| Embroidery and Garments Industries, Inc. vs. C.T.A. Cage No. Z334 the Commissioner of Internal Revenue

DECISION

CTA CASE NO. 2334 - 2 - embroidered goods which are then re-export d to the foreign suppliers and/or btiyers in c¢ord nee with the agreements entered into by th~ p~rties. Acting on the sworn report of ah nf ~ r dated September 10, 1964 (~p~ 10-29;

Folde~ Ho~ 50;

BIR records), agents of the then .

' Smugg 1 ing Unit of the Bureau of ~ (ATSU for short), witH s~arch •, Revenue 1 from the Courts of First 1 In tance of MarHl and Bulacan, raided and seize'd busine s recor ds and documents from petitioner's offices in Man i la and Marulas, Valenzuela, Bulac~n on Sept~mb r 22, 1964 on the basis of which, respondent conducted an investigation of petitioner's bu iness operations. I (ATSU Report of Investigation, p. 20, Folder Ho.

78, BIR records.)

As a consequence thereof, respondent as ss~d petitioner in a letter dated January 4, 1966, the sum of P436, 846. 44 representing advance sales f tax for 1959 to 1961 inclusivb of 757. surctiaroe and I I • pen a 1 ty and in a letter d~ted Mar~h 23, j,!e;l66 I the sum of P4,799,641.95 as de~iciency income I r o~ 507. surcharge hd 1/27.

tax for 1960 and 1961, inclusive monthly interest.

(par.

Admitted par. 6 Ans~er.J Petitioner protested said assessm nts and DECISION CTA CASE NO. 2334 - 3 - requested for the reinvestigation thereof Which wa111 granted by respondent.

The me ns employed by respondent to reinvestigate th t x c e wa to recompute the taxes due from the Company on the basis of the evidence se~ zed by the ATSU in ' the raid · it conducted on ' .petition r's 1 bU in ss establishment.

<Exa•intt;s' H~•orandu•, p.

I I ,, Folder No.

76 1 ·BIR recor~t·) A a result.

I l reinvestigation, revised ~ss I ssmen t ~ot:J. ;

issued by respondent to p~ti tioner I 1970 requiring the payment of the sum 96, of P2,756,241.68 as def iciency income t~x for 1959 to 1962 inc 1 usi ve of 50% surtharge and 1/2% moothl y

I •

• I interest and on December 22, 1970 d m nding the payment of the total clmount of P3;~00,1'98 .. 41 ·~ . . ' advance sales tax and 1'5Y. surcharg correspbhoing 1 , to the same years.

<Exh. 3 1 pp.

228-~2~; Exh. 2, pp. 225-226 1 Folder No. 76, BIR recnrds.J • On January 7, ~1971, petitioner fil~d with respondent No.

76, assessments a letter-;-protest ' <Exh. 4 1 , I BIR records) tHsputing he, I I I and reque~ting th~t I investigation of the cas~s be conducted which 4 protest was denied by respondent in a letter bearing the same date. <Exh. 5 1 p. 245, Fold~r No.

76 1 BIR records.)

J .I I!

DECISION CTA CASE NO. 2334 - 4 - In a letter dated January 20, 1971, petition r requested for reconsideration of resppndent'5 ' denlal and further reinve tigat.ton of the revi5ed assessments (£xh. 6, p. 257-258, Folder Ho. 76, BIR re cords) which was granted by respondent on Jariuary !

29, 1971 upon execution by petitionen of a w•iver I .

I of the statute of limi:t tions of th• I .Nilllt.tional t 1 I In tern a 1 Revent'e Code. . ~~~ ( E ><h.

7, PP.. ·\ e62~26~, .

Folder Ho.

