CTA Case No. 2334 (Decision)

.' I ' �- 1 ~ ' RIPUBLIC OP TR PBILIPPIMKB COURT OF TAX APPKALS QUK.zo� CITY EMBROIDERY AND GARMENTS INDUSTRIES, (PHIL.) INC., Petitioner, - versus - C.T.A. CA � 2334 I INTE~ THE ctJI'IIII SSI ONER OF REVENUE, .) X- - - - DE ! X CJ I C: X e Appealed by petitibner, Embroidery and Garments Industries (Phil~), In~. is the final decision of respondent, Cbmm ission r l of Internal Revenue, hold~ng petitioner l iable for deficiency ( ~ income and v/ ance sales I for the ye ns 1959 taxes I to 1962 in the amounts , of P2,756,241.68 and P3,500,798.47, respectiV:ely , inclusiv4e df surcharges and interests. Petitioner is a corporat ion "organiz d in I I accordance with Phi~ippine 11aws, duly lie nsed and authorized under Republic ~t�ct No. ::u:s7, 'other.-1-. ! known as the Embroidery La.~, by th& ~ broitde-ry ,lf\d Apparel Control and Inspection Bo rd to im~o~t textile fabrics and clothing materials ax-tre n manufactur~ j from abroad and the5e ahd into fini lj II

DECISION CTA CASE NO. 2334 - 2- embroidered goods which are then re-export d to the foreign suppliers and/or btiyers in c�ord nee with the agreements entered into by th~ p~rties. Acting on the sworn report of ah nf ~ r dated September 10, 1964 (~p~ 10-29; Folde~ Ho~ 50; . BIR records), agents of the then �, Revenue 1 ' Smugg 1ing Unit of the Bureau of ~ (ATSU for short), witH s~arch from the Courts of First 1 In tance of MarHl and Bulacan, raided and seize'd busine s recor ds and documents from petitioner's offices in Man i la and Marulas, Valenzuela, Bulac~n on Sept~mb r 22, 1964 on the basis of which, respondent conducted an investigation of petitioner's bu iness operations. I (ATSU Report of Investigation, p. 20, Folder Ho. 78, BIR records.) As a consequence thereof, respondent a s ss~d petitioner in a letter dated January 4, 1966, the sum of P436, 846. 44 representing advance sales tax f for 1959 to 1961 inclusivb of 757. surctiaroe and I I� pen a 1 ty and in a letter d~ted Mar~h 23, j,!e;l66 I the sum of P4,799,641.95 as de~iciency income tax for I r 1960 and 1961, inclusive o~ 507. surcharge hd 1/27. monthly interest. (par. Admitted par. 6 Ans~er.J Petitioner protested said assessm nts and

DECISION CTA CASE NO. 2334 J - 3- requested for the reinvestigation thereof Which wa111 granted by respondent. The me ns employed by respondent to reinvestigate th t x c e wa to recompute the taxes due from the Company on the basis of the evidence se~ zed by the ATSU in ' the raid � it conducted on ' .petition r's bU in ss 1 establishment. ,, I <Exa�intt;s' H~�orandu�, p. 96, I Folder No. 76 1 � BIR recor~t�) A a result. I l reinvestigation, revised ~ss ssmen t ~ot:J. ; I issued by respondent to p~ti tioner I 1970 requiring the payment of the sum of P2,756,241.68 as def iciency income t~x for 1959 to 1962 inc 1usi ve of 50% surtharge and 1/2% moothl y I� � I interest and on December 22, 1970 d m nding the . payment of the total clmount of P3;~00,1'98 .. 41 �~ .' advance sales tax and 1'5Y. surcharg correspbhoing 1 , to the same years. <Exh. 3 1 pp. 228-~2~; Ex h. 2, pp. 225-226 1 Folder No. 76, BIR recnrds.J � On January 7, ~1971, petitioner fil~d with respondent a letter-;-protest ' <Exh. 41 ,I No. 76, BIR records) tHsputing I he, I I assessments and reque~ting th~t I investigation of the cas~s be conducted which protest was denied by respondent in a 4 letter bearing the same date. <Exh. 5 1 p. 245, Fold~r No. 76 1 BIR records.)

.I I! DECISION CTA CASE NO. 2334 - 4- In a letter dated January 20, 1971, petition r requested for reconsideration of resppndent'5 ' denlal and further reinve tigat .ton of the revi5ed assessments (�xh. 6, p. 257-258, Folder Ho. 76, BIR re cords) which was granted by respondent on Jariuary ! 29, 1971 upon execution by petitionen of a w�iver I .I of the statute of limi:t tions of th� I .Nilllt.tional t1 I In tern a 1 Revent'e Code. . ~~~ ( E><h. 7, PP.. �\ e62~26~, . Folder Ho. 76, BIR recorJs .J The dbcke . of the ,) I case was referred to tHe Regional Direc tor of � Revenue Region No. 5 who designated a c:ethurlitte to reinvestigate the case. report dated June 1, 1971 ~ecommen ded ~hat the c se I be referred to the Legal . Department for further j evaluation and final legal 1 disposi tion. CExh, R, pp. 293-308, Folder Ho. '76, ' BIR records.) I Meanwhile, warrants of1 distraint and levy were issued against petitioner on January 7, 1971 to 1 enforce the summa~y cbllection of the , ad~Anc:e sales I I ta>: in the amount of P3,50Q,798.47. fpp.- � 12:J8-f,3"9, r ~~ - ~ -,f , Folder Ho. 76, BIR records. \: And on Ju~n .1 .� . � respondent issued Notices 6 f S izure nd �I 1Salet of" I petitioner's real property located �at Valenzuela, Bulacan c:overeJ by TCT No 1077~ ,( I' .346-.'347, Folder Ho. 76 1 SIR record:s), '

