 BIR rec.) computed as follows: ']j_ Sales Tax on La.rd, Margarine~ _�oap_,..-..&.:tc ,; Amount subject to sales tax �4;:8,, 08 I�, 009 �.21. per investlgatio~ 3,365,880,.64 2' �4205_,,t_J,~02.54-_.~9.13. 7% sales tax due thereon L . Z CE,..:l!�.2~1. F1 ,0 3 ~~257 .. 38 I,ess: Tax already paid Deficiency sales tax due Add: 25% surcharge for late paym e n t 7% Sales 'l'ax_.QD Co.Qking 0 :: 1: .lunount subject to sales tax ~~_lt.~ 184 s.J16 !21. r 292,9o2,16 per investigation 7% sales t ?.:: due thereon 82,045e4 3 Less: Tax al ready paid f? 210j856 . 73 Deficiency sales tax due _ _2?..,214.18 !::_263, 570.,91 Add : 25% surcharge for l a te. paymenL~. TOTAL Jl1>10UNT DUE AND COLLECTIBLE ~-,2~�?=-.fh?.2 The assessment for deficiency 7% tax on tlard, margar i ne , s oap, etc." aforesaid arose ma inly from the

DECISION CTA CASE NO& 2740 - 3 .... disallowance of the deductions for containers and packaging materials fo r not allegedly being taxed under then Sec tion 186 of the Tax Code~ (Par. 5~ Petition f 0r ~eview; Admi - In other wo rds, the raw ma t er i a ls were not made sub ject to t he 7% sales tax but a llegedly to the 3% contractor's tax, the sa'd mater i a ls h ving been prod uc ed . a llegedly by suppliers per specifications of peU. tioner ; while the assessme.�1t fo::. defic i ency .sales t ax o n c ooking oil is due to t he contention of respondent thdt the same was taxable under t hen Section 186 of the Tax Cod e at 7% and not under Sect ion 189 a t 2%~ (Par. 7 ~ Pe t i t i on f or Revie;-T; Admitted, Par. 1_, !-~.nswe r ., ) On September 28, 19 71, peti t ioner wrote a l et ter dated September 27 , 1971 addressed t o the Bureau of Internal R8 venue 1 s Bus iness T~Y Division and requested for details as to h ow "che assessment was arrived a. t 4 (Exh. aBB~� 3" o~ PP� 122, CTA rec; PP � 8-!0, T.S.N. , February 20, 1979.) Then on No vembe r 25� 1 971~ petitioner f~led its l e t t er of pro te st. (Exh. 11 ~"1 11 , PPo 8 6-1 00, BIR Re c,.) On August 1 2 1 1 975� responden~ rendered a decision~ wh ich was rece iv2a by pet itioner on September 13 1 197S (Exh., "P.A", p p . 169-174 , BIR Re c.; Annex A 11 11 Petition ,. for Review) denyi,g the protest~ Hence 0 pet i ~ion er filed its petition for revi ew on September 1 7 1 1975. Respondent, f iled it.s answe r to th e peti.tion for review on r1a rch 16.,. 197 6.

DECISION CTh CASE NO. 2740 - 4- Respondent, in its memorandum in chief stated that he is withdrawing the assessment for defic iency sales tax on cooking oil, in view of BIR Ruling No . 203-0000- 00-098- 83 dated June 8, 1983, providing that proprietors or operators of coconut oil mills are subject to the miller's tax of 2% and not to 7% sale.s tax assessed against petitioner. The various issues to be �e , -lved by the Court e>.re a s follows: 1. ~�Jhether or not thls Court hcs jurisdiction to take c ognizance of t his case; 2. whether 0r not the examiner of respondent overstated the g ross sales figure in computin J t he deficiency assessment on the sales of lard, margarine, soc.p, etc.; 3. Whether or ne t the disallowance of the costs of raw materials against the sale of lard# margarin~, soap, etc., was proper; 4. \�~hether or not �the sales �taxes on the sales of lard, margarine, soap, etc.; billed separately on the sales invoices to petitioner 1 s 6us~omers should be included as part of the tax base ; and s. Whether or not the twenty-five percent (25%) surcharge for lat.e payment is imposable in this case .. .s to the first issue, respondent maintain s thatfuis Court has no jurisdiction to entertain the present appeal as the assessment dated August 19, 1971 was only protested on November 25, 1971~ after the lapse of more t han thirty ( 30) days from receipt of said assessment on Se~~ember 17.� 1971, and a decision of the Commissioner of Internal Revenue must spring from a seasonably fi led protest o� an assessment in order to fall within the jurisdiction of this Court'. 18U

