CTA Case No. 3215 (Decision)

. CCi!JUBLU~ 0 P �rtu; ~H1LIPPtNn ~OURT OF TAX .A.PP~ . . QIJ~Q~ �;;Ul' PAPER INDUSTRIES CORPORATION ti OF THE PHILIPPINES, Petitioner, versus C.T.A. CASE NO. 3215 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - - X DEC I S I 0 N Petitioner Paper Industries Corporation of the Philippines (PICOP for brevity) is organized under our laws, and is engaged in the operation of forest concessions, and among others, in the manufacture and sal~ of kraft and paper. It is regis t ered as respect its integrated pulp and paper mills with the Board of Industries (BOI for short)~ Among the incen- tives granted to :lt under the Incentives Act, RA 5186, as amended, is the exemption from all taxes, excep~ income tax; in graduated scale, according to the provision of Section 8(a} of said Act, as amended by PD 92, effective January 6, 1972 \ l 34

DECISION - CTA CASE NO. 3215 - 2 ... (69 Off. Gaz. No. 6, p. 746, dated February 3, 1973), the pertinent amendment of which provides as follows: SEC. B. ' Inc~nt i ve~ to a Pioneer .,. , En t e r pr i s e - I n ad d i t i o n Co t h e i n- centives provided in the following section,' pioneer enterprises shall be granted the following ince8tives benefits: (a) Tax exemptions. - Exemption from all taxes under the National Internal Revenue Code, except income tax, to the following extent: (1) One hundred percent ~p to December 31, 1972; (2) Seventy-five percent up to December 31, 1975; (3) Fifty percent up to Dece mber 31, 1977; (4) Twenty percent up to D~cemb e r 31, 1979; (5) Ten percent up to December 1, 1981. The 100% tax exemption of PICOP expired on December 31, 19'2 so that beginning January 1, 1973, its exemption stood at 75~~. Because of the amendment of Section 8 ( a) of RA 51B~ �� by PD 92 aforesai~ PICOP on March 30, 1973 requested the Board of Industries to extend its 100% tax exemption foi a period of three (3) years from December 31, 1972 to December 31, 1975. On December \ 35

DECISION - CTA CASE NO. 3215 - 3- f� 19, 1973, thru its Gov. Caesar z. Lanuza, the BOI informed PICOP of the approval of its request (Minutes of Nov. 22, 1973). On this basis, PICOP had stopped paying the 25% sales tax due for the 4th Qtr. of 1973 t. and the 1st a~d 2nd Qtr. of 1974 in the total sum of ~2,990,9,73.42. On March 31, 1974, the National Economic Deve- lopment Authority (NEDA for short) later on disapproved the request of PIC'OP. Upon receipt of this information, PICOP again resumed paying the 25% of the sales tax due for the 3rd and 4th Qtr. of 1974 and for the whole year of 1975, or a total of ~2,256,525.00. On May 13, 1974, PITCOP again filed with NEDA a request for reconsideration of the disapproval because of the alleged heavy losses it had incurred in the last qu~rter bf 1974 and in early 1975. In turn, NEDA, on � May 23, 1975, referred this to the Bo ard of Indu~tries (BOI) for comment and recommendation. The said BOI recommended to NEDA 100% tax exemption for a period of 3 years to take effect 1975 to 1978, which was approved by NEDA on March 16, 1976. On May 31, 1976, PICOP, after receipt of the approval of its request for reconsideration, requested I \ 38

' DECISION - CTA CASE NO. 3215 - 4- t� further that the approved 100% exemption be made to retroact to December 31, 1972, the date of expiration o f its original 100% tax e xemption, but BOI referred it to the Bureau of Internal Revenue and the officials . of the latter recommended denial �Of the request of petitioner. On November 5, 1976, based upon a directive of Silves t re M. Torres, Jr., Acting Chief, Investment Incentives Division, addr e ssed to Supervising Revenue Examiners Bienvenido Y. Boado and Francisco P. Magno of the same division, the l a tter rendered a report dated November 5, 1976 (Exh . C, pp. 99-115, BIR rec.) to the Commissioner of Internal Revenue that the payment of percentage taxes is mandatory and cannot be extended by the Commissioner of Internal Revenue and recommended the assessment of P-5,094,294.10 ag a inst petitioner PICOP. On January 5, 1977, petitioner received a defi- ciency sales tax assessment dated November 18, 1976, based upon the report and pertinent records submitted by the examiners (Exh. K, p. 61, CTA rec. and Exh. 7, p. 120 BIR rec.) demanding the payment of the total sum of ~5,128,441.12, covering the 4th quarter of 1973 I � \

