CTA Case No. 2340 (Decision)

. l\~f'U Bt.IC I' T � p YLYP ()<JURT � '" T AX APPBA 'IU~ZO / FILIPINAS AUTO SALES CORPORATION , , Pet.i tione r, / - .ve rsus - C.T . A. CASE O. 2340 HONa MISAEL P 8 VERA, as COMMISSIONER OF INTERNAL REVENUE , Responden t .. x .. :� .- .. .~ .- .- ... .- .- .- .- . . _x. DEC I S I 0 N Petitioner herei n Filip i na s Auto Sa e s Cor poca tion s.eeks by thi s appea l t he reve rsal of the dec isi on of r e sponden t Commiss ioner of Intetnal Re\fenue dated August 6 , 19 71 ass.ess i ng and demanding from it t he sum of Pl3, 449,347 . 93 as manufactu rer ' s. sal es tax i nclusi ve o f s ur - c harge and pe~na l ty fo r the years 1957 to 963 . < The pertinent facts a re based basically on the record~ and t he evidence s ubmi t ed y the parties due ' n9 the heari ng of th i s case . It appeacs tha peti t ioner is� a domest i corpor ati on du ly organized si nce Apr il 13 , 1 953 primar i l y to engage , amo ng others , ~�J he ther a s agen t, pr i ncipal or factor, in th s ale and di s- t r ibution of any and a l kin s o motor veh i c les . (See Exh . A- 2 , mended rt i cles of I ncor por ati on , 10 5 I

DECISION - CTA CASE O. 2340 - .2 p. lOS, CTA rec::ords.) �. Sometime i n Oc tober 1957, petitioner �was: granted by the Chrys.ler Corpora- . I t ion of Detroit, Michigan , u. s A. , t he exclusi v�e right to purchase motor v�ehicles , and the non exclu iv�e right to purchase motoc veh icle parts fr om t he Company and/or from any assembler so designated �n the Philippines fo d i s:tr bu t � on locally and not e lsewhere (See Par & 2, Distri- bu tor Agreeme,nt as Amended , p . 187, Fol deJ: I, BIR records. ) . It also appe~ar s that on Jan ua r y 2l , 1958, another dome�stic corpor at ion known as the Con- solidated Assembly, Inc . was g r anted ly the Chrysler Corporation the exclusive right; .to assemble in the Philippines knocked down c a rs an tr uck s i mported from Detroit, Michigan, U.S .. A., and t he ~r ight to i mport s uch veh i cles on behalf of he Chrysle r Corporation ' s. l'hilippine d istributor s in acc ordance with the terms of their respective distr i butor ' s. agreement . (See Clause 1 , Agreement between the Chr ysler Corporation Expor Division of Detroit , Michigan, u.s.A , and the Consol i dated Assembly , Inc . of the Philipp ines, Exh i bi 4, pp . 271-274 , Folder I, BIR r ecor ds . ) In t urn . t e Consolidat ed Ass~mbly , I nc . ndertook t o supply on ly a uth or i zed 1 0lJ

DECI SION C'l'A CASE NO. 23.40 3- Chr ys.ler distributorsin t he Phi lippine s t he buil t -u.p ca�rs and truc ks as embl ed by it a t I t erms and c ond itions previously agreed to. (See Clause 6, I bid.) . Pugs.uan to t he Agreement, t he Conso i dated Ass.embly , nc . i mported completely knocked-"ow (CKD) .cars and t rucks whic h i t a s sembl ed i nt o vehic le s and t rans fe rred t hem to petitione r which i n t.urn were sold to its petitioner 8 s. .cu stomers.� As distr i butor , petitioner paid onl y t he graduated fixed annual t ax . Believ ing tha t pe titioner was depr i v i ng the governme n t of substantial revenues , ~ 0 sponden t on J anua ry 22 , 1959 author i zed examine r s Lor enzo M Leynes and Simeon Casinga l to i nvestigate peti- . t i oner�~ books of ac~ou nts and o ther account i ng records f or business tax purpose s for 1958 and � . all unverif ie d years (Folde r I , p . 27 , BIR r ecor ds .) Afte r conduc i ng an inve stigati on, the t wo e xami ners submitted a memor andum da ted Apr i l 30 , 1959 to t he provi nci a l revenue o ffice o f Quezon City wi th a finding that pe tit i one r i s a c ontractee- manufac turer and, he refore , the sales to its customers wer e t he taxable s a les . They ):"ecornrnended th~ � pe titione r be r equire to pay a s a les tax of 1 0'(

DECISI ON CTA CASE NO. 2 340 - .4 119 88 1 46,4. 6,4 f or 19 57 an 19 58 i ns te a d of t he graduated f�ixed annual t ax on t h g r os s s a e s I of car s . (See Exh. 1, pp . 43 . 4, Folde r I, BIR records. Unde r the t hen Sec t i on l 4 of t.he Nati onal Internal Reve nue Code prior t o i ts amendmen t by Presi dent i a l Decree O o 69 , a pe r cen t age ta i s levied, assessed and coll ect ed once o l y on every o r i g inal sale , bar t er , e xchange , o simi l ar t rans- ac tion for nom i nal or va lu abl e c on sidera t ion s intended to t ransfer 0\'lnersh i p of , or t itl e t o , manu f ac t ur ed articl e s wh i c h i ncluded , among others , au t omobile s . Acc:o r d i ng,ly , on J uly 11 . 1 960, res- . pendent as s e s se d and demanded f rom petitione r t he amoun t of Pl, 036� 1 341 .72 a s manuf ac t urer ' s. s ales t ax and surcharge f or 1957 and 1958 , excl usi ve of . the amount of Pl O, OOO . OO a s c ompr om ise penalty ' (Exh . 2 , p . SG , Folder I , BI R r ecords .) On Augu s t 22 , 1 96 0 , pe t itione r pr otest e d the a ss e s sme:nt c ontending t ha t i t .wa s mer e l y a d i s t ribute o r dealer o f Dodge automo bi l e an t r uck s purc hased f rom t he Cons olid a te d As sembly , Inc ., t he au t hor ized ass embler o f the Chr ysler Cor poration . (Exh e 3, pp . 91-92 , Fo lder I, BIR r e c:or ds. } 10 8

DECISION - . CTA CASE NO. 2340 .s - On Oc tober 19 , 1960 , r e spondent r equ i re pe t ' tione r �to accomplish a wa iver of the statute I of l i mi t a tion a s a c ond i t i on t o a re invest ig a tion . The wa i ver was e xec ut e d by peti tioner on November 3, 1960 . (Exh . 4, p . 99 , Folder I, BIR r ecords ) Thereafter , r espondent ordered t he co ti- . nua t i on of t he previous invest ' gati on of pe t i t ioner for the yea rs 1957 and 1958 unde r Authority No . 0351- 64 '1a ted Ju l y 28 , 196�4 . p. 227, Folde r , BIR r ec ords .) . I n th is c onnection , r esponde nt i n a l etter dated November 18 , 1964 , r equested t he Consolidated As s embly , I nc. t hat s e n i or r even e examiner s Ernesto Vict a and Re ynoso r : oreza of the I nves tigation Division of t he Bureau o I nterna l Reven ue be al lowed access t o the books of accoun t s and other reco rds bear in9 on he bu sines-s tr an s ac t ions of petitione r . (p . 262, Fol der I, BI R r ecords. ) As a consequence t he r e of , i n a memo randum f or responden t dated November 10 , 1964 , group superv i sor Pabli t o J e Ena no ,. r ev-enue exam i ne r Ernes to Vl:ta and supervis ing r evenue e am' ne Reynoso Floreza r ecommended t ha t , r e f e r enc e be made to t he r epo rts s ubmitt ed on t he 1959 to 19 62 t a � li ab ility of pet i t i oner , an and al appr opr i ate act i ons con.com i t ant t o t ax f raud be t ake n ; petit ioner be 10~

