PACIFIC CONCRETE PRODUCTS, INC. v. COURT OF TAX APPEALS (2nd Division) COMMISSIONER OF INTERNAL REVENUE

Republic of the Philippines COURT OF TAX APPEALS Quezon City EN BANC PACIFIC CONCRETE PRODUCTS, CTA EB CASE NO. 601 INC ., (CTA Case No. 7408) -versus- Present: ACOSTA P.J., COMMISSIONER OF INTERNAL CASTANEDA JR. REVENUE, BAUTISTA Respondent. UY CASANOVA PALANCA-ENRIQUEZ FABON -VICTORINO MINDARO-GRULLA COTANGCO-MANALASTAS, JJ. X--------------------------------------------------------------------------------------X DECISION MINDARO -G RULLA, J.: Submitted for dec ision is a Petition for Review filed on Marc h 12, 2010 for th e Court en bane, pursuant to Section 18 of Republic Act No. 1125 1, as amended by Republic Ac t No . 9282 and Rule 4, Section 2(a)( 1), in relation to Rule 8, Section 4(b) of the Revi sed Rules of the Court of Ta x Appeals (RR CTA) 2, as � am en ded, assailing th e Decision 1 An Act c reating th e Court of Tax Appea ls 2 Sec. 2. Cases w ithin th e jurisdiction o f the Court en bane.- The Court e n bane shall exercise exc lusive appellate jurisdic tion to review by appeal th e fo ll owing: (a ) Decisions or resolutions on motions for reconsideration or new tri a l o f th e Court in Division in the exerc ise o f its exclusive appellate jurisdic tion over: ( 1486

Pacific Concrete Produc ts, Inc. vs. CIR Page 2 of 17 CTA EB Case No. 601 (CTA Case No. 7408) DECISION dated November 25, 2009 and the Resolution dated February 12, 20 10 of this Court's former Second Division. Petitioner seeks a reversal of both the aforesaid Decision and Resolution, the dispositive portions of which , respectively, read as fo llows : Decision dated November 25, 2009: "WH EREFORE , premises considered, the instant Petition for Review is hereby DENIED. Accordingly, petitioner is ORDERED to PAY respondent the deficiency excise ta x in the amount of ONE MILLION THIRTY-FOUR THOUSAND ONE HUNDRED NINETY-NINE PESOS AND 43/100(P1 ,034, 199.43),for the quarry resources it supplied for the construction and upgrading of the Manila North To llways Project for the ta xa ble year 2003. In addition, pursuant to Sections 248 and 249 of the NIRC of 1997, petitioner is hereby ORDERED to PAY a penalty equivalent to twenty fi ve percent(25%) of the amount due, and a delinquency interest equivalent to twe nty percent (20%) per annum on the amount of P1,034,199.43 from February 8, 2006 until such amount is paid in full . SO O RDERED." (1) Cases arising from administrative agencies- Bureau of Internal Revenue, Bureau of Custo ms, Department of Finance, Department of Trade and Industry, Department of Agriculture; XXX XXX XXX Sec. 4. Where to appeal; mode of appeal.- (a) XXX. (b) An appeal from a decision or resolution of the Court in Division on a motion for re consid erati on or new trial shall be taken to the Court by petition for review as provided in Rule 43 o f the Rules of Court. The Court en bane shall act on the appeal. (c ) XXX. 1487

