APO CEMENT CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBUC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION ************* APO CEMENT CORPORATION, Petitioner, C.T.A. CASE NO. 6461 -versus- Members: ACOSTA, Chairman BAUTISTA, and CASANOVA, )J. COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. SEP 0 7 2005 q~ij;;z;~A-\ x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION ACOSTA, E., P.J.: This Petition for Review seeks the cancellation of five (5) internal revenue tax assessments, namely: deficiency value-added tax, excise tax, expanded withholding tax, final withholding tax and documentary stamp tax in the aggregate amount of P102,567,781.34 for the taxable year 1997. The facts as culled from the records and pleadings of the case are as follows: Petitioner is a domestic corporation organized and existing under the laws of the Philippines with principal office at 25th Floor, Petron Mega Plaza, 358 Sen . Gil Puyat Avenue, Makati City. 1 1 Paragraph 1, Summary of Admitted Facts, Joint Stipulation of Facts, page 133, Records.

DEOSION C.T.A. CASE NO. 6461 Page 2 On March 1, 2000, petitioner received from the respondent Preliminary Assessment Notice (PAN) dated December 20, 1999 informing it of the following proposed deficiency internal revenue tax assessments for taxable year 1997:2 Value-added Tax Amount Excise Tax P468 ,418 ,081.05 Expanded Withholding Tax Final Withholding Tax 279 ,363 .71 Documentary Stamp Tax 36,046,492.37 Tot a 1 22,248 , 823 .67 49,287,045.70 P576 279 806.50 In the said PAN, petitioner was given an opportunity to present its side of the case within fifteen (15) days from receipt thereof. However, on March 3, 2000, petitioner requested until April 7, 2000 to submit supporting documents in view of the magnitude of workload caused by the change in its ownership and management in February 1999.3 Eventually, petitioner filed its protest to the PAN on April 7, 2000 seeking for reconsideration of the proposed deficiency tax assessments. 4 On February 7, 2001,5 petitioner received Formal Letter of Demand No. 40238 together with the Details of Discrepancy and five (5) Assessment Notices issued by the respondent on January 31, 2001 through its Regional Director Antonio I. Ortega covering the following adjusted deficiency tax assessments for the year 19976, to wit: Basic Surcharge Interest Penalty Total P31 ,575,687.50 P21 ,048,353.28 p 52,624,040.78 Deficiency Value-Added Tax 186,782.77 76,580.94 263 ,363 .71 Deficiency Excise Tax Deficiency Expanded 25,895,613 .83 18,990 ,030 .40 44 ,885 ,644.23 Withholding Tax 2 Exhibit A, inclusive of submarkings. 3 Exhibit F, inclusive of submarkings. 4 Exhibit G, inclusive of submarkings. 5 Exhibits N and N-1. 6 Exhibits H, I, J, K, L, M and N, inclusive of submarkings.

DECISION C.T.A. CASE NO. 6461 Page 3 Deficie ncy W~h holding Tax 40,711 .85 p 20,355.92 25,102.92 P40,711. 85 126,882.54 on Compen sation 933 ,570 .0 1 P40 ,140 ,067 .54 P40,711 .85 4,667, 850 .08 P 102 ,567,78 1.3 4 DefiCiency Documentary Stam p 3,734,280.07 P953 ,925 .93 T ot al s P61 ,433,076.02 on March 6, 2001, petitioner filed its protest to the aforementioned deficiency taxes praying for the reconsideration and/or cancellation thereof due to prescription. 7 On August 10, 2001, respondent, in the process of evaluating petitioner's protest, requested the latter to submit documentary evidence in support of its arguments to the above-enumerated assessments. 8 On September 21, 2001, petitioner complied with the said request and transmitted to the respondent the schedule of payments not subjected to withholding tax, audited financial statements for the year 1997 and three (3) summaries of purchases of fuel, oils and lubricants to support its objections to the merit of the assessments. 9 On April 18, 2002 and within thirty (30) days from the lapse of one hundred eighty (180) days from the submission of the aforementioned supporting documents, petitioner opted to file the instant Petition for Review with this Court pursuant to Section 228 of the National Internal Revenue Code of 1997. On July 10, 2002, respondent filed his Answer maintaining his position that petitioner is liable to the 1997 assessed deficiency taxes. The parties have jointly stipulated the issues of the case as follows : 1. Whether or not the right of the BIR to validly assess petitioner for the subject deficiency has already prescribed. 2. Whether or not petitioner filed his protest against the subject assessments within the period prescribed by law. 7 Exhibit 0 , inclusive of submarkings. 8 Exhibit P, inclusive of submarkings. 9 Exhibit R, inclusive of submarki ngs.