DECISION CTA CASE NO. 2334 - 5- subsequently put up for sale t pu 1ic uction. However, for lack of bidders , it w s forfe ited ih favor of the government. (pp. 331-352, Folder No. 76, BIR records.) But sin~e the forfe~ted property I was the subject of a fir t mortgai,;je � t. th the Government Service Im;urance Syst m . (!] tS~ ,.Jon 1,, I December 17, 1963 for a , oan of P35S,oQ O, .it!l title could not� be tram1f I rred to of I' the Philippines. For fai ll,1re of p ti tionei-- o p y its indebtedness which had accumulated to P751,582.00, the GSIS foreclosed the mortg ge on ... March 15, 1974. Thereafter, the GSIS sold the said property at a public auction to Sol.Lti Industries Inc. , the highest bidderI , for the amount of P752,000.00. (Respondent 's i 'IIH!'ffiOrandu�, p,. 249, CiA records.) I In his final decision dated September 14, 1971, respondent denied petitioner's protest. �� (� ..� h. 8, p. .359, Folder No. 76 , RIR records.) I I .) Hence the present recourse. ! I I 1. Whether or not pJtitioner for deficiency ~ncome and adv sales taxe$ for 1959, 1960, and 1962 in the mount of P2,756,241.68 and P3~500,798.47 respectivelyJ I 2. Whether or not the imposition of th� 50% surcharge for 1fraud is 1 g 1 and justified.

DECISION CTA CASE NO. 2334 - 6- ,) The record shows that the original tax assessment arose from the sworn r port of an informer, Alfredo Perez, dtmounc i ng petit~b r f r I I alleged However, :ln the tax evasion. I reinvestigation of thi!!l l c:ase, the diBputed an~ deficiency income ta>< adv nc assessments were main 1y �1baged by , respond ht's examiners of � the Auditl1 Div ision nd Fraud j Investigation Division on sworn tate-ment of Felix Gareza, a friend of informer and former General Manager of petiti r' ner , whos infdr~ . tldn given to the informer ac:tLI ll y led tb the r id on the business establishmen~ of petit ion r by the ATSU and the seizure of i ~s business recbrd s and I other documents among whlc:h were ~,118 i~po'~t invoices which constitOte the evidence in this case. In his declaration, Gare za stated th~t th � dollar quotas for th~'years 1959 to 1 ~62 alloted by the Central Bank . to petitioner as embroidery l contractor under Republic: At~ No. 3137 �~ l old to i local Chinese textile merchants at n ov rprice or premium of 90% for ' materialsI anti� tox to suiting t 75% for women's clothing materials b���d on the invoice value in dollars. And � th t th Chinese 1'1 )

DECISION CTA CASE NO. 2334 - 7- buyers when p 1acing their orders in the n ot petitioner through the 16cal indent ag nt in Manila, procured the dollar~ wi th wh ich \o pay th ~uppliers abroad. As soon as th m teri ls thus imported are 'released from th customs w rehouse, they are delivered to the ~Said Chine � buyers who also pay the brokerage and !other chaRg �� Loc,lly I' I purch ase d mate r~als are h n proc s ed 1 in th factory into finished goods. and the e ilre 'th ones exported to the supplier Jho is em 1y a 'front tor �I .. the purpose of complying with the Embroidery Law. ! ..1 Nove711ber 21, 1967, AnsNer!: Ho. 49-53_, 74, 8-86 , 93, 98-104, 1 09- 111, pp. 5J-66, Folder 'H o,. ' 77, BIR records; Exh. 1, ExaJttiners f 'lltt!'lltorandu'llt, pp. 92-96, Folder No. 76, BIR records.) Gareza further alleged in his sworn stat ment that the 1,118 invoices which the ATSU team took , in to custody when it' ' raided petition r's pr mises in 1965, had been . tampered with by petition r by I reducing the quantities in 1order t.o m ke r to tally with the reduced ~uantitir:t I I invoices and also to reduc~ the bohd t-eq H� I (�xh. 10, Answe>rs, 16- 43 I & 54, pp. t 67-72 64 supra. ) I In support thereIof, he pointed out th I differences between the twelve (12) '~Q 1�5

I ,I' �� ~,, DECISION CTA CASE NO. 2334 - 8- invoices (Fold ers No . 64- 7 5, BIR r@co rd$ ) which he had earlier surrendered tq the s ai d ATSU ttul ; . and the corresponding "faked" invoi ;: es fr om th 1,11S invoices to show that the la t t e r invoic s have reduced amounts in dol ~ ar va l u s and reduced quantities in yardage of the (�xh. 10, Gareza also i' 16 .. ident.i f i . ,C. importatioms in 1960 (Fold~r s records.> the documents of � wh ic h he the informer who turned th~m over to the ATSU team, so-called because they were ~uppressed by petitioner from its officia l logbook hd th records of the Bureau of Customs to el iminabt from I these records the big i~port a tion s. An s Ners 161-165, pp. 41~42, su pra. ) Relying heavily on the sworn stat ment of Gareza and using as b,asis the abbvementiohed t, 118 invoices and the 16 t "blackI ed out" i port entries, I. respondent� s examiRers computed the 'overpric� on I t the dollar values of the textile .) petitioner for the years 1f59 to 1962, �r~ivinQ at' ' a total undeclared inco~e of 'Ho � ,16_, BI R follows: (Ex h � t , I p � 9'3, F o Ide r records} 1fo

