AJANTA PHARMA PHILIPPINES, INC. (`APPI`) v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL THIRD DIVISION ********* AJANTA PHARMA PHILIPPINES CTA Case No. 10057 INC. ("APPI'), Members: Petitioner, -versus- UY, Chairperson, RINGPIS-LIBAN, and MODESTO-SAN PEDRO, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION UY, J.: Before this Court is a Petition for Review filed on Apri l 4, 2019 by petitioner, Ajanta Pharma Philippines Inc., against respondent, the Commissioner of Internal Revenue , praying for the following : (1) that Final Decision on Disputed Assessment (FDDA) dated February 28, 2019 be annulled, reversed and set aside; (2) that the deficiency assessment against taxpayer in the aggregate amount of P7,476,507.48 be cancelled ; and (3) that an order be issued directing the Bureau of Internal Revenue (BIR) to issue the corresponding authority to cancel assessment. THE PARTIES Petitioner Ajanta Pharma Philippines, Inc. is a corporation duly organized and existing under Philippine laws to engage in the business of manufacturing , importing, selling or otherwise distributing on wholesale, drugs, medicines, and pharmaceutical products of all ~

DECISION CTA Case No. I0057 Page 2 of20 kinds and descriptions, and to establish and maintain facilities for manufacture, importation, sale, distribution and promotion on a commercial basis of such drugs and pharmaceutical products and to provide technical know-how and consultancy in relation to the manufacture of drugs, medicines and pharmaceutical products with registered office address at Phil AXA Life Bldg., 1286 Gil Puyat Ave. cor. Tindalo Street, San Antonio, Makati City. 1 It is registered with the Bureau of Internal Revenue (BIR) under Tax Identification Number 007-011-901-00000. 2 Respondent is Chief of the Bureau of Internal Revenue (BIR), the government agency charged with, among other powers and duties, the responsibility of collecting all national internal revenue taxes, with office address at 2/F BIR Building, No. 313 Sen. Gil Puyat Avenue, Makati City. 3 THE FACTS On January 29, 2018, the BIR issued Letter of Authority (LOA) No. eLA201500085255, which authorized Group Supervisor Annabeth Gutierrez and Revenue Officer (RO) Rainalyn Bacani, to examine petitioner's books of accounts and other accounting records for Value-Added Tax (VAT), covering the period from January 1, 2017 to June 30, 2017.4 Thereafter, on June 28, 2018, petitioner received the Notice of Informal Conference (NIC) dated June 27, 2018. One of the assessment items in the NIC is the disallowance of sales discount amounting to P50,405,717.70, with accompanying schedule 2 which listed the date, customer name, reference number and Senior Citizen (SC) discount per sales invoice.5 The BIR then issued Preliminary Assessment Notice (PAN), with Details of Discrepancy dated August 15, 2018, assessing petitioner deficiency VAT, including interest, for the period covering~ 1 Paragraph 1.1, Joint Stipulation ofFacts and Issues (JSFI), Docket- Vol. 2, p. 851. 2 Exhibit "P-3", Docket- Vol. 3, pp. 992 to 993. 3 Paragraph 1.2, JSFI, Docket- Vol. 2, p. 852. 4 Exhibit "P-4", Docket- Vol. I, pp. 297 to 298; Exhibit "R-1", BIR Records, p. I. 5 Exhibit "P-11", Docket- Vol. 3, pp. 994 to 997; Exhibit "R-2", BIR Records, pp. 194 to 200.

DECISION CTACaseNo.I0057 Page 3 of20 January 1, 2017 to June 30, 2017, in the aggregate amount of P1 0, 754,710.16, 6 the details of which are as follows: VALUE-ADDED TAX 1"53,176.95 1"472,028,313.68 50,405,717.70 50,458,894.65 Taxable Sales per VAT Return Add: Disallowed Zero-rated Sales (Schedule 1) 1"846,440.96 1"522 487 208.33 1"62,698,465.00 Disallowed Sales Discount (Schedule 2) 47,346,562.16 Taxable Sales per Investigation 1"48,193,003.12 44,051,042.16 1"18,647,422.84 Output Tax Due 1"1 ,383,671.32 9,834,065.84 Less: Input Tax Deferred on Capital Goods 2,758,289.64 4,141,960.96 1"8,813,357.00 Exceeding P1 Million from Previous Quarter Claimed Input Tax 1,941,353.16 Total Available Input Tax 1"10,754,710.16 Less: Input Tax on Purchases of Capital Goods exceeding P1 Million deferred for the succeeding period Disallowed Input Tax (Annex B) VAT Due Less: Payments per Return Deficiency Value-Added Tax Add: Interest (07.26.17 to 08.31.18) TOTAL AMOUNT DUE Within the fifteen (15) day period to file a reply, petitioner filed its Reply to Preliminary Assessment Notice (Reply) on September 3, 2018. 7 In its Reply, petitioner explained the nature of the disallowed sales discount, and that it does not grant senior discount because it does not directly sell goods to senior citizens. Furthermore, petitioner also stated that the deficiency VAT assessment for the disallowed zero-rated sales amounting to P53, 176.95 was already paid. On October 1, 2018, petitioner received the Formal Assessment Notice (FAN) with Details of Discrepancies and Assessment Notice dated September 28, 2018. 8 The BIR retained its disallowed sales discount assessment and reiterated its allegations in the PAN. Moreover, the BIR also stated that the payment for the assessment on the disallowed zero-rated sales and disallowed input tax in the amount of P7,446.98 and P1 08,767. 75, respectively, inclusive of increments, has been considered/deducted. Correspondingly, petitioner was still assessed for deficiency VAT, including interests,~ 6 Exhibit "P-12", Docket- Vol. I, pp. 313 to 317; "Exhibits "R-4" and "R-5", BIR Records, pp. 228 to 232. 7 Exhibit "P-17", Docket -Vol. I, pp. 324 to 331. 8 Exhibit "P-18", Docket- Vol. I, pp. 354 to 356; Exhibits "R-6","R-7" and "R-8", BIR Records, pp. 279 to 283.

