CTA Case No. 3055 (Decision)

~ u-e o!? ~ n.ULW?nl!"� COlL T OF TAX APPUL.'~ QUEZON C~'"" WYE'rH SUACO LABORl\'rORIES, C.T.A. CASE NO. 3055 INC., Petitioner, - versus - THE COMMISSIONER OF INTERNAL REVENUE, Respondent. X -------------------------- X DE C I S I 0 N Assailed by petitioner Wyeth Suaco Laboratories, Inc. in this appeal is the decisiox:1 of respondent Commis- sioner of Internal Revenue dated December 10, 1979, finding it liable for deficiency~thholding tax at source for the fourth quarter of 1973 in the aggregate amount of Pl,~73,112.86, inclusive of surcharge and interest as well as deficiency sales tax f or the period from November 1, 1972 to October 31, 1973, in the aggregate amount of ~61,155.21, inclusive of surcharge, interest and compromise penalty. There is no controversy as to the facts of the case as may be gathered from the pleadings, the evidence pre- sented, and the records of t he Bureau of Internal Revenue pertaining to this proceeding. It appears that petitioner is a corporation organized and existing under the laws of the Philippines engaged 1?0

DECISION - CTA CASE NO . 3055 2 � in the manufactu re and sale of pharmaceutical a nd nutri - tional products. Its ac c ounting period is on a f~ sca l year basis ending October 31 of every year. (Exh. "A", pp. 65-66; Exh. "4", pp. 67-68, BIR rec.) By virtue o f Le tt er Of Authority No. 52415 dated June 17, 1974, responden t, through cne of hi s examiners, conducted an investigation of petitioner's books. (Exh. 11 1", p. 61, BT.H r e c.) Af t e r said investigation, i t was determined th at pe t itioner was liable f o r:: (1) deficie ncy withholding tax at source in the total amount of P3,178,994.15, inclusive of surcharge and interest for the fourth quarter of 1973; a nd (2) def i ciency sales ta~ in the total amou nt of P61,155.26, inclusive of surcharge , i nterest and compro- mise penalty . On December 16, 1 9 74 and December 17, 1974 , r espondent issued the corresponding as sessment notices for the tax deficiencies above-me n t ioned, t he d eta ils of which are as follovlS: Deficf:iency \vi thholding Tax At Source - 1973 4th"QUarter Royalties-------- .E.l3,517,456.46 Dividends - - - - - - - - 21952,391.00 Technical Ser vices - - ~ 13,647.00 Royalties - - - - - - - - 125,448.84 Total amount unremitted - ~-~ - - - - - - - P6,608,943 30 Tax due thereon - - - - - - - - - - - - - - !'12,313 , 130.15 Add: 25% surcharge - - - - - - - - - - 578,282.53 14% arillual i nt. fr. 1-26-74 to 12-15-74 -- 287,591.47 'IOTAL Ar"'DLT!'-JT �DUE & COLLECTIBLE - - IZ3,178,994.1~ {Exhs. "B" & "6", pp . 78-79, BIR rec.) and 1'? 1

DECISION - CTA CASE NO. 3055 3 Deficiency Sales Tax - l . Net sales sub.� ect to 7% tax (Before P.D. No. 69) - - - - - - - - - IZ9,169 , 907 . 54 Less: Deductible ra~Ji materials: Per returns - - ~2 , 924,712 . 36 Disallowed - ..,. 148,344. 00 2,776,368. ~6 Net sales subject to 7%. tax ----- = -==- ~6,393,539. i.8 r=- - - 7% tax thereon - - - - - - - - - �- - - P 44 7, 547. 74 Less: lk~Ount already paid - - - - - ~-4~3~7,163.66 Deficiency 7% tax - - - - - - - - - - P 10;384.08 2,596.02 25 % sur. for late pa~.{Inent ---- 12,980.10 14% int. p.a. per P.D. No . 69 1,090.33 -~14 ,070. 4 3 2. Net sales subj ect to 5% tax (Under P. D. No. 69) - - - - - - - - - f!i30,910,338 . 75 Less: Deductible ra\'1 materials: Per returns - ~12,921,797.72 Disallo~red 675,790.00 12,246,007.72 Net s les subject to 5% tax - - - �- - m-:66~_,331.03 NET SALES SUBJECT 'ID 5% TAX CARRIED FORWAPJ) - - - - ~ - - ~ ~ - ~10,664,331. 03 TOTAL AMOUNT DG~ B~~RE P.D. 69 - - - - - - - - - - ~14,070 . 43 NET SALES SUBJECT TO 5% TAX FORWARDED - - - - - - ~ - - - - - - - !ll8,664 ,33l.03 5% tax thereon - - - - - - - - - - - P 933,216.55 Less: amount already paid - - - - - 899,4 27. 38 Deficiency 5% tax - - - - - - - P 33,798.50 25% sur. for l ate pa~~ent - - - - - - 8, 447.38 42,236 .88 14% int. p.a. per P.D. No. 69 - - - - 3,547 .90- 45,784.78 3. Advance sales ta.'< per Customs computation - - - - - - -� - !l 3, 795.00 Amount paid per O. R. No. 7974906 dated 11-2-72 - - - - - - - - 2,795.00 Short payment - - ~ - - - - - - - - - - - - - - - - - l,OOO oOO 'lD'rAL A.rJIOLTN'T DUE �� ~ .... ...... ... .. .......... e � � � ~~ (E.xhs. "JJ" & "7", pp. 81- 8.?.. , BIR rec. )

