CTA Case No. 2776 (Decision)

aJPUJlLIC OF 'fR� _.I-JILIPP�Nr-t COURT OF TAX .l.rPEA.LS Qli~ON CitY U!JIV J �: r~Si-\ L C f:I�iBN T CO , , I N C . , - Peti�tioner , - versu::' C . T . A . CA SE NO . 2 77 6 T IJ l~ C!) rHU S S I 0 HER 0 F I 1'! T F. H N i\ L RE V EH UJ~ , Respondent . X DECI S I 0 N ~hi~ case i s anHlogou s tn CTA Cu se No . 20 7 5 and Ilo . 2103 , Ccpoc In dust ri ee , I r1c ., v s . Commissioner of In ternal Revenue , wherein t b is Cc11rt in it s dec i s ions da ted October 7 , 1 93 7 and October 21 , 19 8 7 ordered p e t i t i o n e r t !H~ r e i n Cepoc Industries , Inc . , to pny til e 7 ':i s a 1 e s t a x on t l! e s a l e s o f c em en t , t 11 e s ante t o b e corunted on t he baf>is of the ~ ros s sell ing pr ic e , le ss nppro1-�rie1te d~ductio n E: c o rresr.. oric1in q to the costs of r a ;v mater i 2. 1 s use cJ in t h <: r.1a n u f c' c t u r e of c ern en t , c o n- formahly w ith Sec tion 186 of t:l 1e app l i cab l e Ne~ tion a l Int e rn a 1 H s v l' n u c C o c1 e , an ( ~'i i t .h o ll t the imp 0 ~ i t ion of The essential f ~cts vre no t in controvPr s y . As a 1l e~Jcri l!l tl1e pe t i �t i on Eor t' 8v icw :

DECISIO N - CTA CASE NO. 2776 - 2- 1 . Petitioner is a cor poration duly organized and e x i s t in g under the 1 a ws o f t h e Ph i 1 i p p in e s , \vi t h business address at Danae City , Philippines ; 2. In a letter dated Fe bruary 12 , 196 8 a nd re- c e i v e d by p c t i t ion e r on r1 a r c h 2 2 , 1 9 6 8 , r e s p on d en t Commissioner of Internal Re v e nue assessed anu demanded the payment of Pl , 334 , 444 . 0 8 a s alle g ed defici e ncy sales tax on its sales of c eD ent for the p e riod from April , 1963 to Narcl1 , 196 5 , inclusive ; 3. On April 3 , 1968, pe titioner wrote respondent protestin g against the defici e ncy sa l es tax assessment , and requ e sting for its cancellation and withdrawal ; 4 . In a l e tter date d January 26 , 1971 and re- ceive d by p e titioner on F eb ru a ry 16, 1971, respondent reiterated his demand for th e payment of the alle g ed deficiency s ales tax , in th e following tenor : ( p. 10 , CTA record . ) UNIVERSAL CEME NT COMPA NY, INC. Danae City , C e b u Gentlemen : Please be infor med that , upon investi- gation conducted by ?. n ex aminer of this Office, it was ascertained that you failed to pay the correct sal e s tax as manufacturer of cement during the years 1963 to 1965 , sco

DECISION - CTA CASE NO . 2776 - 3- inclusive, in violati on of Section s l82, 18 3 and 186, penalized under Sec tion 209 , all of the Tax Code. There is , therefore , due from you the sum of P2 , 105 , 263.48 r eprese ntin g sa l es tax and surcharge , computed as fo ll ows : Taxable sa l e s P 7,832,072.8l 7% sales tax due thereof . P 54 8 , 245 .1 0 Add : 25% surcharge. 137,061.2 8 To t al de ficiency tax & surcharge P685 ,3 06 .38 Taxable salP-s ?8 ,31 8 ,123. 56 7 % sales tax due thereof. P 582 , 268 . 65 Add : 25% surcharge. 14 5 ,567.16 Total deficiency t ax & surcharge !' 727, 835 . 81 _19 6 5_ Taxable sales !' 7,909,946.18 7 % sales tax due thereof . P 553 ,6 96.23 Add : 25 % surcharge. 13 8 , 424 .0 5 Tota l deficiency tax & surchar9e �P692 , 120.29 GRAND TOTAL OP AMT . DUE & COLLECTIBLE. P===2 =,1==0=5=,2==6=2=.=4=8 It is hereby request e d that you p ay as provided for by law, the aforesaid aroount of !'2 ,1 05 ,262. 48 to our Collectio n Agent thereat within 1 5 days u p on r e ceipt hereof by presenting to him t!te enclosed Business and Occupati on Tax Re ceipt . 5 . On July 9, 1 971 , respondent issue d Warrant of Levy on Rea l Property, which warrant \'Tas se rvec1 on petitioner on J anua ry 13, 1976;