76, BIR recorJs .J The dbcke . of the I case was referred to tHe Regional Direc tor of • Revenue Region No. 5 who designated a c:ethurlitte to reinvestigate the case. report dated June 1, 1971 ~ecommen ded ~hat the c se I be referred to the Legal . Department for further j evaluation and final legal 1 disposi tion. CExh, R, pp. 293-308, Folder Ho. '76, ' BIR records.) I Meanwhile, warrants of 1 distraint and levy were issued against petitioner 1 on January 7, 1971 to enforce the summa~y cbllection of the , ad~Anc:e sales I I ta>: in the amount of P3,50Q,798.47. fpp.- · 12:J8-f,3"9, Folder Ho. 76, BIR records. \: And on Jun ~~ - ~-,f , r ~ .1 . • .

• 6 I " respondent issued Notices f S izure nd · 1Salet of petitioner's real Valenzuela, Bulacan I property c:overeJ located ·at by TCT No 1077~ , (

I '

.346-.'347, Folder Ho.

76 1 SIR record:s), ' ,) DECISION CTA CASE NO. 2334 - 5 - subsequently put up for sale t pu 1 ic uction.

However, for lack of bidders , it w s forfe ited ih favor of the government. (pp. 331-352, Folder No. 76, BIR records.)

But sin~e the forfe~ted property I was the subject of a fir t mortgai,;je · t. th the Government Service Im;urance Syst m .(!]

tS~ ,.Jon 1,, I December 17, 1963 for a , oan of P35S,oQ O, .it!l title could not· be tram1f I rred to of I' the Philippines.

For fai ll,1re of p ti tionei-- o p y its indebtedness which had accumulated to P751,582.00, the GSIS foreclosed the mortg ge on ...

March 15, 1974.

Thereafter, the GSIS sold the said property at a public auction to Sol.Lti Industries Inc. , the highest I bidder, for the amount of P752,000.00.

(Respondent 's i 'IIH!'ffiOrandu•, p,. 249, CiA I records.)

In his final decision dated September 14, 1971, respondent denied petitioner's protest.

·• (£ .. ·h.

8, p.

.359, Folder No.

76 , RIR records.)

I I Hence the present recourse. ! I I 1.

Whether or not pJtitioner for deficiency ~ncome and adv sales taxe$ for 1959, 1960, and 1962 in the mount of P2,756,241.68 and P3~500,798.47 I respectivelyJ 2.

Whether or not the imposition of th• 50% surcharge for 1fraud is 1 g 1 and justified.

.)

DECISION CTA CASE NO. 2334 - 6 - The record shows that the original tax assessment arose from the sworn r port of an informer, Alfredo Perez, dtmounc i ng I petit~b r f r I the alleged tax However, :ln evasion.

I reinvestigation of thi!!l l c:ase, deficiency income ta>< an~ adv nc main 1 y ·1 baged by assessments were the diBputed ,respond ht's examiners of · the l Audit1 Division nd Fraud j Investigation Division on sworn tate-ment of Felix Gareza, a friend of informer and former General Manager of petitir' ner , whos infdr~ . tldn given to the informer ac:tLI ll y led tb the r id on the business establishmen~ of petition r by the ATSU and the seizure of i ~s business recbrds and I ' other documents among whlc:h were ~,118 i~po~t invoices which constitOte the evidence in this case.

In his declaration, Gareza stated th~t th • dollar quotas for th~'years 1959 to 1 ~62 alloted by the Central Bank . to petitioner as embroidery l contractor under Republic: At~ No. 3137 •~ l old to i local Chinese textile merchants at n ov rprice or ' premium of 90% for suiting materials I anti· tox to t 75% for women's clothing materials b•••d on the invoice value in dollars. And ·th t th Chinese 1'1 ,) ) DECISION CTA CASE NO. 2334 - 7 - buyers when p 1 acing their orders in the n ot petitioner through the 16cal indent ag nt in Manila, procured the dollar~ wi th which \o pay th ~uppliers abroad.