DECISION - CTA CASE NO . 3055 4 . Both assessment notices were received by petitioner on December 19, 1974. In two separate letter s dated January 17, 1975 and February 8, 1975, petitioner disputed the assessments stating its justification and requested cancellation or withdrawal thereof on the ground of lack of factual or legal basis. (Exhs . "C" & "9"; Exh . "KK", pp. 91-96 and lll-113, respe ctive- ly, BIR rec.) On Septembe r 12, 1975, respondent invited petiti o ner to avail of the compromise settlement under LOI 308. (Exh. "D", p. 110, BIR rec.) . In reply thereto, petitioner signified its amenability to compromise 10% provided it be applied only to the basic sales tax, excluding surcharge and inter es t. As to the alleged withholding tax at source, petitioner took exceptlon on the ground that it involves pur e ly a legal question and some of the amounts included in the assessment have already been paid. On December 10, 1979, respondent rendered his decision denying petitioner's offer to compromise the deficiency sales tax and reiterated his demand for payment of the sales tax assessment of P61,155.21 . With regards however to the with- holdi ng tax at source, respondent reduced the assessment to Pl,973,112.86 after verification tha t Pl,205,881.29 of the original assessment of P3,178,994.15, had a lready been paid by petit ione r. (Exhs. "G" & "10", G-3, pp. 170-171, BIR .173

DECISION - CTA CASE NO. 3055 5 rec.) Said decision was allegedly received by petitioner on January 2, 1980. Not satisfied with respondent�s decision, petitioner appealed to this Court on January 18, 1980, raising the question of prescription, among othe r s. (pp. 1-5, CTA rec.) Subsequently, on February 7, 1980, respondent issued the corresponding warrants of distraint and levy which were served on petitioner on March 12, 1980 to enforce collection of the alleged deficiency taxes. (Exhs. "H" & "I", pp. 212 and 214, respectively, BIR rec.) Collection of the alleged defici~ncy taxes through the warrants of distraint and levy was however enjoined by this Court pending appeal, upon motion of petitioner after filing and approval of the necessary bond in the amount of ~2,040,000.00 posted by Allied Guarantee Insurance Co., Inc., to guarantee, in the event that it loses its case, payment to the Bureau of Internal Revenue of the assessments in question. (See Resolutions da t ed May 2 and 22, 1980, pp. 34- 36 & 43-44, CTA rec.) The bond was however reduced upon motion of petitioner and approval by this Court. (See Resolution dated May 21, 1981, pp. 123-124, CTA rec.) On May 30, 1980, respondent fil e d his answer to the petition for review and as special and affirmative defenses insists that the assessments agai nst petitioner in the amount of P61,155.21 as deficiency sales tax and the amount of

DECISION - CTA CASE NO. 3055 6 El,973,112.86 as withholding tax at source for 1973 as wel l as the issuance and enfo rc emen t of the warrants of distraint and levy are in accordance with law and regulation. (pp. 46-49, CTA rec.) The issues ha ving been joined, the Court upon motion of petitioner heard the que stio n of presciption together with the merits of the case. (See Minutes of the session of October 14, 1980, p. 61, CTA rec. & t.s.n. pp. 1-3) ISSUES: 1. Whether or not the right of respondent to collect the deficiency assessments has al ready prescribed; 2. Whether or not the deficiency~ thholding ~ ax assessment is correct or v alid; and 3. Whether or not respondent is correct in imposing surcharge and int erest on acco unt of the withholding tax at source assessment against petitioner. The law involyed is Section 319(c) formerly Section 332 of th e pre-1977 Revenue Code, the pertinent provi sion of which is quoted hereunder for r ea dy reference, to wit: "Sec. 319. Exception.s as to period of limitation of assessment bnd collection of taxe s .- 1~) Where the assessment of any internal revenue tax has been made within the period of