DECISION CTA Case No. 10057 Page 4 of20 for the period covering January 1, 2017 to June 30, 2017, 1n the aggregate amount of P1 0, 355,741. 93, the detailed as follows: VALUE-ADDED TAX '" 50,405,717.70 1"472,028,313.68 50,458,894.65 Taxable Sales per VAT Return 1"846,440.96 Add: Disallowed Zero-rated Sales (Schedule 1) I 1"522,434,031.38 47,346,562.16 Disallowed Sales Discount (Schedule 2) 1"48, 193,003.12 1"62,698,465.00 I Taxable Sales per Investigation 1"1 ,383,671.32 44,134,223.13 1"18,557,860.63 Output Tax Due 2,675,108.67 4,058,779.99 Less: Input Tax Deferred on Capital Goods 9,834,065.84 Exceeding P1 Million from Previous Quarter 1"760,045.68 1"8,723,794.79 Claimed Input Tax 871,901.46 Total Available Input Tax 1,631,947.14 Less: Input Tax on Purchases of Capital Goods 1"1 0,355,741.93 exceeding P1Million deferred for the succeeding period Disallowed Input Tax (Annex B) VAT Due Less: Payments per Return Deficiency Value-Added Tax Add: Interest (07.26.17 to 08.31.18) Interest (01.01.18 to 10.31.18) TOTAL AMOUNT DUE Within the thirty (30)-day period to file the Protest to FAN, petitioner filed its Protest on October 30, 2018, requesting the reinvestigation of the findings in the FAN.9 Thereafter, on November 29, 2018, petitioner received the Letter dated November 21, 201810 from the BIR granting its request for reinvestigation. Petitioner was also directed to submit the necessary documents to support its claims/disagreements within sixty (60) days from the date of the filing of the protest pursuant to Section 3.1.4 of Revenue Regulations No. 18-2013. On December 27, 2018, or within the sixty (60)-day period to submit supporting documents, petitioner filed with the BIR the Letter dated December 21, 2018, 11 submitting relevant documents in support of petitioner's protest. ft On March 5, 2019, petitioner received the FDDA12 partially denying its protest. In the said FDDA, the sole assessment item left 9 Exhibits "P-19", Docket- Vol. 1, pp. 373 to 444. 10 Exhibit "P-20", Docket- Vol. 1, p. 998. 11 Exhibits "P-21 ",Docket- Vol. 1, pp. 446 to 454. 12 Exhibit "P-24", Docket- Vol. 1, pp. 458 to 462.

DECISION CTACaseNo.l0057 Page 5 of20 was the disallowed sales discount wherein the BIR assessed petitioner of deficiency VAT against, details as shown below: VALUE-ADDED TAX t- 846,440.96 t-472,028,313.68 47,346,562.16 50,405,717.70 Taxable Sales per VAT Return Add: Disallowed Sales Discount (Schedule 1) t- 48,193,003.12 1"522,434,031.38 Taxable Sales per Investigation 1,383,671.32 t- 62,692,083.77 Output Tax Due ,. 526, 981.42 46,809,331.80 Less: Input Tax Deferred on Capital Goods Exceeding 900,839.94 ,. 15,882,751.96 P1 Million from Previous Quarter 9,834,065.84 Claimed Input Tax t- 6,048,686.12 Total Available Input Tax Less: Input Tax Purchases of Capital Goods Exceeding 1,427,821.36 t- 7,476,507.48 P1 Million deferred for the succeeding period VAT Due Less: Payments per Return Deficiency VAT Add: Interest (07.26.17 to 12.31.17) 20% Interest (01.01.18 to 3.29.19) 12% TOTAL AMOUNT DUE On April 4, 2019, petitioner filed the instant Petition for Review assailing the said FDDA. 13 Respondent filed her Answer on June 26, 2019, 14 interposing, among others, the following special and affirmative defenses: to wit: (1) petitioner was afforded due process; (2) petitioner's argument that it was never fully apprised of the legal basis of the assessment is unwarranted; (3) the assessment issued to petitioner clearly provides for the factual and legal bases on why the sales discount was disallowed; (4) the argument of petitioner that the BIR failed to consider its reply and protest is likewise unwarranted; (5) the disallowances of the sales discount is proper; and (6) assessments are prima facie presumed correct and made in good faith. In the Order dated July 8, 2019, 15 the Court referred this case for mediation at the Philippine Mediation Center - Court of Tax Appeals (PMC-CTA), and the parties were ordered to immediately proceed and to personally appear or through their authorize representative before Ms. Avigail B. Sanches, Mediation Staff Assistant at the PMC-CTA. However, while the parties agreed to ~ 13 Docket- Vol. 1. pp. 10 to 26. 14 Docket- Vol. I, pp. 320 to 335. 15 Docket- Vol. I, pp. 226 to 227.