DEO SION C.T.A. CASE NO. 6461 Page 4 3. Whether or not the subject assessments are valid based on the provisions of the Tax Code of 1997, Revenue Regulations No. 12- 99, and the applicable guidelines on the issuance of assessments. 4. With respect to the assessed deficiency value-added tax, whether or not there was discrepancy between the income reported per Inrome Statement and that reported in the Value-Added Tax Returns of petitioner. s. With respect to the deficiency value-added tax, whether or not there is an overstatement of excess input tax carried over to succeeding quarters on the part of petitioner. 6. With respect to the assessed deficiency excise tax, whether or not there was an understatement of the market value of the quarry resources extracted by petitioner. 7. With respect to the assessed deficiency expanded withholding tax, whether or not petitioner has inrome payments for the year 1997 which were not properly subjected to tax. 8. With respect to the assessed defidency expanded withholding tax, whether or not petitioner is liable to pay taxes for purchases made from entities exempt from income tax. 9. With respect to the assessed deficiency expanded withholding tax, whether or not petitioner is liable to pay taxes for purchases from foreign companies pursuant to the RP-German Tax Treaty and for lack of opportunity to withhold taxes since it was not the payor. 10.With respect to the assessed deficiency withholding tax on compensation, whether or not there exists a failure on the part of petitioner to withhold and remit final income tax due on interest paid on loans availed from a foreign creditor. At this juncture, it is important to note the following incidents that occur during trial of the case: 1. On November 29, 2002, petitioner had settled its liability for deficiency documentary stamp tax in the amount of P6,373,949.29. 10 The payment were 10 The difference in the amount was due to updating of int erest, see page 129, Records.

DECISION C.T.A. CASE NO. 6461 Page 5 coursed through respondent's collection agent, Land Bank of the Philippine, East Avenue Branch; 2. On March 7, 2003, despite of the above jointly stipulated issues, petitioner moved for the early resolution of the case on the issue of prescription. 11 The Court granted said motion on March 31, 2003 and set the case for hearing for the reception of evidence on the issue of prescription only; 12 3. On March 10, 2003, respondent issued an Amended Formal Letter of Demand No. 43558 together with Assessment Notices and Details of Assessments/ Discrepa ndes; 13 4. On April 30, 2003, petitioner likewise paid its obligation for deficiency expanded withholding tax in the reduced amount of P545.52 based on the Amended Formal Letter of Demand No. 43558;14 and 5. On January 27, 2004, upon the request of petitioner, Regional Director Nestor S. Valeroso issued a certification attesting its payments for 1997 deficiency documentary stamp tax and expanded withholding tax. 15 Thus with the foregoing developments, the resolution of the issue on prescription shall be limited to the remaining 1997 deficiency tax assessments, to wit: Basic Surcharge Interest Penalty Total P31 ,575,687.50 P32 ,873,799.09 P64,449,486.59 Deficiency Value-Added Tax Deficiency Excise Tax 186,782.77 194,461 .61 381,244.38 Deficiency W~hholding Tax on Compensation 40,711.85 P20,355.92 42,385.55 P40,711 .85 144,165.17 Tot a Is P31,803,182 .12 P20,355.92 P33,110,646.25 P40,711 .85 P64,974,896.14 11 Page 150, CTA records . 12 Resolution dated March 31, 2003, pageS 155 to 156, Records. 13 Pages 177 to 181, Records. 14 Pages 182 and 183, Records. 15 Page 224, Records.