- rI I DECIS I ON - CTA CASE 0. 2 4:0 assessed t h e amou n of P2 , 500,7l5 . 75 inclusive of surcharge and pen a lties. f o deficienc y bu s i ness t ax; I and immedi ate. action fo r collec ion be pu rsued . (Exh. S, pp . 275-~85, Folde I , BIR r ecor ds .) On Marc h 7, 19 &6 , howe er , r esponde n issued A r ev ised assessment against. petitioner: i ncreasi ng the sales tax liability fro Jtl J, 4,J9 , 34:7 . 93 f or the: per "od f~tom 957 to 1963 , computed a s follows: -1957 Sales ll -75% 1 00% I.P.ss: Deductible Pl, S73,890 00 P321,627. ! � .P259, 818. 00 mater ials 1 ,139,~~ 89�407 . 20 171� 837.99 Taxable 1\m::>unt !132.L220 ... ~ ~::~~~LlQl:!:n . .ma ~-~z:!:~~Q Sal es Tax Due p _2~~~...1J ! ~.L985.._0. ~-~~t:1g1:!:ZZ Total Sa:J_es Tax Due � � � � � � � � � P510 , 008. 21 Add: 25\ s urcharge thereOn � � � � � 127, 502 .05 50% surcharge thereon � ., � � � � � 255�004.10 Total Aroount Due for 1957 ... . . ... . ~~2~.L~11...36 . -1958 l! ill 75% ill! Sales Pl55,690 .00 253 , 500.00 P297 ,763 75 P1,696,722.50 ~ss: Deductible 113!670.00 108� 183. 2 67!799 .36. 902( 6,97 .34 materials p= :4!2: - =02:0! :=00 ~11~t:31g...~~ ~1~2!:~Q4:!';~~ ~=z~g�!:Q~~.~.lg Taxable Amount Sales Tax Due P 2, 941. 40 P 72 ,658 44 97 , 473. 31 P 796,025.16 Less: Sales Tax alread paid by Consolidated Assem- bly, Inc. . ( 785. 70) .< , 005.28 ) .< 3 , 637.36) (_292 67.2.!.42) Balance � � � � � ~-=&,!:1~~:!:12 ~-22Lg2~:!:1~ ~=~~!:~J~:!:~~ ~==Z~~:!:~~~:!:Z~ 110

1 ,I - DECISION � CTA CASE No . 2340 - .7 - Total Balaqpe Due � .. � ~ � e � � � � � ����� �8 918., 940 . 55 Add: 25\ sqFcharge t�reon � � � � � � � � � � � � � � 229 ,735. 13 50% s~i:charge tHereon � � � � � � � � � � � � � � 459 ,470 .27 Total Amount Due fo 1958 ~!:�:~~!:l12:_!_~~ I 1959 t o 1963 Sales P7,680,674 .,56 PS2 , 500. 00 P319,000 . 00 Pl4, 241,220.50 Less: Deductible 4,623,402.53 28,134 .. 34 . 184�247. 31 8 , 011, 755. 82 materials ~~LQ~1L~l2.t.2~ . . r~~ ~~s=gg ~1J~;!;Z~1:~ ~-�.!.~~...~5~.!.�~ Taxable Arna.lnt Sales TaK Due P 214, 009 . 04 Pl 2,182. 83 Pl01,064.52 6,229 , 464. 68 tess : Sales tax ( 2,283 . 80) J 21 ,990 . 28) .< 256, 245. 77) .. already paid by COnsolidated Ass ( 25,522.58 ... ~-~...a~~ R} -==1~:!:Q1i!-~~ ~-2~:~ZJL~J&;!;2l Balance . ~=!!2a .~~2...~2 Total Balance Due � � � � � � � � � � � � � � � �� P6 , 2Sa , 6~8.64 Add; 25% surcharge thereon � � � � � � � � � .. � � � 1 , 562 ,6.99 . 66 50% surcharge thereon o . . . . . . . . . . . . . . ..2t1.?5 , 339. 32 Total Airount Due for 19 59 to 1963 � � . . . . . . .. , . . ~J,Q..._~}~:Lf21.!-Q:~ ~I'IUIATIOO: Sales tax and surcharges due f or 195.7 . . . .. " 892,514 . 36 .. 1958 , 6;()8 ,145. 95 � �� !Ill � It 0� � � II II It It ' II 1959 to 1963- e e 10t 938 t 687 �62 rorAL SALES '.mX SUIOIARGES DUE ......... u .. u ..!1~...~~2...J1:Z...~~ Pl us an additional sum of ~10 ,000 . 00 as compromise penal ty. (See Exh . 1 pp . 4 25- 4;27 1 r"olde I, BIR reco r ds e) Aga in, petiti one r pr otes ted t he a s ses s me:n t i n a l e t t er d a ted April 30 , 196.& . (Exh . C; Exh . 7, pp 452 - ~57 , Fol de r I , BIR r ecor ds .) The prote st was den ied by r esponden t i a lette r dated Augu st 6., 1971 (Exh� 9, p � 5 3 2 - ~ 3 5 , older I, BIR r ecord s . ) He nc~ , t he pet iti on fo r r e view. 111 , - .a

f ! ( DEC ISION - CTA CASE NO., 2340 - .a - I petitioner Fil'ipinas Auto Sa l e s Corporatio a � manufactur e~: pur s uan t .o t he t hen Section 4 o f I t he ational Inter nal Re venue Code and,he nce, l iable fot the deficiency manu f ac t.ure�r ' s sales t ax i n ques t i on in th amoun of Pl3, 439, 47. 93 i nclu s i ve of surcharge an penalty? There is no dispute that th t erm "ma nufactu re r .. as used i n Section 184 of the Na tional I nternal Revenue Code applie s no t only to one who actual ly makes the man ufactu red ar t i c le s , but a s o to one who cause s the manu f actuted a rt i cle s to be made . (Hancock v Statch , 144 CA. 439 , 40 S. E. 317� Gen ., Ci o No. 509 , Nov . 6, 194lc ) Thus , a ~6rporation having exclusive l icense to manufacture , sell and d i str ibute fi ni shed articl es is held to be a manu fac t ure r o t produc e withi n the mean ing o f � the exc ise t ax l aws e ven t hough t he actual man uf - actur i ng was performed by o t hers. (Warner Pa t te rson Co. v . U.S ., 68 Ct . Cls 4 237 , 1 USTC , par . 415 . Pe t i tioner c ontends that it i~ not a manu f actur e r but me rely a dea l e r or i st ributo r of Dodge moto r vehicles , hence , i t shoul d only be subjec t to the graduated fixed annual tax on the gr oss sales there- of o suppor t t h i s c ontent i on , pe tit i one r ma i n- t ains t ha t "t had ne ver been engaged in actual 11 2 ...�

-. DEC I SION - CTA CASE NO e 23�4:0 - 9- manuf ac:t ur i nt;H tha t it' did no � have any par t i ci- . pa tion in t h"e i mporta tion ex.c.ep t tha � i purchased said e:hicle s fr om t he Consol i dated As sembly 1 I nc ., 1 t he a utho r i zed assembler , t hen sold them t o i ts c us tome rs3 and t hat petitione and the Co s-oli da t ed As.s e:mbly , I ne e a re t wo dis tinc t and sepa ra te enti t ie:s, so t hat the ir tr an sac tions should be treated a t ar ms length , and f or all i n e nts nd purpose s , bona fi de . On the o the r hand , r esponde nt answer s t he que:r i n t he a f fir mative . We agr ee with re s pondent t hat pe:t i i one r is a m n u f act ure ~ o f s a id motor eh icles a nd not a \ me r e dealer t her e of . Th is conc l usion is borne by the f ac t s a nd circums t ances of t he c as � As apt ly and cle a r ! de t a ined by r esponden t (pp . 162 ~6 6 , CTA r ecords) '� whi c h i s c ompetently and s ufficient y . s upported by t h e evide nce pr esented and t he record of the c a s e , a nd wh ich peti t ioner ailed to con- t rover t : (1 . Ther e wa s the ag reeme n execu .ed in De t r o i t . Mic hi gan , U S.A., on January 2l , 958 , whe rein i was s tipulated i n par agraph 1 thereof t ha t the Consolidated As sembly , nc ~ wa s appoi nt e d t h e xclu ive assemble in the Ph i lippines of the Chrysle r Corporati on CKD comp le te ly knocked down) 113

