CTA Case No. 965 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS MANilA BUTUAN SAWMILL, INC ., C. I .A. Petitioner, CASE NO � 965 ... - versus- THE COMMISSIONER OF INTERNAL REVENUE , Respondent . x - - - - - - - - ~ - - - - -x This is an appeal from an assessment for sales tax, surcharge and compromise penalty amounting to P38 , 917 . 74 on sales of logs effected by petitioner Butuan Sawmill , Inc . from January 1951 to June 1953. The Butuan Sawmill, Inc ., a corporation organ- ized and existing under and by virtue of the laws of the Philippines , is a duly licensed timber con- cessionaire . From theevidence adduced in the hearing , it appears that during the period from January 31, 1951 to June 8, 1953, it sold logs to Japanese firms at prices FOB Vessel Magallanes , Agusan (in some cases FOB. Vessel Nasipit , also in Agusan) ; that the FOB prices included costs of loading, wharfage steve� doring and other costs in the Philippines; that the quality, quantity and measurement specifications of the logs were certified by the Bureau of Forestry ; that the freight was paid by the Japanese buyers; and payments of the logs were effected by means of i rrevocable letters of credit in favor of petitioner

DECISION - C. T.A . CASE NO. 965 , - 2- and payable through the Philippine National Bank or any other bank named by it . Upon investigation by the Bureau of Internal Revenue , it was ascertained that no sales tax re - turn was filed by the petitioner and neither did it pay the corresponding tax on the sales . On the basis of agent Antonio Mole ' s report dated Sept- ember 17," 1957 , respondent , on August 27 , 1958, determined against petitioner the sum of P40, 004 .- 0l representing sales tax, surcharge and compromise penalty on its sales of logs from January 1951 t o June 1953 pursuant to sections 183, 186, and 209 of the National Internal Revenue Code (Exhib- i t E 11 11 , p . 14, CTA re c. & p. 141 BIR rec .). And in consequence of a reinvestigation, respondent , on November 6 , 1958 , amended the amount of the previous assessment to P38 , 917 . 74 (Exhibit F 11 11 , p. 52 , BIR rec . ). Subsequent requests for reconsider- ation of the amended assessment having been denied (Exhibit "G" , p. 55, BIR rec .; Exhibit "H" , PP � 75 - 76 , BIR rec. ; Exhibit "I" , PP� 79- 80, BIR rec .; Exhibit "J", p. 81, BIR rec. ), petitioner filed the instant petition for review on November 7, 1960. The issues involved in this case are : (1) Whe- ther or not petitioner is liable for payment of the 5% sales tax prescribed in section 186 of the

DECIS ION - C. T. A. CASE NO. 965 - 3- Tax Code on its sales of logs to Japanese buyers during the period under review; and (2) whether or not the right of respondent Commissioner to assess the tax in question has already prescribed. It is petitioner ' s contention that the sales in question were foreign sales because title to the logs passed from the seller to the buyers in Japan , and not in the Philippines , and as a conse- quence , are not subject to the sales tax imposed by the Tax Code . Respondent , on the other hand, maintains a contrary view. We find petitioner's contention to be without merit . Upon the foregoing finding of facts , we are convinced that the sales of logs in question were consummated within the Philippines , not with- out . It is to be noted that the agreed prices were FOB Vessel Magallanes (or Nasipit), Agusan . This agreement is an evidentiary indication that . the parties intended the title to the logs to pass to the buyers upon the delivery of the logs in Agusan on board the vessels (Taligaman Lumber Co ., Inc . vs. Collector of Internal Revenue, G. R. No. L-15716, March 31, 1962). Although, this indication is merely prima facie , we find the following cir- cumstances as lending credit to the thesis that it is the intention of the parties to consummate the sales at bar in the Philippines. These circums-

.� DECIS I ON - C. I . A. CASE NO. 965 -4- tances are : (1) The certification of the quality , quantity and measurement specification~ of the logs by Philippine authorities ; (2 ) the payment of freight by the Japanese buyers (Taligaman Lum- her Co ., Inc . vs . Collector of Internal Revenue , G. R. No . L-15716 , March 31, 1962; Western Min- danao Lumber Development Co ., Inc. vs . Court of Tax Appeals , et al ., G. R. No . L-11710, June 30, 1958) ; and (3) the payment of the logs by means of ir- revocable letters of credit in favor of petitioner and payable through the Philippine National Bank or any other bank chosen by it (Bislig Bay Lumber Co., Inc . vs. Collector of Internal Revenue, G. R. No . L-13186, January 28, 1961 ; Misamis Lumber Co ., Inc. vs . Collector of Internal Revenue , G.R. No . L- 10131 , September 30, 1957 , 56 O.G . 517 ; Western Min- dana o Lumber Development Co., Inc . vs . Court of Tax Appeals , et al., supra). In connection with the second issue, petitioner maintains that the right of the government to assess the sales tax in question had prescribed pursuant to section 331 of the Tax Code; the pertinent pro- vision of which follows : "Except as provided in the succeeding section, internal- revenue taxes shall be assessed within 5 years after the return has been filed, x x x x "� Respondent, however, contends that the instant case falls under section 332 (a) of the Revenue Code ,

DECIS I ON - C. I . A. CASE NO . 965 - 5- which provides in part : "In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return , the tax may be assessed, x x x x, at any time within ten years after the discovery of the falsity, fraud , or omission . 11 (Underscoring supp lied .). Section 332 (a) is the la w applicable to this case. Petitioner admitted that it did not file a return for the sales in question upon advise of counsel {Exhibit I11 11 , pp . 78-80, BIR rec .). Under this circumstance , the sales tax may be assessed within ten (10} years from and after the discovery of the omission to file the return. It appearing that the omission was discovered on September 17, 1957, when agent Antonio Mole submitted his report , which is the basis of the assessment , we find that r espondent's right to assess the sales tax in ques- tion has not prescribed as the assessment was made well within the 10- year period. Relative to the claim for payment of compro- mise penalty amounting to P2 , 810.oo, it has be- come well - settled that the respondent Commissioner has no power �to enforce the same in the absence of an agreement between the parties . (S ee Collector of Internal Revenue vs . Pio Ba r retto & Sons , Inc.; G. R. No. L-11805, May 31, 1960; Collector of I nternal Revenue vs . Bautista , et al ., G. R. No . L- 12256 , May 27, 1959; Collector of I nternal Revenue

DECISION - C. I . A. CASE NO . 965 - 6- vs . UoS.To, G. R. Nos . L- 11274 , 11280, Nov. 28, 1958 . ) WHEREFORE , the decision appealed from is here - by affirmed and petitioner Butuan Sawmill , Inc. is ordered to pay respondent the sum of 36 , 107 . 74 as sales tax and surcharge on its sales of logs from January 1951 to June 1953, with costs against ' petitioner. SO ORDERED . Manila , Philippines , September 18, 1962. -- WE CONCUR : '