AVON PRODUCTS MANUFACTURING, INC. v. COMMISSIONER OF INTERNAL REVENUE

Republic of the Philippines COURT OF TAX APPEALS Quezon City SECOND DIVISION AVON PRODUCTS MANUFACTURING, CTA CASE NO. 8021 INC., For: Refund of Erroneously Petitioner, Paid Excise Tax -versus- Members: CASTANEDA, JR., Chairperson CASANOVA, and MINDARO-GRULLA, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, Respondent. JAN 1D2012 / x---------------------------------------------------------------------------------~-------------x f lf: fo .n . \-, DECISION MINDARO-GRULLA, ! : This is a Petition for Review filed on January 4, 2010 by Avon Products Manufacturing, Inc. as petitioner, against the Commissioner of Internal Revenue (CIR) as respondent, for the Court in Division, pursuant to Section 7 (a) (2) of Republic Act (RA) No. 1125, An Act Creating the Court of Tax Appeals, as amended\ as well as Rule 4, Section 3 (a) (2) ,{ 1 Sec. 7. Jurisdiction. -The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal , as herein provided:

Avon Products Manufacturing, Inc. v. CIR Page2of24 CTA Case No. 8021 DECISION in relation to Rule 8, Section 4(a), of the Revised Rules of the Court of Tax Appeals (RRCTA)2. It involves a claim for the refund of its erroneously( XXX XXX (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto , or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period for action , in which case the inaction shall be deemed a denial ; XXX XXX Rule 4. Sec. 3. Cases within the jurisdiction ofthe Court in Division. - The Court in Division shall exercise: (a) Exclusive original over or appellate jurisdiction to review by appeal the following : XXX XXX (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges , penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action : Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned , the taxpayer may appeal such final decision to the Court under Section 3(a) , Rule 8 of these Rules ; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected , the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code; XXX XXX Rule 8. Sec. 4. Where to appeal,� mode ofappeal. - (a) An Appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally collected ;

Avon Products Manufacturing, Inc. v. CIR Page3of24 CTA Case No. 8021 DECISION paid excise tax imposed on perfumes and toilet waters under Section 150 of the National Internal Revenue Code (NIRC) of 1997 in the amount of P35,871 ,643.84 for the period covering January 2, 2008 to December 29, 2008 . Petitioner Avon Products Manufacturing, Inc. is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office address at the Calamba Premiere Industrial Park, Barangay Batino, Calamba, Laguna. It is engaged in the manufacture of cosmetic and personal care products, including perfumes, toilet waters, splash colognes, and body sprays. Respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR), with office address at the BIR National Office Building, Diliman, Quezon City.[ the decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade & Industry, the Secretary of Agriculture, and the Regional Trial Court in the exercise of their original jurisdiction, shall be taken to the Court by filing before it a petition for review as provided in Rule 42 of the Rules of Court. The Court in Division shall act on the appeal.

Avon Products Manufacturing, Inc. v. CIR Page4 of24 CTA Case No. 8021 DECISION In 1984, Revenue Regulations (RR) No. 8-84, otherwise known as the "Cosmetic Products Regulations" was issued. Under Section 2(e) of said Revenue Regulations (RR) No. 8-84, "toilet waters" was defined as follows: "(e) Toilet waters are scented alcoholic or non-alcoholic preparations primarily used as body fragrance containing essential oils i.e., more than 3% by weight. Examples: Lavander water, Eau de Cologne, Eau de Toilette." Also, under the said issuance, the sale of perfumes and toilet waters was subject to a fifty percent (50%) sales tax as a sale of non-essential articles. The sales tax was collected once on every original sale, barter, exchange, or similar transaction for nominal or valuable consideration intended to transfer ownership of, or title to, the articles based on the gross value in money of the articles so sold, bartered, exchanged or transferred and was to be paid by the manufacturer or producer. On January 1, 1988, the sales tax was replaced by the value-added tax (VAT) and the excise tax. The sale of perfumes and toilet waters became subject to a twenty percent (20%) excise tax on non-essential goods imposed under Section 150 (b) of the Tax Code upon their removal from the place of production.C

Avon Products Manufacturing, Inc. v. CIR Page5of24 CTA Case No. 8021 DECISION Despite a shift from the sales tax to the VAT and excise tax, the definition of "toilet waters" in the Cosmetic Products Regulations was not modified by either statute or regulations . The VAT and excise tax provisions of the Tax Code underwent several amendments since 1986 but the definition of "toilet waters" remained untouched . On January 4, 2010, petitioner filed a written claim for refund of erroneously paid excise taxes with respondent's Large Taxpayers Service through a letter dated December 29, 2009. Likewise, on the same date, January 4, 2010, petitioner filed before this Court the instant Petition for Review, praying for the refund of the amount of P35,871 ,643.84 as erroneously paid excise tax. In her Answer filed on February 9, 2010, respondent interposed the following Special and Affirmative Defenses: "4. Respondent hereby reiterates and repleads the preceding paragraphs of this answer as part of his Special and Affirmative Defenses. 5. Petitioner's claim for refund has no legal basis. As manufacturer of perfume and toilet waters , petitioner is subject to excise tax pursuant to Section 150 (b) of the National Internal Revenue Code of 1997 which provides thus: 'SEC. 150. - Non-Essential Goods. - There shall be levied , assessed and collected a tax equivalent to (