DECISION - CTA CASE NO. 2334 - q- .J Y.!�'.1: _(_In u.s. Dollars) jJn U.S. Dollars) ' 2.o~,'SS2 .38 1960 s 131,071.12 I l J.;m.~-42 1961 ! i~ 1962 1,481,094.57 I ~,1~ 04 1959 1 ,283,611. 73 ~1,749.78 1960 I 1961 1962 1,036, 766.19 acft,528.2 ; 2~,578.02 I RE I aJI TIf\.13 I"V=\TERIt:\.9 lnXP_icE;O_':lalL~ , WI. Premiu (In U.S. Dollars) (In U.S. Dollars) (lh Phil. PeSos) �----- __...!._ __ "p ----- 149,229.53 119,383.62 2'!a,767.24 122,659.60 368,774.42 I 196,~J04 98,127.52 5196, o.:w ~as ~,019.63 70"1. P~!~ 1959 p 183,499.56 R----- p 1960 2,073,5...~.38 238,767. 24 1961 1,797,056.42 19~,255.04 1962 I Totals P 4, 539 , 244. 40 I Adding this undeclared I of P~.~b~~30~ . 74 income ! I to the net income per return for the ye!' rs in question, the disputed deficiency income � tax

DECISION - CTA CASE NO. 2334 - 10 - a ssessment of P2,756 ,241.69 was determined by the , examiners, as foll ows : (Exh. 3, pp . 228-229, Folder No. 76, BIR r~cor dsJ Net income per return ����� I ��� ��� � J A::lcl1 Lhdec:lared income fran ~le of dollar quota right$ l..f'ldetr tt-e Embroidery Law (R.A. t-.b . 3137). p Net income per investigatiCFl I ������ ~~1 I nccrre tax dLte ther ec:1 1 ���� � ' ������� p 49,25~.00 Lesst Tax already paid ......1������� E--~~~-= p 47,638.00 BalCV"lC:e ����������������� � ������� �� Add : 5Cfl. !St.trcharge ���������1� ������ p Zs,S19.00 1/2"/. mo. int. fr. 4-!b-60 to 4- 1&-6.3 �������������������� p 8 4 .94 lUT~ 1-Hl.NT J:X..E ~ m I Fr:TIR.E P eo.~~ .) Net income per return ���� ��������� p 1,831 .51 A::lcl2 Lhdeclared i ncome fran sal e of p . 123, 4~--4~ dollar quota rights Lnder the p 1.1 :52. ~ !1..~ E"mbroidery L~w (R.A. r.b. l 3137). Net income per� investigatic:n ������ Income tax due theret:rl ����� ~ ������ Less : Tax already paid ���� � L������ Balar1ce ����� � �������������� ~ ������ Add: 50"1. surcharge �� ��� ��� � ~ � ��� �� 1/2"/. mo. int. fr . 4 - 16-6i to 4-16--64- ��� ������� � �� !' ��.�.. lUT~ 1-Hl.NT J:X..E ~ a:u..ECTIEl� 1 9 6 .1,. , Net income per reb..tm ������ J� � � � � � P e,203.74 Add: lhdec:lared income frtm !S.ile of l� dollar quota rights Lnder the Embroidery La,., (R.A. N:J. 13137). P:.....-:1~~:.-.x.~ Net income per investigatic:n � � � � � .~t.......=.CO\a.J..IUI;)~~ Income tax due thl!f 1!!!01' � � � � � � � � � � � P Less= Tax already paid ������ �� �� �� Pc___~~~~~ Balat"lC'e ����������������� � � ., �!� . . . . . P ' Add r ~/. surcharge ����������~ . � � � � � P mo. 1/2"/. int. fr. 4-16--td to lUT~ 4-1&-65 ������������� �1� � .�... e..__10�h::$1Z.:s.QQ ?Hl.NT �X..E PHJ m I ECTIB.� � � P $�~ r..~ 18

DECISION - CTA CASE NO. 2334 - 11 - 1962 Net incone per retum � � � � � � � � � . � . � P 24, 215 . 35 Add: lhdec:lared incone from $le of dollar quota rights under the Embroidery Law (R.A. !'lb.' 3137 ) . Net incone per investigaticn ;I � � � � � � Income tax due therec:n �����j��� ��� � Less1 Ta )( alre~y paid ���� �'� �� ��� � BalMCt.! �������� � ����� � � ., � � � � � � � � � � Add: 5Cr!. surcharge �������� �1� � � � � � � to 1/Z'/. mo. int. fr. l�.:.... 4-16-66 ������ �4�-�l�b-�-�bi~:S ELTII .. TUT?t.. ?Hl..NT rx...E PN) (XJ I it was assessed against petitioner on tt1e th ory that since petitioner sold to texti l dealers ' .t;ts dollars quota rights for importation enjdying tax- free privileges, it should be made to shou l der th advance sales taxes due on all this importations. Thus, respond�' ent's examiners computed th 7'Y. and 30% advance sales tax~s on th import tions 1 as follows: (�xh. 2~ p. 226~ Fo lder Ho. 76, BIR re c ords) 'ZlJ.dJ.@.I!.~.!.J.!1es Tax !!"' 1160 1, 9ll 1 62 Total landed Cost p 412,820.49 I P9 , 043,m.l9 p 436,S07.-M _2,260..6� p 218, JS3,7S Plus 251 aark-up 103,205.12 p ,.7,613.37 p 243,806.68 tl.~O. .lli �Z! Tuablt Yalut p 516,025.61 , n1,m.12 71 Advanct Salts Tax , 3U,66S.26 dut thfrton p 36,121.79 Add: 501 surchargt for wi ll fu l ntgltct p 11,060. 40 251 surc hartt for latt payHnt ' � 030 . ~0 . 121,90~. 3~ JAN 2hl.~ I I 1960 301 Advanct Salts fax 1959 , 218,979��, ,p 114,849.49 Total landtd Cost p None i42s4~4. 75 109,4M.73 p Plus 'Ol �ark-up 127.~744! f 321.469.1. Taxable Yalut .p