-- r DECISION . CTA CASE ijp . 23 4P - .J.O ~ 0 Corporation's. d i stribu t ors . Pe ti t i one r wa s at the I t ime one of th di s ri butors of the ca rs and t rucks of the Chrys l er Cor por ation . By virtue of such a reement 9 t he Consol ' dated Assembly, Inc . i mpor t e d CKD car s a nd trucks and assembled them f or peti- . t i oner , wh ich s old the assembled vehicles t o the public nde r an a greement be tween the Chrysl e r Corpora tion and peti t i one r. (2 ) . Indeed, i 1956 , 1957 and 195�8 , pe titioner con tributed t he major work ing cap i tal o f the Conso idated Assembly , Inc . (3) . Then, the Consolida t e d As seml1ly, Inc ., as assemble , r eceived a f i xed ne t i ncome of P200 . 00 to P3SO . O per un it c a r or truck del ivered t o peti t i one r as assembly fee. (Exami ner sa ~epor t dated Apr i l 30, 1959 , Exhibi t 1 , pp . 43-(4 , BIR r ecords, Folder I. . On the o the r hand, pe t i tio'ne r made a gross profit from the sales of t he c ars and trucks in ques tion f rom P3,000 .. 00 to 5,0 0.0. 00 per unit . (p . 221, BIR records , Folde r I ) (4) Again , t her e i s tha t letter of t h Chr ysle r Corpora t ion i nformi ng t he Ce ntr al Bank of h e P i ippines t at C rysler has approved its Chr_Ys ler ) di s t r � butors ' .choice of t he Conso lid a ted 114

- --- DEC I SI ON - CTA CASE NO . 23 40 - 11 Assemb y, Inc to nde-rtake t he job of assembling i ts c ars and� true in the Philipp ' ne s ~ behal f I of i ts di s r ibutor s . One o f the distr i u ors on whose behalf the CKD parts were imported and. assembl e was petitio er her ein o (Exh ibi ts 17 & 7- _, pp .. 269- 2_70, BIR r ecords Folde r I.) . (S) . In add i t ion, t her e i s a lso a etter wr i tte n by a ey of fic i al o f the Pacif ic Bank ing Cor poration i nformin t he Cen tr a l Bank of t he s hi pping a r rangement gove rni ng t he ' mporta t ions by the Consolida t ed Assemblyj Inc . of t he CKD parts. In br ie f , t he shipp ing arr angement s tated that t he CKD parts will not be releas~ to t he Conso lidated Assembly , Inc . without a n au thority f r om Chr ys ler 8 s. agent i n the Phil ippine s . Exhibi t 16, p. 266 , BIR r ecords , Folder I .. ) . (6) . Then , too , the bi ling t o petitione i s a t ac tual a ssembly os t plus f i xe a nd determined assembly fe e o r admi n istrative expense s i nc lud ing s ales t ax paid by the Consolidated As s embly , Inc . fo r and o be hal of pe titioner . There wa s o fixed sell ing pr ice of the units all t he sell ing o r transfe pr ices are de e r min ed by the actu a l cost plu a ssemb y f ee and sa l es tax per ot o r a s per l etter o f credit cove r ed by the impor t at i on . 115

r DECISION - CTA CASE NO. 23 40 - 12 (Exh i b it 5, p � 28 3 2.8S, BIR r ecolt'ds, Folde r I a) . An nal�ysis o f he g r oss profi t e a rnings r ea �zed I by Cons ol i dated and pe t i t ione r shows the compar ativ r eport hereunder : Con solidate d Filipinas Sale s Dodge Ki ngway Sales to the 1958 to F . l i p in as �s� .P7,239 ~ 00 Public ������� Pl3 , 500.00 Cos �������������� � � �� 6, 039 . 00 Cost �.� ����� 7 ,239. 00 (7) Fu rther t he funds used by the Consolida ted Assembly , Inc. for the payme n of ma r gina l depos "ts, taxes, du t ies and other i mportation expenses we re fo und t o have been advanced to the Consol idated As s e mbl y , I nc . by petitioner t hru th ~ l ocal ban ks by means of domest�c letters of credi t. 8 ) . Moreove r, � mported CKD pa rts re leased by banks to the Consolidated Assembly, Inc . under trus t r ece ipts were guaran teed by petitioner ei t her as guaran tor of the for e i gn rust r ec e i pts a gr e eme n executed by the Consolid a t ed As s emb ly, I nc . or by means o f l ette rs of c edi t ope ne by petitione r. ( 9 ) As a matter o f f act, pe t i t io ne r and o t e r distributor s of Chrysler 's product s i n the Philippi nes we re fou nd to ave ope ned a ere i line in favor of h Conso i a te Assembly, Inc. f o r the importation o f the CKD parts . Exhib "t 5 , pp . 275 -285, BlR r ecor ds , Folde r I.) ll lJ

. �'� DECISION - CTA CASE NOe 23 0 - .13 - �, . (10) Last but not l eas t, peti tione r f il d o controvert during the hear � ng of th is c ase the I fore~oin indi ngs of re s ponden t or to show t e incorrectness of r espondent 0 s as sessment. Petitioner 0 s c onte nti on is , in substance, that the Fi ipinas Auto Sales Corpor ation and the Consolidated Assemb y , Inc. a r e ent ire l y separate and distinct en ities, with complet ely different stockholders and officers; and t hat t he spare parts which er used i n t he assembly ,' of cars and truc ks wer e imported in t he name of the lat t e r. Respondent does not qua rel with t he se propos � tions . However, t he appl i c able principles are clea and in the end the decision in this case mus t re s upon i t s own peculiar fa c ts and ciicum- stances As lready deta i led above, these facts and circumstances, which were not disputed by pe ti tione r, sho beyond doub tha the" CKD t r ucks and cars were i mpor te �and assembled by the Con- . solidated Assembl y, Inca for and on. behalf of petitioner which was the r ea l manufcct 1rer of the veh ic es and, therefore , liable to pay . the manuf - acturer'� sales tax in question . All these fact s nd circumstanc e s, taken together , support the conc l usion tha the arrangemen t wh "c h made i t appear that the Consolid ed Assembly, I nc . was the ma1u f- acturer and petition e r was t he dealer reselling 117

I DECISI O - o. 2340 CTA CASE - .1 - the manuf actured veh i c les to the public wa s availed !) of f o h purpos e of mi n i mizing t h sales t ax due I on the a s sembl ed veh c l es8 The cone us i on r eached ' s rei nf orced by t e principle tha t the burde n of proof is on the tax� paye r contes t i n the va i i ty or corr ec t ne s s o an a s s e ssment to prove not only t ha t the Commi ssione r o f I te r na Revenue is wrong �but tha t he taxpayer) � i rightG (L i no Gu tie rr ez vs . Collec tor of Inte r nal Revenue , CTA Cas e No . 504 I, January 28, 1962; see al so Ta Guan vse Court of Tax Appea ls, L- ~3676, Apr ' 7, 1 967 , 19 SCRA 903o) And if no evidence i s p ese nt ed t o substanti a e t he er r nr �� tha t ar e c la imed t o have een committed by t h Comm i ss i one r i n ma ki ng t he a s s e s s ment , as in t h is case , confor m abl y to t he doctrine of t he pr esumptio in f avor of t he cor rectness o f t a x a s s essme nt (In t e r-prov i nc ' al Au to- ~u s Co 8i I nc . vs . Co llec ur of Interna l Revenue , L-~7 4 1, Janua ry 31, 1956 , 98 Phil. 290: Collec t or o I nt e rnal Revenue vs. Bohol Land ~rans orta t ion Co ., L ~3 0 9 9 ' L-~34 6 2 , April 29, 1 968, 107 Phi l . 9oS )~ the Cou r t of Tax Appeals will merely s us tain th a sse s sment aga inst the ta xpaye r (Esso Stan d a r d Fe rti ize & Agr i c ulcur a l Chemical Co . , Inc. vs . Commiss ione r of I nte rnal Reven e, CTA Cases Nos . 118