As soon as th m teri ls thus imported are 'released from th customs w rehouse, they are delivered to the ~Said Chine • buyers who also pay the brokerage and !other chaRg •· Loc,lly

I' I

purchased mate r~als are h n proc s ed 1 in th factory into finished goods. and the e ilre 'th ones exported to the purpose the supplier Jho is em 1 y a 'front tor ·I . .

of complying with the Embroidery Law. !

Nove711ber 21, 1967, AnsNer!: Ho.

49-53_, 74, 8-86 , 93, 98-104, 109-111, pp. 5J-66, Folder 'Ho,.' 77, BIR records; Exh. 1, ExaJttiners f 'lltt!'lltorandu'llt, pp. 92-96, Folder No. 76, BIR records.) Gareza further alleged in his sworn stat ment that the 1,118 invoices which the ATSU team took ' in to custody when it' raided petition r's pr mises , in 1965, had been . tampered with by petition r by I reducing the quantities in 1 order t.o m ke r to tally with the reduced ~uantitir:t I I invoices and also to reduc~ the bohd t-eq H· I (£xh.

10, Answe>rs, 16- 43 I & 54, pp. t 67-72 6 4 I supra. )

In support I thereof, he pointed out th I differences between the twelve (12) '~Q 1·5 ..1 I ,I •• ~,, DECISION CTA CASE NO. 2334 - 8 - invoices (Folders No . 64- 7 5, BIR r@cord$ ) which he had earlier surrendered tq the s aid ATSU ttul ; . and the corresponding "faked" invoi;:es from th 1,11S invoices to show that the la t t e r invoic s have reduced amounts in dol ~ ar va l u s and reduced quantities in yardage of the (£xh.

10, Gareza also importatioms in i' ident.i f i . ,C.

16 1960 (Fold~r s ..

records.> the documents of ·whic h he the informer who turned th~m over to the ATSU team, so-called because they were ~uppressed by petitioner from its officia l logbook hd th records of the Bureau of Customs to el iminabt from I these records the big i~port a tion s.

An s Ners 161-165, pp. 41~42, su pra. ) Relying heavily on the sworn stat ment of Gareza and using as basis the abbvementiohed t, 118 , invoices and t I the 16 "blacked out" i port entries, I .

respondent· s examiRers computed I the 'overpric• on t the dollar values of the textile ' ' petitioner for the years 1f59 to 1962, •r~ivinQ at a total undeclared inco~e of I follows:

(Ex h • t , p • 9 '3, F o Ide r 'Ho • , 16 _,

B I R

records} 1fo - - - - .)

DECISION —

CTA CASE NO.

Year 1989 1960 1962 1961 1962 Year 1959 1960 1941 1962 2334 - > ~ @ 131,971.12 70% Premican $ 91,749.78 1,481 ,094.57 1,018, 766.19 1,283,611.73 898, 928.21. 346, 540;04 242,578.02 Invoice Value BM (In U.S. Dollars) (In U.8. Dollars) % % 149,229.53 119,383.42 122,659.40 98,127.52 368,774.42 275,019.63 70% Premium ~ 80% Premium P VERS AIF FR eit 2,073, 532.38 ZB, 767.24 1,797 ,0%4.42 , 1% ,255.04 465,154.04 (In Pil. Pesos) poten ele eas te ok b 19%, 286404 $ oa sebcgy Bek tas bh Gd fa t eT 2,312,299.62 ® 4 5 Adding this undeclared income af P9464, 305,74 to the net income per return tor the years in question, the disputed \ | \ deficiency income: tax

DECISION —

CTA CASE NO. 2334 assessment of P2,756,241.468 was detereined by the examiners, as follows: (Exh. 3, ab. 278-229, Folder No. 76, BIR records) i 939 , Net income per return Moi i eo P 75391. .07 Add: Undeclared income from sale of dollar quota rights under the Embroidery Law (R.A. No. 3137}. PF _ 183,497.56 Net income per investigation ...... FP j390s8S0.463 Income tax due thereon asvunaepunrete ad 4 255.00 Less: Tax alrewty paid wscbasessess P _bs6i7 OO RPalance eveenrneeeneeces ener eaneanee P 47 ,633.00 Adds I, surcharge eeeannmosbiianveanan P 25,819.00 1/2% ma. int. fr. 4-16-80 to 4-16-63 sn eemacnaneetebsourn