DECISION - CTA CASE NO. 233 4 - 12 - 301 Advance Sales Tax p 38,182. 27 p ,540. 7' p 112,360.50 due thereon Add: SOl surcharge , 180 . 25 for will ful neglect 19,091 .13 49 ,270.38 251 surcharge for I 9,S4S. SZ _ llai.Utn late paytt!nt _ _ltont _ _. 4 . Mt..dl8.97 L tn ~.J.~-2 .) Tohl Alount Dut SRAND TOTAL OF A"OUNT DUE AND COLLECT! LE P3.Wal'-!�!Z I I ' Petitioner vehement~ ~ den i es h aving to textile dealers its alloca ed doll ar qtot I for the t 1,118 importations and 16 a l legedly "blikked out" ones, maintaining th~t al l th s e i mpor t tions were processed and re-e>tpcl>rted to t he ir suppl iers I in accordance with the Embro ider y Law . As proof, petitioner adduced the ; followi ng d ocumentary evidence to actount for i these importat i on in I question I (~p. 64 - 69, CTA r eco r ds ) a) Re: 16 "blacked out" i mportation !> 1. S t o rek e per's bond e d war - hou s e ledger e~t ries showi ng t h a ccounting a nd c l ear nee by t he Bureau of Cu s toms of t he 16 impo rt entries Ex hs . s , S-1 to S- ts, Fo lder No. 58, BIR records. 2. Requisition a nd wtthdr certificates of petitioh r account tor tne e><istence ot tH� import entries !xh:s. T-t 'tto � �t Folder No. 53, B1R records. ' ' 3. E><por~ �documents, ing of invoices, e><port ht i s, certificates of identification and examination and ' bills of lading showing the re-e><portation of t. ms covered by the 16 import ' entri es Exh. X-1 to X-45, Folder Ho. 59, 81R records. 20

.. DECISION CTA CASE NO. 2334 - 13 - 4. Addittonal E!>xporrt ~bcu j ments likewise ~Mowing re- exportation of item c ov r 'd by th � 16 import entries Exh!". H-1 t'Q N-~, r Folder No. 54, BIR records. 5. Letters of cancellation of warehousing bonds by ths Chief, Law Divi~ion, Bureikl.l of Custom-., issued~ upon recommendation of ' , t~hae1 Appraiser's Di~i~ion show i n~ tK~ exportation of ~he artie l e c:o .re~ . by the 16 impo~t entrie~ Exh$. �v l to V-12, Y-1 to ~-5, Folder HO ' 52� & 60, 81R records I b. Rer 1,118 importations ! 1. Letters of cancellation of warehousing bonds by the CHief, Law Division, Burea~ of Customs, iS$Ued upon recommendation ~of the Appraiser's Divi~ion showin9 the re- e>:portation of the artie les covered by the 1,118 ilhport en trias Exhs, ' Z-1 to Z-93, Polder Ho. 61, BIR �. .) re co rds. 2. Worksh~ets of petition r ~ showing summary of the 1,1113 ifllj:)ort entries for 1959 to 1962, 1 e.; Import entry nos,, yardage impo~ ed, ; export nos., export entry nos., ' yardage exported and date bond watJ cancelled, , Folder No. 62, BIR records. �o 3. Custom~ bond ~lerk reports for cancellation\ of bonds 1 in"St j export documents J " Folder Ho. l 63, BIR records. It is argued that ~ue to th~ failur~ of respondent to present the originals of the I alleged 1y ."genuine" import\ documents submf t.ted y 6areza, petitioner cou~d not ~~ri~~ t~ i~ authentic! ty in order to rLbut the accu at ion 'that I 2i

'. DECISION CTA CASE NO. 2334 - 14 - it faked its invoices to red tee its importi\ti~ns � whi 1e the above evidence presented by p t1 tioner shows that the allegedly f~k document� relat ~ to the 1,118 importations �n question r inst d the true and genuine documents ~h ich were ~ubmitted to I and cleared by the Bureau of Cust'oms and lj I 16 allegedly "blaf=ked out" shipment were to the Bureau of.CI ustoms an according!~ having been re-exported. I To discredit the swJrn st temehts l 1 the . I informer and Felix Gareza, petitioner ssai 1s 'the integrity, truthfulness and char cterr of bd h by producing the following personal letters written by ' them to Ramon Chuanico, I p~ tlt ioner the President of EGIP, revealing their "double dealing" and I "blackmailing" activitie9c I a) Letters of Felix Garez to ~a � n Chuanico, President of EGIP Ex hj. A to , D, pp. 38- 42, Folder Nd. 51, BIR r cords; b) Letters or Alf~edo Pe re z (the informer) to Ramon Chu~nico - ExAs. E to G, pp. 1-A, 1-14, Folder N<>. 51, BlR ! records. Petitioner avers 'I . above ~ettef"s df that ! the I I nt ' tat~m Felix Gareza, whose sworn !hi principal basis of the ' revised ; assessment, estab lish I !. his motives in fabricating evidenq~ against petitioner. Sinc~ Gareza I dead as so stated in opf!ri I Court by I 22