DECISION - CTA CASE NO. 274�0 - 5 ... Petitioner, en t!le other� hand, vehemently contends that this Court has jurisdiction to entertain the present appeal . The assessment dated Aug:st 19, 197! was properly protested or disputed on November 25, 1971., This protest was decided by r2sponde nt on August 12, 1975�. This decision dated August 12, 1975, received by petitioner on September 13, 1975, became the decision on the"dis- puted assessment "YlLich should be appealed to thj.:_ Court within thirty�-days from receipt pur suant to Section 7 and 11 of Hepublic Act No�. 112; 1 �he charter of this Court�. The decision of tl1e Commissioner of Internal Revenue having been brought t':) this Court on a_ peal on Sept nber 17, 1975-(j or three days from receipt of said decision on the disputed assessz.r.ent, it vras appealed within the period pnw�J� .~ Ed. by law. (St . Stephen's Assoc iat ion . and St. Stephen's C~inese Girl's School vs�. The Coll ~ ( Co!TI!Yl.) o:f' Internal Revenue, 104 Phil 31l+; Comm. vs>ll Villa etc " ' 22 SCRA 3; Comm. vs�. Gonzales etc., 1~ SCR4..757; Ker&Co, ~Ltd�. \.'"S � CTA , etc., 4 SCR.A 160; Roman Catholic Archbishop of Cebu vs�~ Coli'.:,, 4 SCRA 279.) With respect to the second issue, petitioner maintains that respond ent had in its investigat:i.on overstated the gross sales of pe-'..:,itioner in computing the latt'.rs deficiency sales tax on lard, margarine, s ap, etc e bringing a1:::o-ut an in_herent error in the computation ar;J. assessment of the 7% sales tax on lard, mc;.rg o.rine, sca p etc~ A perusal of the Bill and CTA re.cords, as �Hell as the evidence, both testi- menial and-documentary discloses the correct position of petitioner.� BIR Examiner, Ruperto Estrada, in his nernorandum dated Harch 18, 1970, used the figure �11 0,620, I . 181

DECISION - CTA CASE NO�. 2740 .... 6 - 020.28 (pp. 39-4-0J BIR Rec. ) which comprised the total of the monthly sales for the year 1967 as reflected in the monthly percen t age tax return. (Exhs�~ 11N' to 11 L'1 pp. 93...104, CTA Rec. & p�. 23~ BIR Rec , respectively... ) However, in a subsequent supplemental me"norandum dated ,January 6, 1971 (pp. 65-66, BIR Rec.), Examiner Estrada had reflected the figure P110,680,020.28 indica ~ing a diff erence of P6o , ooo~oo in th_ s les for 1967. At the hearing of thi~ case before this Court, Examiner Estrada at f ir st i nsisted that t~e corr~ct amount of the monthly sales fo r 1967 1.vas P110,680,020.28. (pp. 31-41, ToS.N .. , April 5, 1977.) On persistent cross examination, ~~~re h~ Has �shovm the percentage tax return of peti t ioner for October -i 967 indicat ing a gross ~;al es f igure of �8,211, 823 . Lt-8 1-rhile his worksheet figure (p _ 59, Blli. rec") showed a different amount of P8 , 271,823o48, resulting in an overstated gross sales of petitioner for 19(7 ~ he finally r elented by admitting i n open court that the amount of !:8,211,823J48 as shown in the percentage tax return not as reflected in his vJOrksheet (po 23 7 BIR rec.) , was the correct lmount of sales for Octobe r, 19~7 , and explained that vlh.at might have been figure "'i" in the percentage tax return of petitioner must have copied. as n7u in his vJOrk sneet , which explains the difference of the overstated.g�oss sale for the year of P60,000 700. The records and evidence in this case, as well as Examiner Estrada's admission in the trial, clearly show 182