TOTAL AMOUNT DUE AND COLLECTI

sed } Net income per returt ccccnevanevace Adds Undeclared income from sale of dollar quota rights under the Embroidery Law (R.A. No.) 3137). Net income per investigation ...... Income tax due thereon Less: Tax already paid Balance eonnweuneenaevreeennenaktsavesn Add: 30% surcharge seesaw neenkhenaene 1/2% mo. int. fr. 4-16-41 to TOTAL AMOUNT DUE AND COLLECTIVE ..

1961 1 aneeoedpnaeaaans a@etvabavecne Net income per returt) .sssssauscess Add: Undeclared income from sale of dollar quota rights under the Embroidery Law (R.A. No. 3137). Net income per investigaticn (....0. Income tax due thereon Less: Tax already paid Ralance en eetnaeeedeweene heen nwnnnreaente Acid) SY, surcharge .ccssnececnosene 1/2% mo. int. fr. 4-16-62 to B—-36-GI newer en ene nn vases TOTAL. AMOUNT DUE AND COLLECTIBLE seoenesevaden 18 ___ 8574.64 Pw Dd 2 OF P 1,831.52 P_2,312,299 62 P_ 2,334,151 15 P 686,229.00 P42. 9 P 485,636.07 P TA2,918.00 P = 8, 203,74

PL 46

rE 2 P 972,493.00.

P____1480%,00 P 990,680.00 P 295,325.00 ares eyhee soap

DECISION —

CTA CASE NO. 2334 1962 Net income per return cessesssseree PF 24,215.35 Add: Undeclared income from sale of dollar quota rights under the Embroidery Law (R.A. No. 3137). PF 1,075s195.10 Net income per investigatdon ....55 F 1,07%,410,45 Income tax due thereon .veiessesee. FP Kei, 823.00 Less: Tax already paid .sssesenenee FP Sete? Ralance aeeoeadcenr eure eaene ee eeer sew eee P 316,496.00 Acid s ba 074 surcharge we@eeanunrwveevvovsaneaonea ad 156,246.00 1/2% mo. int. fr. 4-16-83 to 4-16-66 cuanwe ote h be Mab vce 6G Fi 9. ZB TOTAL AMOUNT DUE AND COLLECTIBLE .. i i As to the advance sales tax of rs, $00,798.47, it was assessed against petitionér on the ttledry: that since petitioner sold to textile dealers its dollars quota rights for importations enjoying tax- free privileges, it should’ be made to shoulder the advance sales taxes due on all this importations. Thus, respondent’s examiners computed €he 7% and 30% advance sales taxes on the impor tations as follows: (Exh. 2, pe 226, Folder No. 76, BIR records) | 72 fdvance Sales Tax sg "| 190 1M i962 , Total Landed Cost P 412,820.49 P5,972,724.24 79,043, 777.39 P8,986,371.50 Plus 251 eark-vp 103,203.12 _1,393,181.06 _2,260,906,39 1 Taxable Value ——-B516,075.61 PO, 969,905.30 P1,304,721.74 P6,2825964.57 7% Advance Sales Tax due thereon P 34,121.79 PF 407,613.37 P 791,590.82 ° 436)307.50 Add: 30% surcharge Wh ee for willful neglect P 18,060.40 P 243,806.68 © S9S,dehi—e ° iN 25% surcharge for aes & late paynent 9,030.20 __121,903.34 1,306,020.0) 2 DAmiNNN, 12 30% Advance Sales Tax 1959 1960 1M ie « Total Landed Cost P None P 04,049.49 PF 210,809 FP Pery6te.00 Plus 30% eark-up - 42,424.73 Val ___ 328,045.00 Tanable Value - P_§27,274.24 328,469.58 P_ 374,935.06 13 | sei, ae oa <a

DECISION -

CTA CASE NO. 2334 - 12 - 301 Advance Sales Tax due thereon p 38,182.27 p ,540.7' p 112,360.50 Add: SOl surcharge for will ful neglect 251 surcharge for late paytt!nt Tohl Alount Dut __ ltont _ _ .

