NORTHERN MINDANAO SALES CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY I SPECIAL FIRST DIVISION NORTHERN MINDANAO CTA CASE NO. 8959 SALES CORPORATION, Members: Petitioner, -versus- DEL ROSARIO, P.J., Chairperson UY, and MINDARO-GRULLA, 11. Promulgated: COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - RESOLUTION MINDARO-GRULLA, }.: For the Court's resolution are: 1. petitioner's Motion for Partial Reconsideration (of the Decision Promulgated on March 11, 2019}, filed on March 29, 2019, with respondent's Comment/Opposition {To Motion for Partial Reconsideration}, filed through registered mail on May 14, 2019 and received by the Court on May 23, 2019; and 2. respondent's Motion for Partial Reconsideration, filed through registered mail on April 3, 2019 and received by the Court on April 8, 2019, with petitioner's Comment (On the Respondent's Motion for Partial Reconsideration}, filed on May 23, 2019. ~

RESOLUTION CfA CASE NO. 8959 Both parties move for the reconsideration of the Decision promulgated on March 11, 2019, the dispositive portion of which is quoted as follows: "WHEREFORE, premises considered, the Petition for Review is PARTIALLY GRANTED. The deficiency VAT assessment issued by respondent against petitioner covering the period January 1, 2012 to June 30, 2012 is UPHELD IN PART. Accordingly, petitioner is ORDERED TO PAY the aggregate amount of FIFTEEN MILLION FIVE HUNDRED SEVENTEEN THOUSAND FIVE HUNDRED SEVENTY-SIX PESOS AND SEVENTEEN CENTAVOS (P15,517,576.17), inclusive of the 25�/o surcharge, 20�/o deficiency interest and 20�/o delinquency interest imposed under Sections 248(A)(3), 249(8) and (C) of the NIRC of 1997, as amended, respectively, computed until December 31, 2017, as follows: Basic Deficiency VAT p 4,447 705.09 1111,926.27 Add: 25% Surcharqe 20% Deficiency Interest from July 26, 2012 to June 23, 2014 1 701,094.88 p 7,260,726.24 (P4. 447.705.09 x 20% x 698/365 days) 3,136,546.00 Total Amount Du~ June 23,_ 2014 Add: 20% Deficiency Interest from June 24, 2014 to December 31, 5,120 303.93 P15,517,576.17 2017(P4. 447.705.09 x 20% x 1287/365 days) 20% Delinquency Interest from June 24, 2014 to December 31 2017 (P7.260 726.24 X 20% X 1287/365 days) Total Amount Due, December 31 2017 In addition, petitioner is ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12�/o) on the aggregate amount due as of June 23, 2014 of P7,260,726.24, as determined above, computed from January 1, 2018 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by Republic Act No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN), as implemented by RR No. 21-2018. SO ORDERED." Petitioner's Motion for Partial Reconsideration Petitioner claims that the assessment on unexplained debits to sales in the amount of P11,014,517.17 has been founded based on ~

RESOLUTION CTA CASE NO. 8959 presumptions and hypothesis. It alleges that it complied with the substantiation requirement, which was the lone issue raised in the Formal Letter of Demand (FLD), although there may have been some irregularities in the information stated on the submitted invoices or official receipts. It asserts that respondent's manner of computing the alleged deficiency value added tax (VAT), which was on a semi- annual or semestral basis and not on a quarterly basis, is incorrect. It further asserts that the Final Assessment Notice (FAN) was not a valid assessment alleging that the statement in the FAN makes the alleged deficiency VAT liability indefinite citing the case of Commissioner ofInternal Revenue vs. Fitness by Design, Inc. Respondent opposes the above arguments and alleges that part of the assessment was upheld by the Court on the basis of discrepancies found by the Independent Certified Public Accountant (ICPA). He asserts that petitioner, as the one who sought the commissioning of the ICPA, should be the first to adhere or give respect to the findings of its chosen ICPA. He also argues that there is no law, rules or regulations that prescribes that the VAT audit should be done on a per quarter basis. He claims that the ruling in Commissioner ofInternal Revenue (CIR) vs. Fitness by Design, Inc. is not applicable since there was a definite date for which the deficiency VAT liability should be paid. To stress, petitioner seeks to reconsider the assailed Court's Decision insofar as the upholding of respondent's deficiency VAT assessment on: a) unreported sales in the reduced amount of Pll,014,517.17 as a result of unexplained debits to sales; and b) disallowed input tax in the reduced amount of P3,125,962.95. a) Unreported sales in the reduced amount of P11,014,517.17 as a result of unexplained debits to sales Petitioner points out that if it had any sinister motive in recognizing the "Sales Discount" on the debit side of the general ledger for the "Sales" account, it would have been easy to conceal this "Sales Discount" by merely recording the sales at its net amount. What would have shown in the general ledger then would be the net sales on the credit side, without the eye-catcher "Sales Discount" on the debit side. Yet, petitioner allegedly did what is necessary, following an accounting principle of fully disclosing all facets of the c