DECISION ... CTA CASE NO. 3215 - 5- 'J'� � and the lst and 2nd quarters of 1974, inclusive of surcharge and interest, as follows: "Sales tax due, 4th quarter, 1973 (at 25 1 0f 7 �,a' ) 958,930.71 r. � 0 � � � � � � � 8 � � � � � �~ �10 25% surcharge for late payment �� 239,732.68 E!l,l98,663.39 14% Int'. fr. 1/sl/74-12/18/16 ��� 486,417.60~1,685,080.99 ....... ........ Sales tax due, 1st quarte~, 1974..~1,151,012.681 (at �2 5 1 0f 7 �,a' ) �1D 25% surcharge f~r late payment �� 287,753.17 E!l,438,765.85 14% int . fr. 4/21/74-12/18/76 ���� 533,494.38El,972,260.23 Sales tax due, 2nd quarter, 1974 (at 25% of 7%) �� ~ �������������� ~ 881,030.03 25% surcharge for late payment ��� � 220,257.51 E!l,l01,287.54 14% int. fr. 7/21/74-12/18/76 ���� 369,812.36 1,471,099;90 TOTAL AMOUNT DUE AND COLLECTIBLE ������������ E!5,128,441.12 This deficiency came after petitioner has paid 25% of the 7% sales tax due for the 1st, 2nd and 3rd quarter of 1973. It, however, stopped to pay the 25% of the 7% sales tax due for the 4th quarter of 1973, and the 1st and 2nd quarter of 1974, in the amount of E2,990,473.42 aforesaid. Petitioner protested the above deficiency sales tax assessment of e5,128,441.12 of the respondent Com- missioner of Interoal Revenue on January 18, 1977. (Exh. 11 M", petition for review, pp. 63-68, CTA rec.) Acting on this protest, respondent, on Fe bruary 24, 1981, revised and finally reduced the assessment from I \ 38

DECISION ... CTA CASE NO. 3215 - 6- 'f� 25,128,441.12 to 23,443,360.12 plus i ncrements (Exhs. "N" and "9", p. 69 CTA rec., and p. 147 BIR rec., res- pectively.) The revised assessment provides in full as follows: REPUBLIKA NG PILIPINAS MINISTRI NG PANANALAPI KAWANIHAN NG RENTAS INTERNAS Quezon City February 24, 1981 Gadioma & Colon, Lawyers Dominion Building, 103 Pasay Road, Legaspi Village, Makati Metro Manila Gentlemen: With reference to your request for reconsideration of our decision requiring your client, PAPER INDUSTRIES CORPORATION of the Philippines, to pay the total sum of 25,128,441.12 as deficiency sales tax including sur- cha~ge and interest, covering the 4th quarter of 1973 and the 1st and 2nd quarters of 1974, I have the honor to in farm you that this 0 ff ice has wtih drawn the �assess- ment of 21,685,080.44, pertaining to the 4th quarter of 1973, it appearing that said tax liability was settled by the taxpayer on April 26, 1976 when it availed of LOI No. 308. Accordi~gly, only the sum of 23,443,360.13 representing the sales tax liability of your client for the two (2) quarters of 1974, is being considered in this case. Contrary to the stsnd taken by you, we maintain that the decision on March 16, 1976 of the National \ 39

DECISION - CTA CA::5E NO. - 7- ?-� Economic Development Authority extending the 100% tax exemption of the taxpayer from October, 19/5 to December, 1918 is not retroactive and does not therefore, relieve your client of paying the corresponding sales tax due for the 1st and 2nd quarters of 1974 in t he sum of ~3,443,360.13. It is a cardinal rule in this jurisdictiQ,n that an exemption from the payment of tax should be � strictly constrped. (Collector v. Manila Jockey Club, 98 Ph~l. 670) In view thereof, it is requested that you urge your client, Paper Industries Corporation of the Philippines to pay the sum of P3,443,360.1J plus increments that may have accrued thereon, to the Collection Agent of Makati, Metro Manila, within fifteen (15) days from your receipt hereof, in order that this ca s e may be closed and terml- nated. This constitutes our final decision on the matter. Very truly yours, RUBEN B. ANCHETA Acting Commissioner The three (3) issues presented in this case are as follows: .1. Whether or not the deficiency sales tax assessment tor P3,44J,3b0.13 is valid and enforceable; ~. Whether or not t h e imposition of the 25% surcharge is valid; and 3. Whether or not respondent Comm iss ioner of Internal Revenue's right to issue the deficiency ~ssessment has prescribed. We will tirst ~onsider the question on whether or not the sales tax assessment for P3,443,360.13 is correctly imposed under the prevailing provision of I \ 40