DEOSION C.T.A. CASE NO. 6461 Page 6 It has erstwhile been stated as a reminder, and borrowing from what our Supreme Court has said, in effect, that prescription is rigorous and at times harsh but there could be no oppression or inequity as this defense applies to both the Government and citizens or taxpayers. Its salutary and wholesome effect causes both to be alert and vigilant in order that both do not sleep on their rights and terminates what may otherwise be an endless litigation and consequent confusion. The beneficial purpose is that, to the citizens or taxpayers, they would have the feeling of security against revenue agents who may take advantage to harass taxpayers and protect them from protracted and unreasonable investigations; and that to the Government, tax officers shall be obliged to always act with promptness16 in subservience to the principle of human rights and substantial justice. But prescription being a matter of defense, the burden is on the petitioner to prove that the full period of limitation has expired, so that it should positively establish the date when the period started to run and when it ended. 17 Petitioner asserts that the 1997 assessments for deficiency value-added tax, excise tax and withholding tax on compensation in the aggregate amount of P641974,896.14, were issued beyond the three-year prescriptive period provided under Section 203 of the National Internal Revenue Code of 1997. Section 203 of the National Internal Revenue Code of 1997 is hereby quoted for easy reference, to wit: SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in the succeeding Section 222, internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for collection of such taxes shall be begun after the 16 Republic vs. Ablaza, 108 Phil. 1105 [1960) . 17 Querol vs. Collector of Internal Revenue, L-16705, October 30, 1962, 6 SCRA 304.

DECISION C.TA. CASE NO. 6461 Page 7 expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three-year period shall be counted from the day the return was filed. For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. (Underlining supplied). Petitioner points out that when respondent issued the 1997 deficiency assessments on January 31, 2001, his right to assess has already prescribed. Section 203 provides that internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return. Since more than three (3) years has lapsed from the filing of the respective returns for 1997 value-added tax, excise tax and withholding tax on compensation when the corresponding 1997 deficiency assessments were issued, then the said assessments were void. We find the position of petitioner well taken . Section 203 authorizes the respondent to issue his assessment for deficiency internal revenue taxes within three (3) years to be reckoned after the last day prescribed by law for the filing of the return or from the day the return was (belatedly) filed. 18 Well settled is the rule that when the law speaks in clear and categorical language, there is no room for interpretation. There is only room for application. 19 Applying the provisions of Section 203 in the case at bar, the right of respondent to issue deficiency assessment depends on when the respective returns for value-added tax, excise tax and withholding tax on compensation were filed. 18 Commissioner of Internal Revenue vs . PASCOR Realty and Development Corporation, Rogelio A. Dio and Virginia S. Dio, G.R. No. 128315, June 29, 1999. 19 National Telecommunications Commission vs. Court of Appeals, 311 SCRA 508.

DECISION C.T.A. CASE NO. 6461 Page 8 For 1997 deficiency value-added tax, the quarterly Value-Added Tax Return is required to be filed not later than twenty (20) days following the close of each taxable quarter pursuant to Section 110 of the National Internal Revenue Code of 199320 as implemented by Sec. 2 of Revenue Regulations No. 5-93, amending Section 23 of Revenue Regulations No. 5-87, to wit: 21 SECfiON 2. Section 23 of Revenue Regulations No. 5-87 is hereby amended to read as follows: "Sec. 23. Filing of Return and payment of Value Added Tax. A. In general - Every person liable to pay the value added tax shall file a quarterly return of the amount of his/its gross sales or receipts within twenty (20) days following the close of each calendar quarter." For 1997 excise tax, petitioner is mandated by law to file its quarterly return within twenty (20) days after the end of such quarter in accordance with Section 151(c) of the same Code.22 Section 151(c) provides: SEC. 151. Mineral Products- (a) Rates of Tax.- xxx. (b) XXX. (c) Time, manner and place of payment of excise tax on mineral and mineral products. - Unless otherwise provided, the excise tax on minerals and mineral products shall be due and payable upon removal of the minerals and mineral products or quarry resources from the locality where mined or upon removal from customs custody in the case of importations. Any person liable to pay the excise tax on locally produced or extracted minerals, mineral products or quarry resources shall before removal of such products file in duplicate, a return setting forth the quantity and the actual market value of the minerals or mineral products to be removed and pay the taxes due thereon to the 20 Section 110 of the National Internal Revenue Code applies to the case at bar in as much as the period covered by the petition for review is taxable year 1997. It is to be noted further that the National Internal Revenue Code of 1997 becomes effective only on January 1, 1998 (R.A. 8424). 21 HPCO AGRIDEV Corporation vs. Commissioner of Internal Revenue, CTA Case No. 6355, July 18, 2002. 22 Apex Mining Co., Inc. vs. Commissioner of Internal Revenue, CTA case No. 4450, October 6, 1994.