Avon Products Manufacturing, Inc. v. CIR Page6of24 CTA Case No. 8021 DECISION twenty percent (20%) based on the wholesale price or the value of importation used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value added tax, of the following goods: (a) XXX (b) Perfumes and toilet waters; ' 6. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue (BIR). 7. The amount of P35,871 ,643.84 being claimed by petitioner as alleged erroneously paid excise tax for the period January 2, 2008 to December 29, 2008 is not properly documented. 8. Furthermore, in an action for refund the burden of proof is on the taxpayer to establish its right to refund and failure to sustain the burden is fatal to the claim for refund/credit. This is so because exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague implications (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila Jockey Club, Inc., 98 Phil. 670) . 9. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma 31 SCRA 95) and as such , they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211)." During trial, petitioner presented six (6) witnesses, namely: Shernan Balilo, Santos H. Collado, Manuel Joey T. Adriatico, Lloyd John C. Godilano, Jerome Antonio B. Constantino and Jocelyn Rafael. On December 3, 2010, petitioner filed its Formal Offer of Evidence with respondent's comment. This Court in its Resolution dated January 12, ~

Avon Products Manufacturing, Inc. v. CIR Page 7of24 CTA Case No. 8021 DECISION 2011 admitted Exhibits "B" to "B-3", "A-1" to "A-3", "C" to "C-5", "0" to "0-4", "G", "H", "E-1" to "E-30-2", "E-37", "E-37-1", "E-37-2", "E-31-a" to "E-36-a-2", "E-30-3" to "E-30-6"' "E-37-5"' "E-37-3"' "E-37-4" , "J" to "J-4"' "E-1 (Annex 2 of Exh. K)" to "E-38 (Annex 39 of Exh. K)", "E-1 (Annex 2 of Exh. L)" to "E-38 (Annex 38 of Exh. L)", Exh. "0" and "N" to "N-15-590" inclusive of sub-markings. Further, this Court in another Resolution dated March 21, 2011, (upon petitioner's Motion for Partial Reconsideration, with manifestation of respondent's counsel that respondent will no longer file a comment) admitted Exhibits "A", "A-4", "E",- "E-38", "F", "F-1", "K", "K-1", "L", "L-1", "M", "M-1"' "0"' "0-1"' "G-1", "F-2", "F-2-1", "F-2-2"' "E-38 (Annex 3 of Exh . F)"' "E-38-1", "E-38-2", "M-2" to "M-4", "N-1", "1", "N", and "Annex I of Exh. N" to "Annex XXIII of Exh. N". Thereafter, petitioner was deemed to have formally rested its case. It is noted that Exhibit "E-1" which referred to only one document, was formally offered twice, hence, the same was admitted twice. Also, Exhibit "E-38" which referred to only one document, was formally offered thrice, hence, it was admitted thrice.(

Avon Products Manufacturing, Inc. v. C/R Page8of24 CTA Case No. 8021 DECISION The documentary evidence formally offered and admitted are as follows: Exhibit Description A A-1 Affidavit in Lieu of Direct Examination of Mr. Shernan Balilo A-2 A-2-1 Excise Tax Return for Automobiles & Non-essential Goods A-3 (BIR Form 2200-AN) dated December 29, 2007 A-4 Excise Tax Return for Automobiles & Non-essential Goods B (BIR Form 2200-AN) dated January 2, 2008 eFPS Payment Details Reference Number B-1 260800001964967 for Tax Period 01/02/2008 Excise Tax Return for Automobiles & Non-essential Goods B-2 (BIR Form 2200-AN) dated December 29, 2008 Signature of Mr. Shernan Balilo, p. 8 B-3 Claim for Refund dated December 29 , 2009 filed by Avon c Products Manufacturing, Inc. with the BIR LTS-Excise Group on 4 January 2010 C-1 Application for Tax Credits/Refund (BIR Form 1914) filed by C-2 Avon Products Manufacturing , Inc. and received by BIR C-3 LTS-Excise Group on January 4 , 2010 C-4 Summary of Excise Tax Returns for 2008 , Attachment "A" of C-5 the Claim for Refund dated December 29 , 2009, received by BIR LTS-Excise Group on January 4, 2010 Summary of Excise Tax showing the breakdown of products on which excise tax totaling P35 ,871 ,643.84 was erroneously paid by Petitioner, Attachment "B" of the Claim for Refund dated December 29, 2009 , stamped received by BIR LTS-Excise Group on January 4 , 2010 , pages 1 and 93. Avon Products Mfg., Inc. Document Entry (Voucher) dated February 15, 2008 page 1 Avon Products Mfg., Inc. Document Entry (Voucher) dated February 15, 2008 _Q_a_g_e 2 KOOL COMPANY, INC. Charge Invoice No. 8210 dated Februa_ry_ 15, 2008 KOOL COMPANY, INC. Quality Assurance Department Certificate of Analysis (Raw Ingredient Specification) dated February 15, 2008 KOOL COMPANY, INC. Delivery Receipt No. 0999 dated February 15, 2008 Bureau of Internal Revenue Official Delivery Invoice No. 32841 for Distilled Spirits <