T'� DECISION - CTA CASE NO. 3215 - 8- i'' law. On March 3u, 1Y73, because ot petitioner's request for the continuance of its 100% exemption from January 1, 1973 to December 31, 1975 and having its request approved 'I � finally for October, 1975 or the 4th Qtr. of 1975, (but �� note .that petitioner had paid erroneously the 25% of the 7% sales tax fo~ this 4th quarter of 1975 which petitioner here did not seek for its refund) to 1978, petitioner contends that the exemption of 100% is valid de f�_~_to for the period from 1Y73 to 1978; that the NEDA's dis- approval having been reconsidered in effect recognizes the legality and correctness of the original approval or action of the BOI~ thaE~'eversal of the NEDA stand appro- ving finally the re~uest of petitioner for the extension of its 100% exemption from the payment of sales tax reenforces the validity of the BOI extension dated Decem-- ber 19, 1973; and that the approval by the NEDA in effect leaves the BIR assessment without legal justification. It is petitioner ' s theory that the relief granted to PICOP ~ due to its financial difficulties by BOI and NEDA, by way of the exemption granted, \'lill be wiped out to the tune of P2,990,973.42, corresponding to the three quarters of 1973 and 1974 that should have been enjoyed \ 41

DOCISIOO' - CTA CASE NO. 3215 - 9- by pe ti tion1E!r from the original exte nsion of, its exemption granted by BOI under the exemption law {Rep. Act 5186) �. We are not in accord with the contention of peti~. tioner in this issue. The approved exemption by the BOI which it info rmed petitionex pertain to the latter's request for extension of its exemption rights from January 1, 1973. This approval made is however without the corresponding approval by the NEDA of petitioner's request to which it was finally referr e d for action. But nevertheless. the BOI approval previously given have impelled PICOP to stop the paying of the 25% of the 7% sales tax due foi the 4th quarter of 1973 and the �1st and 2nd quarter of 1974 in the total sum ot P2,990 , 973.42 in the ~eantime. Without the final appioval of the NEDA, petitioner PICOP is not legally exempt from paying the above amount of P2,990,9~3.42 as there was no valid extension of its exemption pri- vilege.- 'rhe law, Section 8, par. (a) of Republic Act No. 5186, as amended by PD 92, is clear in its provision that petitioner's 100% exemption sales tax ends on December 31, 1972, and that the extension of the 100% sales tax exemption shall be made possible \ 42 ,,

DECISION - CTA CASE NO. 3215 -1o - .1" only with the approval of the NEDA, upon recommendation of the BOI. Consequently, we hold petitioner is liable to pay 25% of the 7% sales tax for the 4 t h quarter of 1973, and the 1st and ~nd quarter of 1974 in the sums of ~1,151,012.b8 and P88l,OJ0.03, respectively. We now come to the second question of whether or not petitioner is liable for the payme nt of 25% surcharge for late payment of the s ales taxes for the 4th quarter of 1973 and the lst and lnd quarters ot Indeed, as truly ~nd correctly preferred by petitioner, it was only relying with honesty and in utmost good faith upon the information of the BOI that it had approved its 100% sales tax exemption, which prompted it not to p ay the 25% of the 7% sales tax due for the 4th quarter of 1973 and the lst and 2nd quarters of 1~74 . Consequently, where a tax- payer failed to pay its taxes due to and on account of the fact that it based its actions upon reliance to certain officia~ facts or rulings, the 25% penalty or surcharge is not imposable upon said taxpayer as it was only acting in complete honesty and good faith when it did not pay said sales tax. (Cannel Bros. \ 43