DEC ISIO CTA CASE NO. 23 40 - 15 - 1 86 2, 879 1 1 888, 189 3. & 1 896, May 30, 19 80 ) . It 8 is i ncumben t upon t e t axpayer cle a rly t o show I t hat the a sses smen t . was e r r oneo s in o r der to re l i e ve himself fr om it (Inte -provincial Auto- . bus Co8~ I nc4 vs8 Col lector of Inte r na l Revenue , s upra.) . This pe t i t i oner Filip inaa Au t o Sales Co r pora t i on fail ed o do s o . Pe t itione hav ing f a iled t o d i spute and con- . trover the f a t s and circumstances attendant o t his case wh ich suppor the finding o f res pondent t ha t th CKO c a rs a nd trucks i mported a nd as s e mbled by the Consolida t ed Assembl y, Inc8 wer e for a n on behal f of peti t ioner wh ich cau sed t he ~ a nuf acture of the motor veh icles involved in this proc eed ing , or to sho t he i ncor r ec tness of respondent ' s. asse s sment , t he Court has no other alternative . t han to susta i n t he dec i s ion of respondent dated Augus t 6 , 1971 old i ng t ha t petitioner i s li a ble i n t he tota amount of Pl3, 439.347 .. 93 as manufac urer's s ales t ax for the years 1957 to 1963, i nclus ive f s ur charge , i mposed under the then Sections 183, 18 4 and 186 of the National Internal Revenue Code . The compr omise pe nalty of PlO,OOO oOO suggested by 'e ondent i his assessment should no t be imposed or ~ o lle c te d wit ou t he gr e emen a nd conformity l l.U

--- DECISION - . CTA CASE NOe 2340 - 16 - of petitioner. nd it does not appear that peti- . tioner accepted the iml?osition of the compromise amount. (Wander Mechanical Engineering Corporation vs. Court of Tax Appeals, L-~2805 & 27858 , June 30, 1975, 64 SCRA 555.) Accordingly, pet tioner F'lipinas Auto Sales Corporat ion is hereby ordered to pay to respo dent Comm i s sioner of Inte rnal Revenue t he amount of Pl3,439 0 347.93 r e presenting manufactu r e r�~ sales t ax , incl usive of sur charge, for the years 1957 to 1963, plus interest at the rate of 14% per annum from Janua ry 1, 1973 to July 31, 1980 and at the rate of 20%.per ann um from August 1, 1980 until fully paid pur suant to Section 193 of the 1977 Na tional Inte rn a l Revenue Code as amQ~ded by President'al Decr ee No. 17 05. WHEREFORE , the decision under review is he r eby modified in the sen se that the compromise penal~y s hou ld not be imposed and is a ff irmed .in a ll other r espects. Wi t h cos ts a ga inst peti tioner. SO ORDERED. Quezon City, Metro Manila, Ap il 18, 1983. ~~ Presiding Judge � Associate Judge Con s ta~te c. Roaqu1n d1ssents i a separ ate opinion. 120

' m~f!'t'lteU ~ o OC~J~tl"' oO��F�.q'�,.,.. 4"!1- � I ~FILIPINAS AUTO SALES CORPORATION, Petitioner , .- - .versus - COMMI SSIONER OF I NTERNAL REVENUE Respondent. .� DISSENTING OPIN IO I vigorously disse'nt aga inst the !1\u.jority dec i - s ion dated April a, 198 3 rea ched by my coll eagues in this c ase ., To set t he records as cleax ly as possible , l et me s;tate the f acts a s truly r eflected and wh i c h are gathere~d from the J:ecords of t his c ase :. I t appears t hat petitioner Fi lipinas Auto Sales Corporation, herein referred to as FASCO, is a domestic corpo ration duly o rgani zed under the l a\'IS of the: Philjppi nes on April 13, 19 5-l (Repo r t of Examiner , pp . 181-18 4, I Folder 1, BIR rec.; Par . 2 , Petition for Review , ;~ ' ��. p. TA r e:C aJ Ex:hs "A" , "A-2 " , Amended Ar ti c le of I ncorpo r ation , pp . 07-11 3 , CTA r ec . ) wi th it s pri- mary purpose as follows: 121

r ' DI SSENTING OP INIO CTA CASE NO 2340 - 2- PRIMARY PURPOSE � � To c onduct , engage in a nd c a rry on 11 I whether a s agents , princ pa. s , o factors , he business of i mEQ..rting, buying , sel ling, distribu ting an.c1 dea_l ing in all kinds o f automobiles , motor trucks , station wagjOn s , motorcycles and all other ki nds o f mecha- nically propelled vehicles and means of tr ansp ortation_, as well as i n car an d truc k spare par ts, accessories, tires, in ner tubes, batteries, tools and all other supplies, materials and applian q'~.. used in .. such motor vehicles ." (Under l ining mine .) . A so, the records s.how t ha t t he original incor- porators of t he said FASCO are as follows : NAME CITIZEN SHIP RESIDENCE Fran k R. Ha ling Ame rican 1 131 M.. H. de l Pilar , Mla. Sibyle L. Haling American J.l 3il M. H. del Pilar , Mla . Lualhati V. Ferro Filipina 1 26 0 V. Concep- Filipino cion �, Ml a . Manuel c. Macatulod 1222 Alf r edo , Mla .. Pedro M. Syqu ia :Fil ipi no 1 131 M. H. del � Pi ar , M1a . By virtue of distri butor ' s ag r e ement e n ter ed i nto between FASCO and Chr ysler Co po ra t ion o f United States, the f ormer was appointed by the l atter , hereinafter Jreferred to a s Chrys.ler f or short , as the franch i se di s t r ibutor i n the Phil ippines of Dodge automobi l es an trucks. (Dist ri butor ' s. Ag reement betwee n Chr ys ler and FASCO, Folde r 1 , PP c 18 8-190 , BIR rec . )

� DISSENTING OPINION - CTA CASE NO . 2340 - 3- The fir st s-entence o f paragraph 2 of the s.aid � Distribu te 8 s g r eemen t (Folder l, p . 87 , BIR rec .. ) I be tween Chr ys.l e r and pe titioner (FASCO) '� as amended , provides thatz �Except as set forth in this pa a- graph and s ubjec t to all t he t erms and condi tions s.et f orth in this Agr eemen t, Company (Chrys.ler ) qrants to non-exclu- sive ri qht to purchase motor ~~e!:.'1� i es parts fr om Company ( Chrysle ~ ) and/or from any ass.embler or man nf act~ (COJ! solidated Assembly , Inc . ) .in the Phi.liE,- pin eJL.9;?s i qnated by Company (Chrys ler )'� for distribution and res ale i n t he fo l - l owing descJ.L: i bed ter r itory a nd not else- where . .. (~osed i n par enthesis mine . ) . Sometime on August 16, 1954, a domestic corpo- r a tion known as Consolidated Assembly Incorpor ated , herei nafte � r eferred to as Conso lida ted , wa s regi s - tered with the Security and Exchange Commi ss i on with the f ollowi ng individual s a s stockholders o r i ncorpo- raters : Mr . Ignacio Jaotayag , Andrea v. J aotayag , Ricardo s . Can l as , Ju a na J . Ca nl as and . Leonidas J . Can l as .. By virtue of an Agreemen t dated J anuar y 23�, l95 S (Folder 1, p . 280 , BIR r e c. ) .enter ed into between Chrysler and Consol idated , the latte r was a ppo inted by the forme r as i ts Assembler o f Dodg e c a rs an d t rucks in t he Philippines with the f ollowing t rade names: 111 Dodge, � "Plymouth , " " De Sotto ,.. "Valiant , " "Morris," � s � m~a ," and " Fargo ." 12 3 ' 0