DECISION CTA Case No. 10057 Page 6 of20 mediate and selected a mediator, 16 the mediation was unsuccessful. 17 Thus, in the Resolution dated October 2, 2019, 18 the Pre-Trial Conference was set on Februa~ 4, 2020. In the meantime, petitioner filed its Reply on July 12, 2019. 9 On October 31, 2019, respondent, through counsel, transmitted the BIR Records of this case, consisting of one (1) folder, with four hundred twenty-eight (428) pages. 20 After the Pre-Trial Conference held on February 4, 20202\ the parties filed their Joint Stipulation of Facts and Issues (JSFI) on February 21, 2020. 22 In the Resolution dated February 27, 2020,23 the Court admitted and approved the said JSFI, and issued the Pre- Trial Order on June 22, 2020. 24 During trial, petitioner presented the following witnesses, namely: (1) Jasmin D. de Belen, 25 petitioner's Accounting Manager; and (2) Marina Liza B. Faylona, 26 petitioner's National Sales Manager. On November 25, 2020, petitioner filed its Formal Offer of Documentary Evidence. 27 Respondent's Comment (To Petitioner's Formal Offer of Evidence) was then posted on December 10, 2020. 28 In the Resolution dated January 15, 2021, 29 the Court admitted r( 16 Agreement To Mediate and Selection of Mediator dated August 22, 2019, Docket- Vol. I, pp. 241 to 242. 17 Mediator's Report dated September 19, 2019, Docket- Vol. I, p. 243. 18 Docket- Vol. I, pp. 248 to 249. 19 Docket- Vol. I, pp. 228 to 237. 20 Undated Compliance, Docket- Vol. I, pp. 250 to 251. 21 Minutes of the hearing held on, and Order dated, February 4, 2020, Docket- Vol. 2, pp. 821, and 826 to 827, respectively. 22 Docket- Vol. 2, pp. 851 to 863. 23 Docket- Vol. 2, p. 865. 24 Docket- Vol. 2, pp. 942 to 950. 25 Exhibit "P-64", Docket- Vol. I, pp. 257 to 283; Minutes of the hearing held on, and Order dated, July 16,2020, Docket- Vol. 2, pp. 951 and 955 to 956. 26 Exhibit "P-65", Docket- Vol. I, pp. 491 to 500, and Docket- Vol. 2, pp. 50 I to 511; Minutes of the hearing held on, and Order dated, November I0, 2020, Docket- Vol. 3, pp. 968 to 970. 27 Docket- Vol. 3, pp. 973 to 991. 28 Docket- Vol. 3, pp. 1048 to 1051. 29 Docket- Vol. 3, pp. 1057 to 1058.

DECISION CTA Case No. I0057 Page 7 of20 petitioner's offered documentary evidence, except for Exhibit "P-36", for failure to present the original for comparison. For her part, respondent presented Revenue Officer Rainalyn Bacani30 as sole witness. On May 18, 2021, the Formal Offer of Evidence !Exhibits (For Respondent) was filed. 31 Petitioner filed its Comment/Opposition (To Respondent's Formal Offer of Documentary Evidence) on May 26, 2021. 32 In the Resolution dated July 22, 2021, 33 the Court admitted respondent's offered exhibits. After the posting of the Memorandum For Respondent on December 6, 2021 34 and the filing of petitioner's Memorandum on December 17, 2021 35 , the present case was deemed submitted for decision on February 23, 2022. 36 Hence, this Decision. THE ISSUES As stipulated by the parties, the issue for the Court's resolution is as follows: 37 "2.1 Whether [petitioner] APPI is liable for the alleged deficiency VAT Assessment in the amount of Php 7,476,507.48, inclusive of interest." Petitioner's arguments: Petitioner argues that the deficiency VAT assessment is void for having been issued in violation of its right to due process based on the following grounds, to wit: (1) petitioner was never fully apprised of the legal basis of the assessment, thus, depriving it the opportunity to completely explain itself in its reply and/or protest; (2) the BIR failed!'( 30 Exhibit "R-14", Docket- Vol. 2, pp. 877 to 885; Minutes of the hearing held on, and Order dated, April21, 2021, Docket- Vol. 3, pp. 1061 to 1063. 31 Docket- Vol. 3, pp. 1064 to 1069. 32 Docket- Vol. 3, pp. 1074 to 1077. 33 Docket- Vol. 3, pp. 1081 to 1082. 34 Docket- Vol. 3. pp. 1107 to 1111. 35 Docket- Vol. 3, pp. 1083 to 1105. 36 Resolution, Docket- Vol. 3, p. 1115. 37 Stipulation of the Issues, JSFI, Docket- Vol. 2, p. 852.

DECISION CTA Case No. I 0057 Page 8 of20 to consider petitioner's reply and protest, depriving petitioner of its right to due process; (3) the presumption that assessments are prima facie correct and made in good faith does not apply in this case; (4) that the disallowed sales discount as reflected in the subject sales invoices issued by petitioner is in accordance with Section 106(D) of the Tax Code, jurisprudence, and RR No. 16-2005, hence, the deficiency VAT assessment is without basis; (5) that respondent wrongfully disallowed the sales discount of petitioner; and (6) that the BIR, in disallowing the sales discount, acted outside of its jurisdiction by questioning and supplanting the business judgment of the taxpayer. Respondent's counter-arguments: Respondent contends that the deficiency assessment must be held valid for it was issued in compliance with due process requirement and that the findings of disallowed sales discount to senior citizen have factual and legal bases. According to respondent, petitioner's argument that it was never fully appraised of the legal basis of the assessment is unwarranted. Allegedly, the Preliminary Assessment Notice (PAN) with Details of Discrepancies dated August 15, 2018, Formal Assessment Notice (FAN) with Details of Discrepancies dated September 28, 2018, and Final Decision on Disputed Assessment (FDDA) dated February 28, 2019 which were issued to petitioner clearly provide for the factual and legal basis on why the sales discount was disallowed. Contrary to the allegation of the petitioner, those assessments specifically mentioned in the Sales Invoice Number, the date of its issuance, the customer name and Senior Citizen discount per Sales Invoice. Further, assessments notices also indicate that the sales discount to senior citizens were disallowed pursuant to BIR Revenue Regulations No. 7-2010. Moreover, respondent contends that the argument of petitioner that the BIR failed to consider its reply and protest is likewise unwarranted. During the re-investigation, petitioner submitted additional documents such as VAT invoices and receipts. These additional documents were allegedly considered to support its ru creditable input tax claimed per return amounting to 1,K" Php2,675, 1o8.67.