DECISION - CTA CASE NO. j21~ - 11 - Co. (Phil.) v. eoll., GR L-15470, March 31, 1964; 10 SCRA 469, 470-471; Phil. Mfg. Corp. v. Comm., CTA 448, Sept. j, 1974.) Finally,. coming now the third issue of whether or not the right to issue the revised assessment has prescribed, it is asserted by petitioner that the revised assessment which covered t h e amo unt of ~3,443,360.13 sales tax due against petitioner was dated February 24 , 1981. This amount of revised unpaid sales tax assessment covered the 1st and 2nd Quarters of 1974. Based on the report a1d records of these sales which were made 1n the regular course of business, these were file d with the BIR o r were otherwise due on or before December 31, 1974. The revised assessment of February 24, 1981, ha ving been issued based on a solitary protest filed by petitioner on January 20 , 1977, in order to be valid and lawtul, there being no charge of fraud made therein, must be made within the 5-year period counted from 20th day after the end of each quarter (Sec. 183, National Inter n al Revenue Code)~ and the last quarter being on the 20th day f rom the end of the ~th quarter \ 44

DECISION - CTA CASE NO. 3215 ... 12 - ;f � of 1974, the beginning of the 5-year period within which to issue the tax revised assessment is January 20, 1Y75, the date when the sales tax returns were filed or were due pursuan t to Section 331 of the National In ternal Revenue Code (!lagan & Alejandrino vs. Col!., CTA 4J, July 25, 1956; Equipment & Supply Co. vs. Comm. of Int. Rev., CTA 17Y5, October 30, 1971) which 5-year period expired on January 20, 1980. The revised assess ment against petitioner having been issued by respondent Commissioner of Internal Revenue only on February 24, 1981, it is over a year beyond January 20, 1980, the last day of the 5-year prescriptive period within wh1ch the respondent may issue the revised assessment. The right ot respondent Commissioner of Internal Revenue to make the revised assessment has defini tely prescribed. This is the result of similar holding s made oy the Supreme court in the cases of Pineda et al vs. call.; ~ SCRA 4Ul; Carlos Moran Sison. v. Coll., CTA J37, Feb. 28, 1Y58; Rep. vs. Alano, ll SCRA 24; Coll. v. Solano , L-11475, July 31, 195H; Rep. v. Ablaza, 108 Phil. 1105, lluB. When the Commissioner of Internal Revenue makes an \ 45

-. DECISION - CTA CASE NO. 3215 - 13 - I" assessment, and based only on one single protest thereof (see cited cases of Pineda v. Coll., ibid.; Rep. vs. Alane, ibid.; Coll. vs. Solano, ibid.; Rizal Motors Inc. vs. comm. ot Int. Rev., CTA Case t' No �. 1985, Dec. 2�1, 1972) ~ filed bY petitioner, and subsequently revises t he assessment, the period ot prescription is counted from the last revised assess- ment. (Republic vs. Lopez, G.R. L-18007, March JO, 196J, 7 SCRA 566, 569; Republic vs. Acebedo, G.R. � L-20477, March 29, 196tl, 22 SCRA 1J56, 1358; commissioner vs. vs. Sison, et al, GR L-1J739, April 30, 1963; coll. vs. Pineda, GR L-lb70~, Oct. JO, 1962.) And there being no fraud charged in the respondent's revised assessment, the prescriptive period to issue the same is tive years as provided f or in Section 331 of the National Internal Revenue Code. (See Central Azucarera de Tarlac vs. Coll. , 104 Phil. 563 , cited in Ma~ila Electric Co. vs. Lingad, eTA 1030, March 15, 19 72.) Consequently, we are of the op1nion ard so hold that the right to .issue the revised assessment against petitioner by responden t Commissioner of Internal Revenue in the sum of ~3,433,360.13, inclusive ot \ 4G

- DECISION CTA CA~E NO. 3ll5 - 14 - ,... increments, within the per1od of f1ve years pursuant to the provisions of Section 331 of the National Internal Revenue Code , has prescribed and said revised assess ment lost its validity and legality and has the . eftect as 1f " thc:-~re is no d ef j_ c~~_!tcy in respect t o such tax" (J.C. Yusec o vs . Call. of Int. Rev . , CTA 21 1 , March 25, 19~7, applying Sec. 14 , RA 1125; s e e also Rep. o f the Phil . v. Razon, Manila civil Ca s e No. l55b6 , Mes., Jan. ~3, 1957.) notwithstanding o ur finding in t he first issue which becomes entirely unavailing in t his case . It has erstwhile been stated as a reminder, and bo rrowi n g t r om what our Supreme court has said, in e f fect, that pr escription is rigorous and at times h ar sh but t he r e could be no oppression or inequity as t h i s defense applies to both the Government and citi- zens or taxpaye r s. Its salutary and wholesome effect c a uses both t o be alert and vigilant in order that both do not s l eep on their rights and terminates what may other wise be a.n endless lit1gation and conseque n t confusion. The beneficial purpose is that, to the c iti zens or taxpaye r s , they would have the feeling of \ J