DECISION - CTA CASE NO�. 2740 ... 7 - that the gross sales for the month of October was P8,211, 8~3.48, not P8,271,823 .. 48, .and this Error was later ref- l8ct~d in the total gross sales for the year 1967 whi ch ought to be only P110,620,020o28~ not P1'10,680,020.� 2.8 as reflected by respondent's examinero(p .. 40, T.. S.:N., April 5, 1977.) Coming to the third issue, petitioner conte1 s that the disallowance by respondent of the deduction of raw materials 3gains~ sales of lard, margarine, Reap, etce was improper; tha.t it \.>Ta.S improper be cause tb.e truth.. is thG. t petitioner had acqu.ired the raw rnaterials fron suppliers 'Hhich w_;;re subject not to 3% contractors sr x but t o 7% sales tax . The finc,l decision of respondent on the disputed assessrr.ent states that the r..;ason for the disallov;ance of the costs of the containers and paclcaging materials pur- chased by petitioner ag~inst the gross sales of lard, � margarine , soap, etcg wa s that said containers and packa- ging materials were purchased upon specifications made by petitioner and trw.t only 3% tax ';.as paid t.1e reon�~ (p~ 17t1-, BIR re c.) Obvio�.1sly , the decision of respnnde.1t "YTaS � based on the examiner's report, vith the exception that Examiner Ruperta Estrada never sa:id th.a~ pnly .JJ~ tax was paid thereon, (G')der lining OJlrS �) \.Jha t he said in his re port is that . he "xxx deducted the raw materials ,,.;hich are believed to be sub ,jec t to the 3% contractor's tax~u (Please .see memoranda dated Nar ...h 18, 1970, & .Jan�" 6, 1971, ( 18 ~)

DECISION - CTA CASE HO." 2740 .... 8 - PPo 39-40, & PPo 65�~66, BIR rec. respectiveJ_y,.) It is to be contrarily noted that the list of suppliers from vlhom the raw ma� erials were secured snd the amounts purchased from th~m by petitioner shovrs that actually 7% tax was paid thereon by the suppliers (p�. 8, BIR rec.) and not 3% tax. In his memora11d1..1.':1 dated Harch 18, 1970 (p. 4-0, �..:!JQ�.0) Examiner Ruperta Estrada gave Lis �- easons for recommending disallowance of the packaging materials purchased by peti- tioner , thus: ttx� x x. In cornpu.ting the 7% percentage tax, it deducted raw materials which are believed to be subject to the 3% contractor's tax�. The reasc :l j_s, that the taxpayer bought these ravl m.... terials on own specifications such as to quantity$ ,uality , delivery date, unit costs per item; right of rejection of the buyer and such other specifications to suit the requirements of the subject taxpayers The nc.ture of the relationship betv1een the buyer ~p & G Pl-'1C ) and the vendors is believed to be a con~ract such that the 37; the vendors are subject to p7%e rcent a ge tax on its gross sales instead of the tax; e.g. Genera],. Offset � ress, one of the vendor�s x x x 11 .. In hi"' supplemental and amended memorandum dated January 6, 1971 (p. 66, supra ), Examiner Ruperta Estrada commented as follows: ttx x x. .,he undersigned rei terata:; t:..:..s stand on the disallowan ~ e of deducced raw materials as explained in the original rnemorandu:n. The counsel cited rulings to dispute toe undersigned's stand on this ~~tter. However, it is still believed that such rulings cannot remain irreversible in view of the findings of the undersit:pedo A sample of the requisition order of the above taxpayer � given to its suppliers clearly shovJ the re l ation between the suppliers and the buyer that of a contract . As admitted by one supp lier, t hey �Hc:::-e required to pay the ta xb the above taxpayer for them to 7% sales y continue buying the containers. This has the effect of enabling the herein taxpayer to deduct said � I