DECISION CTA Case No. 10057 Page 9 of20 THE COURT'S RULING The instant Petition for Review has merit. Petitioner's right to due process was violated by respondent. We find merit in petitioner's argument that the subject deficiency VAT assessment is void for having been issued in violation of its right to due process. Section 228 of the National Internal Revenue Code (NIRC) of 1997 reads, in part, as follows: "SEC. 228. Protesting of Assessment. -When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: xxx XXX XXX XXX The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. XXX XXX XXX." (Emphasis added) Based on the foregoing provision, it is explicitly required that the taxpayer be informed in writing of the law and of the facts on which the assessment is made; otherwise, the assessment shall be void. 38 The requirement that the taxpayer must be informed of the factual and legal bases of the assessment is mandatory. It cannot be presumed. As a requirement of due process, this rule allows the taxpayer to make an effective protest. 39 To be sure, the requirement set by law to state in writing the factual and legal bases for the assessment is not a hollow exhortation. The law imposes a substantive, not merely a formal,~ 38 Commissioner of Infernal Revenue vs. Avon Products Manufacturing. fnc .. ef seq.. G.R. Nos. 201398-99 and 201418-19, October 3, 2018. 39 Commissioner ofInternal Revenue vs. Spouses Remigio P. Magaan and Leticia L. Magaan, G.R. No. 232663, May 3, 2021.

DECISION CTA Case No. 10057 Page !Oof20 � requirement. 4 Furthermore, it must be emphasized that failure to comply with Section 228 does not only render the assessment void, but also finds no validation in any provision in the Tax Code. 41 To implement the above-quoted Section 228, Section 3 of RR No. 12-99,4 as amended by RR No. 18-2013,43 provides, in part, as follows: "SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. - 3.1 Mode of procedure in the issuance of a deficiency tax assessment: 3.1.1 Preliminary Assessment Notice (PAN). - If after review and evaluation by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment. It shall show in detail the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX 'A' hereof). XXX XXX XXX 3.1.3 Formal Letter of Demand and Final Assessment Notice (FLO/FAN). - The Formal Letter of Demand and Final Assessment Notice (FLO/FAN) shall be issued by the Commissioner or his duly authorized representative. The FLO/FAN calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise. the �4 Commissioner of Internal Revenue vs. Unioil Corporation, G.R. No. 204405, August 4, 2021. 41 /d., citing Commissioner ofInternal Revenue vs. Reyes, 516 Phil. 176, 189 (2006). of 42 SUBJECT: Implementing the Provisions of the National Internal Revenue Code 1997 Governing the Rules on Assessment of Nationa! Internal Revenue Taxes, Civil Penalties and Interest and the Extra-Judicial Settlement of a Taxpayer's Criminal Violation of the Code Through Payment of a Suggested Compromise Penalty 43 SUBJECT: Amending Certain Sections of Revenue Regulations No. 12-99 Relative to the Due Process Requirement in the Issuance of a Deficiency Tax Assessment.

DECISION CTA Case No. I0057 Page II of20 assessment shall be void (see illustration in ANNEX '8' hereof). XXX XXX XXX 3.1.5 Final Decision on a Disputed Assessment (FDDA). - The decision of the Commissioner or his duly authorized representative shall state the (i) facts. the applicable law, rules and regulations, or jurisprudence on which such decision is based, otherwise, the decision shall be void (see illustration in ANNEX 'C' hereof), and (ii) that the same is his final decision." (Emphases and underscoring added) The foregoing provision prescribes that, as part of due process in the issuance of tax assessments, the PAN, FLD/FAN and FDDA must, respectively, state, among others, the facts and the law on which the assessment is based; otherwise, the FLD/FAN and/or FDDA shall be void. Relative thereto, the pronouncement of the Supreme Court in the case Commissioner of Internal Revenue vs. Avon Products Manufacturing, Inc., etseq. ("Avon case")44 is instructive, to wit: "Tax assessments issued in violation of the due process rights of a taxpayer are null and void. While the government has an interest in the swift collection of taxes, the Bureau of Internal Revenue and its officers and agents cannot be overreaching in their efforts, but must perform their duties in accordance with law, with their own rules of procedure, and always with regard to the basic tenets of due process. The 1997 National Internal Revenue Code, also known as the Tax Code, and revenue regulations allow a taxpayer to file a reply or otherwise to submit comments or arguments with supporting documents at each stage in the assessment process. Due process requires the Bureau of Internal Revenue to consider the defenses and evidence submitted by the taxpayer and to render a decision based on these submissions. Failure to adhere to these requirements constitutes a denial of~ 44 G.R. Nos. 201398-99 and 201418-19, October 3, 2018.

DECISION CTA Case No. 10057 Page 12 of20 due process and taints the administrative proceedings with invalidity. XXX XXX XXX The importance of providing taxpayer with adequate written notice of his or her tax liability is undeniable. Under Section 228, it is explicitly required that the taxpayer be informed in writing of the law and of the facts on which the assessment is made; otherwise, the assessment shall be void. Section 3.1.245 of Revenue Regulation No. 12-99 requires the Preliminary Assessment Notice to show in detail the facts and law, rules and regulations, or jurisprudence on which the prorosed assessment is based. Further, Section 3.1.44 requires the Final Letter of Demand must state the facts and law on which it is based; otherwise. the Final Letter of Demand and Final Assessment Notices themselves shall be void. Finally, Section 3.1.647 specifically requires that the decision of the Commissioner or of his or her duly authorized representative on a disputed assessment shall state the facts and law. rules and regulations, or jurisprudence on which the decision is based. Failure to do so would invalidate the Final Decision on Disputed Assessment. 'The use of the word 'shall' in Section 228 of the [National Internal Revenue Code] and in [Revenue Regulations] No. 12-99 indicates that the requirement of informing the taxpayer of the legal and factual bases of the assessment and the decision made against him [or her] is mandatory.' This is an essential requirement of due process and applies to the Preliminary Assessment Notice, Final Letter of Demand with the Final Assessment Notices. and the Final Decision on Disputed Assessment. XXX XXX XXX It is true that the Commissioner is not obliged to accept the taxpayer's explanations, as explained by the~ 45 Now Section 3.1.1 ofRR No. 12-99, as amended by RR No. 18-2013. 46 Now Section 3.1.3 ofRR No. 12-99, as amended by RR No. 18-2013. 47 Now Section 3.1.5 ofRR No. 12-99, as amended by RR No. 18-2013.