DISSENTING OPI ION CTA CASE NO 2140 -4 Cons.olidated was establishe . with the primary � purpos.e of engaging in the busi ness of as.sembling I and man ufacturing ~otor vehicles , wh i c h assembled or manufactured motor vehicles , in t urn, were sold and dist~ib ted to severa l du ly a u thor ized o r licensed distr i butor s , and one o f wh i ch is the here in peti tione FASCO . (Re v . Exami :1e r Pa bl i to Enano , Folder 9 , pp .. 204-2:10, BIR rec ; underlining On Janua ry 22, 1959 , Author ' t y No. 94-R as .� issued author i z ing e xamine rs Lorenzo M. Leynes and Simeon Casing;a l to e xamine and inves tigate the book s of accoun t s and. o t he r acco untin9 re,c. cot:-:... ~ f o r bu s i nes.s tax purposes of petitioner f or t he years 1958 and al l unverif i e d years. (Fo lder 1, p~ 27 , BIR r ec . After / t he aforementioned i nvestiga t ion by respondent 's exam i ners , a memorandum report was submitted y �t:hem . dated Apr i l 30 , 1959 t o t he Provinc i al Re vnue Of f icer of Que zon Ci t y , fi nding petitioner l iab l e f or sales t ax in the amoun t of P988 , 464 . 64 for t he years 1957 t o 1958 ~ The examiners a lleged that FASCO' s s ales of automobiles and truc ks were origina l sales , and , therefore, the tax shou ld be collected pursuant to Section 1 85 should be Sec. 84) ?f t he Tax Code. (Folder l, pp . 38-~9 , BI R r e c � . Howev e r , on Ju l y 1 2, ,'I

.-- DISSENTING OP INIO CTA CASE NO .. 2 3;40 1960 , respondent assess.ed and demanded fr om pet ' - .. t ioner t he h igher sum of Pl , 036,341.7 2 as manufac - tu rer "~ sa les ta~ a nd surcharges fo r the years 1 957 and 19SS pursuant to Secti ons 1 83 , 181: and 1 86 o f the Tax Codee (See Exh . N2 " , Folde r l, p . SG , BIR r ec.) . This was protested by peti tioner, thru the accounti ng f irm o f Sycip , Gor res , Velayo & Co , in i ts l etter dated August 22 , 1960 , contending t ha peti tioner i s no t a manufac turer of utomob iles and trucks � but i ~ a mere distributor o f s uch vehicles , and , therefor e, i t shoul d pa only graduated fix:ed tax ( C-~ 3 ) .for its sales of new a n usrd automobiles and t ruck s pu rchased from Consol i da t ed, which is the authorized manufacture of said c ars and trucks of Chrysler . (Exh . "3" , Folder 1, pp. 91- 92 BIR r ec . ) In a memorandum addressed t o the Revenue Ope r - ation Head, t he Chief Li ti gati on Divi sion, Cesar L. Kierulf , recommended that a deta iled i nvestigation be conducted in order to ascer ta in the correct tax l iab i l ity of the here i n peti t i oner . (Fo l der 1, pp . 21 9-222 , BIR r ec .) As a consequence thereo f , a n- other author ity No . 0351/64 to investi 9a te was issued on J ul y 28 6 1964 autho rizing Exami ne r Lor e nzo M. Leyne s to reinvestigate petiti oner ' s business t ax lia bil ity . ' . ..

-- DI SSENTING OPINIO CTA CASE NO. 2 340 - .6 - (:Folder 1, p . 227 , BIR rec .) . Eventually , Examiners � Er nes.t o . Enano a n d Reynoso Floreza a lso inves t i9a ted I petitioner �s ta:lt liability. Af te r t he r einves tigation, r espondent sent t wo l etters to peti t ion er FASCO dated November 4 and 25, 1964 i nforming t he l atter tha t a conference \'lill be held in order to g i ve the latter an oppor tu ni ty to presen t i ts ev ' denc�~ and to s .upport its content.ion t hat it is not a man ufacturer o f said cars and t rucks but merely a di stributor . {Fo lder 1 , pp . 28G- 287 , BIR r ec . ) . However, there is no thing i n the records to s how what t ran spi r ed in he aforesaid conference. 0 March 7 , 1966 , a r e vised as e- Glment was issued increasing petitioner'� sales tax liability from Pl ,04 G, 34 .. 12 to Pl 3 , 439,347.9 3 co ve r ing the year s 1957 to 1963. (Exh . "6", Folder 1, pp. 425- 427 , BIR rec.) This increased a sse ssmen was a g a in protested by s ai d petiti oner , thru counse l, Carlos Valde z & Co. , in a l ette r dated Apri l 30 , 19 66 . (Exh . "C", Fo lder 1, pp 452- 459 , BIR r e .) The Game \'la s , h owe\H~r , d en ied by responde n t i n his l e tter dated Augu st 6i , 1 971 . (Exh . " 9" , Folde r l , pp . 532 5 35 , BIR rec .) He~nce , on Octobe�r 2 3i1 1971 peti t ioner appeale'd t o this Cour t. The on ly issue pos 'd befor e this Co ur t for 1 26

_..- DISSENTING OPI I ON - CTA CASE NO . 2 ~40 - 7- determination is \<lhether or not pe tit i o ner FASCO is a � er pursuant to Sec t ions 1 83-~84 and ma n u f a c t u I 1 8 6 of the Nationa l I nte rn a l Revenue Code . Res.ponde~n t claimed that p eti t ioner FASCO is contractor-~anufacturer of cars and t r uck s th at were , as a fore:s aid , as;s;emb1ed by the C o ns.ol i dat e~d .. Res:ponde n t presumed Con s.ol ida t ed to be under c on- tract t o as;se~mbl e cars and trucks, fo r a nd in be- h a lf o f FASCO , hence , concludee! that t he l atter is a manuf ac t urer p ursuan to Section 184 of the Tax: Code . Respondent , i n arr i v�i ng at the c o nclusi o t ha t pet itione r- is a manufac t urer, r eli ed 0 n th e fol low i ng cin:::umz.tances (pp . 1 6 31-~64:, Res.p Memo ., CTA Rec .) '� to wit: 1. That t here exis t an ag ree ment e xecuted in Ame~rica on J anuar y 231 , 1 9 58 where i n it was stipul a ted t hat Consol i- dat ed was app ointed t he exclu s ive a::;:sem bl c r i n the Philippines o f Chrysler Corpo- r a t ion CKD cars and trucks f or and in behal f of t he Co r.pora t ion' s (Chrysle r) distr ibuto rs . Petitioner was at t he t ime one of the distributors o f the c ars and t rucks of Chrysle r Co rpo iltion . 2. Pe titioner herein con tributed t he ma jor \va r king capita l of Conso li- da ted Assembly f or t he years 956, 1957 and 1 958 ,th e f ormer as manu facture and the latter as c on tractor . 3 . The assembler r eceived a f ix: i n c ome o f P20 0.0 0 to P350 00 per uni of . c a r o r truc:k del ivered to pe tition er.

I' DISSENT ING OP INION CTA CASE NO . 23:4,0 - .8 - 4. Tha t there exist a etter of Chrysle~ Corpor a t ion informing the Central Ban k of the Philipp i nes t ha I Chrysler has~ approved i t~ (Chrysl er ) dis tri butor'~ choice of Consolidated to undertake the jop of assembling its cars and t rucks i n the Philippines on behal f of said dist ributors . One Of the distributo rs on whose behalf the CKD parts t:ere i mporte a nd a ssem bled was the petitioner herein . 5. That there exis a l etter that the CKD parts liill no t be r .~ l eased to Consolidated without any au thor ity from Chrysler agents in the Ph ilipp ines., 6. The selling price o f the uni ts to t he petitioner i s determined by the actual cos plus assembly f ee and sales t ax per l ot or as pet lett er of credit covered by the i mportation. 7. 'rhc fu nd used by Consoli on ted for payment of margina l dep os i t~ , taxes duties and other importati on expenses were advanced to Consolidated by the herein petitioner thru l ocal banks by means of domestic l etter of credit. s . The CKD Parts rel e ased by banks to Cons.olidated under trust rece ip t were guaranteed b peti t i oner . 9. Petitioner and other distr i- butors of Chryslet*� product in t he Philippines were found to have opened credit lines i n f avor of Consolidated for the importation o f s a id CKD parts. The provis i on of t.he law applicable at t he ti me is Section 184 of the Tax Code which provides as follows : " Sec ~ 18 4 . Percen t age t ax on sales of x x x automobiles �x x . - There shall . be levied , ass:es:sed and collected o nce 1 2()

DI SSENTING OP I NION - CTA CASE 0. 23>~:0 - .9 - only on every ori9inal sale, barte!.L ~chang~, or similar trat;sacti'?n for I nominal or valuable cons1derat1ons intended to transfer ownership of , or ti tle to, x x x x such tax to be paid by t he manu~act~ o producer . .. (Unde:r linin;J supplied ) I bel ieve t hat t he circumstances found and assertedb respondent in arriving at t he conclusion t hat petitioner PASCO is a manufactu r \!r subject to s.ales tax under Secti on 18 4 of the Tax Code are not suffic ient .. The records show t ha t the petiti one FASCO and Consoli dated a r e ent ir e~l y separate a nd di stinct corporati ons, with entirely separat stockho ders and o fficer s and performing separate a~d distinct t ransact i on s . In short, t hese t'..ZO co poration s have separate juridical personaliti es. I t is worth not- i ng that none of the stockholders and/ or officers of petitione r FASCO are stockholders and/or officers . of Con sol "dated and vice ver s.a. PASCO is defi nitely governed by its ar ticl es of inc orpora tion, \'lhic:h is the very s ou rce of its power and au thor i ty . 'fhe primary pu rpose i n or ganizing the aforesaid corpo- r ation in 953 is merely to engage in the sale and distribution of all kinds of motor vehicles . l'o- where can we fin t he ba sis fo r conc l uding that ' pe titi oner FASCO is vest ed with authority to engage 12 ~ ..

.-"- DISSENTING OPINION � CTA CASE NO . 234:0 - 10 - in t he bus iness o f manuf actur i ng car s a nd t r uck s i n 0 oltder t hat it may be c ons idered a anufacturer pur- I suant t o Sect ion 184. o f the Tax Code . Defin itely , insofa r a s i t s c orporate a i ms and pu r pose& a r e concerned , pe t itione PASCO can o nl y e x.:e r cise t he powers that are expressly conferred by law and i ts a rtie e s of incorporati on. It was i n 1953 that petitioner 11 by virtue of a con tr act , w~ s appointed a s a fr anchise d istributor i n the Ph ili ppines by Chrysl er . There is n oth ing in the r eco rds i nde~ed that wi l l s�h ow that these t .\'/O corporations, pe ti - t ione r FASCO and Conso lidate:d , had any busi nes:s affiliation or i den tical pu rpo s es . Tb ! only busi ness r elation bet'IJ.een pe ti tioner:� FASCO a nd Consol ida ted i s '''hen t he fo rmer p urchas.es the car s and t r uck s from the latte r whi ch manufactured them .. The Supreme Cour t . in the c:as�.e of Mani la Trad i n �g & Suppl y Co ., v s . C'J. ty of Man il a , et al ., G.R . No. L- 12156 , Apr i l 29, 1959 ; 105 Ph i l. 58 1 ., defined manu f acture r a s fol lows : 9'Manufacturer Defined . - One who i m- por�ts: raw mater i al s a nd as.sembles them l ate r to t urn t hem i nto finished pr odu cts i s a manufacturer beca u s e th e word " man u- factu r er" in its pla i n and ordinary mean- i ng includes: "the process of assembl ing articles which while c omp lete and f inis:hed , have no i ndependent ti l i ty but are de signed to e sed i n combina tion a parts of scm other articles, such as a t ypewriter , a n au tomobi l e , or the l ike , but when s o u sed , 1 30

DIS SENTING OPINION - CTA CASE NO. 2340 - ll the proces:s of assembling usuall y , i f no t always , involves t h e e xercis.e o f I man ual or mechanical sk i ll a nd labor a nd the mor e o r l e s s extensive us e of auxiliary machinery . (M. H. Rowe c o . vs. Beck , 131 A. 509 , 511-512) ~ " Words a nd Phrases , Vol . 26 , a t page s 631 and 637 , defines "' manuf actu rer "' a s fo l l ows : "A �manufacturer' i s one \vho eng- ages i n t he business of work i ng ra w materials into wares &uitable f or use 17 who gi ves new s hapes , new qual i t i es , ew comb inations to ma t t er which has a lready gone through some a rtifici a p rocess. State v. Magnolia Packing Co ., 35 so . 2d 422, 423 , 424, 213 La . 661." "Motor company manufacturing and se l ling t o an automobi le dealer a motor- truck c hassis with mo t or a nd cab , as a ' manu f actu~er 8 .within Certifi c ate o f Title Act . Mo to r Inv. co . v . Cjty of Hamlin, 179 s .w. 2d 278 , 280 , 282, 142 Tex. 486.) . It is clear t hat, under t he f acts of this case, petitioner, s i nce it merely purchased t he t rucks and . car s ass�.emb led by Cons:olidated a nd res,old the same to the public in general, as evidenced by t he agree- ment beb1een Chrys:ler and PASCO , is c ons.tituted by Chrysler only as one of its Phil ippine di stributors . There exi st no doubt that t h evidence i n this case wil l show t hat Cons.olidated i s the manufac:turer a nd no t the peti t ione r . The Sales I nvo i ce o f spare parts t o b use in as.sembly c ars ~nd tJ: uc s e r e i n the name of Cons,olidated . (Exh . ''D ", Folder No. 2 , 1 31

.....~-- DI SSENTING OPIN I ON � CTA CASE 0. 2 34:0 - .1 2 - . p .. 4 2 , BIR r e" c ., ) The Tran s f er Cert i ficate (Exchange Quota ) of t h Central Bank wi l l show t hat t he i mpo rt I c harges were made against the account o f Consol i dated Ass-embly Incorporated ., (Exh .. " E'0 , Fo lde r o. 2 , p . 4:1 , BIR rec .. ) . The Application a nd Agreement f o r Commercial Le tter of Credi t. was made b:t� Cons�.olidated Assembly Incor por ate d . (Exh. " F ", Fo l -:: r No . 2o p . 3�9 1 BIR rec. ) . Lette r of Cr edit ill sho tha t the i mpor ter is Cons-ol i d ated Ass embly I ncorpor ated (Exh . " G" , Fol der No . 2 , p 8 38 , BIR r ec .) Adv i ce of Letter of Credit wa s opened to show that t he i mp o rter i a Cons-olid a ted Assembly Incorporated.. (Exh " H", Folder No 2 , p . 37 , BIR r ec. ) . The S L .. tement of Charges were made by a Brokerage Fi r m a ga i nst Con so- lidated Assembly I ncorporated for b rokerage s ervices and o n "MORRIS" i mpo r ta tion (CKD �. (Exh . " I " , Fo ld e r No . 2 , p. 31 , BIR rec .) . Cen t r al Ban k Relea se Ce.rti - fica t e No. 1 0064 was i ssued in f avor o Consolida t ed . (Exh. "J", Folder No. 2, p . 27, BIR r ec . ) Sa ntos Brokerage Receipt was f rom Consol id ated As s embly I ncorpor ated . (Exh . " K", Folder No . 2, p . 26, BIR / r ec .) . Bill of Lading was i n t he n ame of Consolidated Assembly I ncorporated. (Exh . "L ", Folde r No . 2 , P o 25 , BIR r ec . Del ivery Receipts wer e in t he n ame of Consoli dated Assembly I ncorpo rat ed by Sa n tosBr o kerage . 1 32 � 't