DECISION - CTA CASE NO. 2334 - 15 - counsel (t.s.n., pp � .30-Jt, August 26, 1985), h could no longer be presented by r �e pondent as his witness and petitioner could not eros eHamine him to disprove his accusations. Finally, to bolster 1 his stand p t.itioner I I cites Exh. R, (pp. 29J-3qa, Folder Ho; 76, SIR J records) the report dated Jun 1, .1971 of th Committee creat�ed by theI! Region 1 I .t .br Revenue Region No. 5, Valenzuel ' Ii O.l<~ ~� I c an to I B ll reinvestigate the tax c.ag;e of peti tioh r, brit!f 1y stating their observations t o wit: I (Petitioners memorandum, pp ~ 220-222,~CT A reco rd s) "a. The fact was' mentioned that the Commissioner approved the recommendation of the Chief, Prosecution Divi ion, to forego �t �he criminal tax ph se of the ta>: cases for insuff:Lc:iency of evid nee but to proceed \>li th1 the is uanc:e of revised tax ' assess~ents as determined by the National Tax Fraud Unit and this wa done (f1e1fl<'. of Chief, Prosecution Division, dated Nove.be r 17, 1970 a~d revised as s essmerlt noti ces issued dated December 9 .~ 1970, and December 22, 1970) � 1, I b. The s o - c a'l l e d "b ack-out 1' import entries numbe~ing sixteEtn (l6) folders furnished ~y th ~nfor presented as evidenc:e : of (BIR Folder 'Y' Smuggling Unit (ATSUJ 1966) were properly ~ccounted cleared by the � BUreau of supported by the evidence pres the petitioner (Exhs. �Folder �2 Otttw) EGIP, . Folder X-2-BIR marked Exh$. J to 28-A EGIP, Exh. "RR" part of EGIP Folder 7 (New) re: ledger entrie s; EGIP Folde~ 1 (New) and BIR F(:dder #X-2" r�t requisitions and withdrawals; EGIP Folder I Z3

DECISION CTA CASE NO. 2334 - 16 - No. 3 with Exhs. "4" to "4-X" and BI Folder "X-.J" Exhs. "29 to 33-E" � <J1' �GIF' re: re exportation o1' i�ports1 GIP Folder No. 4 (Hew) with Exhs. "5" to NON and BIR Folder "X-t" �arked EG 1P Exhs. �1 to 12" re: cancellation o1' b<.mf:Js a'fter Custo�s liquidation)J c. The 1,118 import docum rttg ' (81R Fo 1 de r s I , II , III, 1 V and V> c: on s i t i h allegedly of both I' genuin hd f k invoices wt!re likew:L�~ duly accot.lnted for . and c 1eared by the 8\Jr u of cu� to supported by the evl.denc pres nted the peti~ioner (�~h~. EGIP Folde~ � CHew), 6 CHew) and 8 tHeW)J d. The petitioner pr t evidence to impug9 the competency, integrity, truthfLt11'1ess and character of the informer - Alfredo Perez and hi sole witness Felix V. Gareza (Personal letters to Mr. Ramon Chuan i d.1 Mar kBd Exhs. A t<> or QJ showing their "doubl de ling" nd "blackmail" efforts activities as well as the fact that Mr. 1 Perez w s never n officer or employee dr a pe~son � p~ivy to EGIP busir1ess transact ions and th t Mr. Gareza, a former general manager of EGIP who resigned on Septe~ber 20, 1962, w~� a disgruntled office'r df EGIP as st ted in ,) the Memo-Report of the Prosecution Division referred to earl ier; I e. The Commit t~e, " r elying o rules of eviden1= and judicial r ea on is of the opinion that the r-opia. properly identified 1 governm nt r cord and entries � introduced by EGIP to overcome 'sweepir1g ur1corrobor-t d . testimony of the !sole witne s., 1, M � � Gareza, are public dldcuments � and sh uld be given full weight ~nd cr dence.' � f. The "origi~Lls" of the atll g d 'genuine' 1,118 !~port invoic: or documents could not be produced � reque-sted tiy petitirlher and, ther -tore, "the Committee is not in a solid foundation to resolve the h~ u ot authenticity and g~nuineness o'f the r alleged documents ctJnsidering that the I I 24

.J DECISION CTA CASE NO. 2334 17 BIR st~nd on this matte r is b ed .alone on the 'sweeping unco~roborated t~stimony of Mr. Villa Garez whose competence a witness has been question d. " The position of petitioner is enabl e . We agree with the abovestated findings of the committee. The eviden~e pr s nted by p tit i oner to I assail the integrity and c~ara cter of I I and F~lix Gareza, consisting of th I letters to Ramon Chuanicd ~ nde d "double dealing" and "bllackm iling 1 I ctiviti s", casting doubt on their c~mpetency as wi t ne~ s, especially so in the case lof Felix Gareza ho wa the only source of the information which g~ve r~se � to the tax assessments. It was Gareza who admittedly ' furnished the information ag in t petitioner to the inf'ormer, iru:luding the supporting documents. (E xh. Answer 161, pp. 42 & 43, stipra.) And it was on his , sworn statement that. the revised a sessmen t were ma i n 1y based. <See testi�bny o~ exa�in~r, p. 16, July 7, 1983) I Reproduced in full h reunder are the per�on 1 I letters of Gereza to Remon , Chuanico, the Preai~ nt o f EGIP, written after Garez h d re i;ned from the company: . <Exh. A, p. � 42, Foldf!r No. Sl, ' 81R records) .J ')..5 I I ,I I