DECISION CTA Case No. 10057 Page 13 of20 Court of Tax Appeals. However, when he or she rejects these explanations, he or she must give some reason for doing so. He or she must give the particular facts upon which his or her conclusion are based, and those facts must appear in the record. XXX XXX XXX The Commissioner's total disregard of due process rendered the identical Preliminary Assessment Notice, Final Assessment Notices, and Collection Letter null and void, and of no force and effect. This Court has, in several cases, declared void any assessment that failed to strictly comply with the due process requirements set forth in Section 228 of the Tax Code and Revenue Regulation No. 12-99." (Emphases and underscoring added) Based on the foregoing jurisprudential pronouncements, respondent or her duly authorized representative is mandated to perform assessment functions in accordance with, and strict adherence to law, with their own rules of procedure, and always with regard to the basic tenets of due process. Due process requires the BIR to consider the defenses and evidence submitted by the taxpayer and to render a decision based on these submissions. Furthermore, in case respondent or her duly authorized representative fails to observe due process, it shall have the effect of rendering the deficiency tax assessment void and of no force and effect. Moreover, a significant part of the due process requirement in the issuance of tax assessments is that the concerned taxpayer must be informed, in writing, of the law and of the facts on which the assessment is made. Such requirement must be embodied in the PAN, FLO/FAN, and FDDA. Specifically, when respondent rejects the taxpayer's explanations. she must give some reason for doing so and the particular facts and law upon which her conclusions are based. and those facts must appear on the PAN. FLO/FAN. or FDDA. As a corollary, the concerned taxpayer must not be left unaware on how the respondent or her duly authorized representatives rn appreciated the explanations or defenses raised in connection with ,.V the assessment.

DECISION CTA Case No. I0057 Page 14 of20 In this case, it appears that in the Details of Discrepancies of the PAN dated August 15, 201848, there is a finding on the Discount to "Disallowed Sales Senior Citizen, P50, 405,717. 70", to wit: Hoasdiso"igi2ScsnSdsnPCgPhrtDaiefr0uatsceicra5aor5olstn1iasoclelichiges0lsucbe0rdclt0onmstpeoras,sosxui,e,4uato4omleieputdlva0bsnfnnia0rtodod.nenhieeeea5rttbs5iwerrcnts7er,tlsicl,Alaiosdvsose7ceM7oeoin.eaam.nsefon1r1dnuDdhtlbyut7e7omenhwraooPCn.se.aat7eVt7uuvh(FsfttuldMc0ohaSe0AsliaudrndcdccdrtetswnaDTriiehaeiodfoistustdrtolhetnrChuieiVcne-acsoereereonsfs)soAnecndlxro,tttueuaruoo,tahTpesncnlbnIucleeteadlnttotrbysbtotnheDsenmehuvtyeymctetgxhxespceiRboqeosbewrepeersepEauevecutmetdstauthysnhevidexsoatgnasoteepetenprieexouaesslaeultlnatndalndocetndlesdryuiyntibsowobs.sitSroendatlcbunuasahepeutgeoluaanToslmeeedrRldrsotsidytlthsrnedouteeiweledenoaposoSe.sgdiadiosbsmudesesssteuIruaytrdssncnnelcoaiSlcaaetalr.inecioMrhho"netoAstsse,ocsiidsaarecoorDnnlmeefatoussynsMnryCCidedtorodhetcoardheiiumueoifeNtnrtbrteiroSicwridozodvzcnoltitfietmuoetsunhti.dpaphtosanthncihCraiurcthe7nssytemebetteiiAeg-costmvei22fcireorDca(nrizlo00SooStooenutylSraese1%suwuoomCCtnbnonxCs.s0tsguyttf.f), In its Reply, 49 petitioner, through counsel, assailed the foregoing findings, summarized as follows: 1) The PAN failed to specify the factual and legal basis; 2) PcToh5ne0t,e4m0B5pIR,la7t1e7ids.7u0nmdisiesrtianRkeethnpeubnilniactuAarcests(ouRfmAsi)negNnioo.rth9ca9it9tiz4e;thne amount of discounts, as 3) The amount of discount which petitioner can grant to MDC is not regulated by any law and as such is left to the sole business judgment of our client; 4) Any concession granted by petitioner to MDC should be considered arm's length and a bona fide transaction; ~ 48 Exhibit "P-12", Docket- Vol. l,pp. 313 to 317,atp. 315. 49 Exhibit "P-17", Docket- Vol. I, pp. 324 to 352.