Avon Products Manufacturing, Inc. v. CIR Page9of24 CTA Case No. 8021 DECISION D Avon Products Mfg. , Inc. Document Entry (Voucher) dated D-1 November 5, 2008 page 1 D-2 Avon Products Mfg., Inc. Document Entry (Voucher) dated D-3 November 5 2008 page 2 D-4 Far East Alcohol Corporation Sales Invoice No. 5864 dated E November 4, 2008 E-1 Far East Alcohol Corporation Delivery Receipt No. 5883 E-1-1 dated November 4, 2008 page 1 E-1-2 Bureau of Internal Revenue Official Delivery Invoice No. E-2 0094343 for Distilled Spirits E-2-1 Affidavit in Lieu of Direct Examination of Mr. Santos H. E-2-2 Collado E-3 Batch Control Sheet - Lot No. 8010390, HEAVEN SCENT E-3-1 COL-Fruity Loops I Fl Code 1190551GA E-3-2 Rl Code 13200 Alcohol SD 40B , 77.0 %, 816.200 kg E-4 E-4-1 Rl Code 157789 NATURAL BLK CHRY & NUT, 2.000% , E-4-2 21.200 kg E-5 Batch Control Sheet Lot No. 8051089 , HIP fun splash E-5-1 cologne- Citrus /FI Code 1190541GA E-5-2 Rl Code 13200 Alcohol SD 40B , 76.830% , 749.093 kg E-6 E-6-1 Rl Code 158949 EIGHT 179290, 1.500%, 14.625 kg E-6-2 Batch Control Sheet Lot No. 8031008 , HEAVEN SCENT COL-Icy Blossoms /FI Code 1190521GA Rl Code 13200 Alcohol SD 40B , 76 .830% , 595.433 kg Rl Code 158769, ICE MINT 179.289, 1.500% , 11 .625 kg Batch Control Sheet Lot No. 8080697 HEAVEN SCENT COL- Fruity Blossom/FI Code 1119671GA Rl Code 13200, Alcohol SD 40B, 76 .000% , 541 .880 kg Rl Code 145809, YASSOU FLORAL MF-124614, 1.500% , 10.695 kg Batch Control Sheet Lot No. 8040688 , HEAVEN SCENT COL- Floral Mist /FI Code 1484281GA Rl Code 13200, Alcohol SD 40B, 60.000% , 678.000 kg Rl Code 164629, HEAVEN SCENT 451197 , 1.500%, 16.950 kg Batch Control Sheet Lot No. 8029201 , HEAVEN SCENT COL- Floral Shower/FI Code 1443331 GA Rl Code 13200 Alcohol SD 40B, 60.000%, 1020.000 kg Rl Code 151789 PROJECT WHITE 443.430E , 2.000%, 34 .000 kg

Avon Products Manufacturing, Inc. v. CIR Page 10of24 CTA Case No. 8021 DECISION E-7 Batch Control Sheet Lot No. 8031365, FRESH & LIGHT E-7-1 SPLASH COLOGNE-Sweet Crush/FI Code 1196971GA E-7-2 Rl Code 13200 Alcohol SO 40B , 60 .000% , 1038.000 kg E-8 E-8-1 Rl Code 152129 PRIMAVERA LL012951/00, 1.500%, 25.950 E-8-2 kg E-9 Batch Control Sheet Lot No. 8040567 HEAVEN SCENT E-9-1 COL-Floral Paradise/FI Code 1443311GA E-9-2 Rl Code 13200 Alcohol SD 40B, E-10 60.000%, 1095.000 kg E-10-1 Rl Code 16260 TRANQUIL MOMENTS NF-7319, 1.000%, E-10-2 18.250 kg E-11 Batch Control Sheet Lot No. 8060892 HEAVEN SCENT E-11-1 SPLASH COLOGNE- Pink Petals /FI Code 1196931GA E-11-2 Rl Code 13200 Alcohol SD 40B, 60.000 , 1080.000 kg E-12 E-12-1 Rl Code 17284 Baby MF-115858, 1.5000% , 27 .000 kg E- 12-2 E-13 Batch Control Sheet Lot No. 8111245 COOL BLUE FRESH E-13-1 COLOGNE/FI Code 1479431GA E-13-2 Rl Code 13200 Alcohol SD 40B, 75.000%, 470.250 kg E-14 E-14-1 Rl Code 163659, AVON HOMEN 285411 , 1.500%,9.405 kg E-14-2 E-15 Batch Control Sheet Lot No. 8040241, COOL BLUE ICE SPRAY/FI Code 1433811GA Rl Code 13200 Alcohol SD 40B, 60 .000% , 174.000 kg Rl Code 152219 HOMEN ICE LL012517/00, 1.500%, 4.350 kg Batch Control Sheet Lot No. 8090579, COOL BLUE ENIGMA SPLASH COLOGNE/ Fl Code 1196941GA Rl Code 13200 Alcohol SD 40B , 60.00%, 346.80 kg Rl Code 18434 LAV 002 FIX BAT42951 , 2.00% , 11 .560 kg Batch Control Sheet Lot No. 8041221' COOL BLUE ENERGY COLOGNE/FI Code 1433791 GA Rl Code 13200 Alcohol SD 40B, 60.000% , 1080.000 kg Rl Code 146189, OCEANIC 237.107, 1.500%, 27.000 kg Batch Control Sheet Lot No. 8040598, COOL BLUE AQUA COLOGNE/FI Code 1433851GA Rl Code 13200, Alcohol SD 40B , 60.000% , 603 .000 kg Rl Code 146199, PLEASANT 28 .728, 1.500%, 15.075 kg Batch Control Sheet Lot No. 8040730 COOL BLUE CHILL COLOGNE/FI Code 1484251 GA (