II DECISION CTA CASE NO. 2334 - 18 - August 31, 1962 Mr. Ramon Chuanico (Confidential) Dear Monet: A group of informers approached me' yesterday and brought to me for my study and comments several i ~ocuments w~ich ' t h y claim to belong to �nd covering V.a ious l importation of em~rpidery mate~ial , f � l Embroidery & Garmen� ~� Industri s. 't' .) documents . consist (J,f import ' f')t~, ~' � suppliers invoices; ' backing 1is �� tc:. How they manage to prbduce the doc m 1 t~; I really don't know� f although, ! ' h V ....mY. f1oubts about the enuineness Q_9.C'=!.men _t_~. According to them t:htJy already consulted a t:lose friend in the Bureau of Internal ~evenue bout their plan, but were advified that "they need someone who can I corrobor te the correctness of the info rmation again t EGIP and you. BeingI the former Manager of EGIP, they feel that I am the most ideal an,d competent witness. I I know that what the group h s in mind wi 11 def in.htel'y dep nd upon my acceptance of their propo al. Only they don't know that I cannot bear f ls ~!tne~.s ag_~_A,.nst yqu-etve~ if you did not during the past show(l your appr� ciation for my services~ At any rate, don't worry because I can 1 persua de th group , not to proceed with t~eir bad intentidns. So it is very important that we cbnfer as soon as pos~ible fdr your o wh g~bd. p Please don't delay ~ecause, th~s gif' right or wrong, can lc:ause you and tGIP Tbty , Ire ver~ . all sorts of troubl.. ootor ious -and has � a t.h � � !JU: connection in almost all thtt pff.tce!s, in .. the government. (Undirrlining sup~litftdj� J (Signed) F. V~lla fExh. D, P� 39, Folder' ~o. 51, BIR ,, 2{p 'l

t' DECISION CTA CASE NO. 2334 - 19 - September 12� 1963 Mr. Ramon Chuanico EGIP VERY PE.RgON~~ Dear Monet1 I I wou 1d 1ike to remind you gain of the P50,000.00 to help m s art an electronic business 1~ Q.C. The ~u�J es~ ' I assure you is most ~rof i table. In rf c l l' .) I did not hesitate to invest � 1 i 19\Y ! savings anc:t many mbr~ If ytJu i!!h,'.' you can be a partner in t~e ventur If you will rJcall, t h~d n asking ydu for the PSQ,OOO.OO ve'n .fti ' I was sti 11 with EGIP I and if yod t:~nno t extend me the amount 4s gratuity pay, y ou may give it to me in l the form of a l o an ~ payable in a years tiMe. Kindly let me knbw where you can be reached outside your off ice so ' wl! can . confer on the manner bf repayment of the PSO,OOO.OO and what 'security you wol �.l want. Al s o more ! important is the denounciation being p~ep ared against EGI P or you by the same�gr~up I was mentioning to you . In fact I wrcite you a note about . this people sometime � l ast y ear , and in several occasions I k~pt on callin g y o ur attention about it. It seems tha t � I t:l:\n no longe; stop this g ~oup anymore . ' f1~ey � are try1ng their very best to prevail upon me tb go al~ng with ' them � in r J clarifying cer,tain dooumen ts they alle~ed ' 1 to have in their poss...~sion and a~ c:orJ � . ~t;f,�, to them they had f already cons &d 1 certain people in tH~ gover'lm.eh,i. 1 ' i they need is someone � who carl! e)t:ect. 11n . sworn statement, preferably one l�' w~o connected with EGIP. f Do you l WOLild be so fool ish , to be usqd ' � t;t1~ir� ' , too 1? Besides wh t th hav i in.� � ~ithout legal ba1liSt � I oyght . ,~ .~ ~!1~ b~cause as Manager pf . EGIP I 'did �.my. X~� .f.t"!ft b~st to manage the . ~usiness pf 'EGif! 1 iO e~!;..Q_rctance with law and, � investigations repeatedly cond~~ .,I I 21 WI

�! DECISION CTA CASE NO. 2334 - 20 - ~!tEe~m~~~~~~~~~~~-4~~~~ rate, I can you. .) (p. 38, Folder No. 51, records) November 10, 1963 Mr. Ramon Chuanico Valenzuel~, Bulacan Dear Mr. Chuanico: Inspite of my ~ff brts to ~ sist you in your business and !personal prbblems, you did not �ven bathe ~ to talk to1 m~ n or ' answer my letter. Worst of all, I lbst my business and with 'it all my saving because you did� �not !extend me even � a , . 1 single peso to help me~1 with my sine$ � I was very right when I was suspec~ili'i g '� since the begiAning tH t you reall y ~ v� � no intention to help m with the ~ pi 1 I need. Whatever hap~en, hencefo . th 't ' ' �.~ ' , all your fault. 11 �' l � �1 t �I I had been ta 1k i~c;{ ' to many ~1 . ~ r business associates ~ncludii1g cef ailn people in your office to 1 t � you ri w what I think of you as ~n empl~ye~, a friend �and business as!5ociate.' Yo dtJ ' t deserve anything. Al. that 'is e&1r t to you is money and nd~hing more. ~ :x.t......!. .I 2&

DECISION - CTA CASE NO. 2334 - 2l - m..Y5= h . .ffi.QJ:J:L.! h~~�!Lln:-..:....! supplied) (SigMed) F. Villa a.araza , �I l ,, From the tenor. of the labove were not challenged by respondeNt, ther 'I the intention of Gareza to I Undoubtedly, this impugris \ the credi b I 1, sworn statement. Thus the committe ~n 1 aptly stated: fExh. R, p. l 295, Fold~~ Hd. 76, BIR I records.> "In view of the foregolrig, the committee has the strong belief that due to the character and prop nsities of Mr. Gareza, exposed in his own writings, the government faces the ~eakness of r lying on his written declara~ion , espec! lly ~o that his declarati.oris h vet not b~ n properly corroborated by oth r compet~nt evidences." ' .!I' , ; II With regard to the doc t entary presented by petitioner tb refute 1 respondent that in the ye~rs in sold all its dollar uotas I importations, the letters ,, (:)~ \!; . I Division of the Bureitt..t I of Custo I, petitioner of the cancellation '.1 bonds filed to cover the � 4lbove I recommendation of the ' Apbraiser�~ ,. t' strong proof that cdntrary . !I I II,. 2.9