DIS SENTING O~ I N I ON CTA CASE NO . 2340 - ll - (Exhs . "M" t o "M-4:" , Folde o . 2, PP� 18- 23 , BI R � r ec.) . Notices of Shi pment by Shipper wer e d irected I to Consolidated Assembly Incorporated. (Exhs. ' N" t o "N-2" , Folde No .. 2, pp . ll , l4 & 15 , BI R r ec .) suppl eme n t to Amendmen t of Commerci a l Le t t e r of Credi t Import Departmen~, Ce ntr a l Ban k , i n t he name o f Cons.o lidated Ass.embl y I ncorpor a ted .. {Exh . "O " , Folder No . 2 , p 9 , BI R rec ) . o ices made t o Paci fic Ba nking Corporation by Con sol i da t ed Assembl y I ncorporated, re : Amended Lett er o f Credi t . (Exhs .. "P" t o 81P- 2", Folder No . 2 , pp . 5 t o 7 , BIR r ec .) Sales. (Shipping) .Invoice o f C rysler I nterna tional di rec t e d t o Con so li dated As s emb l y I n~c, ..:p o r ated . (Exh s . " Q" t o " Q-~ " 1 F o lde ~: No . 3 , pp .. 37-~ 9 1 BI R r ec . ) Luzon Br okerage Corpo rati on - Request for Gove rnment Taxes addre s sed to Consol ida te Ass:e mbly . (Exh . '1R" , Fo lde r o . 3, p . 36 , BI R r ec . ) . Import En try a nd I nternal Revenue Dec lar ation� we r e i n the name o f Con s o lidated s sembly I ncorpora t ed . {Exhs . "S " , Folder No o 3 , p . 35 , BIR r ec � . Not ice o f Consolidated Assemb l y Inco r por a ted f rom Ban k of As i a . / (Exhs . "T" t o "T- 2" , Fo l de r No . 3 , pp . 32 -3 ~ , DIR r ec .) Letter of Pac i fic Fa r Eas t Lines , I nc . was address.e to Cons o li ated to the e f e c t tha t it s shipmen wil l ar rive on Febr uary 14 , 1 964 fr om New 133 . ..

DI SSENTING OP INION CTA CASE NO . 2 340 - 14 York . Exh. " U", Folder No . 3 , p. 31 , BIR rec .. ) " Va rious Shipping doc:uments. in the n ame of Conscl i- dated Assemb ly I nc .. (Exhs. " " 1 " V-ll", Fo lder No .. l , pp . 19-30 , .BIR rec .. ) Cent ral Bank Release Cer t i - fica e was issued t o Consolidated wh ich authorizes the r elease o f i mported Gpare pi.:irts of car s and truckG in its f avor .. (Exh .. "W" , F olde ~r No . 1 P � 17 , BIR rec.) . Luzon Broke rage Corpor a t ion Way Bill s , in t he n ame of Con5elida ted Assembl y I ncorporated. (Exhs:,. "X '6 t o "X- 7." 1 Folde r o. 3 , pp. 9-16, BIR rec. ) . Computat i o n f Taxes wh i ch s:ha ll be pa i d by Consolidated in connecti o n wi t h it s i mportat i on of 12 knock down units o f Dodge 440 Sedan. (Exh . "Y", Fol der No . 3, p . 8 , BIR r ec .. ) . Applicat i o n for With- drawa l from I nterna Rev�enue Bonded Warehouse No. 2 by Luzon Brok erage Corporati o n fo � Consol idated Assembly Incorporated . (Exh . "Z" , Folder No . 4:, � p. 14, BIR rec . ) With the aforesaid ar ray of evid e nce , i t i s now very c l ear and c:onclusive t hat the manufacturer of t he cars and t rucks in the Ph i lippines is Cons.oli - / dated and n ot petitioner FASCO . As I sa i d here-for e, petitioner have merely purchased the c a rs and t rucks as.sembled b Consol i dat ed a nd d i str i bu ted and res o l d the s ame to the public in 9ener al . The nature of

DI SSENT NG OPIN ION - CTA CASE NO 2340 -.15 p etitioner �s. bus.i ness t rans.action is merely t ha t of � a dealer and not a manu f acturer . I wor d s and Phrase s , Vo l e 11, PP e 1 5 2-~53 , 1958 Ed s, d efined dealers as follows : "A person whose bu s i ness is to buy and sell i s a ' dea ler ' . State v . S i l ve r man , 70 As 1076 , 10 77 , 107 8 , 75 N. H 50 e" "A ' deale�r 9 '_is no t one who buys to keep , or makes t o s:el l , but one �,.zho buys t o sell aga in. He depends f or his pro f't , no t upon t he l abour he bes ows o h i s c ommoditi es, but upon t he s ki l l a nd f o r - sight wi th which he watches t he markets. People v . Ste:vens , 51 P . 2d 117 9 , 1180 , 10 Cal . App . 2d Supp . 763.� The a llegat i on t ha t petitioner FASCO c ontributed t he ma j or working cap ital of Conso idated du ring the years 956 , 1957 and 1958 is no t zubttantiated by eithe docume ntary or testimonia l e vidence . Res- pendent r elied entirely on t he examine r s ' reports submi tted by S imeon G. Cas ingal a nd Lorenzo M. Leynes . It i s. unfortunate that t he s aid examiners we re no t p resented as witnesses by respondent during t he tri a l o f the in stant c ase in t h is Court . I c a nno t, there- fore , give the appropri a t e c:r e denc:e ; va lue a nd co rr ect ness to s aid r eports. Wh ile petitioner FASCO does not deny that it made fi nanci a l advance s to Cons ol idated , th e se advances \'ler however appl ied a ga i ns t he deli ve r ies of car s and trucks made by Consol i da t ed which was the ma nu - facturer o f t he car s and t rucks. Advances made b y 1 30

--- DISSENTING OPINION - CTA CASE NO 2340 - l~- purchaser s like petitioner FASCO to Consol i dated � has been treated as part of the accept ed business I practi e of t he trade and/or bu s iness i n o r der to i ns.ure deliveries o f the merchandise on t i me as &a isfacto rily e xp lained by petitioner FASCO in its let t e r of protest dated June 17 , 959 , a por- tion o f wh i ch r eads : "Wi th respect to advances made by Filipina s Auto Sal es Corpo ra t io to Conso lidated Assembly 17 I nc. , we have to state t hat such advances ,.,ere made on accoun t o f purchases made by t he forme r f rom the l atter . Th_ese advances wer applied agjainst deliv-eries of cars i:!nd trucks made by the manufacturer . .!..!}. almost any .!::fEde o r business the payment. of advances on account of purchas.es has been t _reated as a part of the business p rac~J-~~~__of the � trade to insure deliv�eries o f m~r chandise on time . Even 1n t he i mportatTon of mer- chanoise from the United States it i s nQt unusual for importers t o p ay a ma r ginal deposi t to suppliers in t he United Stat es before s hipment can be made . (Underlining supplied; see petition protest dated June 1 7 , 1 959 , Folder No . 1 , pp . 45-~6 , BI R rec . As r ega r ds. the allegation tha t Conso li dated r eceived a fi xed net income of P200 e00 t o P350 .0 0 per un i t of car o r t r uc k man uf actur.e�d and delivered to peti tione r as assembly f ee docs not a t all indi- cate or show t hat petitione r i s t he manufacturer . The aforesai d fix:ed income rece i ved by Con solidat ed is a ~ eason ab le i ncom t a ki ng i nto cons idera ti on t hat in the year s 1957- 963 the va lue s of c ars and 1 38 ...