DECISION C.T.A. CASE NO. 6461 Page 9 Collection agent, of the Treasurer of the city or municipality of the place where the mine is located except as herein below provided. However, the output of the mine may be removed from such locality without the prepayment of such excise taxes if the lessee, owner or operator of the mining claim shall file a bond in the form and amount and with such sureties as the Commissioner may require, conditioned upon the payment of such excise taxes. It shall be the duty of every lessee, owner or operator to make a true and complete return in duplicate setting forth the quantity and the actual market value of the minerals and mineral products or quarry resources removed during such calendar quarter, of the balance if any in cases where payments are made upon removal, and pay the excise taxes thereon within 20 days after the end of such quarter to the collection agent, or the Treasurer of the city or municipality of the place where the mine is located. (Underlining supplied). In case of withholding tax on compensation, the same is required to be filed on the lOth day following the month as provided in Section 1 of Revenue Regulations No. 3-93, amending Section 2 of Revenue Regulations No. 5-85. 23 To quote: SECTION 1. Section 2 of Revenue Regulations No. 5-85 is hereby amended to read as follows: "Section 2. MONTHLY RETURN AND REMmANCE OF TAXES WITHHELD- Taxes deducted and withheld on: (i) compensation income; (ii) income payments subject to the creditable (expanded) withholding taxes; and (iii) income subject to final withholding taxes. shall be remitted within ten (10) days after the end of each calendar month with the filing of appropriate return. (BIR Form 1743-W). However, taxes withheld from the last compensation/income payment for � the calendar year (December) shall be remitted on or before the 25th of January of the succeeding year." 23 The above regulations implements Section 245 in relation to Sections SO, 51 and 74 of the National Internal Revenue Code of 1977, as amended, as well as Section 11 of Republic Act No. 7497, otherwise known as the "Rnality of the Withholding Tax on Purely Compensation Income".

DECISION C.T.A. CASE NO. 6461 Page 10 Records show that petitioner filed its 1997 respective returns for value- added tax, excise tax and withholding tax on compensation on the following dates: VALUE-ADDED TAX RETURNS Period Exh . Date Covered V, V-1 to V-3 Filed 1st Qtr. 1997 GG, GG-11 & GG-12 04/20/97 2nd Qtr. 1997 07/21/97 3'd Qtr. 1997 MM 10/20/97 4th Qtr. 1997 pp 01/20/98 EXCISE TAX RETURNS Period Exh. Date Covered X & X-1 Filed 1st Qtr. 1997 Y, Y-1 & Y-2 04/21/97 2nd Qtr. 1997 Z & Z-1 , AA, AA-1 ,AA-2 07/21/97 3'd Qtr. 1997 T & T-1 10/20/97 4th Qtr. 1997 01/20/98 MONTHLY WITHHOLDING TAX RETURNS Period Exh . Date Covered HH-1 to HH-3 Filed HH-4 to HH-7 02/25/97 1997 HH-8 to HH-12 03/25/97 January 04/23/97 February GG-10 05/26/97 March GG-9 06/10/97 GG-8 07/10/97 April GG-7 08/25/97 May BB, BB-1 , GG-6 09/25/97 June CC, CC-1, CC-2, GG-5 10/25/97 July DO, DD-1 , 00-2, GG-4 11/25/97 August EE, EE-1, EE-2, GG-3 12/24/97 September FF, FF-1 , FF-2, GG-2 01/26/98 October November December Therefore, respondent has three years within which to issue his 1997 deficiency assessments for the afore-mentioned internal revenue taxes computed