DECISION - CTA CASE NO . 2740 containers from its gross sales in determining its sales taxes�. x x x" These above statements of Examiner Estrada were basically relied upon by respondent in issuing the assess- ~ent , and in denying the protest of petitioner, on this is:::ue of the deductibility of the containers and packa:>ing materials. (pp. 48-50 , t�.s,.n�. April 5, 1977 .) As gleaned from Examiner Estrada 1 s report and h~LS testi."'!lony , the factual basis for the disallowance is so 1.vanting that indeed the burCer: o f' proof' to show that it is not liable i'or the deficiency sales tax has never shifted to petitionei. In other ~ords, the rule that an assessment is presumed prima facie to be correct does not apply in this case~ Petitioner is not suppos ed to possess and for this Court to assume that it possesses clairvoyant pov1ers , and for it to divine, vlhi ch of the containers and packaging materials ~.. t. purchased from the suppliers, the exruniner , presumes to be subject to the 3% tax and for \vhat partj_cular r ea son ; \�:hi.ch part:.cular term or condition agreed upon characterized tl'~P relation- ship behveen buyer and seller as in the nature of a contract, as the examiner meani...'1glessly c:.nd vaguely - asserts , so as to subject said ra1.1 naterials to 3% con-. tractor's tax instead of 7%sales tax; who was or ~ere the suppliers who admitted that they were made to pay 7% tax so that petitioner vlould continue �buying from them�o NeverthelE;Jss, petitioner submitted substantj_al evide!1ce to refute the disallmvance of costs of the containers and u, pacl<::aging matc :ri o.ls in question�o (Exho llNtt, "N-1 180

..... ~ "KJw�-s DECISIOH CTA CASE NO�. 2740 - 10 ... 11N....2 11 , 1 r'-3 1 , "O", 1 0-1", "0-2 11 , 11 0-.3u, np n , "P...1", '~P-2 " & 11P-", PPo 105 ..116, CTA rec.� ; pp�. 10-21, t~s.n�. April 5, 1977.) Evid ence was introduced by petitioner that Flexo "1-1anufacturing Corporation, one of its suppliers, \.Jas in fact a r.1anufacturer as v.ras ruled. by the CoFJ.m issioner of Internal Re-renue, and that as testified to by "lvitness Araceli Garcia, in 1967, the year at issue. Flexo had been paying the manufacturer' s sa.,es tax vrhich disproved the unsupported a~legation of respondent that the suppliers of petitioner paid the 3% contractor s tax onlyo (Exh. "U!t, p .. 121, CTA rec.,, Exhs. nccu , 11CC-1tt, "DD11 , 11DD-1 11 , 11EEn, !tEE-1 tt, "FF", "FF-1 11 , '~G G", . "GG-1 u 1 pp. 123� 127, CT �l rec.; pp. 2-9, t.s.n. Nov. 23 , 1983.) Besides in his caption of the list of pr:~titioner 1 s suppl iers (p. 8, BJJl rec.), thus; nxxx XXX XXX XXX XXX XXX XXX (SGD .. ) RUPERTO .J o ESTRADA Rev�o Examiner II 11 respondent had admitted by his examiner signing ~t, and being an. ufficial docLment, it is an admission against intere st of re_spondent Commissioner of Internal RevE.nue, to the ef f ect that the rm..r materials in question \<Jere subject to the 7% sales tax�~ Respo:udent .Cornmi.ss.l.oner 18G