DECISION - CTA CASE NO. 321~ - 1=> - i" security against revenue agents who may take advantage to narass taxpayers and protect them from protracted and unreasonable investigations; and that to the Government, tax officers shall be obliged to always '' act with promptness (Kepublic vs. Ablaza, 22� ci~, pp. 11U7-110H) in subservience to the principle of human rights and substantial justice. ~vHEREFORE, the decision ot the Co mmissioner of Internal Revenue appealed from is hereby set aside. No pronouncement as to costs. SO ORDEHED. Quezon City, ~ebruary 15, 1Y87. ............ . EOAQUIN Judge I. CONCUR: AHANTE FILLER Presiding Judge Dissents in separate opinion ALEX Z. REYES Associate Judg,e \ 43

t~.t:t'tJBl.&C OlP' lH� t"HILU�i!'lW'~ ~OUR'f OF TAX APPu�t.l-q Q:U$011 (.~JfV PAPER INDUSTRIES CORPORA TION OF THE PHILIPPINES, Petition er , - versus - C. T. A. CASE NO. 3215 ~. COMMISSIONER OF INTERNAL REVENUE , . Respondent. X- - - - - - - - - - - - - X DISSENTING OPINION The majority's decision would seem no more than a clumsy at tempt to defuse the asse rted import of a valid assessment by opting for the alternative def ense of presc ription thus opening a decidedly conten tio us note in ha ving the same se t aside , Apparently enamored by petition er 's own rhetorics the decision suffers from a surfeit of unctious semantics more gen erous than cand id, Face d up with the simple facts obtaining , the rec ords show that - Novem b e r 18, 1976 - Respondent issued the deficiency assessment aga inst the petitioner for a deliberately unpaid sales tax of the 4th quarter 1973, 1st and 2nd quarter s 1974, aggregating ~5,128,441.12, inclusive of interest and pen altie s. \ 48

DISSENTING OPINION - CTA CASE NO. 3215 - 2- January 18, 1977 - Petitioner protested the assessment asMtinted (sic) with l e gal and factual infirmities" claiming settlement of the 4th quarter 1973 liabilities under. LOI 308 (amnesty) and enjoyment of full tax exemption privilege for the 1st and 2nd quarters of 1974 under an alleged NEQA Ruling per PO 92. February 24, 1981 - Respondent denied petitioner's protest or request for re- consideration of the assess- ment on the ground that NEDA's decision specifically covered the period from October, 1975 to December, 1978 and therefore did not retroact to the lst and 2nd quarters of 1974. Accordingly a revi s ed assessment was issued covering the two (2) quarters aggregating the amount of 83,443,360.13. Just so and aptly enough not much room is _left over for suspense. I share respondent's unambiguous conclusion that, "Under the circumstances the pro- test of PICOP (petitioner) dated January 18, 1977 suspanded the r~rining of the period of prescription up to February 24, 1981, the date of the issuance of the r e vised assessment/decision of 83,443,360.13. Sonsequently, the period between January 18, 1977 \ 50

DISSENTING OPIN IO N - CTA CASE NO. 3215 - 3- up to February 24, 1981, is to be subtracted from the total prescript ive period, and therefore re s - pen dent's right to is s ue the deficiency sale s tax a~sessment of e 3,443,360.13 ha~ not prescribed. (Commissioner v. Sison, L-1379, April 30, 1963 , 7 SCRA 884, citing Rep. v. Ablaz a, L-14519, July 26 , 1960, 108 Phil. 1105; Querol v. Collector , L-16705, October 30, 1962 , 6 SCRA 304; Re p. v . Lopez, L-18 007, March 30, 1963, 7 SCRA 566. Cf Tan Guan v. Nable, No. L-18598, July 23 , 1968, 24 SCRA 93) ." Respect for the authority of the Court is not served by precipitous overruling of multiple pre- cedents. Let the chips fall where they may. ~Ew Associate Judge \ 51