SRAND TOTAL OF A"OUNT DUE AND COLLECT! LE 19,091.13 I 9,S4S. SZ 4 .. Mt..dl8.97 I 49,270.38 _ llai.Utn L tn ~.J.~-2 P3.Wal'-!·!Z I ' Petitioner vehement~ ~ den i es having ,180.25 to I textile dealers its alloca ed doll ar qtot for the t 1,118 importations and 16 a l legedly "blikked out" ones, maintaining th~t al l th s e i mport tions were processed and re-e>tpcl>rted to t he ir suppl iers I in accordance with the Embroidery Law. As proof, petitioner adduced the ; followi ng documentary evidence to actount for i these importat i on I question I (~p. 64- 69, CTA r ecor ds ) a) Re:

16 "blacked out" i mportation !> 1.

S t o rek e per's bond e d war - hous e ledger e~t ries showi ng t h a ccounting a nd c l ear nee by t he Bureau of Cu s toms of t he 16 impo rt entries Ex hs . s, S-1 to S- ts, Fo lder No. 58, BIR records.

2.

Requisition a nd wtthdr certificates of petitioh r account tor tne e><istence ot tH• import entries !xh:s. T-t 'tto · •t Folder No. 53, B1R records. ' ' 3.

E><por~ •documents, ing of invoices, e><port ht i s, certificates of identification and examination and ' bills of lading showing the re-e><portation of

t. ms covered by the 16 import ' entri es Exh. X-1 to X-45, Folder Ho. 59, 81R records.

20 in .)

..

DECISION CTA CASE NO. 2334 - 13 - 4.

Addittonal E!>xporrt ~bcu j ments likewise ~Mowing re- exportation of item cov r 'd by th · 16 import entries Exh!". H-1 t'Q N-~, r Folder No. 54, BIR records. 5.

Letters of cancellation of warehousing bonds by ths Chief, Law Divi~ion, Bureikl.l of Custom-., issued ~ upon recommendation of ' , the1 Appraiser's Di~i~ion show i n~ tK~ ~a­ exportation of ~he artie l e c:o .re~ .

by the 16 impo~t entrie~ Exh$. ·v l to V-12, Y-1 to ~-5, Folder HO ' 52· & 60, 81R records I b.

Rer 1,118 importations !

1.

Letters of cancellation of warehousing bonds by the CHief, Law Division, Burea~ of Customs, iS$Ued upon recommendation ~of the Appraiser's Divi~ion showin9 the re- e>:portation of the artie les covered by the 1,118 ilhport en trias Exhs, ' Z-1 to Z-93, Polder Ho.

61, BIR •.

records.

2.

Worksh~ets of petition r ~ showing summary of the 1,1113 ifllj:)ort entries for 1959 to 1962, 1 e.;

Import entry nos,, yardage impo~ ed, ; export nos., export entry nos., ' yardage exported and date bond watJ cancelled, , Folder No.

62, BIR records.

3.

Custom~ bond ~lerk reports for cancellation\ of bonds 1 •o in"St export documents J "Folder Ho. l 63, BIR records.

j It is argued that ~ue to th~ failur~ of respondent to present the originals of the I alleged 1 y ."genuine" import\ documents submf t.ted y 6areza, petitioner cou~d not ~~ri~~ t~ i~ authentic! ty in order to rLbut the accu at ion 'that I 2i .)