DISSENTING OPI I ON - CTA CASE NO. 2l4: - 17 - tr ucks were actuall ver y mu h l ess, a nd t he c or r es- pond ing peso va ue was t hen h igh compared to value I, of cars and truc ks purchas ed and the correspondi ng purcha sing powe~ of the peso at p r ese nt . Besides , the exam ine s, �s imeon Casi nga l and Lo renzo Leyn es 6 who or i inally investigat e d the petitioner and \<rho mad e t hese fi nd i ng s were neve r presen ~ec1 as witnesses during the hear ing of the instant c:a s e befor e t h is Cour t t o substantiate o r con fi r m the ir findings whi c h altogether deprived petitione r t he right to con f ron t the:m on t he ir r epor t.. Hence , the r eport , t o my mind , is of no value. Respondent a lso con t e nds that he a s c ome acros s a letter of Chrysler informing the Centr a l Bank of the Phi lippines tha t Chrysle approved Consolidated as its choice t o undertake t he job of assembling its c ars and t rucks i n t he Phi lippines in behalf of �a l l its d i stributors one of wh ich i s petitioner PASCO herein. Also , respondent i ns i sts that ano t her letter s hows th at CKD p a rts wi ll no t be r ~leased t o Con s oli - dated withou t author i ty fr om Chr ysl e r 0 s agents in the Philippines Respon den t f urther con tends that the f und s sed by Conso lidated f o r payments o its marg i na depos its , ta~es , duties, a nd ot e r i mport- ation s , expen ses , \ver e advanced t o Consoli dated by 1 3'1

DISSENTING OPINION - CTA CASE NO ~ 2340 - 18 - petiti oner , a nd tha t petit ioner and o ther d i stri � butors were fou nd to have t a ken a cred i t line i n I f avor o f Con solidated for i mpor tation o f sa id CKD parts. t is \oJort.h noting hat t.he se advan ces made b~ the distri butors are me r e l~ trade or busi ness arrangements in order to facili tate business trans- ac t ion among corporations , and t his arr angement does not t he least draw a conclusi on t.hat petitioner i s the manufactu rer o f the car s a nd trucks . There exist no direct evidence wha t s oever lin k ing petition er and Consolida t ed as a single enti ty with regard to the producti on and manufacture of t he cars and trucks These two corporations , as I have said , a r e c o rpo- r ations having two separate and d istinct personal- i ties . There is no di r ect o r clear evi dence establi sh ing the f act that Consol i da t e d is a mere c onduit , . instrumentality o r a lter ego of peti tioner FASCO for the: p ur pose o f perpetua t � ng f raud again s t r e - venue . Whe r e no dir e ct evi dence eKi st on t his matter , dis.regard of t he corpora te enti ty of FASCO c anno t be done . l1oreover ., dis.regar d of corpo ra te entity is the e xception and not t he general rule . In th i s connection , M~r ten ' ~ as t his t o s a y : " ln conclus i on i t may be sta t ed t h a t � t he doctrine of cor porate ent i t y i s one of 13 o

... -- DISSENTING OP IN ION - CTA CASE O. 2 340 , 19 - substance and vitality and that the di s- r egard of t he doctrine is the exception instead of t he rule Some of the excep- I i ons have been def i ned very c learly by t he courts as shown above ~ owever , many cases have arisen wh i c h were shadowed with doubt , and until the court s had decided t he i ssue, no one cou ld be r e,asonably cer- tain as to just how t he l i ne would be dr awno ( Me r ten � ~ , Law on Federal Income Taxa t i on 1 Vol,. 1 , Chap . JS , pp . 24- ~5 , 1956 e d.) . Eve n ass um i ng tha t Consol i dated and petitioner FASCO have ag reed as t o the manner in wh i ch their busine ss transactions are to be managed , and t his arrangement was merely f o r t he pur pose of mi nimizing the t axes t o which t hey a r e li able , by me a ns wh ich the l aw does permit , the Supr eme Cou t in one c ase (Yu tivo Sons Ha r dwar e Co., vs . Court of ':~'ax Appe als and Coll . of Internal Revenue , 110 Phil . 759) ~ held thus; " I n the third pl ace , Sections B4 to 186 of the said Code provide that t he s al es tax shall be colle cted 111 0nce o nl y on every original sale , barter , exchange . x to be paid by the man ufacturer , producer or i mporter .. � . The use of t he wo r d 'or i ginal' and the express provision that the t ax was collectible 'once only' e v i dently has made the provisi ons su s c ep tib l .e of dif f er- en t interpretati ons. In this connecti on , i t s hould be stated t ha t a taxEayer has the l egal riqht to decreasethe amount. o f what otherwise would be his taxes or al t o- 9ether avoid them by means \'lhi ch the l aw permit s. (U . s . vs .. Isham . 17 Wa ll . 496 , 596; Gregor y vs. Helve r'ng, 29 3, u. s. 469 ; Comm vs Tower 0 327 u. s. 280; Lawton vs. EYComm ., 1 94 F/2:_/ 380 ) �. Any lega l mean~> used the taxpayer t o reduce taxes ar e all r ight Benny vs . Comm . 25 T. Cl . 78) . A man may t herefor e, pe rfo m an ac t t ha t he 13 8

DISSENTING OPIN ION � CTA CASE NO . 23 ~0 - 20 - honestly believes t o be suffi c ien t to exe�mpt 'him from taxes. He doe s not i nc ur fraud thereby even if the act i there- af ter fo und t o be su ff icient . Th us in the case of Cour t Ho l di ng Co . v s . Comm ~ 2 T. Cl . 531 , it was held t hat t hough an i ncor rec position in law had been t aken by the c orpor ation there was no s uppres- sion of t he f acts , and a f raud penal t y was not jus tif i ed." (Underlining Supplied) The enume r ated con tentions of re s.pondent in his memor a ndum being merely in feren ces , and not based on actua l fac ts, which points , in effect , t hat peti- tione FASCO is a manu factu rer cannot hold water . The presumption o f cor rectness of a n asse ssme nt b� responden t can be mai nta ine d only when t he s aid assessmen t is based on fac ts and no t on mere inf er - ences The Supr eme Cou rt , in the ca e of t he Col- lector of I nternal Re\Tenue versus Al ber to Benipayo, G. R. o. L- ~3 656 , J anuary 31 , 1962 , 4 SCRA 1 82 , held t hus: " In order t o stand t he test of j udi- cial scru ti ny , the assessmen t rnui t be based on actual facts . The pres mption of c o r- rectnes s of a sse s sment bei ng a mer e pre- . sumption c a nno t be made to rest on another p resumption that the circums t anc es i 95 2 and 1 953 a re pre s umed to be t he same as those existing in 1 949 to 1951 and J uly 1955. I n t he case unde r consideration ther e are no s ubstantia l f acts to suppor the as sessme nt in questi on x x x~ " In view of t he fo re going , I r egi s e r my dissent - i ng o t e agains t the major i t y decision wi t h t he v~e~ 1 40

/-- ' DISSENTING OPINION - CTA CASE �o . 2340 �, - .2 that petit io~e r s hould no be liable f or taxe s as I a manufactu r e r unde r Sec t i on 1 84 of the Na tional I nternal Revenue Code. Quezo Ci ty , Metr o Man "l a , , 1 98 3 . ROAQ UI N J udge 1 41