Pacific Concrete Products, ln c ..vs. CIR Page 3 of 17 CTA EB Case No. 601 (CTA Case No. 7408) DECISION Resolution dated February 12, 201 0: "WHEREFORE, finding no new matters or arguments that will warrant the reversal or modification of the assailed Decision , petitioner's Motion for Reconsideration is hereby DENIED for lack of merit. SO ORDERED ." The antecedent facts are as follows: On March 28, 2005, petitioner received from respondent's Large Taxpayer Service, through Ms. Kim S. Jacinto-Henares, then Deputy Commissioner for Special Concerns, a Formal Letter of Demand dated March 3 1, 2005, assessing among o.thers the petitioner a deficiency excise tax in the amount of P2,751 ,727 .05, inclusive of penalties, under Assessment No. TF 123- 11 -03.3 On May 3, 2005, petitioner filed with the respondent a letter- pro test dated Apri l 29, 2005, fo ll owed-up with another letter-protest, dated May 10, 2005, disputing the afore-said assessment. 4 On January 9, 2006 , the petitioner received from the respondent, through Ms. Elvira R. Vera, Head Revenue Executive Assistant-Excise Large Taxpayers Service, dated December 27, 2005, its fina l decision on the disputed assessment, whic h after taking into account petitioner's 3 Jo int Stipulatio n o f Facts and Issues, Division Docket, pp . 168- 172 . 4 Ibid. 1488

Pacific Concrete Products, Inc. vs. C IR Page 4 of 17 CTA EB Case No. 601 (CTA Case No. 7408) DECISION arguments contained in its letter-protest, finds the petitioner liable for deficiency excise tax in the recomputed amount of P1 ,034, 199.43. 5 In th e said final decision, it is stated by Mr. Elvira R. Vera th a t "in case you are not agreeable to this decision, you may file your appeal with the Court of Tax Appeals within thirty(30) days from date of receipt hereof xxx" On April 28, 2005, petitioner received from the respondent a Formal Letter of Demand dated March 31, 2005 assessing the former deficiency excise tax, under Assessment TF 123-11-03 in the amount of P2,75 1,727.05, computed asfol lows: Total Market Value xxx of Exc isable Materials Used P96, 177,272.73 Multiplied by the Tax Rote 2% Excise Tox Due p 1'923,545.45 Less: Payments 15,565.36 Exc ise Tox Due There on p 1,907,980.09 Add: 20% Interest per Annum from 2- 14-03 to 4-30-05 843,7 46.96 TOTAL AMOUNT DUE p 2,7 51 ,727.05 On May 3, 2005, petitioner filed with the respondent a letter- protest dated April 29, 2005 disputing the assessment pursuant to the provisions of the 1997 Tax Code. Th e letter protest was followed-up with another letter of protest made by the petitioner dated May 10, 2005. Ac ting on these letters of protests, the respondent through Ms. Elvira R. Vera , Head Revenue Executive Assistant-Excise Large Taxpa yers Service, sent to the pe titioner its final decision on th e 5 1bid. 1489

Pacific Concre te Products, In c. vs. CIR Page 5 o f 17 CTA EB Case No . 601 (CTA Case No. 7408) DE C ISI O N disputed assessment through a letter dated December 27, 2005, which the petitioner received o n .January .9, 2006, wherein the respondent, after reviewing the arguments and points raised by the petitioner, nonetheless finds it liable for deficiency excise tax in the recomputed amount as follows , to wit: Total Market Va lue xxx of Excisable Materials Used P33,2 43,713.41 Multiplied by the Ta x Rate 2% Excise Tax Due Less: Payments p 664,87 4.27 Excise Ta x Due Thereon 15,565.36 Add: 20% Interest per Annum from p 649,308.9 1 2- 14-03 to 1-3 1-06 � TO TAL AMOUNT DUE 38 4,890.52 p 1.034,199.43 Thus, petitioner filed a Petition for Review on February 8, 2006 docketed as CTA Case No. 7408 and which was raffled to this Court's former Second Division. Thereafter, the parties filed their respective pleadings and the issues were simplified. After trial, this Court's former Second Division rendered a Decision6 finding petitioner as liable to pay the assessed excise tax. In a vain attempt, petitioner fil ed a motion for reconsideration, as the same wa s denied for lack of merit in a Resolution dated February 12,2010. Hence, petitioner filed the instant Petition for Review. Petitioner raised the sole issue - 6 En Bone Docket pp . 20-31. 1490