DECISION C.T.A. CASE NO. 6461 Page 11 either on the day required for filing of the respective returns or on the date when the corresponding returns were belatedly filed, to wit: VALUE-ADDED TAX RETURNS Period Ex h. Date Last Day to Last Day V, V-1 to V-3 Filed File Return to Issue Covered GG , GG-11 & GG-12 04/20/97 04/20/97 Assessmenf4 151 Qtr. 1997 07/21/97 07/20/97 04/19/00 2nd Qtr. 1997 MM 10/20/97 07/20/00 3'd Qtr. 1997 pp 01/20/98 10/20/97 10/19/00 4th Qtr. 1997 01/20/98 01/19/01 EXCISE TAX RETURNS Period Ex h. Date Last Day to Last Day Covered X & X-1 Filed File Return to Issue 151 Qtr. 1997 Y, Y-1 & Y-2 04/21/97 04/20/97 Assessment 2nd Qtr. 1997 Z & Z-1,AA,AA-1 ,AA-2 07/21/97 07/20/97 04/20/00 3'd Qtr. 1997 T & T-1 10/20/97 07/20/00 4th Qtr. 1997 01/20/98 10/20/97 10/19/00 01/20/98 01/19/01 MONTHLY WITHHOLDING TAX RETURNS Period Ex h. Date Last Day to Last Day Covered HH-1 to HH-3 Filed File Return to Issue HH-4 to HH-7 02/25/97 02/10/97 Assessment 1997 HH-8 to HH- 12 03/25/97 03/10/97 02/25/00 January 04/23/97 04/10/97 03/24/00 February GG-10 05/26/97 05/10/97 04/24/00 March GG-9 06/10/97 06/10/97 05/25/00 GG-8 07/10/97 07/10/97 06/09/00 April GG-7 08/25/97 08/10/97 07/10/00 May GG-6 09/25/97 09/10/07 08/24/00 June GG-5 10/25/97 09/25/00 July GG-4 11/25/97 10/10/97 10/24/00 August GG-3 12/24/97 11/10/97 11/24/00 September GG-2 01/26/98 12/10/97 12/26/00 October 01/25/98 01/25/01 November December Considering that the Formal Letter of Demand, Assessment Notices and Details of Discrepancy for 1997 deficiency value-added tax, excise tax and 24 Calendar year 2000 is a leap year.

DECISION C.T.A. CASE NO. 6461 Page 12 withholding tax on compensation were issued only on January 31, 2001, the same were clearly issued beyond the three-year period allowed by law. For emphasis, an assessment for deficiency taxes issued after the lapse of three years can no longer be valid and effective. 25 WHEREFORE, the Petition for Review is hereby GRANTED. The assessments for 1997 deficiency documentary stamp tax and expanded withholding tax are now considered CLOSED and TERMINATED for having been already paid by the petitioner while the assessments for 1997 deficiency value-added tax, excise tax and withholding tax on compensation are CANCELLED and SET ASIDEdue to prescription. SO ORDERED. ~~-~ ERNESTO D. ACOSTA Presiding Justice CAESAR A. CASANOVA Associate Justice 25 Solid Cement Corporation vs. Uwayway Vinzons-Chato, in her capacity as the Commissioner of Internal Revenue CTA Case No. 5420, May 27, 1999. '

DECISION C.T.A. CASE NO. 6461 Page 13 CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Division of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. r'~ \Q ' Qt-v-v\.-- ERN ESTO D. ACOSTA Chairman, First Division Presiding Justice