DECISION - CTA CASE NO. 3055 7 limitation above-prescribed, such tax may be collected by distraint or levy or by a pro- ceeding in court, but only if begun (1) within five years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Com- missioner and the taxpayer before the expiration of such five-year period. The period so agreed upon may be extended by subsequent agre e ments in writing made before the expiration of the period previously agreed upon." Petitioner maintains that the right of respondent to collect the deficiency taxes, surcharges and interests, in this case has already prescribed while respondent argues otherwise. We find the view of petitioner well taken. A careful perusal of the records of this case reveals that while the assessments for the alleged deficiency taxes involved hereio were made within the five-year period of limitation, the right of respondent to collect the same has already prescribed. Under the aforequoted provision of Section 319(c) which provides an exception to the period of assessment and collection, it.is so stated that where an assessment of any internal revenue tax within the five-year period of limitation, such tax may be collected by dist r aint or ~or by a proceeding i n court, _but only if be~ (1) within fiv.e years after assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer before the expiration of such five-y ear peri?d and the 1 78

DECISI ON - CTA CASE NO. 3055 8 period so agreed upon may be extended by subseq ue nt agreements in writing made before the ex piration of the period previously agreed upon. In the instant case , the assessments for deficiency sales tax and deficiency w:th - holding tax at source were issued on December 16 and 17, 1974, respectively, and the assessment notices we re received by petitioner on December 19, 1974, so t hat the five year period of limitation within which r espo nd ent may collect was supposed to end on December 19, 1979. When the warrants of distraint and levy i ss ued on February 7, 1980, were served on petitioner on March 12, 1980, five (5) years two (2) months and twenty one (21) days have already e lap sed from December 19, 1974, obviously beyond t he five (5) year period allowed by law within which the Commissioner of Internal Revenue ma y collect the t axes . The law i s tailored to fill an explicit contingency. We cannot subscribe to the po s ition of respond e nt that his right to enforce collection of the deficiency taxes, surcharges and interests has not prescribed because petitioner's request for withdrawal or cancellation of the assessments amount to requests for reinve stigatio n a nd t he same, having been granted by respondent, suspended th e running of the five year prescriptive period. The records show that pet it ioner merely di sp ut ed the assessments, and 17 7

DECISION - CTA CASE NO. 3055 9 requested for cancellation or withdrawal thereof on t he gr o und of lack of factual or legal basis. Mor e ov er , the same issue has been squarely re solved in the case of Guanzon Lime Development Co., Inc. vs. Misael P. Vera, as Com mis sio ner of Inter n al R~ven u e , CTA Case No . 2649, November 28, 1978 , where this Court did not sustain the po siti on of respondent that the right of the government to collect the tax has not yet prescribed on account of the vigorous protests and r eq uests for reinvestigation lodged by petitioner against th e deficie ncy assessment, for the r ec ords show that petitioner merely ~isputed or questioned the legality of the assessment which pertains to disallowance s of its claim for ded u ctions by giving r easo n s why the deductions should be allowed and why it should not pay said deficiency tax. Citing Limjoco, Jr. vs. Domingo, CTA Case No . 1191, May 29, 1964 ; Coli . of Int. Rev., vs. Pineda , G.R. No . L-14522 , May 31 , 1961; Call. of IBt . Rev. vs . Sola no, G.R. No. L-11475, July 31, 1958 . Respect for the authority of this Court is not served by the precipitious overruling of mul t iple preced~nts . Having such view on the question of prescription raised in this case, we deemed it unneces sary to resolve the other issues presented. WHEREFORE, the deci s ion appealed from is hereby reversed and respondent Commissioner of Internal Revenue is hereb y 1 !-(1 (n)

DECISION - CTA CASE NO. 3055 10 enjoined from collecting the deficiency withholding tax at source for the fourth quarter of 1973 as well as the de ficiency sales tax assessed against petitioner . Without pronouncement as to costs. SO ORDERED. Quezon City, Metro Manila , August 29 , 1986. VIE CONCUR: