CTA Case No. 4263 (Decision)

REPUDL.rC OF 1'1/E f'//IL.lf'P1NES COURT OF TAX APPEAI~S QUEZON CITY CARNATION PHILS. 7 INC. C.T.A. CASE NO. 4263 (now merged with Nes-tle Phi 1 s. 7 Inc. } 7 Petitioner, - versus - COMMISSIONER OF INTERNAL REVENUE7 Respondent. X- - - - -X D E c; I I CJ N Pe-ti-tioner comes beFore t h i s Court pr~ying For -the nulling and voiding oF -the asses5ments cover ing its alleged deFiciency income and sales taxes For -the -taxable year ending Sep-tember 30, 1981 7 in -the oF total amount oF P197 5 35,183.44, inclusive penal-tie~ and i n t P r e s t . The records oF the case, as well as tha -t oF the Bure~u oF Internal Revenue in connection wi-th the same, evidence a clear Factual bacl<gr ound oF the controversy at hand. Petitioner, a duly registered Philippine ! corporation, Filed its Corporation/Partnership I J 1

DECISION -- C.T.~- C~SE NO. 4 2 63 Rnnual Income Tax Return Fot ~ ta><abJ P ending Septembet~ 30, 1981 (EHh. "F"; CTR RP c ot ~ ds, p. 113), on January 15, 1982 ; anrl its ManuFacturers/Producers Percentage TaH Rer�tt~ n Fot~ t h e quartet~ e n d i n g Septembet~ 30, 1 9 81 ( Euh. "M"; CTR Recot~ds, p. 114), on Novembe�~ i.=?O , 1.981 . On October 13, 1986, March 16, 1987 and May 18, 1987 p e t i t i o n e r , tht~ough i t s S enior Vice President Jaime 0. Lardizabal, and in con s ideration oF the approval by the Commissione r or Internal R e v e n u e o F pet i t i on e t~ ' s r e q u e s t F o t~ J ~ e i n v e s t i gat i on And/or reco nsideration oF its internal revenue case involving the assessments For the Fiscal year 1981 which were pending at the time, signed three "Waivers OF The StatutP. oF Limitations Undet~ The National Intet~nal RevP.nue Code", it: "xxx waives the t~ unning oF the prescriptive period prnvided For in Sections 318 and 3 1 9 and other related provision5 o F the National Internal Revenu e Code and conse nts to the assessment and collection oF the taxes which ma y be Found due aFter reinvestigation and reconsideration a t any tim e heFore or aFter the lapse pF the pet~iod oF limitations FiHed by said Sections 318 and 319 and I

DECISION -- C.T.R. CRSE NO. 4263 other relevant p rovision~ oF the National Internal Renenue Code, .) but not aFter (13 Rpril 1987 For the earlier-executed waiver or June 14, 1987 For t,he 1 a t et~ Wr'livet~ , ot~ July 30, 1987 Fo, ~ the subsequent waiver, as the c~se m~y be). Hoc.\le vet~ , the t ax P"" yet~ (petitioner herein) does not waive any prescription already accrued in its Favor ." CExhs. "B" and "B- 1" and "B-2"; CTR Records, pp. 104- 106) Neither 1..,ai ver was signed by t-espondent Commissioner or any oF his agents. On Rugust 5., 1987, p e t i t i onet~ s t~espond ent' L e t t e r oF D emB nd No. FRS- 1B-81-87, dated J'-tl y 29, 1987 (Exh. "~"; CTR pp. 101-102), asl<ing petit i onet�� to pay oF P .t, 442, 586. 56, P14,152,683. 85, and P.3,9.39,913.03 representi ng, t~ espectively , i t s al..I e g ed deFiciency income tax, sales tax, and sales tax on undeclared sales For the year 1981, increments include d. This dem B nd l et ter was accompanied by R sse ssment Notices No. FRS- 1 - 81-87-005824, FRS-4-81 - 87-005825, and FRS-4- 81-87-005826 CExhs. "R-1", "R-2", and "R-3"; CTR Records, p. 103). Petitioner Filed a basic protest CBIR Records, pp. 46-47) with the BIR on August 20, 1987, therein