Pacific Concrete Products, Inc. vs. C IR Page 6 of 17 CTA EB Case No. 601 {CTA Case No. 7408) DECISION "Whether or not the decision and resolution of the 2nd Division of this Court declaring that the petitioner is liable to pay the excise tax is based on sound legal principles and has not acted with grave abuse of discretion tantamount to lack of jurisdiction in the appreciation of facts or fails to notice certain relevant facts given the admission by the private respondent Commissioner of Internal Revenue in the pre -trial brief that petitioner is not the possessor of the product and that Asensio Pinzon Aggregates (Corp.) has assumed the payment of the excise tax." Stripped of unnecessary verbosity and surplusage, we proceed to the gist of the controversy and simplify the issue in this wise: "Whether this Court's former Second Division erred in holding petitioner as liable to pay the excise tax as possessor of the product despite the admission of the respondent that petitioner is not the possessor of the product and that Asensio -Pinzon Aggregates Corp. (APAC) has assumed the payment of the excise tax. " Significan tl y, the question is what should prevail between an admission which is conclusive upon the party who made it and does not require proof to establish the contrary, and the evidence presented to prove and to contradict the admission. Pe titioner argues that an admission is conclusive upon the pa rty who made it and it does not require proof to establish the contrary. Because of the admission made by respondent that petitioner is not the possessor of the quarry products and it appearing from the records that respondent did not cha llenge the said admission nor committed any mistake in making the admission, respondent is bound by it. L 1491

Pacific Concre te Products, Inc. vs. C IR Page 7 o f 17 CTA EB Case No. 601 (CTA Case No. 7408) DECISION Otherwise stated, petitioner should not be held liable for the excise tax due to respondent's admission that petitioner is not the possessor of the quarry products and APAC assumed liability thereon. The petition is bereft of merit. While it is true that on admission having been mode in a stipulation of facts at pre-trial by the parties, must be treated as a judicial admission under Section 4, Rule 129 of the Rules of Court/ which requires no proof,s th is is not without exception. The admission may, however, be con tradi c ted by a showing that it was mode through palpable mistake or that no such admission was mode. Also, in order to prevent manifest injustice, the admissions mode by the parties during the pre-trial may be disregarded by the courf.9 In the instant case, petitioner assails the findings of this Court' s former Second Division based on evidence that petitioner is the possessor of the quarry products subject to excise tax and thus it is liable to pay the excise ta x thereon. Petitioner tokes exception to this evidence because of the alleged admission mode by respondent's 7 Section 4, Rule 129 o f th e Rules o f Court provides : SEC . 4. Judicial admissions.- An admission, verba l or wri tten, made by a party in th e cou rse o f th e proceedings in th e same case, does not require proof. The admission may be con tra d icted only by a showing that it was made through palpable mistake or that no such admission was made. s Toshiba Info rmation Equipment (Phils.), Inc. vs . Commissioner o f Internal Revenue, G.R. No. 157594, March 9,2010. 9 Sese vs. Intermediate Appe lla te Court, G.R. 66 186 , July 3 1, 1987 . ( 149 2

Pacific Concrete Products, Inc. vs. CIR Page 8 of 17 CTA EB Case No. 601 (CTA Case No. 7408) DECISION counsel on the issues to be resolved as stated in the Joint Stipulation of Facts and Issues, to wit: "Whether the petitioner is liable to pay the excise tax given the fact that: 1. the excise tax is a tax on quarry resources; 2. the petitioner is not the possessor of the product; 3. There is an existing agreement wherein Asensio - Pinzon Aggregates(APAC) and not the petitioner shall pay the excise tax."(Emphasis supplied) Petitioner insists on. this alleged admission. Respondent's w itness, Ms . Sta. Ana herself, testified during the July 9, 2008 hearingw, as follows: '' XXX XXX XXX . ATTY. BUENDIA Q. I noticed that in these records of the BIR, it does not include the stipulation of facts which was submitted to this Honorable Court. The Stipulation of Facts was not one of the ... (interrupted) JUSTICE CASTANEDA Can you clarify? Where are the Stipulation of Facts in the Court's records? ATTY. BABARAN Yes, your Honors. This is the BIR records your Honors. Naturally, there is no stipulation here, your Honors. ATTY, BUENDIA Q. The reason why I am bringing that up is that, because if you will notice in paragraph 4 of your Affidavit, Ms. Zlma �Sta. Ana , 9.5 of paragraph 4, you stated that one of the reasons why you made a recommendation that Pacific Concrete Products, Inc is liable in paying the excise tax is that Pacific Concrete Corporation is the possessor of the quarry materials. You stated that in your Affidavit, am I correct? 10 En Bane Doc ket. pp.11 - 13 L 14 93