Avon Products Manufacturing, Inc. v. CIR Page 11 of24 CTA Case No. 8021 DECISION E-15-1 Rl Code 13200 Alcohol SO 40B, 60.000,420.00 kg E-15-2 E-16 Rl Code 164609, CHILL A0154772/00, 1.500%, 10.500 kg E-16-1 Batch Control Sheet Lot No. 8031277, NINA SPLASH E-16-2 COLOGNE-Huggable/FI Code 1458581GA E-17 Rl Code 13200, Alcohol SO 40B, 60.00% , 132.00 kg E-17-1 E-17-2 Rl Code 162559, HUGGABLE A0045689/00, 2.00% , 4.400 E-18 kg E-18-1 Batch Control Sheet Lot No. 8031364, NINA SPLASH E-18-2 COLOGNE-Lovable/ Fl Code 1459241 GA E-19 Rl Code 13200, Alcohol SO 40B, 60.00% , 1020.000 kg E- 19-1 E-19-2 Rl Code 162639, LOVABLE 6793, 1.80%, 30.600 kg E-20 E-20-1 Batch Control Sheet Lot No. 8100799, NINA SPLASH E-20-2 COLOGNE-Kissable/FI Code 1458591 GA E-21 Rl Code 13200, Alcohol SO 40B, 65.00%, 342.550 kg E-21-1 E-21 -2 Rl Code 162529, KISSABLE AN042622/00, 1.50% , 7.905 kg E-22 Batch Control Sheet Lot No. 8051447 , NINA SPLASH E-22-1 COLOGNE-Tickles /FI Code 1478521GA E-22-2 Rl Code 13200, Alcohol SO 40B, 60.000, 150.000 kg E-23 Rl Code 164049, TICKLES A0045899/00 , 2.000% , 5.000 kg E-23-1 Batch Control Sheet Lot No. 8120159 , NINA SPLASH COLOGNE-Adorable/FI Code 1487861 GA Rl Code 13200, Alcohol SO 40B, 60.000%, 569.400 kg Rl Code 164879, ADORABLE 451199, 1.500%, 14.235 KG Batch Control Sheet Lot No. 8050051 , NINA SPLASH COLOGNE-Cuddles/FI Code 1484261GA Rl Code 13200, Alcohol SO 40B, 60.000% , 660.000 kg Rl Code 164659, CUDDLES 123733/E, 1.500% , 16.500 kg Batch Control Sheet Lot No. 8120533 , Heaven Scent Fresca splash cologe/FI Code 1743873GA Rl Code 13200, Alcohol SO 40B, 80,000%, 332.000 kg Rl Code 145789, HEAVEN SCENT UP-94-A1 , 1.500% , 6.225 kg Batch Control Sheet Lot No. 8060768 , SWEET HONESTY- One Love Cologne/FI Code 1196991GA Rl Code 13200, Alcohol SO 40B, 60.000% , 81.000 kg (

Avon Products Manufacturing, Inc. v. CIR Page 12of24 CTA Case No. 8021 DECISION E-23-2 Rl Code 17193, CLEAN COTTON TD17169, 1.500% , 2.025 E-24 kg E-24-1 Batch Control Sheet Lot No. 8051417, SWEET HONESTY- E-24-2 Agua de Colonia/FI Code 1817093GA E-25 Rl Code 13200, Alcohol SO 40B, 69.722% , 344.717 kg E-25-1 E-25-2 Rl Code 15109, AGUA DE COLONIA N-11997, 1.500% , E-26 7.416 kg E-26-1 Batch Control Sheet Lot No. 8080435, HEAVEN SCENT E-26-2 COLOGNE- Morning Bliss /FI Code 1625073GA E-27 Rl Code 13200, Alcohol SO 40B, 76.830% , 301.860 kg E-27-1 E-27-2 Rl Code 18991, INNOCENCE TCW45302/A, 1.500%, 5.893 E-28 kg E-28-1 Batch Control Sheet Lot No. 8070434, HEAVEN SCENT E-28-2 COLOGNE-Angel Blue/FI Code 1670863GA E-29 Rl Code 13200, Alcohol SO 40B, 76.830% , 336.960 kg E-29-1 E-29-2 Rl Code 14939, Heaven Scent Blue M97-181 , 1.500% , 6.579 E-30 kg E-30-1 Batch Control Sheet Lot No. 8050788, Heaven Scent Bubble E-30-2 Pink Cologne/FI Code 1594681 GA E-30-3 Rl Code 13200, Alcohol SD 40B, 60.00% , 300.000 kg Rl Code 166459, NINA PINK A0045900/00, 2.00% , 10.000 kg Batch Control Sheet Lot No. 8070435 , HEAVEN SCENT COL- Lilac/FI Code 1748083GA Rl Code 13200, Alcohol SD 40B, 76.830%, 576.225 kg Rl Code 146059, HEAVEN SCENT LILAC UK013230, 1.500%, 11.250 KG Batch Control Sheet Lot No. 8060617 , HEAVEN SCENT COL- Summer Sky/FI Code 1755483GA Rl Code 13200, Alcohol SO 40B, 76.830% , 586.981 kg Rl Code 147499, HEAVEN SCENT PW U1007403, 1.500% , 11.460 kg Batch Control Sheet Lot No. 8030313, HEAVEN SCENT COL- Sunshine Yellow I Fl Code 1625013GA Rl Code 13200, Alcohol SD 40B, 76.830% , 1279.200 kg Rl Code 18988, SPLASH COLOGNE PN-020-398, 1.500%, 24.975 kg Finished Ingredient Evaluation Report Fl Code 1625013GA

