CTA Case No. 4267 (Decision)

R~PUDL%C O F THG P H Z L % P P % N E S COURT OF TAX APPEALS CIIUE:ZON C%TV ELBA EXPORT CORPORATION, Petitioner, - verst..ts - C.T.A. CASE NO. 4267 COMMISSIONER OF INTERNAL I CJ N REVENUE, - - - )( - - - - Respondent. -- )( DE C I ThitJ action involves assessments against the petitioner for deficiencies in income, withholding and business taxes for the year 1981 in the total amount of P171, 318. 15 covel'~ed by the l'... espond'ent' s letter of demand dated Jan1.1ary 15, 1987. The records show that petitioner had the same protested on November 27, 1987 which respondent resolved on March 20, 1988 by cancelling the incoMe ta>< liability of P87,907.21 due to petitionel'... 's availment of the ta>< amnesty accorded in Executive Order No. 41' excluding the withholding tax liability of P1,551.82. And, having failed to ...., (

t DECISION CTA CASE NO. 4267 - 2- avail o~ the tax amnesty covering business taxes under Executive Ot~ det~ No. 64, petitionet~ t~emained liable ~or the deficiency fixed tax of P81,859.12, inclusive of increment. Hence, petitioner's instant appeal. It may suffice to state that the parties submitted the case for decision on the basis of the pleadings waiving the filing of their respective memorandum on the legal issue of whether the petitioner may validly be considet~ ed an "export producer" vit-a-vii "export trader". In assailing the deficiency assessment, petitioner holds itself as an "export pt~oducer" engaged in the "manltfactltre, pt~oduct ion or processing o~ articles ot~ products for export in commercial q�Jantity". <Sec � 18 7 ( y ) , Tax Cod e � )�' I t lays stress on its business of a 100~ exportation of Philippine-made hand ict~ aft s, viz. baskets, rattan fruit and othet~ t~ attan prod�Jcts, locally put~chased, allegedly, in partially manu fact ut~ed ot~ semi - finished fot~ ms. These products had to undergo a kind 0~ such as polishing by sandpaper, varnishing and/or painting, cloth lining for fr�Jit tt~a ys, labelling and packaging, and final

r DECISION CTA CASE NO. 4267 - 3- quality inspection, exportation, which activities serve as the linchpin in validating its claim as an "expot~ t pt~ odLICet~", subject to a fixed annual tax of P100.00 only. Respondent Commissionet~ of Intet~nal Revenue's unvarying asset~ tion would have petit i onet~ considered an "expot~t tt~ader" engaged in the buying of Philippine-made pt~od uct s, and subsequently exporting them (Sec. 187(z), l._qj_ g_. > per t"'epot"'t of investigation, insofar as pertinent, that The AccoLmt i ng t~ecot~ds showed that subject taxpayet~ is engaged in the b�Jsiness of an expot~ �t tt--adet~. It buys locally produced native handicrafts which are ah~eady in the finished fot"'m, ft~om different suppliers most of which are from the Bicol provinces and the firm exports these abt"'oad. Howe vet~ , subject taxpayer claims that it is an export producer in 1981 but it was found that it does not keep cost accounting t~ ecot~ ds. It does not have daily production reports and the activity observed in the premise~ was not manufacturing but merely the packaging of finished native pt~od�.tcts in cartons and loading them in container vans for shipment abroad. Accordingly, the assessment, to wits l~fli..._J)ef...ici ency F~ xec;j Tax Export trading sales P7 ~2-~....S.09 � 7 0 Fixed tax due Adds 25~ surcharge 30,000.00 Basic tax plus surcharge Add1 14~ int. fr. 2/1/81 to 2/15/81 ------~7-~~-QQL~_Q 20~ int. ft"'. 2/16/81 to 1/15/81 37,500.00 AMOUNT DUE AND COLLECTIBLE 198.73 _ __4,__4,__,_1_~ 0 !~-~ p 81,859.12

DECISION CTA CASE NO. 4267 - 4- We reach the same conclusion as the respondent We believe that the petitioner May properly be considered an "export trader" within the purview of Section 187(z) of the Tax Code. And, we find nothing a�biguous nor obscure in the language of said provision insofar as the sa�e is brought to bear upon the petitioner in the case at bar. The circumstances obtaining are by no means clear as to the petitioner's claim of being engaged in the "�anufacture, production and processing of articles or products". The 11ere application of labor by such activities as varnishing, painting, polishing, labelling, packaging and the like on the handicrafts without transforming the same into new or different articles does not give rise to another �' �anufact �Jred product nor change the character or the use for which they were originally intended. It takes more than this sort of finishing t o�.Jches or cos�et ic efforts so to speak to have the� considered fot' purposes of the provisions of the Tax Code, i.e., Sltbstant iall y by physical or che�ical process alters the conditions of any raw �aterial or �anufactured product to prepare them for special use or uses as marketable product <Sec. 1 '1 v'

; DECISION CTA CASE NO. 4267 - 5- 187(z), ibj_Q.), �uch less, deem "pt~ ocessing", i.e., converting the raw �aterials into 111arketable for� by special treatment or series of action that re�ults in a change of the nature or state of the prod�.tct. Merely packing, packaging and sorting out and classifying shall not by the�selves constitute processing ~ ec. 3 - 1, RA 6135, otherwise entitled, Export Incentives Act>. Petitioner �ust have overplayed its understanding of the t er111 "export prod �.tcer". Moreover, the report of investigation upon which based the respondent's classification of the petitioner as an "export trader" furnishes the best �eans of its own exposition in ter111s of tractable data openly laid and fully disclosed and as such deserves the credence that should normally be accorded. And, petitioner points to no fac�t' ual errors nor superfluities which need be abt~ idged. And, not that the examiners credentials are illtpecable but to their favor wtust be conceded the presuMption of regularity in the perfor�ance of official duty which have not been disproved by any affir�ative evidence of irregularity or unlawful conduct. <Pri�a Business Machines, Inc. v.

,. DECISION CTA CASE NO. 4267 - 6- Co��issioner of Internal Revenue, CTA Case No. 2990, August 3, 1981.) We feel compelled to affirm the ill port and force of the repot~ t of findings which �ay not be suffered to petrify in futility. WHEREFORE, finding the petition to be without o~ the a�ounts sought ordered with costs against the petitioner. SO ORDERED. Q\..utzon City, Mett~ o Manila, Januat"'Y 15, 1991. I CONCUR1 ~ co ROAQUIN J1.1dge CERT:XF%CAT:XDN I hereby certify that this decision was reached after due consultation between the MeMbers of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ALE � REVES Pre�iding Judge Court of TaH Appeal� 1 '1 . I-'