. ' DECISION CTA CASE NO. 2334 - 14 - it faked its invoices to red tee its importi\ti~ns • whi 1 e the above evidence presented by p t1 tioner shows that the allegedly f~k document• relat ~ to the 1,118 importations ·n question r inst d the true and genuine documents ~h ich were ~ubmitted to I and cleared by the Bureau of Cust'oms and I lj 16 allegedly "blaf=ked out" shipment were I to the Bureau of.Customs an according!~ having been re-exported. I To discredit the swJrn st temehts l 1 the I ' .

informer and Felix Gareza, petitioner ssai 1 s the integrity, truthfulness and char cterr of bd h by producing the following personal letters written by ' I them to Ramon Chuanico, the President of p~ tlt ioner EGIP, revealing their "double dealing" I "blackmailing" activitie9c I a) Letters of Felix Garez to ~a · n Chuanico, President of EGIP Exhj. A to , D, pp. 38- 42, Folder Nd. 51, BIR r cords; b) Letters or Alf~edo Perez (the informer) to Ramon Chu~nico - ExAs. E to G, pp.

1-A, 1-14, Folder N<>.

51, BlR records.

Petitioner avers Felix Gareza, whose '.

I that ! the I I sworn above ! ~ettef"s tat~m nt ' !hi and df principal basis of the ' I revised ; assessment, !.

establish his motives in fabricating evidenq~ against petitioner.

Sinc~ Gareza I dead as so stated in opf!ri I Court by I 22 - -

DECISION -

CTA CASE NO. 2334 - 15 - counsel (t.s.n., pp •. 30-Jt, August 26, 1985), h could no longer be presented by r •e pondent as his witness and petitioner could not eros eHamine him to disprove his accusations. Finally, to bolster 1 his stand p t.itioner I I cites Exh.

R, (pp.

29J-3qa, Folder Ho;

76, SIR records) the report dated Jun 1, .1971 of th the!

I I .t .br Committee creat·ed by Region 1 i O.l<~ I I ~ · Revenue Region No.

5, Valenzuel ' I B ll c an to reinvestigate the tax c.ag;e of peti tioh r, brit!f 1 y stating their observations t o wit:

I (Petitioners memorandum, pp ~ 220-222,~CT A records) "a.

The fact was' mentioned that the Commissioner approved the recommendation of the Chief, Prosecution Divi ion, to forego ·t ·he criminal tax ph se of the ta>: cases for insuff:Lc:iency of evid nee but to proceed \>li th1 the is uanc:e of revised tax ' assess~ents as determined by the National Tax Fraud Unit and this wa done (f1e1fl<'.

of Chief, Prosecution Division, dated Nove.be r 17, 1970 a~d revised as s essmerlt noti ces issued dated December 9 .~ 1970, and December 22, 1970) • 1 , I ' b.

The so-called import entries numbe~ing folders furnished ~y presented as ev idenc:e : of (BIR Folder 'Y' Smuggling Unit (ATSUJ "b ack-out 1' sixteEtn (l6) th ~nfor 1966) were properly ~ccounted cleared by the · BUreau of supported by the evidence pres the petitioner (Exhs. ·Folder · 2 Otttw) EGIP, . Folder X-2-BIR marked Exh$.

J to 28-A EGIP, Exh. "RR" part of EGIP Folder 7 (New) re: ledger entries; EGIP Folde~ 1 (New) and BIR F(:dder #X-2" r•t requisitions and withdrawals; EGIP Folder I Z3 J DECISION CTA CASE NO. 2334 - 16 - No.

3 with Exhs.

"4" to "4-X" and BI Folder "X-.J" Exhs. "29 to 33-E" · <J1' £GIF' re:

re exportation o1' i•ports1 GIP Folder No. 4 (Hew) with Exhs. "5" to NON and BIR Folder "X-t" •arked EG1P Exhs. •1 to 12" re: cancellation o1' b<.mf:Js a'fter Custo•s liquidation)J c.