Avon Products Manufacturing, Inc. v. CIR Page 13of24 CTA Case No. 8021 DECISION E-30-4 Finished Ingredient Evaluation Report E-30-5 Fl Code 1625013GA Entry for Lot No. 8030313 06 Mar 08 E-30-6 QA Test Logbook page for March 6 -7, 2008 E-31-a E-31-a-1 Entry for Lot No. 8030313 in QA Logbook E-31-a-2 E-32-a Batch Control Sheet Lot No. 8111383, Prosport for HIM E-32-a-1 Body Spray (PACC) /FI Code 519223GA E-32-a-2 Rl Code 13200, Alcohol SD40B, 98.853% , 612 .889 kg E-33-a E-33-a-1 Rl Code 17255, PRO FITNESS RH-2426, 1.000% , 6.200 kg E-33-a-2 E-34-a Batch Control Sheet Lot No. 8111382, Far Away Body Spray E-34-a-1 (PACC)/ Fl Code 1146351GA E-34-a-2 Rl Code 13200, Alcohol SD 40B , 98.107%, 608 .26 kg E-35-a E-35-a-1 Rl Code 18665, FAR AWAY TCW45076, 1.750%, 10.850 kg E-35-a-2 E-36-a Batch Control Sheet Lot No. 8080487, Individual Blue for E-36-a-1 HIM Body Spray (PACC)/ Fl Code 146291GA E-36-a-2 Rl Code 13200, Alcohol SO 40B , 98.357%, 609 .81 kg E-37 E-37-1 Rl Code 18429, DENIM F/MEN 143.807, 1.500%, 9.300 kg E-37-2 E-37-3 Batch Control Sheet Lot No. 8060904, Individual Blue for HER body spray (PACC)/ Fl Code 1146271GA Rl Code 13200, Alcohol SO 40B, 98.357%, 609.813 kg Rl Code 18370, HIPSTER TQ-32, 1.500%, 9.300 kg Batch Control Sheet Lot No. 8050505, Celebre Body Spray (PACC)/FI Code 1146221GA Rl Code 13200 Alcohol SO 40B, 98.857% , 612 .91 kg Rl Code 11491 , MAGNIFICENT OPT-2-BT512832, 1.000% , 6.200 kg Batch Control Sheet Lot No. 8110945 , Pro Sport for HIM Cologne/ Fl Code 1701993GA Rl Code 13200, Alcohol SO 40B, 72.000%, 79.200 kg Rl Code 17206, PRO FITNESS MENS RH-1836, 2.000% , 2.200 KG Batch Control Sheet Lot No. 8121012 , Heaven Scent Splash Cologne- Citrus BursU Fl Code 11018351GA Rl Code 13200 Alcohol SD 40B , 60 .000% , 1080.000 kg Rl Code 1101867, HEAVEN SCENT AP165493/00, 1.500% , 27.000 kg QA Test Logbook page for December 22-23, 2008 ('

Avon Products Manufacturing, Inc. v. CIR Page 14 of24 CTA Case No. 802 1 DECISION E-37-4 Entry for Lot No. 8121012 in QA Logbook E-37-5 E-38 WO Inspection Detail for Lot No. 8121012 of Fl Code E-38-1 110183551GA E-38-2 Batch Control Sheet Lot No. 8070437 , Heaven Scent SC F Fruity Loops/ Fl Code 11015591GA F-1 Rl Code 13200, Alcohol SD 40B, 77.000%, 773.850 kg F-2 Rl Code 157789, NATURALS BLK CHRY & NUT, 2.000% , F-2- 1 20.100 kgs. F-2-2 Supplemental Affidavit in Lieu of Direct Examination of Mr. G Santos H. Collado G-1 Signature of Mr. Santos H. Collado , p.4 H I Attachment B of Claim for Refund dated December 29, J 2009 consisting of the Summary of Excise Taxes showing J-1 the breakdown of products on which excise tax totaling J-2 P35 ,871 ,643.84 was erroneously paid by Petitioner J-3 Page 48 of 93 , Line for Doc No. 498849 J-4 K Page 44 of 93 , Line for Doc No. 498636 K-1 L Basic Batch/Percent Formula for Citrus Burst with Code 1- L-1 01835-1GA Bill of Material of Fl Code 11018351GA Heaven Scent Citrus Burst Bill of Material for Finished Stock of Heaven Scent Citrus Burst SC 100 ml of Fl Code 11018351GA PHA Packaging Schedule (4 pages) with 1 page Processing Schedule Bureau of Internal Revenue Ruling No. 59-81 dated 30 March 1981 Bureau of Internal Revenue Ruling No. 535-88 dated 9 November 1988 Bureau of Internal Revenue Ruling No. 128-97 dated 10 December 1997 Bureau of Internal Revenue Ruling No. 43-2000 dated 15 September 2000 Bureau of Internal Revenue Memorandum Circular No. 17- 2002 dated 24 May 2002 Affidavit in Lieu of Direct Examination of Mr. Manuel Joey T. Adriatico Signature of Mr. Manuel Joey Adriatico , p. 15 Affidavit in Lieu of Direct Examination of Mr. Lloyd John C. Godilano Signature of Mr. Lloyd John C. Godilano, p. 6