Pacific Concrete Products, Inc. vs. CIR Page 9 of 17 CTA EB Case No. 601 (CTA Case No. 7408) DECISION MS. STA. ANA A. Yes. ATTY, BUENDIA Q. That is found on line 5 of paragraph 4, Am I correct? MS. STA. ANA A. Yes. ATTY. BUENDIA And that is contrary to the stipulation of facts which was submitted before this Honorable Court by the counsel of the Bureau, Atty. Claro Ortiz, and this representation, wherein you stated on page 3, on the sub-title, Issues, your Honors, there was an agreement, subparagraph 2, that petitioner, referring to Pacific Concrete Products, is not the possessor of the product. ATTY. BABARAN I would like to clarify. Are you referring to the issue? ATTY. BUENDIA Yes. ATTY. BABARAN Your Honors, these are issues, these are not part of the stipulation of facts, your Honors. JUSTICE CASTANEDA That is precisely what he is being questioned. ATTY. BUENDIA Your Honors, although it is under the subtitle, "Issue", It is stated here, "Where the instant petition revolves around the resolution of the following issues: (A)Whether the petitioner is liable to pay the excise tax given the fact that the petitioner is not the possessor of the product. JUSTICE CASTANEDA Yes. So, it assumes. It assumes that petitioner is not the possessor of the product. So, what can you say Atty. Babaran? ATTY. BABARAN Your Honors, I think this is an issue, your honors, and this doesn't mean that. .. (interrupted) 14 94

Pacific Concrete Products, Inc. vs. CIR Page 10 of 17 CTA EB Case No. 601 (CTA Case No. 7408) D EC I S I ON JUSTICE CASTANEDA No, it says, given the fact that the petitioner is not the possessor of the product. Is there an error there on your part in the statement of the issues? ATTY. BABARAN I think, your Honors, perhaps, that is an issue of ... (interrupted) JUSTICE CASTANEDA At any rate, the Court has leeway in determination of this but be aware of what you stipulated on. ATTY . BABARAN But, your Honors, I think this is an issue on the part of. .. (interrupted) JUSTICE CASTANEDA Yes, but the issue already assumes the fact that the petitioner is not the possessor of the product. Well, it is apparent that you did not understand the stipulation? xxx." Based on the foregoing, it is evident that respondent did not intend to admit that petitioner is not the possessor of the quarried product and that there is an existing agreement wherein Asensio- Pinzon Aggregates (APAC) and not the petitioner shall pay the excise tax thereon. Apparently, respondent's counsel did not understand or comprehend the implication of the phrase "given the fact that" as stated in the issue to be resolved, as it assumed that: a) the excise tax is a tax on quarry resources; (b) petitioner is not the possessor of the product; and 1495

Pacific Concre te Products, Inc. vs. CIR Page 11 o f 17 CTA EB Case No . 60 1 (C TA Case No . 7408) DECISION (c) there is an existing agreement wherein Asensio-Pinzon Aggregates (APAC) and not the petitioner shall pay the excise tax. We are aware of the general rule that the client is bound by the action o f his cou nsel in the cond uct of his case including blunders and mistakes as a re su lt of th e ignorance, inexperience or incompetence. 11 However, litigatio n is not simply a con test of litigants before the bar of public opinion but it is a pursuit o f justice through legal and equitable means as well. 12 Significantly, th e rules of procedure should be viewed as mere tools designed to fa c ilitate th e pursuit of justice . Their application which would resu lt in te c hnica lities that tend to frustrate rather than promote substantial justi ce, must always be avoided. This is the reason why rules and procedures in this Court are not strictly governed by the techni ca l rules of evidence . Admissions made by the parties during a pre-trial conference and incorporated in their joint stipulation of fa cts and issues, submitted and th erea fter admitted by this Court are binding. This rule , however, is not without exceptions. If, in order to prevent manifest injustice, the 11 Atl as Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, G.R . Nos. 141104 & 148763, June 8, 2007. 12 National Development Corp o ration vs. Firesto ne Ceramics, Inc., G.R. No. 143590, November 14, 2001. 149G