DECISION - CTA CASE NO. 2776 - 4- Hence, this appeal filed on February 9, 1976. The issues are: ( a) whether petitioner's sales of cement are subject to sales tax, and (b) whether respondent's right to collect the disputed deficiency sales tax has already prescribed. Upon agreement of the parties, hearing of this case was deferred to await the decision of the Supreme Court in similar cases involving identical issues which were then pending therein under G.R. Nos . L-35668, 3 5670, 35671, 35672, 35683 and 35677, entitled " Republic Cement Corporation, Filipinas Cement Corporation, Apo Cement Corporation , Bacnotan Consolidated Industries, Inc., Rizal Cement Company, Inc., Philippine Portland Cement Co., Inc., and Cepoc Industries, Inc. vs. Com- missioner of Internal Revenue" . (p. 44, CTl1 record.) On August 10, 1983 the Supreme Court promulgated its decision in Commissioner of Internal Revenue vs. Republic Cement Corporation,Filipinas Cement Corpo- ration, Apo Cement Corporation, Bacnotan Consolidated Industries, Inc., Rizal Cement Company, Inc., Philip- pine Portland Cement Co., Inc., and the Court of Tax Appeals, G.R. Nos . L-35668-72 & L-35683; and Cornis- sioner of Internal Revenue vs. Cepoc Industries, Inc.

DECISION - CTA CASE NO. 2776 - 5- and the Court of Tax Appeal s , L-35677, 124 SCRA 46, wherein the High Tribunal unequivocally ruled that cement is a "manufactured product" and its sale is not exempt from the sales ta x imposed by Sections 186 & 188(c) of the then in force National Internal Reve- nue Co de . As a consequence of this ruling, the Supreme Court ordered the p rivate respondent s therein to pay the sa le s tax. nuttressed by the law, precedent and re a son, we find unnec es s ary to re-echo the rationale of the ruling of the Supreme Court that cement is sub- ject to the sales tax. On the basis of this S upreme Court rulin g , res- pendent therefore subm itted thi s c ase for decision during the hearing on July 13, 1987. For purposes of compu ting the correct tax liabi- lity of petitioner, how e ver, some qualifications as pointed out in th e decision are in order. To quote: (1) The dispute d assess me nts carry a 25% s urch a rge pu rsu a nt to Section 183 (a) of the Tax Code [now Se c. 193 (a) (3)] which prescribes t he said sur- charge for late t ax payment. In Connell Bros. Co. (Phil.) vs. Collector of Intern al Revenue (10 SCRA 469 at 470-471), the th en Justice Maka- lintal, speak ing for t he Court, rejected 5?1

DECISION - CTA CASE NO. 2776 - 6- therein the imposition of 25% surcharge for late payment: XXX XXX XXX XXX XXX XXX In the case at bar, the assessments are not undisputed or indisputable. The dispute as to the tax liability of private respondents for sales tax on the sale of cement arose not simply because of ordi- nary divergence of view s in good faith vis-a-vis the interpretation of the law; the position of private respondents was founded upon the original stand of the Bu r ea u of Int er nal Re venue itself that cement is a miner al product rather than a manufac tured product and is therefore subject to ~d valorem ta x , not sales tax. As pointed out above, this stand was apparently given impli ed support in CEPOC v s . Collector, G.R. No . L-20563 (1968), 25 SCRA 789, penned by Justice Angeles. That the post ure of private respondents is plausible - despite the subseq uent 13IR position that cement is a manufactured product sub ject to sa l es tax - i s supported b y the fact that the Court of Tax Appeals, the specialized body handling tax cases, sustained the private respondents in the decisions under review. Un de r the circum s tances, th e 25% s urcharge impos ed in the disputed assess- ment must be deleted. ( a) The assessments in ques tion seem to have computed th e sales tax liability of p rivate respondents on the basis of the tota~ se lling price of cement sold. If this was so , a re- comput ation is in order so as to deduct from the tax base the costs of raw mat- erials used in the production of ce men t,