DECISION CTA Case No. I0057 Page 15 of20 5) To grant discounts to customers is a right recognized by Section 106(0) of the Tax Code; 6) The trade discount is an allowable deduction for purposes of computing VATable sales; and 7) RR No. 7-2010, as amended, is not applicable. cndooisntatlealondNwtdsoerteodwsfisstthhaeslaetnaFsynAddNoiinsfdcgoathuteetnhdtessS,aetifdhpoetreeamFgrgAobuiNenmrgde2an8tat,esr2.dg0u1WSm8ee,epnitnqetsumpoabtrreetesrl,at2httoi8ev,ew2pit0e:t1ort8inetdhnidet eJiANO2nuLd0cofnAf1drtieeic28ecem0dea"31eTon05dTnnhd,0aatiss0texer20ved0he8cinfa1ne5os7Ai2rvtdu5heraegpe5dttfuuheedsrSea,rsatemeurtneep1aocldpt5anueee,ttnJmirvtait2ootebno0doeu1ytfroao8Lr3uPecoy,rcot1ut2o2v0elre9v0e,r7,Pte1rti5er28ronie4rn0gfl,ag1id7mAnJ8a1da.iudt0nente.ahrd1uferoi6ayccSrrieieytAeiyinnvps1eccst,elNydeu2mossb0V.sibvy1amee7SlturehNeton3io:s-ft, Rd1RmpHdtwdtPRafdaa8aeroeeeeaisAuoxex-ytvrfvfnhsy2petmiNpgsieececcei0aanun,sinicefpse1eyryltuutp,asoirnI3enelnroeelamtmcefrctritcihrof',hyfsrysaMiteetRleenipeenrwsnspoeeetoerdtstailaefmaictgynn(nFhxxseR,tudrtocovihpeienplsRwplarraeooaqra(mlutl)ieetrni1fruaindritihtosafs5fshibatdhtirtenNaleeeu)ieapxuelrsx,iedaomtrAotemreyo.ndnedfosc(se,thotbuRaeasfC,nt(c1eynhyes1liRtinlki8/nsideatrs5itane)tc-iocnesn)aa2gctul.mrgc1gu0kdfdltraFco2anhs1fieaHoRsoSorv-Lioie3ymnvn9aorMreOe(,wsetd9sgRwricCs/platn,rFetfNMewserianmtofodAavohuioheyCclfnesg1meiiNatismesnci)r1encn,gahae-NwtFecd/w2sp.ymwns3eAoiaho0ptiut.siet.heNNt1asu1lheotbin.3coal4re1ltfmcwdahb9tf,voleataeebbee-hieiftsstn2tiehdilhenrtnedsrn0poteeiehgieno1rotfrbicheosrff3tnpyietiaetsanlvcai.eheslndiu"iiaRtdxpsesRisndeertiptiseuonntiaRold"oyaa,ievfgcloIntntfyyedyisf(ssewNye3nthttostthrot0ihhouthatoa'ou.oh.es)ee"efexlfl DSsteeapttaeteiMdlsmoobrinefeoDrvtihes2erc8,r,eDup2pea0otn1anc8ilisetas(koooirnffgDtDhOaeisDcPc-roAFemANpaNpn(a)oc,rriaewDtsiviOtehDof-ltoPhotAehkNeda)itssdcaathuitdeesdsiFdoAAinsuNscguusinsdstaiott1hen5eds~

DECISION CTA Case No. I0057 Page 16 of20 piftr2nhoae0ceryirt1mee8DrmteahO(neetseDtnu"dt,-psFavra,Abaeso)Nr,hsbv5,ehea0ntotoicmwieatwnsaiistbwnp:eepatslhe"sosieawtmrcw:DseaaOnntshtcDaed-taFlilsemtAhcdNleoou,stcnoeoetdinxnrtcegtehefnlapettttscoyftooorutfPhtth7ehc,eeo4ana4Dfc6doe.Odr9deeD8esd-daPpiidaAhnnNrcapdlusawdperietaniariigdnel Details of Discrepancies of the PAN dated August 15, 2018 � .. BURREeRAve0eUpenupuObaeUlF1RcrI'nNeoegfTntbEhtnReONNfPFAohl.iLlni8peRpnMiEcfalVa4klEla:Ntl UE �A.NNEX�A" THE PRESIDENT AUG 15 101! TPASIhaJNAinl;.AAN00nTu7tAo.L0nPi1ifoK1e,~AB9M0lfdaU1gk.I.a.A0t1l02'CP08H0l8t0ylUSePnP,INGIil! S, INC. cor. Tfndalo Puyat Ave. DETAILS Of P18CMPANC&gS VALUE-ADDEO TAX -vsDha!loliu4wlL n~ lobwel!to4wZ, fhmenf8fcOeffthWtdhhJSeatsipeQperso.Pper!di}apt1uerl~a!u.kUMMt-1oIYRSW1~a!1aoctetiionpnt.;!y1O0fn5o~ r(8J)O'o.K1"N~ IRfCha.C youAhWl.h.t.d,.1_o.~ .pts In ts he u amo~ unt~ of PSJ, 176a.9n5dJMo( TIN CllftomWName: p :=:::A:mo::!JiSu1~7ni�.e;5m~ 206-o416-136 R8C MOC CORPOAATJON ..mor � doSp TI~ lyipnhner�oh!evd~ �u~ hueJou.rfJ!lcs .P1l9tn-UcgeVfeno:e qfyou1oMbelnessneytocefD'ZolflaefaProneCXoSth 'ohSltma0�cheebi,,oeM-nitI4Sut~ dt�oE 0anCYm5ItPIgN,8Ub7ertIry1nb0U:~ 7tMtttUfIt.M 'Iol7qaubf0OutInnebet!t1NchtSunoa\oefsUlreh!;mqtndtoysnCteeiollestostl.o.ko:lrncntfe~ tAOepwdrln~ tcoU8bnmyqdfytzOuaCetbMs.odn1tydngDtAlinJtt $ieChi(wMpOdfMetnlltnelOol\SDaeocfFUdtdltCa25.t\~ )h.0eQhF,Hl.1i.erure40eASnsdQn.O phhnCob5droe'eec/lw~ 7rs,soi,cf n1en!utohpnh7nbueuteei7tnnt- aa.lh0gt~ bouaOcw-oxaeIv.r naareStsQPtrdarmClluk, a1bs'lirlrmouytoAedoutmbafiurlata~ doebltcznluctt:et~ ehloodnwtuerlkood~ n)(u2tnR Snat0s h'C1~ .O.e1.e )ufe ...V..\~ d_ed .~ Ai-$.&. ! CT�~ sOlle~ hR1 nUxatedIoteg': IuW Iuym81ao~ naptuwC'vttY1g.StloeorbllnValdfaflnaerAlNtwlothseT~ omenlcd.sle~ ~ i7vo.tn�r-nc2so.*0ys.t J-e1.wd.0c1e.yrUnSodb~ o&geuuaoororct:amso;nQanuaeC� etnos!eSOnlfhedeStw7aeos.I D.t. Cu.wm.r Name Ref. No.. P $C: Dl�eount per 81 V/01/17 MMMMMMEEEEEERRRRRRCCCCCCUUUUUURRRRRRYYYYYYOOODODRfRRRRWUUUUUGGGGGGCCCCCCOOOOOORRRRRRPPPPPPOOOOOOARRRRRAAAAAATTTTTTIIIIIIOOOOOONNNNNN "13131 8,0n ,855.84 14102117 MERCURY DRUG CORPORATION "13200 8,077,858.&4 10104/17 "13404 8,347,445.13 '25104117 "13443 8,347,44&.13 22JQ5117 "13543 6,583,188.41 22105117 "'3M4 P -_==::J~��~m5!02!,,:11!90,4s5,.6T3~8179~f...-784087i: TOT1AML>6117 ., 3636 Q ISAU.en!cnItt9ilXownBtd1w1l0em{;nA~tu)ldeJTnMdyio1. w1P3e28d7!of1Of1f'N,f2aI1Rff9Cur.H tt to- pTrheesecnrtevdanliadtHVAlnTpIunlvloaixCecslaoimr oedNpi er rvhJm llfi'IOUnltnQ ttoInPp2u.t7t5u8;,c2l8ll9lm.8e4d~pu1rshuoawnnt In ll receipts to suppor !o 50 Refer to Exhibit "P-18", Docket- Vol. I, at p. 356.