Pacific Concrete Produc ts, Inc. vs . CIR Page 12 of 17 CTA EB Case No. 601 (CTA Case No. 7408) DECISION admissions made by the parties during the pre-tria l ma y be disregarded by the court _13 Be that as it may, it does not negate the fact that respondent d id not in tend to admit the same and the findings of fact of this Court 's former Second Division wh ich upon review correctly concluded tha t petitioner was in possession of the basalt resources at the time of remova l and therefore it is liable to pay the excise tax. We quote: "The MPSA(Mineral Product Sharing Agreement) recognized the Memorandum of Agreement (MOA) which APAC and petiti o ner executed o n November 19, 1991. In said agreement, AP AC allowed and authorized petitioner to extract, mine, and haul basalt and other materials found in Montalban , Rizal c overed by AQP-IV-1 067. However, there was no provision identifying w ho should pay excise taxes due on the extracted, mined, and hauled basalt and other materials in the Contract area . In determining who is liable to pay excise tax due on the basalt re sources used for the construction and upgrading of the Manila North Toll w ays Project, the Court refers to the Ta x Code. Section 130 of the NIRC of 1997 (w hic h) provides: XXX XXX XXX. Uncontroverted are the facts that petitioner was granted authority to extract, mine, and haul basalt and other materials found in Montalban, Rizal; and that it supplied basalt for the construction and upgrading of the Manila North Tollways Project from Balintawak to Sta. lnes for the year 2003. Thus, petitioner was in possession of the basalt resources when the same were removed from the Contract Area , and petitioner also delivered the basalt resources at the Pulilan Site of the leighton Contractors (Asia) limited, in the Manila North Tollway pursuant 13 Sese vs. Interm ediate Appellate Court, G .R. No. 66 186, July 31, 1987. 1497

Pacific Concrete Produc ts, Inc . vs. CIR Page 13 of 17 CTA EB Case No. 601 (CTA Case No. 7408) DECISION to the Agreement and Form of Supply Contract. As petitioner was in possession of the basalt resources at the time of removal from the locality of Montalban, Rizal , it is therefore liable to pay the excise tax.(Emphasis supplied) The Supreme Court consistently ruled that excise ta x is imposed on the taxpayer's privilege of severing or extracting minerals or mineral produc ts from the earth. The Government's right to exact said impost springs from the Regalian theory of State ownership of its natural resources. Said ta x is due and payable only upon removal of the minerals or mineral products, or quarry resources from the locality w here mined or extracted." It is con trary to the objective of the law if we were constrained to rule th at based on the alleged admission that peti tioner is not the possessor of the quarried product and thus it is not liable to pay the excise tax thereon, if the evidence negates such claim. Moreover, it would unduly prejudice the right of the government who stands to lose its power of taxation only because of a mere technica lity, inaccuracy of language, or plain care lessness . Moreover, a perusal of the Memorandum of Agreement between APAC and petitioner reveals that APAC did not assume the excise tax liability on the quarried products. As aptly pointed by this Court 's former Second Division: "This Court consi dered the stipulated facts and the parties' respective arguments, and had examined every piece of evidence submitted by both parties in support of their respective co ntentions, when the assailed Decision was issued. This Court even pointed out that the Memorandum of Agreement, which APAC and petitioner executed on November 19, 1991, has no provision identifying who should pay [ 149 8