Avon Products Manufacturing, Inc. v. CIR Page 15of24 CTA Case No. 8021 DECISION M Affidavit of Mr. Jerome Antonio B. Constantino in Lieu of Direct Examination M-1 Signature of Mr. Jerome Antonio B. Constantino, p. 14 M-2 Independent CPA's Report dated September 3, 2009 M-3 rendered in CTA Case No. 7378. Summary of Excise Tax Returns for the Excise Tax Period M-4 February 20, 2007 to December 31 , 2007 Summary of Online Tax Payment Confirmation for the N Excise Tax Period February 20, 2007 to December 31 , 2007 N-1 Ring-bound Independent CPA's Report dated June 15, 2010 Annex I of Exh. N Signature of Mr. Jerome Antonio B. Constantino, p. 12 Annex II of Exh. N Summary of Excise Tax Returns for the Excise Tax Period Annex Ill January 2, 2008 to December 29, 2008 of Exh. N Summary of Online Tax Payment Confirmations for the Annex IV Excise Tax Period January 2, 2008 to December 29, 2008 of Exh. N List of Bills of Materials- Finished Stock for the Excise Tax Annex V Period January 2, 2008 to December 29, 2008 of Exh. N List of Bills of Materials- Finished Ingredient Annex VI Comparison of Bill of Materials- Finished Stocks, Bill of of Exh. N Materials- Finished Ingredients and Pre-Marked Batch Annex VII of Exh. N Control Sheet Annex VIII Schedule of Erroneously Paid Excise Taxes Supported by of Exh. N Original Duplicate Sales Invoices for the Excise Tax Period Annex IX of Exh. N January 2, 2008 to December 29, 2008. Annex X Schedule of Erroneously Paid Excise Taxes Supported by of Exh. N Original Duplicate Sales Invoices with Not Clear Photocopy but with Reprinted Copy of Sales Invoices from MACPAC system for the Excise Tax Period January 2, 2008 to December 29, 2008. Schedule of Erroneously Paid Excise Taxes Supported by Not Clear Original Duplicate Sales Invoices but traced to Sales Book and with Reprinted Copy of Sales Invoices from MACPAC system for the Excise Tax Period January 2, 2008 to December 29, 2008. Debit Memo of Erroneously Paid Excise Taxes but traced to Sales Book for the Excise Tax Period January 2, 2008 to December 29, 2008 Schedule of Transactional Errors, Adjustments and Sales Returns for Sales Invoices of Erroneously Paid Excise Taxes for the Excise Tax Period January 2, 2008 to December 29, 2008. <

Avon Products Manufacturing, Inc. v. C/R Page 16of24 CTA Case No. 8021 DECISION Annex XI Summary of Sample Sales Invoices for each Type of of Exh. N Finished Stock. Annex XII Schedule of Estimated Excise Tax Amount of Finished of Exh. N Ingredients that can be used to more than one Finished Stock. Annex XIII Schedule of Finished Ingredients with principal ingredient of of Exh. N denatured alcohol and essential oil content of 3% or less which are supported by original BCS signed by the QA Analyst. Annex XIV Schedule of Finished Ingredients with principal ingredient of of Exh. N denatured alcohol and essential oil content of 3% or less which are supported by printed BCS duly certified as original by the processing clerk and traced to Finished Ingredient Evaluation Report or PHA Test Logbook. Annex XV Schedule of Finished Ingredients with principal ingredient of of Exh. N denatured alcohol and essential oil content of 3% or less which are supported by original BCS signed by the QA Analyst with incomplete detail of date processed but traced to PHA Test Log book. Annex XVI Schedule of Finished Ingredients with principal ingredient of ofExh. N denatured alcohol and essential oil content of 3% or less which are supported by original BCS signed by the QA Analyst with Lot Number 8019118 and 8019342 and date processed of January 25, 2007, respectively, but are dated January 2008 in PHA Retest Log Book and/or "Summary of Batch Control Sheet" (Exhibit N-1 0) Annex XVII Schedule of Estimated Excise Tax Amount of Finished of Exh. N Ingredients Converted to Export Finished Stocks. Annex XVIII of List of Bills of Materials - Export Finished Stock. Exh.N Annex XIX Schedule of Estimated Excise Tax Amount of Finished of Exh. N Ingredients produced before December 29, 2008 but not yet converted to Finished Stocks as of December 29, 2008. Annex XX Schedule of Purchases of denatured alcohol supported by of Exh. N original document entry vouchers, supplier's invoices and related delivery receipt and ODI. Annex XXI Schedule of Purchases of denatured alcohol supported by of Exh. N original document entry vouchers and certified true copy of documents (supplier's invoices and related delivery receipt and ODI). Annex XXII Schedule of Purchases of denatured alcohol -supported by ofExh. N original document entry voucher, supplier's invoices and ODI but without delivery receipt. Annex XXIII of Schedule of Purchases of denatured alcohol supported by Exh.N document entry vouchers. (