RESOLUTION CTA CASE NO. 8959 transaction, i.e., the gross sales and the sales discount as a contra- account. Likewise, petitioner points out that the reports under the VAT Relief System (i.e., Summary Lists of Sales) have always tallied with its Ledgers and VAT Returns; which were prepared in different periods from January 1, 2012 to June 30, 2012. Moreover, petitioner claims that it has dutifully paid output VAT for its sales of P368,297,808.49 during the period. Thus, there was allegedly no reason for it to be untruthful in the amount of P11,014,517.17 (a measly 2.99�/o of its total sales) and risk the status of all the sales for which it paid output VAT. According to petitioner, if at all, what the present deficiency VAT issue, as introduced by the BIR in the assailed final assessment, has shown is that the BIR has a penchant for making general conclusions from which assessment issues arose, without considering the validity of taxpayer's arguments. Petitioner submits that the protective clothing provided to tax assessments by virtue of the presumption of regularity in the performance of official duties, should now be unveiled; and thus, invalidate the entire assessment issue for having been founded on presumption and hypothesis. The Court is not convinced. The basic rule is that he who alleges must prove his case. 1 We must bear in mind the legal dictum that, "he who asserts, not he who denies, must prove. '12 In this case, while petitioner insists that the presumption of regularity is not present during the investigation of respondent, however, it failed to present evidence other than its self-serving declarations. Therefore, the Court finds no compelling reason to reconsider its Decision on the unexplained, unsupported debits to sales. 1 Francisco Lim vs. Equitable PC! Banly now known as the Banco de Oro Unibanly Inc., G.R. 183918, January 15, 2014. 2 As culled from the case of Ricardo Portuguez vs. GSIS Family Bank (Comsavings Bank) and The Han. Court ofAppeals, G.R. No. 169570, March 2, 2007. (

RESOLUTION CTA CASE NO. 8959 b) Disallowance of input tax in the reduced amount of P3,125,962.95 In the assailed Decision, the Court sustained respondent's disallowance of petitioner's claimed input tax in the reduced amount of P3,125,962.95. The Court held that in addition to the P1,383,325.02 input tax found to be unsupported by the Court- commissioned ICPA, the input tax of P1,742,637.93 shall likewise be disallowed for failure to meet the substantiation requirements under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended, and as implemented by Sections 4.110-1, 4.110-8 and 4.113-1(A) and (B) of Revenue Regulations (RR) No. 16-05, as amended.3 Reproduced herein below is the breakdown of the P1,742,637.93 input VAT disallowance: Supplier Voucher No. Purchases I (Net of VAT) Input VAT Period: Januarv 2012 (Exhibit P-40) Domesticpurchases ofservices supported by VAT OR but the amount of VAT was not separately shown and/or without petitioner's address and TIN and/or with incomplete petitioner's name and/or address Lorenzo Shipping Corporation 01-12-0002 p 206,896.80 p 24 827.62 49.019.54 5 882.34 Lorenzo Shipping Corporation 01-12-0003 133 367.50 16 004.10 114 315.00 13 717.80 Lorenzo Shipping Corporation 01-12-0004 38 105.00 4 572.60 19 052.50 2 286.30 Lorenzo Shipping Corporation 01-12-0029 75 399.74 9,047.97 53 769.32 6 452.32 Lorenzo Shipping Corporation 01-12-0052 118 301.92 14,196.23 148 117.50 17,774.10 Lorenzo Shipping Corporation 01-12-0053 95,448.21 11 453.79 28 694.64 3 443.36 T. Biraogo Trucking Services Inc. 01-12-0006 26 353.75 3 162.45 35.846.23 4 301.55 Royal Master Services Inc. 01-12-0014 119 951.75 14 394.21 381 477.93 45 777.35 T. Biraogo Trucking Services Inc. 01-12-0018 Topkick Movers Corporation 01-12-0007 Dennis Trucking Services 01-12-0013 Topkick Movers Corporation 01-12-0023 Aboitiz Transport System Corporation 01-12-0026 Royal Master Services Inc. 01-12-0051 Dennis Trucking Services 01-12-0035 Aboitiz Transport System Corporation 01-12-0027 Domesticpurchases ofservices without 01-12-0015 59 575.09 7,149.01 supporting VAT OR 01-12-0016 28,805.95 3,456.71_ P.N.A. Freight Services .N.A. Freight Services 3 Decision, pp. 26-37. t..

RESOLUTION CTA CASE NO. 8959 P.N.A. Freight Services 01-12-0017 47 660.07 5 719.21 Friends Trucking 01-12-0019 15 946.43 1 913.57 Friends Trucking 01-12-0020 42 608.04 5 112.96 Friends Trucking 01-12-0021 30 221.79 3 626.61 Friends Trucking 01-12-0022 91 947.02 11 033.64 GCT and Sons Agricultural Devt CorQ_ 01-12-0011 32 979.31 3 957.52 GCT and Sons Agricultural Devt Corp 01-12-0012 15 686.83 1,882.42 GCT and Sons Agricultural Devt Corp 01-12-0028 1,052.46 GCT and Sons Agricultural Devt Corp 01-12-0034 8 770.54 2 223.54 Topkick Movers Corporation 01-12-0024 18 529.46 23,167.62 Topkick Movers Corporation 01-12-0041 193 063.50 17,023.30 Domestic purchases ofservices 141 860.81 supported by VAT OR issued under the 01-12-0032 1,441.94 name of "Northern Mindanao Marketing 12 016.20 286,054.60 Corp" p 2,383,788.37 p F.A. Freight Services Subtotal-January 2012 Period: February 2012 (Exhibit P-41) Domestic purchases ofservices supported by VAT OR but the amount of VAT was not separately shown and/or without petitioner's address and TIN and/or with incomplete petitioner's name and/or address T. Biraogo Trucking Services Inc. 02-12-0002 p 36 451.79 p 4 374.21 58 996.43 7 079.57 T. Biraogo Trucking Services, Inc. 02-12-0003 211 991.96 25 439.04 84 821.43 10 178.57 T. Biraogo Trucking Services Inc. 02-12-0025 194 648.35 23 357.80 113 243.26 13 589.19 Coren Commercial Co., Inc. 02-12-0027 166 810.25 20 017.23 150 926.63 18 111.19 Topkick Movers Corporation 02-12-0004 44 361.75 5,323.41 168 547.50 20,225.70 Royal Master Services Inc. 02-12-0010 136 652.21 16,398.27 58 996.43 7 079.57 Royal Master Services, Inc. 02-12-0011 28 397.14 3,407.66 24 509.77 2 941.17 Topkick Movers Corporation 02-12-0016 106 177.04 12,741.24 43,562.27 5 227.47 Topkick Movers Corporation 02-12-0037 73,529.30 8 823.52 210,830.00 25 299.60 Topkick Movers Corporation 02-12-0039 316,245.00 37,949.40 Dennis Trucking Services 02-12-0013 61,522.78 7 382.73 25,144.40 3 017.33 Dennis Trucking Services 02-12-0033 11 915.02 1429.80 18 529.46 2 223.54 YM Cargo Transport Corp 02-12-0024 41 484.82 4 978.18 27,286.61 3,274.39 Lorenzo Shipping Corporation 02-12-0038 Lorenzo Shipping Corporation 02-12-0040 Lorenzo Shipping Corporation 02-12-0052 Lorenzo ShiQping Corporation 02-12-0053 ATS Consolidated Inc. 02-12-0009 ATS Consolidated Inc. 02-12-0046 Domestic purchases ofservices without 02-12-0020 supporting VAT OR 02-12-0021 Friend's Trucking 02-12-0026 Friend's Trucking 02-12-0028 P.N.A. Freight Services 02-12-0029 GCT and Sons Agricultural Devt Corp 02-12-0030 GCT and Sons Agricultural Devt Corp GCT and Sons Agricultural Devt Corp L