Pac ific Conc re te Products, Inc. vs. C IR Page 14 o f 17 CTA EB Case No . 60 1 (CTA Case No . 7408) DEC I S I ON excise ta xes due o n the extracted, mined, and hauled basalt and other materials in th e Contract area. Equally no teworth y is the fa c t that this Court adopted the facts as stipulated by th e parties, w hic h were quoted verbatim from the Joint Stipulati o n o f Facts and Issues . This Court does no t agree wi th petitioner th at both parties admitted that APAC, not petitioner. shall pay the excise ta x. xxx" 14 Even assuming that there is an existing agreement that petitioner shall not pay th e excise tax and APAC would assume liability thereon; the same has no leg to stand on. The consolidated cases of Fels Energy, Inc. vs. The Provin ce of Batangas 15 and National Power Corporation vs . The Loca l Board of Assessme nt Appeals of Batangasl 6 would be instructional. The Supreme Court held that : "The mere undertaking o f petitioner NPC under Sec tion 10.1 o f the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments. does not justify the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The cove nant is between FELS and NPC and does not bind a third person not privy thereto , in this case, th e Provin ce o f Batan gas." In the instant case, respondent is not bound even if there is an agreement between APAC and petitioner as to who will be liable for taxes due to the government. To reiterate , there was no agreement between petitio ner and APAC and likewise there was no admission 14 En Bane Docket, p. 34. 1s G.R. No. 168557 , February 16, 2007. 16 G .R. No. 170628, February 16, 2007 . 1499

Pacific Concre te Products, Inc. vs. C IR Page 15 o f 17 CTA EB Case No. 60 1 (C TA Case No . 7408 ) DECISION from respondent that petitioner shall not pay the excise tax and that APAC would assume liability there on . Well-settled is the rule that litigation is neither a game of technicalities nor a battle of wits and legalisms; rather, it is an abiding search for truth , fairness and justi ce. In the instant case, the a ll eged admission in the "issue" stipulated by the parties ca nnot be countenanced as it would resu lt into falsehood , unfairness and injustice. 17 Moreover, the power of taxa tion is an inherent attribute of sovereignty from which the government c hiefly relies to obtain the means to ca rry on its operations. Taxes are essential to its very existence; hence, the dictum that "taxes are the lifeblood of the government." For this reason, the right of taxation cannot easily be surrenderedl 8, especially in this case when to admit that petitioner is not the possessor of the qua rried products and that it is not liable to the payment of the excise tax thereo n, would be a relinquishment of the government's power to tax which respondent never intends to do so. 17 Atlas Consolidated Mining & Development Corporation vs. Commissioner o f Intern a l Revenue, G.R . No. 134467, November 17, 1999. 18 Com missioner o f Internal Revenue vs . Eastern Telecommunications Philippines, Inc . G.R. No. 163835, July 7, 2010 ( lSOO

Pacific Conc re te Products, Inc . vs. CIR Page 16 o f 17 CTA EB Case No. 601 {CTA .Case No. 7408) DE C ISION WHEREFORE premises considered, the instant petition is DENIED . The Decision of this Court's former Second Division in CTA Case No . 7408, dated November 25, 2009, and its Resolution , dated February 12, 2010, are hereby AFFIRMED . No pronouncement as to costs. SO ORDERED. WE CONCUR: ~ N.M~ ~G~ CIELITO N. MINDARO-GRULLA Associate Justice ~ ~ "" . Q......-\--.. ERNESTO D. ACOSTA Presiding Justic e ~~~c . ~~ . ~ JUANITO c. C ASTANED~, JR. C AESAR A . CASANOVA Assoc iate Justice Associate Just" e ' ER~. UY Associate Justice ~A~~C~Rt<WEZ ON-VICTORINO Associate Justice Li-/~ AMEG; ~. ~OTANGCO-MANALASTAS Associate Justic e 1501

Paci fi c Conc re te Produc ts, Inc. vs. C IR Page 17 o f 17 CTA EB Case No. 601 (CTA Case No . 7408) DE C ISION C ERTIFI CA TION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby c ertified that the conclusions in the above Decision were reached in consultation among the members of the Court En Bane before the case was assigned to the w riter of the opinion of the Court En Bane. ~-L<t � Q....A... ERNESTO D. ACOSTA Presiding Justice 150 2