Avon Products Manufacturing, Inc. v. C/R Page 17of24 CTA Case No. 8021 DECISION N-1 to Photocopies of Excise Tax Returns N-1j(12) Photocopies of Online Tax Payment Confirmations N-2 to Photocopy of Excise Tax Return dated December 29, 2007 N-2g(2) N-3 N-4 Breakdown of Sales Invoices of Erroneously Paid Excise Taxes N-4-1 to Photocopies of Sales Invoices of Erroneously Paid Excise N-4-727 Taxes (2 binders) N-5 Summary of Excise Tax from MACPAC System N-6 to Photocopies of Bills of Materials - Finished Stock N-6x(2) N-7 to N-7i(1) Photocopies of Part Transaction History of Inactive Finished Stock N-8 to Photocopies of Bills of Materials - Finished Ingredient and N-8d(4) Basic Batch Percent Formula N-9 to Page number 369 and 391 of Sales Book N-9a(1) N-10 Summary of Batch Control Sheets from MACPAC System N-10-1 to Photocopies of Batch Control Sheets, Finished Ingredient N-10-231 Evaluation Report and Powder and Hydro Alcohol (PHA) Test Logbook (1 binder) N-10-232 to Photocopies of Batch Control Sheets, Finished Ingredient N-10-785 Evaluation Report and Powder and Hydro Alcohol (PHA) Test Logbook (2 binders) N-11 Export Sales from MACPAC System N-12 Query from MACPAC System of Finished Stocks that can be produced by Finished Ingredients included in the Claim N-13 to Photocopies of Bills of Materials - Export Finished Stock N-13h(1) N-14 to Photocopies of Part Transaction History of Finished N-14z(1) Ingredients Produced before December 29, 2008 but not yet converted to Finished Stocks as of December 29, 2008 N-15 Summary of Purchases of Denatured Alcohol from MACPAC System N-15-1 to Photocopies of Document Entry Voucher, Supplier's Invoice, N-15-590 Delivery Receipt and Official Delivery Invoice (2 binders) 0 Affidavit in Lieu of Direct Examination of Ms. Jocelyn Rafael 0-1 Signature of Ms. Jocelyn Rafael , page 3 AnnexA Annex XIV of CPA Report dated June 15, 2010 of Exh. 0 (

Avon Products Manufacturing, Inc. v. CIR Page 18of24 CTA Case No. 8021 DECISION On April 4, 2011, respondent, through counsel, manifested that she will not present any witness. Hence, on June 16, 2011, as per this Court's Resolution, considering respondent's Memorandum filed on May 18, 2011 and petitioner's Memorandum filed on May 25, 2011, the instant case was deemed submitted for decision, The parties raised the following issues for this Court's resolution: "1 . Whether or not the definition of the term 'toilet waters' under Revenue Regulations No. 8-84 can be validly amended by BIR Ruling No. 43-2000 dated September 15, 2000 which was published in Revenue Memorandum Circular No. 17-02. 2. Whether or not Petitioner's splash colognes and body sprays containing essential oils of 3% or less by weight are subject to the 20% excise tax on toilet waters. 3. Whether or not Petitioner is entitled to a refund of erroneously paid excise tax in the amount of Thirty Five Million Eight Hundred Seventy One Thousand Six Hundred Forty Three Pesos and Eighty Four Centavos (P35,871 ,643.84). 4. Whether petitioner has exhausted all administrative remedies before filing this Petition." The foregoing issues can be summarized as follows: "WHETHER OR NOT PETITIONER'S SPLASH COLOGNES AND BODY SPRAYS ARE SUBJECT TO 20% EXCISE TAX IMPOSED UNDER SECTION 150 (B) OF THE NIRC OF 1997~