DECISION CTA Case No. I0057 Page 17 of20 Details of Discrepancies of the FAN dated September. 2018 Republic of lhe Philippines �ANNEX~� Departmanl of Finance SEP 2 8 2018 BUREAU OF INTERNAL REVENUE ~Region No.8 Makati THE PRESIDENT A.IANTA PHARIIA PHIUPPINES, INC. Ptil Axa Life Bldg. 1286 Sen. Sen /lnlonlo, Makall City Gl Puyat Ave. cor. Thdalo TIN: 007.011.001.00000 !)E!A!lS OF DISCREPANCIES Phrllm��d Zn .Ra.sl"tsae"do"o"'e"'d"h'P"'�r��o�Pg�Ou�ni-atllonoSwlyedcalggloieUnnoc1yn06fco(R8r )sy cololeNo edIRtChu .at yr ou f- ailed-to ~ pcovkInfe. supporting doctmenta aOOJor vald .. """'""'of P53,176.95 .. , ._, - from . below, hence- Scl!!dt!lt 1 p :==-5nli!@;nf!e;!.Ci! : n - - P7,.Ufl.Q81nc1Udlng 11u>t h)'0e<1nCc<ell1-ll8cdaondoea/nkidd pB/<1 for thB above "' , pnaeynmt eanmt.ounting to *>crementw. 81 ec tth8 - pollia/ to 1 In.-. liSb--e� N- rj-- ot- be- -�and I0I0-- sc .......... 1-poTd-yDuoehtlo1nfdeb _ar:utl1.11clCnlomto.Uiy cowoeS.0nf1omt.o.DdlIf1D)ef.r.m(o'Sl)5,.Shomll0fl.lto,r,oal1,-t4S .aMd.tl0y.moo,P5C enbue,_ ':ab7ynu'Ml1rtll-ohy7_ oqll"l.fDut7l"atlr0h'ol&nuo"egtt.'rlad1yl..Cil".Klol.lo.o"roo,.llapdt.u.ooo tnbmrrm.ayt1ul_Cflbna-soo_fytngltA)Hlnlplz(9l<w()leet:~othtn.rllnIoiod.ol8X1odPd:ll8h,2leI)1.ol0O,aF1,l.1r8.u~ A0l-rAdt,Ohhl- lneoIorJc,.My1lZ.l� mlb~o..etJl-O.nolacwoI.-x- atI..tn- arIS,wsloU a'dlnsaanftlllry<~oIR- gismlaIlao ddct.nlJUlolo-to-dnlu�.l:d.oIn(IOn.o iSla.thI%Cdo_ oIwof)S aV eo._ es~-.d-ad, A ,!-ihdR,aeto-eotd.T ;y~ uuleonclluw lllt-clv;lonero�- nV tPfar-lNo-teimon;A d<.en-7atlalT ao-llahe-12sna-q1d0y-1im blp1aouanoeltuwn0ouatoldls1o-otr1fuoo1ka.-7oorl> St:btduft2c-- Dolo27101117 MERCURY DRUG CORPORATION ~R3o1r3.N1 o. 1W2117 MERCURY DRUG CORPORATION ~3200 P SCDIIcoufttporSI 8,077 ,8S5,84 10/0017 MERCURY DRUG CORPORATION ~3404 8,077,851i.84 25104117 MERCURY DRUG CORPORATION ~3�3 8,347,4415.13 22/0f5/17 MERCURY DRUG CORPORATION ~3543 8,347,445.13 22/0f5/17 MeRCURY DRUG CORPORATION ~3544 TOT1A&L'06117 MERCURY DRUG CORPORATION ~3836 P ===~~~t plytmd Inout TIJ!, P2.W,10fi67- In Annex 9 _ , dlaal1owad lot f.UU..Io to,_. jG iDSecii00110(A)and 1138ofNIRC. The ete<lilllble Input lax claimed per l8lum II!IOW11!ng lo P2,675, 108.67 as lliiOwn pment valid VAT I n - � oflldal '""""" O!pullax claimed pu,...ant, . / (%)