DECISION CTA CASE NO. 2334 - 22 - these tax-free importations have been ' ri!- exported to their suppliers in I� ' c...cordahc with the Embroidery Law and clea~ed by ' the! Bureau of I ' Customs. (Exhs. Z-1 to Z-t-93, Folder 1Nor,. .) records) I I �I 11I The same h~l~s true th c called "blacked .I of cancellation out" importations. I .. of warehouslng bonds cdve~irig thes I importations issued by ~he Chief bf the Law I I Division, Bur-eau of Customs c'Exh. V-1 to V-12, I Folder No. 52; Exh. Y-1 to Y-5, Folder � Ho. 60, BIR I records) proffered by pe~itioner, indicat that I I said ' and r '- xporte~ to �. importations were processed I their suppliers and theref6re could not h~ve been I tb ~ I suppressed from the' reco~ds and s o, ld I I textile buyers as . alleged b~ Gareza~ li . I ' Under Republic At:t. No. , 3137, Law, the rules and regt.Hations� establishment , suspension, Eontrol bonded manufacturing wareho~ses ~ith I 30

DECISION CTA CASE NO. 2334 importation of embroidery and apparel raw materials to be processed and re- exported, prov,ides for the liquidation of import entries as ~ oll Sl ' jJ )(kx LiqUidaii.:on of ' I� Section 4. import entries. Wrhee~hordtsh,e mam..rf�c:hrer. , finds, through his that lali t t')e �' ;,� n. raw materials covered !by any . Im pd~ t Entry t has been manufactured 1and re-expo !\! ted� J �� � 'f � , shall submit to th Bdard a "StC!\t The l stat rn nt 1 . � 1 t Liquidation." � contain a 1ist of 11 export 1 en.; . . under whicH a particu~ar Import E t~ lj been so 1 iquidated and s h~H i . b accompanied by copct.es of -~ , iR ny "Cer tifi cates of Insp~ction" as ther; !' a r ' ~ export entries invol~ed. : The , Cy!!S~olft'll i' off !,_cial .1!.Q on f iodin that t.hf:t s.tll!f_ nt t~ g_f liguidat t o r::L__..J!.ubmitt@d f9r t n:t P-~_rti.!;u!_~_r ImQort Entry is cor rec;:t, he ?h~ll certify to I the cloiina and l_iguida_ti_on of that particular �ntry dO ~he face bf the certif~ate. Thi certificate shall be submitted , to th g_g_!_l!!c tor of Cus~..,!~l_~ro_pf �for ~h� !;_~c~ll~'t!..t!!l_ __Q_f_,tbe bond on ' tM.t �.Q!:.!:..f!SQonding Import Enta. (Un derlini. n~ supplied) i : I I ' 1 In 1 ine with the tbregoing prb'll'i ion, the I notification of the cancel la tion of the warehousing bond on an import . ntry by a Cus tomtJ b ffil' ciI al . 1 I I ! � evinces the manufacture atid re-expo;~atio 1 '1, , Jthtl .. ~ ' l ~ i, I 'I �l ; >.l materials covered by sw;:h ~, mport en:' tr..~It� � I r~ 1 I~ ' � ' 'f' ,,1 ' Jl I t' '; <� ' Respondent failed I to I cbnt~ov~rt \. t, ,� Ch' of the aforementioned lett�rs frOM ;t~1l ' II Law Division of the Bureau of CustDI!ts c:Hfe-red by ~ petitioner� to substantiate' its st�~d � '� As'! off cial , records, they are entitled to ful~ and credence.

DECISION CTA CASE NO. 2334 - 24 - "Entries in official r cords made in the performance of his duty by a public officer of the PHilippines, dr by a I person in the perfbrmanc . of a � duty rv specially enjoined law, are piiea f'acif! evidence of 1 the fat:ts 1. t ti"ein stated." (Sf!ction 3'8~ Rulf! 130, tRule<S> o'f� Court. �' I t The law reposes a public officers that it I discharge theil"' several t!rusts I c~I they ~d i n fidelity; and, therefore, ~hatever I the discharge of their publ ic duty maybe given in evidence and s h a ll be take~ to be true Uhder stich a I I degree of caution as the hature and" circum5t nces of each case may appear toI require. (Antillon 11 .. 1 I Therle can be no 1 Barcelon, 37 Phil. 148, f52.J It I question then, that as against th uhcdrroborlated testimony of Gareza, the dndisputed above entioned official documents should ~e upheld. As to the allegation ,that pet itioner �'tampered ~ with the import � documents importations, the absence of the the possession of respondeht, the' au the alleged "genuine" invoice invoices entered in the official logbOQk can not be I rebutted. It is so admitted in the me.tlorandum report of the reinve5tigating 32

DECISION CTA CASE NO. 2334 October 13~ 1969 that the originals of the shipping documents are in the h~nds of respondent, as follows: (Exh. I, p. 8l, Folder ~o~ 76, BIR records) ..1 "The original and/or dtitplidatt!t origi n al and photostat copies of I ll �the 1, 118 import invoice!s ~ and other hi pp.i.ng ,, docu ments, genuine ana f ke invo �c�� ' d en~ 1 supporting papers the �12 :: i ' � 11"'1:!- . shipments, the offic~al logbook 1 . of �tne EGIP, the books of a9count of pE~Gr~IP ~1.f or the years nt irl questiondand oth r records are in the .fficial c:Ltstbdy Of the .Deputy Commissioner o'f Internal Revenue (Operations) , 1 the � former TSU coord inator under w~ose direction the EGIP was raided succe�sfully. Despite efforts on ~he part qf respondent, l however, the originals of ~he shipping docu~ents in question could no �1. longer be located . Only I photostat coples can be fo~nd in the record~ of the case. In answer to ttte lette r of the ' Assist~nt Revenue Service Chief (Leg~l Office) dated January 31 ~ 1985 inquiring about the whereabouts of ' the originals of the � doc~ ents : involved bar, the revenue reinvesti g ation of the t:.:Hie 1985, a s fo ll owsa "W i th tax 33