The 1,118 import docum rttg ' (81R F o 1 de r s I , II , III, 1 V and V > c: on s i t i h allegedly of both I' genuin hd f k invoices wt!re likew:L·~ duly accot.lnted for . and c 1 eared by the 8\Jr u of cu· to supported by the evl.denc pres nted the peti~ioner (£~h~.

EGIP Folde~ · CHew), 6 CHew) and 8 tHeW)J d.

The petitioner pr t evidence to impug9 the competency, integrity, truthfLt11'1ess and character of the informer - Alfredo Perez and hi sole witness Felix V. Gareza (Personal letters to Mr.

Ramon Chuan i d.1 Mar kBd Exhs. A t<> QJ showing their "doubl de ling" nd "blackmail" efforts or activities as well as the fact that Mr. 1 Perez w s never n officer or employee dr a pe~son · p~ivy to EGIP busir1ess transactions and th t Mr.

Gareza, a former general manager of EGIP who resigned on Septe~ber 20, 1962, w~• a disgruntled office'r df EGIP as st ted in the Memo-Report of the Prosecution Division referred to earl ier; I e.

The Commit t~e, " r elying o rules of eviden1= and judicial r ea on is of the opinion that the r-opia. properly identified 1 governm nt r cord and entries · introduced by EGIP to overcome 'sweepir1g ur1corrobor-t d .

testimony of the !sole witne s., 1, M • · Gareza, are public dldcuments · and sh uld be given full weight ~nd cr dence.' · f.

The "origi~Lls" of the atll g d 'genuine' 1,118 !~port invoic:

or documents could not be produced • reque-sted tiy petitirlher and, ther -tore, "the Committee is not in a solid foundation to resolve the h~ u ot authenticity and g~nuineness o'f the r alleged documents ctJnsidering that the I I 24 ,) DECISION CTA CASE NO. 2334 17 BIR st~nd on this matter is b ed .alone on the 'sweeping unco~roborated t~stimony of Mr. Villa Garez whose competence a witness has been question d. " The position of petitioner is enabl e . We agree with the abovestated findings of the committee.

The eviden~e pr s nted by p tit i oner to I assail the integrity and c~ara cter of I I and F~lix Gareza, consisting of th I letters to Ramon Chuanicd ~ nde d "double dealing" and "bllackm iling I 1 ctiviti s", casting doubt on their c~mpetency as wi t ne~ especially so in the case lof Felix Gareza ho s, wa the only source of the information which g~ve r~se · to the tax assessments.

It was Gareza who admittedly ' furnished the information ag in t petitioner to the inf'ormer, iru:luding the supporting documents.

(Exh.

Answer 161, pp. 42 & 43, stipra.) And it was on his sworn statement that. the revised a sessmen t were ma i n 1 y based.

, <See testi•bny o~ exa•in~r,

p. 16, July 7, 1983) I Reproduced in full h reunder are the per•on 1 I letters of Gereza to Remon , Chuanico, the Preai~ nt o f EGIP, written after Garez h d re i;ned from the company:

records) . <Exh.

A,

p. · 42, Foldf!r No.

Sl, ' 81R ')..5 I I ,I I .J .J

I I

DECISION CTA CASE NO. 2334 - 18 - August 31, 1962 Mr. Ramon Chuanico (Confidential) Dear Monet:

A group of informers approached me' yesterday and brought to me for my study and comments several i ~ocuments w~ich ' t h y claim to belong to •nd covering V.a ious importation of em~rpidery mate~ial , f · l Embroidery & Garmen·~• Industri s. 't' l documents . consist (J,f import ' f')t~, ~' · suppliers invoices; ' backing 1 is •• 1 tc:.

How they manage to prbduce the doc m t~;

I really don't know• f although, ! ' h V ....mY. f1oubts about the enuineness Q_9.C'=!.men_t_~.

According to them t:htJy already consulted a t:lose friend in the Bureau of Internal ~evenue bout their plan, but were advified that "they need someone who can I corrobor te the correctness of the info rmation again t I EGIP and you.