RESOLUTION CTA CASE NO. 8959 GCT and Sons Agricultural Devt Corp 02-12-0031 3 126.81 375.22 02-12-0014 33 928.57 4,071.43 Lawrian Press Corporation 02-12-0032 27 286.61 3 274.39 GCT and Sons Agricultural Devt Corp 02-12-0045 1 375.00 165.00 Square One Realty Corporation 10,218.31 1 226.20 Kheri Lines Inc 1071151.29 12,858.15 Domestic purchases ofservices p 2,598,668.19 p 311,840.17 supported by VAT OR issued under the name of "Northern Mindanao Marketing Corp." F.A. Freight Services Subtotal-February 2012 Period: March 2012 {Exhibit P-42}_ Domestic purchases ofservices without p 58,996.43 p 7 079.57 supporting VAT OR 165.00 Dennis Trucking Services 1 375.00 Square One Realty Corporation 7 023.83 GCT and Sons and Agricultural Devp Corp 03-12-0005 58 531.91 625.36 GCT and Sons and Agricultural Devp Corp 03-12-0007 Friends Trucking 03-12-0018 5 211.37 3 527.20 Friends Trucking 03-12-0019 1,173.01 Friends Trucking 03-12-0041 29 393.30 2,223.54 Actuarial Advisers Inc. 03-12-0047 Domestic purchases ofservices 9 775.07 540.00 supported by VAT OR but the amount of 03-12-0012 VAT was not separately shown and/or 03-12-0021 18 529.46 7 882.12 without petitioner's address and TIN 03-12-0036 3 580.58 and/or with incomplete name and/or 03-12-0043 4 500.00 7 079.57 address ofpetitioner 03-12-0045 2 871.75 Royal Master Services Inc. 03-12-0046 65 684.37 54 642.86 P.N.A. Freight Services 03-12-0016 29 838.13 54 321.43 T. Birao_g_o Trucking_ Services Inc. 03-12-0022 58 996.43 3 443.36 Royal Master Services Inc. 03-12-0040 23,931.21 17 774.10 Ocean Transport Group of Companies Inc. 03-12-0006 455 357.14 17 161.20 Ocean Transport Group of Companies Inc. 03-12-0039 452 678.57 9 967.54 Topkick Movers Corporation 03-12-0017 28 694.64 1429.80 Topkick Movers Corporation 03-12-0027 148 117.50 2 834.03 Topkick Movers Cornoration 03-12-0037 143 010.00 8 823.52 Dennis Trucking Services 03-12-0044 83 062.84 2 941.17 YM Cargo Trans12ort Corp. 11 915.02 9,145.20 Lorenzo Shipping Corporation 23 616.91 226,255.74 Lorenzo Shipping Corporation 73 529.30 Lorenzo Shipping Corporation 24 509.77 Lorenzo Shipping Corporation 76 210.00 p 1,885,464.37 p Subtotal-March 2012 Period: April 2012 (Exhibit P-43) L