D~CISION -- C.T.R. Cn S E NO. 4263 - 4- disputing the assessments cov ere d by Dem~nrl Letter No. FRS-1 B-B 1 - 87. This supple men ted by a petitionPr's protest dated SPptemhPt~ �=-a, 1987 and received h'}' the BIR's Rece�vabl e Recount~ Division on September 30, 1987 (BIR pp. 266-287J. Th ese pt~ otests were denied by rPspo nd ent in a l e t t e r (Rnnex "F", "Petition For~ Review"; CTR Recor~ds., p.41J, dated March 15, 1 9 RB and received by petitioner through counsel on M~rch 25 , 1-9BB, which s t a t e s, in pat~t, as Fallows: "Please be inFormed that aFter reinv~stigation, t h i s OFrice did not Find any legal or Factua l justiFication to withdraw, cancel or even modiFy our above- mentioned assessments. "In view thereoF, it is t,eque sf; ed that the aForpsairl t~r liabilities or your cJipnf; (petitioner het~einJ be pai. d i. mmPdiatel y, inclusive or f;hp fJPnalties incidPnt to 1At P payment. " Th i s i s o u r F i n a 1 d ec i s i o n � IF you at,e not ~menAbl e thPt -e t o, you may appeal to the Court oF Tax Rppeals within thirty (30) days aFter receipt oF this letter, otherwise, your client's assessments shall become Final, executory and unappealable." I /~

I DECISION - C.T.R. CnSE NO. 4263 - 5- Consequenf;1 y 7 a�~::. c��. ' 19AB, pe-ti-tio ner se-3sonab 1y Filed f;he inst""nf; pe-titinn Fot~ w i t h t h s Cot.n~ f;. f-J e must First s e t t l e the pt~ e 1 i mi nary and rre.Jud icia l i s s u e oF pt~escri pf; i o n r aised by pe-ti-tioner in i-ts pleadings. Pet; i t i onet~ con-tends that t; he deFiciency assessme nts sub.Jecf; oF the instant pe-tition b at~ red by presc r iption, since th ey were issued be yond Five years Fr om the Filing oF t;he returns cove t~ing th e revenu e t ax e s assessed therein. Re spondent con-trarily asserts f;haf; i-ts right; f;o assess peti-tion e r For 1981 deFiciency in~o me and sa l es -taxes h as not; yet pre sc ribed For -the t~eason th~t; peti-tioner has, in the case at; bAr , A llegedly and expressly waived the d e FPnse oF pre s c t~ i pt; i on by if;s se veral J"~ eq�_c e s t s Fot~ t� e i n v e s t i g a f; i on f;hru -the exec ution oF -the writ-ten ""a i ver oF -the statute oF limitations duly Filed wi th the OFFice oF respondent" ( "Rn swet' ", p. 3�, CTR Records, p. 67). To this, p e ti tioner t' esponds that: / I

DECTSION -� C.T.n. C~SE NO. 4263 - 6- "Although the pet-iorl o1 prescription is waivable by c=tgt -�e e m e n t . , thet, e must e List., however, two essential requi s ites For the waiver to be v Al �r~: First, the wai ver must be e n erPd into beFore expirat on oF thn timP prescribed For making an assessment ; and second, thP Commissioner and the taxpc=tye r must have consented thereto in writin XXX 11 XXJ< XXX JC HX "~ c t.tt, s o t, y e x a m i n c=t t- i on o F t h e waivers signed by the pPtition e J�� how that there is nothing in the A v~rs to indicate thAt the Commissioner ~the respondent-> c n n s en t P. d t h e t , e t o s i n c e n n t o n -=- W A S signed by h � m. FJ- om the vP.t }' nat ,_,t�e oF the petit i nnet��" s condit-ion limiting the PctPnsion pPriod up t-o certain dates nnJy, the t-espondent-' s 21pp1 , 0VA1 t-fH' t- eoF in writing mu 5 t be given to c omply ~"ith the t-equ�sites oF Je~w . " ( "Memot,andum For ret-it- i oner", p. 7; CTA Records, p. 176> I...Je agree with p et-itioner., and Find t-hat the s 1b.}ec::t- assessment-s were issued beyond the Five - year prescriptive period allowed by the Tax Code. Secti on 318 oF the 1981 Ta< Code provides that-: "Sec. 3 18. Period oF limitation upon asses sment and collection. Except as provided in the succeeding section, i ntet,nal revenue taxes shall be assessed wit-hin Five years aFt-er / G