DECISION - CTA CASE NO . 2776 - 7- such as gypsum , conformably with the prov i s i ons of Section 1 86 [now Sec. 199 ( a)] of th e Tax Code as it sto od during the t ax period here involv ed : XXX XXX XXX nef or e closing, it may be noted in passing that in order to obviate any further controver s y, cement .9..!:!.9_ c eme nt has been expressly made subject to sa le s t a x at t he reduced rate of 5 % on the i mp licit as6ump tion th a t it is a manufactured produc t and th ere- fore outside the purview of "min e ral product" under Section 24 6 of the Ta x Code. (S ee Pr es i dentia l Decree No . 135 8 .) On the issue of prescription of th e go vernm en t ' s right to collect the deficiency sa l es t a x, petitioner a ll eges und e r pa ragraph 6 of it s pe tition for review that t he ri g ht of respondent to coll e ct the d isputed def ici e ncy sal es tax has p r escribed considering that mo r e t han five (5) years h a v e al r eady elapsed from th e ti me the as se ssment was made on February 12, 1968 up to th e time he sought to enforce the collection t he re- of by the summary procedure of warrant of l e vy on re a l property which warrant was served on p etition er o nly on J anuary 13, 1976. We disag r ee . As s tated in t he pe tition for review, th e def i- ciency sa l es tax assess me nt of resp o ndent in th e amount

DECISIO N - CTA CASE NO. 2~76 - 8- of Pl,334,444.08 was received by petitioner on Jllarch 22, 1968 (par. 2), a nd on April 3, 1968, peti- tioner protested the deficiency sales t a x assessment (par. 3). In a letter dated January 26, 1976 (quoted above) which was receiv ed by petitioner on February 16, 1971 (par. 4, petition for review), respondent made another assessment for de f iciency sales tax and sur- charge in the amount of P 2,105,262.48 for the years 1963 to 1965 covered in the ori g inal assessment. The warrant of levy on real p ro p erty to enforce collection of the P2,105,262 . 48 sales tax assessment was served on petitioner on January 13, 1976 (pars. 5 an d 6, pe tition f or review). Under Section 332(c) of the Na tional Internal Revenue Code then applic a ble, where asses s ment was made, the tax may be collected within five (5) years from the date of assessm e nt. (See al s o Collector of I n t e r n a 1 Rev en u e v s . P in e d a , L- 1 4 5 11 , Jll a y 3 1 , 1 9 6 1 , 2 SCRA 401; Codifiera v s . Blaquera, 102 Phil. 1165.) However, if the ta x payer p rotested the assessment and an inve s tigation is made, o n the basis of which the Commis s ioner made another ass e s sment, as in t h is c a se,

DECISION CTA CAS E NO. 2 77 6 - 9- the five-year period for collection is to be cou nt ed from t his last assessment. (Re p u b lic vs. Lopez, L-13739, Apr il 30 , 1 963 , 7 SCRA 566; Repub lic v s . Acebedo, L-20477, r-1arch 29 , 1 968 , 22 S CRA 135 6 ; Repub lic v s . Narsman , L-1895 6 , April 27, 1972, 44 SCRA 1 48 .) Th e 1 a s t a s s e s s 10 en t of P 2 , 1 0 5 , 2 6 2 � 4 8 for de f i- ciency sa l es tax of r esP.ondent was receive d by peti- tioner on February 1 6 , 1971. The warrant of levy on rea l pr operty to enforce collection th ere o f was se rved on petitioner on J anuary 13, 1976, wh ic h i s manifestly within the five -y ear period p r ov ided by law within whic h the ta x may be collected . I n passing , it may be added th a t no e videnc e whatsoever was presented by pet itioner to substantia t e it s defense of prescription , although the bu rden of p roof is u p on th e party layin g c l aim to it. ( De llozos vs. Court of Tax Appeals , L-16441 , Narch 31, 1965, 13 SCRA 469 ; Quero l vs. Collector of Int erna l Revenue , L-16705, Octo be r 20 , 1 962 , 6 SCRA :3 04 .) WHER EFOR E , the decision appealed f r om is affirmed ; and it is hereby or de red t hat petitioner Univ e rsal

DECISION - CTA CASE NO. 2 776 - 10 - Cement Co., Inc., pay to r espo ndent Commissioner of Internal Revenue the 7% sales tax on cement, subject of this case, the same to be computed on the basis of th e gross selling price , less appropriate deductions corresponding to the costs of ra-;.1 materials used in the manufacture of cement, conformably with Section 1 A6 of th e app lical1le National Internal Revenue Code, and without the impo sitio n of 25% surcharge . No costs. SO ORDERED . Quezon City, Jl1etro ~la nila, October 28, 1987. Presidj 1g Judge \:IE CONCUR: CON ssoc iate Judge