RESOLUTION CTA CASE NO. 8959 Domestic purchases ofservices supported by VAT OR but the amount of VAT was not separately shown and/or without petitioner's address and/or TIN and/or with incomplete petitioner's name and/or address P.N.A.Freight Services 04-12-0007 p 11,915.02 p 1429.80 121,036.38 14 524.37 T. Biraogo Trucking Services Inc. 04-12-0008 10 312.50 85,937.50 Coren Commercial Co., Inc. 04-12-0031 60,518.19 7 262.18 11,915.02 1429.80 T. Biraogo Trucking Services Inc. 04-12-0037 19,933.04 2 391.96 22 955.36 2 754.64 Royal Master Services Inc. 04-12-0048 11,915.02 1429.80 104 464.29 12 535.71 Friends Trucking 04-12-0049 1 616.07 193.93 Friends Trucking 04-12-0050 108 193.42 12 983.21 236 607.14 28 392.86 P.N.A.Freight Services 04-12-0051 57 389.29 6 886.71 Ocean Transport Group of Companies Inc. 04-12-0052 41 538.52 4 984.62 11 636.40 LBC Exm-ess Inc. 04-12-1010 96_~969.97 22 677.30 Topkick Movers Corporation 04-12-0009 188 977.50 879.48 7 329.04 345.21 Ocean Transport Group of Companies Inc. 04-12-0010 2 876.79 504.13 4 201.07 Topkick Movers Corporation 04-12-0017 8.14 76.00 42.00 Dennis Trucking Services 04-12-0011 350.00 9.00 Dennis Trucking Services 04-12-0019 75.00 37.50 312.50 12,033.49 Topkick Movers Corporation 04-12-0022 100 279.07 11,378.62 94 821.80 Topkick Movers Corporation 04-12-0030 508.93 4,241.07 EDM Caltex Service Station 04-12-1011 - 24,509.77 EDM Caltex Service Station 04-12-1012 28,720.67 2 941.17 Laser Tech Copier Services (OR Nos 1106 & 04-12-1009 29,865.88 3 446.48 27186) 18 529.46 3 583.90 2 223.54 L~on Printing and Services 04-12-1009 1 746.58 212,727.38 209.59 Laser Tech Copier Services 04-12-1011 25 527.28 18 529.46 Leyson Printing and Services 04-12-1012 3 102.59 2 223.54 372.31 Lorenzo Shipping Corporation 04-12-0029 25 721.50 74,506.25 3 086.58 Lorenzo Shipping Corporation 04-12-0045 8 940.75 2 547.64 Shacene Pension House Restaurant (OR Nos. 04-12-1012 8 203.20 305.72 9471 & 9436) 1 375.00 984.38 04-12-0013 165.00 Domestic purchases ofservices without 04-12-0014 supporting VAT OR 04-12-0015 Lorenzo Shipping Corporation 04-12-0016 GCT & Sons Agricultural Devt Corp 04-12-0025 GCT & Sons Agricultural Devt Corp 04-12-0039 GCT & Sons Agricultural Devt Corp 04-12-0041 Value Care Health Systems Inc. 04-12-0042 Topkick Movers Corporation 04-12-0043 GCT & Sons Agricultural Devt Corp 04-12-0044 GCT & Sons Agricultural Devt Corp GCT & Sons Agricultural Devt Corp GCT & Sons Agricultural Devt Corp Shacene Pension House Restaurant (OR Nos. 04-12-1012 254.47 30.53 9463 & 9437) 04-12-1012 Smart Broadband Inc - Butuan 04-12-0021 Square One Realty Corporation 04-12-1012 Domestic purchases ofgoods without supporting VAT sales invoice Tandag Auto Parts and Brake Bonding Center L

RESOLUTION CTA CASE NO. 8959 JSL Petron Service Station 04-12-1009 4 196.75 503.61 Lavender Shell Service Station (Inv. 188180) 04-12-1012 651.79 78.21 Metro Surigao ShoppinCJ Center 04-12-1012 212.68 25.52 Tandag Auto Parts and Brake Bonding Center 04-12-1009 486.61 58.39 Tandag Petron Service Station 04-12-1010 Detan Shell Service Station 04-12-1012 2 062.50 247.50 2 519.81 302.38 Domestic purchases ofservices 04-12-1009 suported by VAT OR issued not under 3 703.58 i the name ofpetitioner 04-12-1024 Suriqao Del Norte Electric Cooperative, Inc. 04-12-1033 25 215.28 444.43 04-12-1025 27 618.45 Domestic purchases ofgoods supported 04-12-1036 35 390.30 3 025.83 by VAT sales invoice issued not under 28 680.07 3,314.21 the name ofpetitioner 04-12-1009 4,246.84 I Pilipinas Shell Petroleum Corporation 04-12-1009 2 754.02 3,441.61 Pilipinas Shell Petroleum Corporation 04-12-1011 4 220.45 Pilipinas Shell Petroleum Corporation 04-12-1012 2 287.50 330.48 Pilipinas Shell Petroleum Corporation 04-12-1011 4 371.45 506.45 3,499.54 274.50 Domestic purchases ofgoods supported 04-12-1013 524.57 by VAT sales invoices but without 04-12-1031 148,345.86 419.94 petitioner's address and TIN 04-12-1032 (22,415.71) Detan Shell Service Station 04-12-1034 254,480.41 17 801.48 Diataqon Caltex Fillinq Station 04-12-1035 (38,799.32) (2 689.88) Tandag Petron Service Station 30 537.65 Diatagon caltex Filling Station 36 802.31 (4 655.94) Diatagon Caltex Filling Station (11 825.16) 231 876.21 4 416.28 Input VAT claim does not tie-up with (37,991.98) (1 419.02) the amount shown in the supporting 27 825.14 VAT sales invoice 44 173.65 (4 559.05) Pilipinas Shell Petroleum Corp. (13,102.32) Amountper Claim p 2,586,198.65 p 5 300.84 Amount per Invoice No. 366790 (1 572.28) Amount per Claim 310,342.75 Amount per Inv. No. 369923 Amount per Claim Amount per Inv. No. 369923 Amount per Claim Amount per Inv. No. 373012 Amount per Claim Amount per Inv. No. 373012 Subtotal-April 2012 Period: May 2012 (Exhibit P-44) Domestic purchases ofservices supported by VAT OR but the amount of VAT was not separately shown and/or without petitioner's address and/or TIN and/or with incomplete name andjor address ofpetitioner Laser Tech Copier Services 05-12-1005 p 143.75 p 17.25 289.29 ~son Printing and Services ------ 05-12-1005 2,410.71 - (