DECISION CTA CASE NO. 2334 - 26 - subject matter of C.T.A. Case No. 2334, please be informed of the following facts and circumstances - �' 1. My memorandum-repot"t on ttie ta)( case of EGIP (for shdrt) date d Oct- .) 1969 was submitted i on tha t dlate thereabouts and it i!s so ta\ted in lny report tha t the : originsl/dttpl!tdat.e origi nal and photostat copi s o lf t , l a import invoices ah4f other sHip l n.g d6cuments, genuine arid fake i~voi~e� hd sup port ing papers on i~ import shfp�e , ts, the official logbool< lof EGIP, bpo~ � f accounts arrd other perltinent ret: ~ds re in the official custody of th D ty Commissioner of llntern.:d � IR v m.te (Operations); 2. The report df the Committee of Messrs. Samuel A. Verzola as chairman, Mamerto Silangan, Jr.~ Leopolda ~ernab , and Alfredo C. Sercado� then offlcial of Revenue Region No. I 5, Valenzuela , Bulacan, dated June 1, 11971 state~, ambng , other th in g s, tha t the aforem .ntiti e~ documents were not l with the i ddclc:e � referred �to them upon linstruct�on of the Commissioner of Intern�! Re venu : ~n~I � 3. The recor'ds on this tax cage show that it was elevated to the Court of Ta:< Appeals in 1973. 1 A good num er ' of revenue officials (th~ former D.C.I . ~. , the former regional ditector of Rev. ~ � ~� No. 5, commit tee ~ members and othll?rs Who } may be expe~teJ to ~hed li gh t . on , he whereabouts of the mis5ing r~cor'ds) 1:� d � already retired or' had been setpan � ~ ~ from the .service. Ther~ is no way1 �~ tracing the whereaboLl~s of the g records." I!I lj Even during the original itwetitig tio l case by the ATSU examiners J they d cou 1 1')0 ' the correctness of the informer's !=1 i~~t ship ping documents for 1,;,118 '

DECISION - CTA CASE NO. 2334 - 21 - false, for lack of basis. Thus, their memor~hdUm report dated January 3, 1966 reads: (p. 17 ~ FoJde-r No. 78, BIR records) There is nothing in the recc:~rd !showing that such cross checking was made on the ~~ipping � documents in que~tion. Uhder the the allegation that , these ~ocuments w not stand. } ', .I The case of Boni-faci� , Sy Po vs .. CTA Oai se 3386, ' ' No .. Si!pt'll�b�r R. I 30, 1987 (~'f'firmed in G .. No. 81446,1 Au~ust 18, l j 1988, 164 SCRA 524) c i tetd by � responden �: h�S no I ! application here. There, petitioner ~~pe atedty

DECISION CTA CASE NO. 2334 refused and failed to present the � pertinent accounting records and other related documents,t . whi 1 e in the instant case, a 11 the b 1!51inf!s9 re drds and shipping documents involved possession of respondent. ' In point is the ~ase of Co��is:fionflr; ' I Internal Rf!venuf! v.s. I.sla.;,d Garaent ' p,�Au'tlac:furing . . ~ b Corporation I 'f . I l :Ho, � l and � the Court Tax App� Is . G .. R.. 11 L-46644, September 11, 1987 (1 5 3 SCRA 665) wh�rein I ~ the Supreme Court reiterkted t he rule held in Collector Internal Rf!venue vs. l L-1.JC.. 56 .~ ~1anuary .31, 1962, j4 SC RA 182"' that1 "An assessment f b :e s a nd de ~erminei �l the tax 1 iabi 1 i ty of ~ ta xpa yer. �, A� oon ,1 as it is served, an O'bl i gation arises on , the part � of the ta xpayer c ncer ned tb pay the amount assessed a~d d e ma nded . Hen e e, as s essment s should no lt b e based 'on mere presumptions no ma~te~ how r ea s orlable or logical said presumpti'ons ma y be ~ )( ~." "In o r der to ~tand tht:! ~ est t o1 judicial scrutiny, the assessment mu~t! bd� ba s ed on actual acts. � The prest,.tmp~ion of correctness af ass~ssment bein~ a ~�r~ presumption cannot be made tb ~e~t 1 dh another presumption." t, ~~, , 1 �)11. ~ ' I � ,, I I After considering ~nd wei-ghi ~ , ~ i . �J! 1 ! I! I evidence, we here find petitioner. not l �iabl� the deficiency income and advance .; sales taHes assessed against it by respondent f?r ' the � ye�r� 1959 to 1962. I With this conclusion, tt'le sec:ord I t issue as to whether the imposition I of the 50X

DECISION CTA CASE NO. 2334 ~9 I I I s urcharge for fraud is ju1 tified beco~�� academic. ! .J WHEREFORE, the decision hereby reversed. No costs SO ORDERED. Quezon City, Metro WE CONCUR1 ~�1/ AMANTE~ Presid/ J~tdg<i t. CONs1m :'~;~ E - "- IN ROAdU 7 sociate Judge I hereby reached the Court of Section 13, Article r. .. I H! ,�,!'