DECISION ... CTA CASE N0. � 2740 ... �11 ... c annot now renage what his ag ent, Examiner Estrada, previously offic ially admitted" The t estimonial a nd docu- mentary evidence pre s ented by pet itioner 1.vere never refuted, i.rnpugned or overthrown b y re s pondent as no evidence vlhat- s oever vias presented on this matter by his counse l .. As to t h e deduc tibility of these ra\t-J' materials , the pertinent portion of then Section 186�of the Tax Code, quote d hereunder for r eady ref �~~--'e � ._;e states as follows: 11Sec e 186.. Perce ntage tax. _Q_Q__sales of other articles�. ,., x x x. Provided, That ivhere t he article subject t:.o tax under this section a re manufac tured out of materials likm.vise subject to tax under this s ection and section one hundred eithty-nine , the total C:)st of such materials , as guly established , shall b e deductible from the gros s selling price or gross value i.n money of su ch manufac t ured. articles".' Th_is provi sion of law S1istains the st<:md of pe titioner t _at the cost of packaging materi~ls and othe r containers are properly deductible f rom petitioner's gros s sales in computing its sales tax�. In dis :1llowing the amount of FS'�,264,lf�9Bo60, as de- ductible costs of raw material s frc~n petitioners gross sale s, in computing the ;;; ales tax liability, respondent stated that s aid packa~ing materials, et c�. wer e made by the suppliers only upon orders and specifications of pe titioner , and, that therefore, the ~elationships is tha t of a principal and contractor, and which transaction are subject to the �3~& tax only , and not that of a buyer a nd

DECISION - CTA CASE 11:0. 27L~ O - 12 seller ;:;ubj ec t to the 7% tax�. The conte nt ion of re s- pondent is not tenable . As l ong ai:J the suppliers of such ravr material s are habi tua l l :y engaged in the nnak i n:; and sale thereof 7 such suppliers and/or manufacturers of such raw materials would never theless still be manu- facturers, re gardless of vJhether previou s orders �v;ere placed by its customers.. Thus, it has been lh;ld by the Supreme Court in a cas e that t~e ~~ct Lhat customers place t heir orders according to their specifications does not necessarily al ce r the nature and character of the establishment as a manufs.ctur er. I n other vwrds, the filling up of previous order s acc ording to specific1.t2.ons made, does riot alter the nature of said rm�r materials as i tems subject to sales tax imposed by Section 106 of the Tax Code�. (C el estino Co & Co .. V o Collector Inte r nal Re:renue, G. R. Nc., L-8506, Aug�. 3�1, 1956; � 99 Phil�~ 841, 844,) Even a s ;:,urning argue,nsJ Q. but without deciding it tha t only 3%tax was paid by the suppliers as alleged by re sponde n t , there is no vc:.:.lid reason w_~ y petitione should be pre cluded from deducting the cost of rm�J materials considering that the supp~_ jq rs are n1a nufactur ers and not c ontractors ; and, that if any error vias eve r com..mitted, it is an .error on the part of the supplier s who shucld be truly taxed as manufac turer s of t he r mr mat erials t hey suppli ed to petitione r~ As such ,� the suppliers qhould be made to pa y the 7% s ale s tax, instead of .prejudicing an lH o