RESOLUTION CTA CASE NO. 8959 Lavender Shell Service Station 05-12-1005 3,839.28 460.72 Laser Tech Copier Services (OR No. 28692) 05-12-1052 8.93 1.07 Shacene Pension House Restaurant 05-12-1052 Smart Broadband Inc. 05-12-1052 4,241.06 508.94 Bayan Telecommunications, Inc. 05-12-1055 12,455.40 1494.65 JRS Express 05-12-1055 16,254.11 1 950.49 Smart Broadband Inc. 05-12-1057 Commando Security Service Agency 05-12-1057 3,131.25 375.75 Dennis Trucking Services 05-12-0002 474.20 56.90 Topkick Movers Corporation 05-12-0009 562.50 67.50 Royal Master Services Inc. 05-12-0010 Royal Master Services Inc. 05-12-0011 40,770.54 4 892.46 Topkick Movers Corporation 05-12-0012 78,623.32 9 434.80 Topkick Movers Corporation 05-12-0026 51,704.96 6 204.60 Topkick Movers Corporation 05-12-0030 59,777.45 7 173.29 Topkick Movers Corporation 05-12-0031 117 472.50 14 096.70 Topkick Movers Corporation 05-12-0032 211 705.88 25 404.70 Topkick Movers Corporation 05-12-0033 34,015.18 4 081.82 Lorenzo Shipping Corporation 05-12-0003 112 686.61 13 522.39 T. Biraogo Trucking Services Inc. 05-12-0016 178 762.50 21,451.50 P.N.A. Freight Services 05-12-0023 127 687.50 15,322.50 T. Biraogo Trucking Services Inc. 05-12-0047 58 837.50 7,060.50 LBC Express, Inc. 05-12-1005 101 288.72 12,154.65 ATS Consolidated Inc. 05-12-0018 65 583.19 7,869.98 Dennis Trucking Services 05-12-0019 122 311.61 14 677.39 Domestic purchases ofservices 05-12-1005 3,209.82 385.18 supported by VAT OR but issued not 05-12-1036 292,604.38 35,112.53 under the name ofpetitioner 05-12-1052 Surigao Del Norte Electric Cooperative Inc. 05-12-0014 40 770.54 4,892.46 Pilipinas Shell Petroleum Corp 05-12-0040 Surigao Del Norte Electric Cooperative Inc. 3,628.67 435.44 F.A. Freight Services 05-12-1005 24,523.85 2 942.86 F.A. Freight Services 05-12-1005 Domestic purchases ofgoods supported 05-12-1005 486.17 58.34 by VAT sales invoice but the amount of 05-12-1005 45 696.87 5 483.62 VAT was not separately shown and/or 05-12-1052 110 993.82 13 319.26 without petitioner's address and/or 05-12-1052 TIN 05-12-1052 4 017.86 482.14 EDM Caltex Service Station (Inv. 45909) 05-12-1052 3 238.59 388.63 JSL Petron Service Station 05-12-1052 4 803.64 576.44 Detan Shell Service Station 05-12-1055 3 156.06 378.73 Diatagon caltex Filling Station 05-12-1057 3 839.29 460.71 EDM caltex Service Station (Inv. 45909) 05-12-1057 2,791.07 334.93 Detan Shell Service Station 2,995.89 359.51 Diatagon Caltex Filling Station 101.79 Searcher's Spareparts Specialist 848.21 321.43 JSL Petron Service Station 2,678.57 Kumander Enterprises 10.71 Butuan Express Hardware Workshop Inc. 89.29 93.00 Ku111ander Enterprises .. 775.00 80.36 669.64 --------- t

RESOLUTION CTA CASE NO. 8959 Domestic purchases ofgoods without 05-12-1005 357.14 42.86 supporting VAT sales invoice 05-12-1057 736.92 88.43 EDM Caltex Service Station 05-12-1057 329 855.89 39 582.71 Mercury Drug Corporation 05-12-1007 2 097.99 251.76 Petron Corporation 05-12-1008 154 788.12 18 574.57 Palma Superstore 05-12-1050 26 871.69 3,224.60 Pilipinas Shell Petroleum Corp 05-12-1056 2 321.42 278.57 Pilipinas Shell Petroleum Corp 05-12-1056 A.Y. Butuan Auto Supply 05-12-1056 75.89 9.11 Kumander Enterprises 2 017.85 242.14 Life Auto Supply and Hardware 05-12-1057 05-12-1057 4,205.26 504.63 Domestic purchases ofservices without 05-12-0021 4,628.42 555.41 supporting VAT OR 05-12-0022 13 624.11 1634.89 PHILCOM 05-12-0048 44 702.54 5,364.31 Agusan Del Norte Electric Cooperative 05-12-0004 207,039.54 24,844.74 Friends TruckinCJ 05-12-1053 1,375.00 165.00 Friends Trucking 33,750.00 4 050.00 Lorenzo Shipping Corporation 05-12-1048 Square One Realty Corporation 289 076.94 34 689.23 Sign Head Graphics 05-12-1049 (32 396.69) (3 887.62) Input VAT claim does not tie-up with 05-12-1005 32 960.12 3,955.22 the amount shown in the supporting (17 490.35) (2,098.85) VAT sales invoice Pilipinas Shell Petroleum Corp 49.11 5.89 Amount of claim p 3,057,212.79 p 366,865.51 Less: Amount per Inv. No. 376122 Amount of claim Less: Amount per Inv. No. 376122 With unreadable supporting document UN CityGen Mdse Inc. Subtotal-May 2012 Period: June 2012 (Exhibit P-45) Domestic purchases ofservices supported by VAT OR but the amount of VAT was not separately shown and/or without petitioner's address and/or TIN and/or with incomplete name and/or address ofpetitioner Royal Master Services Inc. 06-12-0003 p 23,830.04 p 2 859.60 62 709.82 7 525.18 Topkick Movers Corporation 06-12-0011 194 085.00 23 290.20 121 218.05 14 546.17 Topkick Movers Corporation 06-12-0016 53 668.17 6 440.18 11 915.02 1429.80 Dennis Trucking Services 06-12-0031 203 634.76 24 436.17 15 946.43 1,913.57 Royal Master Services Inc. 06-12-0045 55 981.25 6,717.75 139 079.44 16,689.53 P.N.A. Freight Services 06-12-0004 19,456.13 2,334.74 T. Biraogo Trucking Services, Inc. 06-12-0005 Friends Trucking 06-12-0021 Friends Trucking 06-12-0022 T. Biraogo Trucking Services Inc. 06-12-0028 Dennis Trucking Services 06-12-0006 t.