Avon Products Manufacturing, Inc. v. CIR Page 19of24 CTA Case No. 8021 DECISION The pertinent portions of Revenue Regulations No. 8-84, dated June 5, 1984, provide: "SECTION 1. Scope. - Pursuant to Section 326, in relation to Section 4 of the National Internal Revenue Code, the following regulations relating to the sales tax payable by manufacturers and/or exporters of cosmetic products are hereby promulgated . These regulations shall be known as Revenue Regulations No. 8-84 or the Cosmetic Products Regulations. These regulations deal with the tax on cosmetic products imposed by Sections 194(b) and (e) and Section 326 of the National Internal Revenue Code, which provides as follows : Sec. 194. Percentage tax on sales of non-essential products. - There shall be levied , assessed and collected once only on every original sale, barter, exchange, or similar transaction for nominal or valuable consideration intended to transfer ownership of, or title to, the articles hereinbelow enumerated a tax equivalent to fifty per centum of the gross value in money of the articles so sold , bartered , exchanged or transferred , such tax to be paid by the manufacturer or producer. XXX XXX XXX (b) Perfumes, essences, extracts, toilet waters, cosmetics, hair dressings, hair dyes, hair restoratives, aromatic cachous , toilet powders, except tooth and mouth washes , dentifrices, tooth paste, talcum and medicated toilet powders, hair oils and pomades. XXX XXX XXX (e) Similar or analogous articles, substances, or preparations to those enumerated above as determined by the Minister of Finance upon recommendation of the Commissioner of Internal Revenue based on the inherent essentiality of the product. XXX XXX XXX SECTION 2. Articles taxable as cosmetic products. The articles defined as follows shall be taxable as cosmetic products: XXX XXX XXX (

Avon Products Manufacturing, Inc. v. CIR Page20of24 CTA Case No. 8021 DECISION (e) Toilet waters are scented alcoholic or non-alcoholic preparations primarily used as body fragrance containing essential oils i.e. more than 3% by weight. Examples: Lavander water, Eau de Cologne, Eau de Toilette." (Emphasis supplied) Section 194 of the 1977 Tax Code was renumbered and amended to read as Section 163 by virtue of Section 23 of Presidential Decree (PO) No. 1994, dated November 5, 1985. Subsequently, on July 25, 1987, Executive Order (EO) No. 273 also renumbered and amended Section 163 to read as Section 150 of the present Tax Code. Section 29 of EO No. 273 states: "SECTION 29. The provisions of any law, whether general or special, rules and regulations and other issuances or parts thereof which are inconsistent with this Order are hereby repealed, amended or modified accordingly." As a rule, an amended act should be given a construction different from that of the law prior to its amendment, for it is presumed that the legislature would not have amended it had it not wanted to change its meaning. Section 194 (renumbered and amended to read as Section 163) imposes percentage tax on non-essential products/articles; while the(

Avon Products Manufacturing, Inc. v. C/R Page21 of24 CTA Case No. 8021 DECISION present Section 150 of the NIRC of 1997 imposes excise tax on non- essential goods. Evidently, there was intent on the part of the legislature to repeal regulations inconsistent with EO No. 273, such as RR No. 8-84. Hence, the definition of "toilet waters" provided by RR No. 8-84 is only applicable to the percentage tax imposed under Section 194 of the 1977 Tax Code. The said definition does not apply to the present Section 150(b) of the NIRC of 1997, which refers to excise tax. Section 150(b) of the NIRC of 1997 is quoted hereunder for ready reference : "SEC. 150. - Non-Essential Goods. - There shall be levied , assessed and collected a tax equivalent to twenty percent (20%) based on the wholesale price or the value of importation used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax , of the following goods: XXX XXX XXX (b) Perfumes and toilet waters ;" The afore-quoted provision does not provide a definition for the term "toilet waters". However, BIR Ruling No . 043-2000 dated September 15, 2000, which was subsequently published in Revenue Memorandum_,.

Avon Products Manufacturing, Inc. v. CIR Page22of24 CTA Case No. 8021 DECISION Circular No. 17-02 dated May 24, 2002, defined the term "toilet waters" to include "colognes". The applicable portions of the said BIR Ruling read: "In reply, please be informed that the term 'cologne' which is an alocohol-based preparation is defined as follows: 'Cologne (toilet water) is a scented alcohol-based liquid used as perfume, after-shave lotion, or deodorant.' (Hawley's Condensed Chemical Dictionary, 11th ed.) XXX XXX XXX Accordingly, all other colognes are, likewise, classified as toilet waters subject to excise tax under the same section xxx" As the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, absent any showing that it is plainly wrong, is entitled to great weight. In the instant case, the ruling was made by the Commissioner of Internal Revenue in the exercise of her power under Section 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes". Based on the above-mentioned definition, petitioner's splash colognes and body sprays come within the purview of the term "toilet waters". This is due to the fact that alcohol is the principal ingredient used<

Avon Products Manufacturing, Inc. v. CIR Page23of24 CTA Case No. 8021 DECISION by petitioner in the manufacture of its splash colognes and body spray products. Thus , it is subject to the 20% excise tax on toilet waters imposed under Section 150(b) of the NIRC of 1997. Accordingly, the claim for refund must be denied . Well-settled is the legal principle that a claim of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken . Otherwise stated, taxation is the rule, exemption therefrom is the exception. WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED for lack of merit. SO ORDERED. W4, N. M~~-- C~ CIELITO N MINDARO-GRULLA Associate Justice WE CONCUR: :t� ~~;�., Cl. ~~/ CAESA~ANOVA Associate Justice fUANITO C. CASTANEDA, ~R. Associate Justice

Avon Products Manufacturing, Inc. v. CIR Page24 of24 CTA Case No. 8021 DECISION ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. r:;;L_~�t;c . ~ota..L Q . JUAN ITO C. CASTANEu~: JR. Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution , and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division . ~[9-0-wl ERNESTO D. ACOSTA Presiding Justice