DECISION - ... 13 .... CTA CASE NO . 2740 .. innoc ent purchaser . Thus, in,the case of Abad vs. CoA.rt of Tax Appeals, 18 SCRA 374, the Supreme Court in allov.ring the deductibility of the cost of ethyl alcohol from t he cost of denatured alcohol in computing the sales tax, notwithstanding t he fact that ethyl \vere not subjected to sales ~ax, stated that the fact that the suppliers of e thyl alcohol did not pay the sale s tax thereon is no reason for burdening the manuf ~ ~ ' 3r of the denatured alcohol \vi th the said tax by not allo~:ving said manufacturer to Jeduct the cost of ethyl alcohol . In the light of t he above , the disallovmnce of the containers and packaging materials admittedly taxed a~ 7%is therefore improper and capriciou~ as the same is based on erroneous p:-esumption which lead to ari asse"'::;ment so devoid o.f relevant fac t s and substance & The rule that an assessment is presumed correct does not apply here as the burden of proof ~1le should not be applied to defe at J.US t.lee. L1 (M er t ens, JT...a.W ol_ 1 .f' 1~ :;1 1c)2._ T_,_ncome t. T~~9--lon, Par. 50-65, Vol . 9, (1982 Rev~ Vol.l7 Moreover, the correct- ness of assessment, being a mere presu.':lpticm, cannot b.e �'!lade to rest on another presumption ( Coll.. of I nt. Rev�. vs. Benipayo, 4 SCRA 182) i~e~ the presL~p tion of respondent that the raw mate r-Lals ml.ght have been or believe � to be subject to 3% tax., As to the ;fourth issue , respondent alleges t hat peti- t ioner in the issuance of invoices to its customers computed the 7% sales tax on the gross selling price without first 18J

DECISION - CTA CASE NOc 2740 deducting therefrom the cost of raw materials used in contravention of the decision in the case of Phi_ippine Acetylene Co. vs. S::iJverio B1aquera, G.R. No. L-13728, Prom. Novemb ?r 30;. 1962. (pp. 282-286, CTA Rece) Petitioner, on the other hand : argues that there is no legal justification for including the amounts billed to its customers as part of the gross selling prices in uumputing the 7% sales tax und � .. act i on 186 of the Tax Code, since the sales invoices issued clearly show or indicate that the a.mm nt of sales tax �.1as included in the total amount or price payable by the customer: (pp. 229-235, CTA Hec.) In other words~ petitioner maintains that the percentage taxe s vrere billed separately to its custo:ners and con:puted after first ded';_cting the costs of rm..f materials used by it in t"be maaufacture of its finished products such as lard, margarine , soap, etc. The recorn s vrill show that in rGcommending tLe a :Jses s- ment , respondent's j"Zxaminer Ruperto Estrada relied on the Phi.lippine Acetylene case, suura~ alleging that t he taxpayer did not deduc t the cost of raw rrtate.r:.als before computing the 7% tax a nd tLat the assessment o:f respondent 1..,ras issued based on the allegation that the sales taxes paid i>Tere not separately billed to petitioner's cu::;tomers.. (Cannel Bros.~ ~o~ Philippine vs~ Coli. o� Into Rev., ~~G. No. L-15470, Decembe:..' 26, 1963, 9 SCRA 735.) There seems to be a disagreement between the respondent and his examiner 1u

DECISIGN - CTA CASE NO. 2740 ... 15 ... as to the actual basis for including the percentage taxes as part of the tax base.. Hmvever, both grounds to our mind are erroneous.. Petitioner maintains otherwiss asser ting tha.t it computed the /%tax after it h a d deducted the costs of rav1 materials. \rJ'e vJi.ll now discuss separately the grounds 2.dvanced by re J pondent and his examiner~ With respect to the ground advanced by :::�esponclent 's l e t te l' c' dc n:~al subject of this a.ppaal, '�Jitness i1.raceli Garcia testified to the effect that since 1962 , petitioner corporation had been billing the tax separately to its customers (pp. 4, 7, t.s.n~ April 5, 1977) and tha.t since that time on there \�ras no ot he ~ c.. xw."rlinr-:r vTho had raised thts question. At tL.~ hearing of October 6, 1978 (p~ 4~, C~A rec.) , witness presente d sP ~ple sales invoices for the year in question and official receipts evi.dencing payments made by custor�1crs c A perusal o:' Exhs ~ 11Q11 , "R", B.nd u s n (pp. 117-119, C'I:.A Rec.), said invo:i.c e s \vill i ndicate tha.t ther3 are three colur:ms therein, namely, 11Uni t price Sctles tax tncl. tt , 11Amount. Sales Tax included n and "Sales tax". Under the se c ond mon 8y colu..>nn of ' �Exh., Q 11 11 , appears the prodac t of quantity multiplied by ui~it price fo . t'-'m � e e 60 ~ 1 "a 2. c'~~-!' l. '-' �-' g. wrl� -~ u ..1. \]. ...... ;t ' sales tc.X � is recorded under the th:Lrd money C'OlU..'1l'.1., Thus , for the second i tern, �1Tide 288 " shm.�ls a unit price of 11�24�., 95lt, the Clmount sales tax included of 11P823.,35 11 , and sales tax of 11P22.,l~+ 1 1 under t he colu'.Tin "sales t u.x:ll q The cu.:>tomer is appraised of the unit pric~ and total amount of each item, I .19J.