RESOLUTION CTA CASE NO. 8959 Lorenzo Shipping Corporation 06-12-0014 42 397.27 5 087.67 Lorenzo Shipping Corporation 06-12-0046 64 294.77 7 715.37 Lorenzo Shipping Corporation 06-12-0048 44 682.27 5 361.87 ATS Consolidated, Inc. 06-12-0047 414 334.34 49 720.12 LBC Express Min Inc 06-12-1044 Laser Tech Copier Services (OR 29183) 06-12-1044 2 950.89 354.11 St. Augustine Shell Service Center 06-12-1044 17.86 2.14 Laser Tech Copier Services 06-12-1045 Leyson Printing Services 06-12-1045 3 799.11 455.89 Lifeworks Print Hub 06-12-1049 78.57 9.43 Domesticpurchases ofgoods supported by VAT sales invoice but the amount of 06-12-1044 3 750.00 450.00 VAT was not separately shown and/or 06-12-1045 61 794.64 7,415.36 without petitioner's address and/or 06-12-1045 TIN 06-12-1045 7,358.83 883.06 EDM Caltex Service station 06-12-1047 178.57 21.43 Searchers Spareparts Specialist 06-12-1042 EDM Caltex Service station 5,899.93 707.99 Tandag Petron Service Station (Inv. 21906) 06-12-0020 2 487.77 298.53 Kumander Enterprises 06-12-0026 Kumander Enterprises 06-12-1044 281.25 33.75 Pilipinas Shell Petroleum Corp 466.07 55.93 06-12-1043 44,287.34 5 314.48 Domesticpurchases ofservices without supporting VAT OR 06-12-1045 244.01 29.28 Value Care Health Systems, Inc. 1 375.00 165.00 Square One Realty Corp 06-12-1046 Commando Security Service Agency 06-12-1051 375.00 45.00 Domesticpurchases ofgoods supported 06-12-1047 42 989.96 51158.79 by VAT sales invoice issued not under 06-12-1047 the name ofpetitioner 06-12-1045 3 737.42 448.49 Pilipinas Shell Petroleum Corp 148,811.20 - Domesticpurchases ofservices (31 840.25) supported by VAT OR issued not under 277 745.69 17 857.34 the name ofpetitioner (37 798.16) (3 820.831 Surigao Del Norte Electric Cooperative1 Inc. 33 329.48 160.71 (4 535.78) Input VAT claim does not tie-up with 107.14 the amount shown in the supporting 4 168.53 - VAT sales invoice Pilipinas Shell Petroleum Corp p 2,010[659.84 p 19.29 Amount of Claim 12.86 Less: Amount per Inv. 376079 500.22 Amount of Claim Less: Amo unt per Inv. 379216 241,279.16 Domestic purchases ofgoods without supporting VAT sales invoice A&M Commercial and General Merch A.Y. Butuan Auto Supply Diatagon Caltex Filling Station Subtotal-June 2012 Total Disallowances - January to June p 14,521,992.21 p 1,742,637.93 2012 -- t.

RESOLUTION erA CASE NO. 8959 Petitioner avers that it can easily be deduced from the foregoing that the reasons were not entirely because of the alleged failure to "substantiate", but also includes as reason the failure to comply with the "invoicing requirements". Petitioner alleges that the latter reason was not made as basis for any disallowance per the Formal Letter of Demand (FLD) issued by respondent. Petitioner contends that the focus of the Court's discussion must be on the weight of arguments and bases cited by respondent on one hand, and the counter-arguments and explanations forwarded by petitioner on the other. Thus, in this case, the issue should only be the alleged failure to substantiate the disallowed portion of the input taxes claimed by petitioner- no more, no less. The Court disagrees with petitioner. In the Details of Discrepancies attached to the Preliminary Assessment Notice (PAN)4 and Formal Assessment Notice (FAN)5, it was clearly stated that respondent's basis for disallowing the subject input taxes was petitioner's failure to submit the required VAT invoices or official receipts pursuant to Section 110(A)(1) of the NIRC of 1997, as amended, which provides that: "Any input tax claimed evidence by a VAT invoice or official receipt issued in accordance with Section 113 ofthe NIRC shall be creditable against output tax." Therefore, the Court must check whether these are not only substantiated completely, but also, properly, meaning the VAT sales invoices and official receipts supporting petitioner's input taxes should be in compliance with the provisions of the VAT law and regulations. To reiterate, Sections 113 and 238 of the NIRC of 1997, as amended, are clear as to what is required of any and all VAT- registered persons in issuing sales invoices and official receipts, to wit: SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.- 4 Exhibit "R-6-I", BIR Records, p. 1084 5 Exhibit "P-2", BIR Records, p. 1090. L

RESOLUTION CTA CASE NO. 8959 (A) Invoicing Requirements. - A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. (B) Information Contained in the VAT Invoice or VAT Official Receipt - The following information shall be indicated in the VAT invoice or VAT official receipt: XXX XXX XXX (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provideft That: (a) The amount of the tax shall be shown as a separate item in the invoice or receipt; XXX XXX XXX (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and (4) In the case of sales in the amount of One thousand pesos (Pl,OOO) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and Taxpayer identification Number (TIN) of the purchaser, customer or client. SEC. 238. Printing of Receipts or Sales or Commercial Invoice. -All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same. Therefore, the input VAT disallowances upheld by this Court based on the foregoing provisions have legal and factual bases and have no reason to be overturned. L