DEC TS ION - C - T-R- C n S E NO. 4 ~6 3 - 7- the t~etu r n was Fi 1 ed, and no pl �~ oceedi n g in court w j. tho nt a s sessment For the colle c tion o F s u c h taxes shall be b e gun Fte r the expiration oF ~uc~ p er i o d. For the purposes oF thi s � s ection, a return Filed beFore th e la s t day prescribed by law For the Filing thereoF shall be consid e r e d as Filed on such last day: Provided, That this limitation shall not a pply to cases ~l r eady inv e stigated prior to the a pproval oF this Code. established by petitioner ' s un co n t ,~ ad i c t ed evidenc e, it Filed it s annual i nco me tax and pet~cent a ge tax Fot~ t h e yeat~ ending Septemb e r 307 1981 on J a n uary 15, 1 9B2 and November 20, 1981 7 respectively. Thet~ e Fore 7 in accot'dance with the abo ve - q�_tot P d pt~ ovision, petitioner's 19B1 income and sa1 Ps t axes co uld have b ee n validly ass essed by r e s pon de nt ort ly until Jan �. t a t~ y 14 , 19B7 and Nov e mb e t ~ 19, 1 986 , 1 Cl e arly, the s ubject assessments, i t~ espect ve l y. whi c h are all dated J~ly 29~ 19877 were all issued beyond the Five-year prescriptive period provided � under the 1981 Tax Code . 1----------------------------------- ThE'SE' dates we r e co1puted by adding 1,825 days (or 365 days pet� year� x 5 year s) to th~ dates of filing, consider-ing in the pt�ocess that 1984 was a leap year. 'I I

DECISION - C. T.A. CASE NO. 4263 -8 - Respondent: cannot seel< reFuge in Section 319(b) oF t:he 1981 Tax Code (now Section 223(b)) which reads as Follows: "Sec. 319. Exceptions as to period oF limitation oF assessment and collection oF taxes. x xx "(b) Where t:he expiration oF t:he time prescribed in t:he preceding section For t:he assessment oF t:he tax, both t:he Commissio ner and t:he taxpayer have conse nted in writing to its ass essment aFter such time, t:he tax may be assessed at any time prior to the expiration oF t:he period agreed upon. The pet~iod so agreed ~pon may be extended by subsequent agreements in writing made beFore t:he expiration oF t:he period previously agreed upon. "xxu >CHH" Notwithstanding the Fact: that the show that pet: it i oner, its Senior Vice Pt'esident: Ja.ime L.:.u~d .izaba1, signed t:ht,ee Na .ivers oF t:he s t: ~ t: u t: e o F 1 i m i t: a t: i o n s u n d e t~ t 11 P. T a JC C o d e o n separate dates (October March 1987, and May 18, 1987>. We Find these "waivers" to be invalid and without any bivding eFFect on petitioner For the reason that there was no consent by the respondent and no period was set or agreed

DECISION - � C.T.R. CRSE NO. 4263 - 9- upon For subsequent assesGment. Regarding this point., We the interpretatio~ w hich We gavP to ~hat is nnw Section 2 2 3 Cb) oF the Tax Code (Section 319Cb) oF the 1981 T~x Code) in t h e case oF Boise Cascade Phil ippines~ In c. vs. Co Mmissione r oF Inter n a l R eve n u e ., C. T. R. Case No. 2 858 CMarch 30 ~ 1987) . In said case~ We stat ed, in part, t h at: "The law is clear and e>Cplicit that a valid wa iv er oF the statut e oF l i m i t a t i o n pt~ov ided For in the above-quoted provi sio n oF th e l a w ( reFerring to what was SPct.ion 3 1 9 Cb) oF the 1981 Ta>C Code a nd .is no"' Section 223 Cb) oF the TaH Code) requires that the said s tatute oF limita ti on must be in wri ting and must be both s ignrd by the Commiss�oner oF Irte~nal n e v en u e and t h e t ax pa }'' e t~. J< x x. "In the instant i":AGe 7 th~ oF l.~nguage sa .id statute of" limitation being plrlin anrl '-' n .=1 m b i g u o u s , i t c on v P y s a c 1. e a 1 � and deFinite mPa n.ing, and t h r::- t " e F o t~ e ., sa i d s t a t (1t e m u s t; s imply be applied and never to be .in t et~pret ed. Jc x x "In the case at bar~ the law is c lear and deFinite that it is o nl y the C ommi ss io ner o F In t et~nal Reve nu e , who i s spe cial l y named Q.y said p r o vision o F Sect io n 332Cb) (Sectio n 319Cb> oF the 1981 Tax I (_ 9