DECISim~ - CTA CASE NO. 2740 - 16 - and tax on such a'Tiount but at the end of the invoice the following information ap9ears : Unit Price .Amount Sales Tax_I:._DCl.lJ.de<:l Sales Tax Inc:_1_1J_ded End of Invoice Gross 2% discount Net From the info r mation gathe r ed from the invoic<;;s, the custo- mer is apprais ed of the details bv i t 3m and by totalso The customer is appr;.~j ::::c::-1, too of the sales tax b �:; ing shifted to them~ This manner of separate billing the sales tax is in accord 'lith the Connel Bros. case, ~a�o As to the ground asserted by Exa~ iner Estrada, could see that he relied on bare allegation ~>rithout any factual support, as he has not submitted any sample invoice showing that petitioner billed to its customers the 7% tax before deducting the ravl matc;rials. Ne ither did he reiterate at the heHring his grounds which appears only in his second memorandu.rn; h~ ,:Jere�ly relied on the Philipp:Lne Acetylene case and alleges that the tax ws.s compnte (~ befcre dedu::; Lions for ravl mat erials�o 1'-Ioreover, his grcund -vras repudiated by respon~ ent who asserted another ground in his letter- decision denying petitioner's protest. None theles, peti- tioner had s trong oral and rlocumentary evidence �:�ihich were never :impeached countered or :rebutted by respondent. Both grounds relied upon and� asserted by the respondent is based n erroneous pre sur:1ptions and \�li thout any factual basis to lean ono 19 2

DECISION - CTA CASE NO . 2740 - 17 - While i t i s true and vJell settled is the rule tl:at an asse ssment is presurned to be correct, and that the petit i oner has the burden of proof to show that the same is invalid, we find the a ssessment in this case to~.:'1 l ly vmnting in relevant fact s and sub stance to stand on�.. Examiner Estrada only, l)resumed petitioner had deducted ra�,..r mate rials ivhich lvJre sub j e ct to 3% tax, instea<l of 7% sales tax; he also presum ed ~h t petitioner issued i n�roices to custom.=.r s and computing the 7% tax on the P'ro s s se lling pri.c e vli thout first deduc cing the cost of ra1.1 materials used in the manufaeture of the fin5.shed article.. Consequently , vle fee l that the burden of p:r oof to overturn the as s e ssment never shifted to petitioner~ It ~as been clearly j~dicially stated t ha t assessme nt should not be ba sed on mere pr esumptions no matter hm�i reasonable or lvgico..l said presu:.11ptions maybe (Collector of Internal ReV"enue vs�. Benipayo, 4- SCRA 182) and the burden of proof rule is not to be applied , as in this case, vlhich will have the effect of defeating jus tice e (Me rtens , The Law C?f Fed~ra~ Incmr'Je Ta xation, Par. 50.65, Vul .. 9, p.,187.) Tn vi elv of :he above findings, r.ve ~:: i1.l r(jfrain from discu s sing the fifth isuue, it having become moot uf1d academic. WHEREFOrt:E, the decj_sion a ppealed from should be , as it is hereby, REv'ERSED ., No pronouncement as to cos ts .

DECISION - CT.A CASE NO . 2740 - 18 - SO OHDEREDo Quezon City, September 30, 1985. vlE CONCUR: ~- � ,,~J A!-1ANTE _i ILLEP. Presidi g Judge