DECISION CTA Case No. I0057 Page 18 of20 jrtduPtrheheudragaieegttutelmilptrm"aha(retteNoiet)nnehcdoatadeetromasytbEfbhsoypxleAyuraeensaamtqsitinnbtuieiooyonisrnfivitensseedlmmgar-is.wsPeeOctnanrofotttafu"eti.nceNndedstPortawetfirafcatghiisletiiueliceodmh(dsn'ePuepotncoArnehtNastciltOo's)iios,orncanstiweeosildexerbhfepdeitccrorahAiutnno3nJi0sidgAt,tserhNaidneR2Tn0etoAv1psnt'io8sooly,illt,eaR5Ms1taeiDoanbppnrCdulegystuaoiiittsnmodifoednetntshheoneseedttr b2y8,p2e0tHi1ti9oo,wn5e2ervtheiner,iStsitIRRiseapfgulayritnhaenddridnPonrotoettedasdtt.hdaret sins the FDDA dated February the other arguments raised toacehodcauftbopaxearuopnsnppcxenpaesctelpnaruwrurlpaaeueevnabarrycesscaloTjreieiptdatecooiiaroocoote,nenntnsnnsseddopuFdssmncewf,eDrohrelttpneieDihtrctahhtghiqeroAoanaeaourn.dsstdlqwihmesrei.uzeeberxumeimarspris,enasesuletamTiessspnntnsshphteugtaegeeonritgsinosnipvtosiiufdveentSinmnaheetstsIihneneRtttiaetrotnthhienostnetseatraoosoe.ssrucirrsdosaatpshaenesrnaChueref(secreeesaosst,enir)nrpAmcbrsmcouoevaeeaenlfsousfansuodptesnratotreosdthxfrn,n,cfobaattdaahrreiaacseisiseznntnejehsfseedgudde,asdcllyslsuttyuhmi,sbbnpomryagjuooaeteshpsnbespceeptpvntrerpeiptfwoniFsacssetauo,iAchoeettrsititittnNdnotschliycotnbh,oeaoemneeftafrierSntvunnthtlrhoIeehsed'Reisentstefdt rat1reoem9nv9edde7neun,dreuTeeevdhdpius.orvs-ofoa,fciCi-cdeve.ositshrnsse,seSinaqesluatcheptreinesotecnilnyoss,sgtnta3hcinz.eo1tem.dsc3muasbuiatejtnenedcddect lred3baeS.1yrfeil.cy5cietrvioenioonscflpyao2tReVn2dRAd8eTpnoNatef'osst.tisthieoe1asn2useN-tmr9hI'Rs9oe,Crnrizitgaeohissdft f( vporoidceasTssoserirsgeshimttesreaontfet ,abettaaaxxrspaansyoseervsaasrlmeidennfurtusllit.ai5sn4sdueSvdouidcihn. 53bvieoRinlaegtlaiottnihveeotfchateshreee,todt,hueea 55554321DsSrEuPeCeapsxacomprrheam.eaim.bc4mrti.b-it7ive/s,"reEsPPlil1yo-ee20;nct4i,etEt2r"rixi0o,ch1noDiC4fbfoo.oiItcronskptR"eeeePrrtvn-a-i1ateVi9lwvo"e,R,l.vvDesIvi.so,e-Cnacatu-kovepmeipstmv.-sp4iV.as5rsoA8.ilo.vItnoo,Ie,nA4rpn6opPs2.wrf.oI3end7rt3u,ecrDttnosoa4lcM4kR4aee.nvtu-efnVaucoetlu,. rGIin,.Rgp,.p.NIn1o3c..,a1n9ed3ts12e02q00.,,,

DECISION CTACaseNo.10057 Page 19 of20 subject VhaAsTnaosrsigehstsmtoecnotllceacnt nthoet be enforced against petitioner, and the BIR same. oaistdhmveorinimdiIsnatrfftoaitnerteirv,shecaraovdinisunseegiddepbbrreyionectgnheesthsispe,sauftrihetnieeddsinC.ignouthvriatotlsathhtiaoelnlsunobofjelpcoetntVgiteAiorTneaards'sdsreersisgsshmttehtneot of2ionf8rsP,tta7h2n,0e4Wt17pP96He,e,rE5taiio0Rtnid7oEd.n4fFrt8hoOfo,meRrasERrJue,aebnvCjieniuAecawNtrliyVgCishA1Et,GTL2RLoa0fEAs1DsNt7heTeatsoEnsDmdfJo.uerSnenTEegthToi3esinA0sg,FuSDe2IDdc0DoE1Aan7.gs,daidaininetesrtahdt tepiFoeanetmsbit,rioouunathnereytr AuthorRiteystpooCndaenncet lisAfsusrethsesrmOeRntDfoErRtEheDsTuObjeISctSVUAETthaessceosrsremsepnotn. ding Lastly, aufrgnoalmeinssset rnepfvoeertcirtsiinoegnderbtyhdeuhriginchgoellrethccetoiounrptse,nodrfeesntpchoyendosefuntbthjeeiscthinesVrteaAbnTyt ENJOINED assessment case. SO ORDERED. E~P.UY WE CONCUR: Associate Justice ~- ~ "") L_ MA. BELEN M. RINGPIS-LIBAN Associate Justice

DECISION CTA Case No. 10057 Page 20 of20 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. ERL~UY Associate Justice Chairperson, 3'd Division CERTIFICATION bcDoeivnfoicsrlieuoPsntuhiorensCuschaaansiinretptewothraseAsorntaai'cssblsoeivgAVenttIeeIIdDs, tetaSocteiiotschintoei,onwnitrwi1tee3isrreoohfferttehhreaeebchCyoepodicnnesiortintnitifuioetcidfootnnhstehauanCltdtaotuittohhrtnee. Presiding Justice