RESOLUTION CTA CASE NO. 8959 Petitioner also urges the Court to re-evaluate the argument against respondent's manner of computing the alleged deficiency VAT, which was allegedly on a semi-annual, or semestral basis, and not on a quarterly basis. It contends that under the law and jurisprudence, VAT is computed and paid on a purely quarterly basis without need for a final adjustment at the end of the taxable year.6 The quarterly VAT return required to be filed under Section 114 of the NIRC, as amended, within twenty-five (25) days following the close of each taxable quarter is a final return in itself. Simply put, a quarterly VAT return is deemed a final return. Allegedly, there is no semestral, semi-annual or annual VAT return; and VAT liability is determined every quarter and not for any other taxable period. Petitioner cites Section 6(A) of the NIRC of 1997, as amended, which defines the power of the Commissioner to make an assessment as follows: "SEC. 6. Power of the Commissioner to Make Assessment and Prescribe Additional Requirements for Tax Administration and Enforcement - (A) Examination of Returns and Determination of Tax Due.-After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: xxx" Petitioner insists that for failure to properly compute the alleged deficiency VAT liability of petitioner for the period from January 1, 2012 to June 30, 2012, the entire VAT assessment should be considered void, pursuant to Section 228 of the NIRC of 1997, as amended. Petitioner questions in what quarter/taxable period did the assessed undeclared sales transactions arise. Allegedly, any assessment that failed to consider when the alleged deficiency tax occurred is a mere extrapolation which is not based on actual facts. Citing the case of Collector of Internal Revenue vs. Albert D. Benipayd, petitioner submits that the presumption of correctness of 6 Atlas Consolidated Mining and Development Corporation vs. Commissioner ofInternal Revenue, G.R. Nos. 141104 & 148763, June 8, 2007. 7 G.R. No. L-13656, January 31, 1962. l

RESOLUTION CfA CASE NO. 8959 assessment being a mere presumption cannot be made to rest of another presumption. We do not agree with petitioner's contention that respondent's assessment was made to rest on a presumption, since, as petitioner has claimed from the very start, they provided all their VAT returns and records for purposes of the investigation. Therefore, the figures arrived at by respondent were based on the information contained in the Quarterly VAT Returns for the first and second quarters of CY 2012, which are factual, even though they were summed up to show two consecutive quarters. Likewise, petitioner prays for the Court to reconsider the fact that the issued FAN contains the following statement after the computation of the alleged deficiency VAT: ''Please take note that the interest will have to be adjusted ifpaid beyond the dated (sic) specified therein. " Petitioner submits that the foregoing statement makes the alleged deficiency VAT liability indefinite as declared in the Supreme Court case of Commissioner of Internal Revenue vs. Fitness by Design, Inc.8: "First, it lacks the definite amount of tax liability for which respondent is accountable. It does not purport to be a demand for payment of tax due, which a final assessment notice should supposedly be. An assessment, in the context of the National Bureau of Internal Revenue, is a 'Written notice and demand made by the [Bureau of Internal Revenue] on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed.' Although the disputed notice provides for the computation of respondent's tax liability, the amount remains indefinite. It only provides that the tax due is still subject to modification depending on the date of payment. Thus: 'The complete details covering the aforementioned discrepancies established during the investigation of this case are 8 G.R. No. 215957, November 9, 2016. t-

RESOLUTION CTA CASE NO. 8959 shown in the accompanying Annex 1 of this Notice. The 50�/o surcharge and 20�/o interest have been imposed pursuant to Section 248 and 249 (B) of the [National Internal Revenue Code], as amended. Please note, however, that the interest and the total amount due will have to be adjusted if prior or beyond April 15, 2004."' Petitioner states that the foregoing Supreme Court decision was applied in the case of Northern Tobacco Redrying Co., Inc. vs. Commissioner ofInternal Revenuf! wherein it was further declared: "In the foregoing case [Rtness by Design case], the Supreme Court, in ruling that the FLD lacks the definite amount of tax liability, considered the statement shown in the FLD which states 'that the interest and total amount due will have to be adjusted if paid prior or beyond April 15, 2014.' The Supreme Court held that the amount of tax due remains indefinite since it is still subject to modification depending on the date of payment. The afore-cited case applies squarely to the present case wherein the subject FLD likewise states that 'the interest and total amount due will have to be adjusted if paid beyond November 30, 2013."' Hence, for this reason alone, petitioner submits that the deficiency VAT assessment for period January 1 to June 30, 2012 must be invalidated in toto. We disagree. The detrimental factor to Rtness by Design and Northern Tobacco cases, is not the mere presence of the phrase "that the interest and total amount due will have to be adjusted ifpaid prior or beyond [date]' in the FAN but, the fact that the said phrase is also made to rest on another indefinite factor, which is the lack of due dates in the Formal Letters of Demand and FANs issued to the petitioners of both cases. 9 CTA Case No. 8857, December 14, 2017. l

RESOLUTION erA CASE NO. 8959 In the Fitness by Design case, the Supreme Court ruled: "xxx the Final Assessment Notice is not valid if it does not contain a definite due date for payment by the taxpayer. XXX XXX XXX The issuance of a valid formal assessment is a substantive prerequisite for collection of taxes. Neither the National Internal Revenue Code nor the revenue regulations provide for a 'specific definition or form of an assessment.' However, the National Internal Revenue Code defines its explicit functions and effects. An assessment does not only include a computation of tax liabilities; it also includes a demand for payment within a period prescribed. Its main purpose is to determine the amount that a taxpayer is liable to pay. XXX XXX XXX A final assessment is a notice 'to the effect that the amount therein stated is due as tax and a demand for payment thereof.' This demand for payment signals the time 'when the penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies[.]' Thus, it must be 'sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period.' The disputed Final Assessment Notice is not a valid assessment. First, it lacks the definite amount of tax liability for which respondent is accountable. It does not purport to be a demand for payment of tax due, which a final assessment notice should supposedly be. An assessment, in the context of the National Internal Revenue Code, is a 'written notice and demand made by the [Bureau of Internal Revenue] on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed.' Although the disputed notice provides for the computations of respondent's tax liability, L