I I r ~~c 1 s 1 n1�1 r. ~ r_ n~ rnr-;F N D. -"i ;:::>r-; .-:.: 10 Corle rlnd n nr" S e r t ion ;~;-:_�.3 (hI \ o1 t h e Tax Code as !..}_]~ one !'I#Jn r,;~r_!_ ~ _i qr]_ !_ h e ~ a.i_v e_!-:_ Qf_ t h F'__ .�_:!; ~ b ...t_!-!?. g_[ l_j. m i t at i g n ?t !lQ s i r} c e th e r::_o_'!!_'!' i s s_i_p n e ':::. !:-ta 5 !_:-t ot 5 i n ect t h P ~'-'-""-- ~~!:.: _ t I 1 e t~ e i _?_~- t h P. ~g_-~q_!:.e � !l.Q cn~5-~_'!'mat_j._on Q..!::. ~a l .:td ~? i ~ e r !:'~_h_:!_ ch !11 "" ~ _?_U 5r;Jep d _ !; he_ t~ unnin !l Ql-_ tb~ pf?t~ iod withi!!.. ~hich t o a5_5e55 fth_e _!;_~ >< i n que5 t i on� x )( < " n < n i c:; '?-' � 11 C r-=1srade rh- 15 . 7 Inc- \'<; . Co mi5s .ionet " o1 1nt et ~ nal f.'r='\"Pnrrr- 1 n C 1 Ca.:; e Nn . f 05R ( l 987), flf1 � :~n- - lh rl ��r-Fflt" P., i 5 no l 1�1.=1 V P l ~ n1 th e li m 'f-,-:-of-:innc: VAli dl y int.n prt. it: i flnr1 � ,-. ll rl , . ,.., -.:; pnnden t - r ; n n c; P '1' r r n f; J y, p P t i t- i n n P t ' c r1 JJ n P t h.-. rl n P me rl Pstorpect J -,-,jc:_i ng t. he rlP.Frnc:r n F r� �r r: r 1 - .i p f- j on against: r- t: f ' e '"" :. c: P c; c m e n t s n n t h e g t~ o r 1n d f1 F i t: r.:; s i g r i n g o t h e "B - 1 " Tnnc;mrrch thP -=!c;c;pr.c;menf:-:; c:;�rbjecf: nr- t-he r P t j t. i f1 n " e ~ P a .l .i ssrrp rl hr} � nrJrl t:f1n 1ive - Cnrle, Court Find s no need to ctelve into the / I 1

I DECISION - C.T.R. CRSE NO. 4263 - 11 - WHEREFORE, t:he Court:, Finds t:he assessme nf:s For allegedly deFicient: income and sa les t: ax es For pet:it:ioner's Fiscal year endinQ Sept:ember 30, 1981 covered by Demand Let:t:er No. FRS- 1B- 81-87 and f:l ssessmenf: Not:ices No. Fl=lS-1-81-87-005824, Ff:lS-4- 81 - 87-005825, and Ff:lS-4-81-87-0058 26 (all dat:ed July 29, 1987) in t:he t:ot:al amount: oF P19 , 535,183.44 t:o be NULL l=lND VOID For having been is s ued beyond t:he Five -year prescript:ive period provided by law. No cosf:s . Sd ORDERED Quezon Cit:y, Met:ro Manila, January 26, 1993. SRUBA Judge WE CONCUR : ~- Qc ~.._ l=lCOSTA residing Judge ~~ 1J;..--/v-7 J RAMON 0. DE~V~RA R s sociat:e Juage .,_. ' 11

�� DECISIOf'./ - C.T. n. cnSE NO. 4263 - 12 - CERTIFICATION I cet~t i Fy that this decision reached aFter due consultation among the members oF the Court oF Tax nppeals in accordance with Section 137 nrticle 0III oF the Constitution. ~_:e:-Q"~ ERNeSTO D. ACOSTA Presiding Judge Court of Tax Appeals 12. .)