RESOLUTION CTA CASE NO. 8959 the amount remains indefinite. It only provides that the tax due is still subject to modification, depending on the date of payment. Thus: The complete details covering the aforementioned discrepancies established during the investigation of this case are shown in the accompanying Annex 1 of this Notice. The 50�/o surcharge and 20�/o interest have been imposed pursuant to Sections 248 and 249 (B) of the [National Internal Revenue Code], as amended. Please note, howeve~ that the interest and the total amount due will have to be adjusted if prior or beyond April 15, 2004. (Emphasis Supplied) Second, there are no due dates in the Final Assessment Notice. This negates petitioner's demand for payment. Petitioner's contention that April 15, 2004 should be regarded as the actual due date cannot be accepted. The last paragraph of the Final Assessment Notice states that the due dates for payment were supposedly reflected in the attached assessment: In view thereof, you are requested to pay your aforesaid deficiency internal revenue tax liabilities through the duly authorized agent bank in which you are enrolled within the time shown in the enclosed assessment notice. (Emphasis in the original) However, based on the findings of the Court of Tax Appeals First Division, the enclosed assessment pertained to remained unaccomplished. Contrary to petitioner's view, April 15, 2004 was the reckoning date of accrual of penalties and surcharges and not the due date for payment of tax liabilities. The total amount depended upon when respondent decides to pay. The notice, therefore, did not contain a definite and actual demand to pay. Compliance with Section 228 of the National Internal Revenue Code is a substantive requirement. It is not a mere formality. Providing the taxpayer with the factual and legal bases for the assessment is crucial t

RESOLUTION CTA CASE NO. 8959 before proceeding with tax collection. Tax collection should be premised on a valid assessment, which would allow the taxpayer to present his or her case and produce evidence for substantiation."10 (Emphases and underscoring supplied) Since the Formal Assessment Notice Parts I and II dated May 21, 201411 issued to petitioner contain a definite due date which is June 23, 2014, petitioner cannot raise the defense that the date and amount payable were undeterminable. Respondent's Motion for Partial Reconsideration Respondent argues that the assessment on undeclared sales and unexplained debits to sales of petitioner based on comparison of sales declared in petitioner's VAT return and Bureau of Internal Revenue's (BIR) own database should be upheld since the BIR's database should be accorded with utmost integrity considering that the figures extracted from it were obtained from submission of taxpayers in their quarterly summary lists of sales and purchases can be taken as is and need not be verified. He also claims that the assessment based on Best Evidence Obtainable Rule, specifically the benchmarking method in assessing petitioner, has basis in fact and in law. He claims that the assessments are prima facie presumed correct and made in good faith. On the other hand, petitioner asserts that even after undergoing third-party matching, there is still need to confirm such information from the other "externally sourced data". It claims that the result of the matching process is not an automatic source of assessment. It further disagrees with the use of the benchmark rate in computing its alleged tax liability for lack of legal basis citing the case of Wei/form Trading Corporation vs. Commissioner of Internal Revenue. Petitioner also contends that the presumption on the validity of assessments does not apply since there is doubt as to the accuracy of the data upon which the assessment was made. Apparently, the issues and arguments presented are mere rehash of what have been said and reiterated in his Memorandum12 10 Supra note 8. 11 Exhibits "P-1" to "P-5", BIR Records, pp. 1089-1096. 12 Docket, vol. II, pp. 962-967. t

RESOLUTION CTA CASE NO. 8959 and that which have been considered, weighed and resolved by the Court in the assailed Decision. The Court has already ruled that the assessment lacks factual and legal bases as the same was based merely on unverified amounts extracted from respondent's own database. Further, Revenue Memorandum Order (RMO) No. 04-03 requires the verification of the amounts reflected in the quarterly report with other externally sourced data in ascertaining the taxpayer's under- declaration of revenues or overstatement of costs and expenses, if any. Instead of exerting his best effort in gathering information from other sources to verify the alleged sales discrepancy, respondent chose to resort to presumptions and heavily relied on the results of the unverified third-party information in determining petitioner's deficiency VAT liability. Thus, respondent's assessment on the alleged undeclared sales of P1,536,917.50 was cancelled. The Court also held that the use of the benchmark rate in computing petitioner's tax liability has no legal basis. It found out that respondent computed the alleged undeclared sales of P75,332,536.46 based on benchmark rate less total VATable sales per VAT returns. Respondent, however, made no determination of the actual VATable sales of petitioner since the benchmark rate used by respondent pertains to the sales of other wholesaling companies as reflected in the computation. There was also no indication as to how the benchmark rate was derived by respondent or that it can at least be used to approximate the actual VATable sales of petitioner. Respondent merely assumed that the amount of VATable sales of other wholesaling companies is the same with the VATable sales of petitioner. It is clear from Revenue Memorandum Order (RMO) No. 4-2006 that performance benchmarking is used in the monitoring and evaluation of tax payments to determine/identify taxpayer within industry groups who are paying below the minimum amount or set benchmarks for tax compliance purposes. It was issued to enhance taxpayers' voluntary compliance by setting up a standard in measuring taxpayers' compliance with regard to Income Tax Due and Net VAT Due of taxpayers engaged in the same line of industry; to prescribe policies, guidelines and procedures in the implementation of benchmarking activities in the districts in accordance with Sections S(E) and 6(C) of the NIRC; and to effectively monitor the accomplishments of the Regional and Revenue District Offices regarding benchmarking activities. Hence, L

RESOLUTION CTA CASE NO. 8959 the use of benchmarking method in the computation of petitioner's tax liability has no legal basis. An assessment fixes and determines the liability of a taxpayer. As soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded. Hence, assessment should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. The assessment must be based on actual facts. The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption.13 WHEREFORE, premises considered, petitioner's Motion for Partial Reconsideration (of the Decision Promulgated on March 11, 2019) and respondent's Motion for Partial Reconsideration are DENIED for lack of merit. SO ORDERED. ~ N, M~Uw . G~ CIELITO N. MINDARO-GRULLA Associate Justice WE CONCUR: ER~P.UY Presiding Justice Associate Justice 13 Commissioner of Internal Revenue vs. Island Garment Manufacturing Corporation, eta!., G.R. No. L-46644, September 11, 1987.