Being the former Manager of EGIP, they feel that I am the most ideal an,d competent witness. I I know that what the group h s in mind wi 11 def in.htel'y dep nd upon my acceptance of their propo al. Only they don't know that I cannot bear f ls ~!tne~.s ag_~_A,.nst yqu-etve~ if you did not during the past show(l your appr· ciation for my services~ At any rate, don't worry because I can 1 persuade th group , not to proceed with t~eir bad intentidns. So it is very important that we cbnfer as soon as pos~ible fdr your o wh g~bd.

Please don't delay ~ecause, th~s gif' p right or wrong, can lc:ause you and tGIP all sorts of troubl.. Tbty ,Ire ver~ .

ootor ious -and has · a t.h · · !JU:

connection in almost all thtt pff.tce!s, in the government.

(Undirrlining sup~litftdj · ..

(Signed) F. V~lla fExh. D, P• 39, Folder' ~o. 51, BIR ,, 2{p 'l -- J .)

DECISION CTA CASE NO. 2334 - 19 - September 12• 1963 Mr. Ramon Chuanico EGIP VERY PE.RgON~~ Dear Monet1 I I wou 1 d 1 ike to remind you gain of the P50,000.00 to help m s art an electronic business 1~ Q.C. The ~u•J es~ ' I assure you is most ~rof i table. In rf c l l' I did not hesitate to invest · 1 i 19\Y !

savings anc:t many mbr~ If ytJu i!!h,'.' you can be a partner in t~e ventur If you will rJcall, t h~d n asking ydu for the PSQ,OOO.OO ve'n .fti ' I was sti 11 with EGIP I and if yod t:~nno t extend me the amount 4s gratuity pay, you may give it to me in lthe form of a l o an payable in a years tiMe. ~ Kindly let me knbw where you can be reached outside your off ice so ' wl! can . confer on the manner bf repayment of the PSO,OOO.OO and what 'security you wol•.l want.

Al s o more ! important is the denounciation being p~epared against EGI P or you by the same•gr~up I was mentioning to you .

In fact I wrcite you a note about . this people sometime • l ast y ear , and in several occasions I k~pt on calling yo ur attention about it.

It seems tha t · I 1t:l:\n no longe; stop this g ~oup anymore . ' f~ey • are try1ng their very best to prevail upon me tb go al~ng with ' them · in r clarifying cer,tain dooumen ts they alle~ed ' 1 to have in their poss ... ~sion and a~ c:orJ · . ~t;f,•, J to them they had f already cons &d 1 certain people in tH~ gover'lm.eh,i. 1 ' i they need is someone · who carl! e)t:ect. sworn statement, preferably one l•' w~o connected with EGIP. f Do you 11n . l WOLild be so fool ish , to be usqd '• t;t1~ir· ' , too 1?

Besides wh t th hav i in.· · ~ithout legal ba1liSt • I oyght . ,~ .~ ~!1~ b~cause as Manager pf . EGIP I 'did •.my. X~· b~st to manage the . ~usiness pf 'EGif! 1 iO e~!;..Q_rctance with law and, · .f.t"!ft investigations repeatedly cond~~ I ., I 21 WI t' .)

• !

DECISION CTA CASE NO. 2334 - 20 - ~!tEe~m~~~~~~~~~~~-4~~~~ rate, I can you.

(p. 38, Folder No. 51, Mr. Ramon Chuanico Valenzuel~, Bulacan Dear Mr. Chuanico:

records) November 10, 1963 Inspite of my ~ff brts to ~ sist you in your business and !personal prbblems, you did not •ven bathe ~ to talk to 1 m~ nor ' answer my letter.

Worst of all, I lbst my business and with 'it all my saving because you did· ·not !extend me even · a , .1 single peso to help me~ 1 with my sine$ • I was very right when I was suspec~il i'i g '· since the begiAning tH t you reall y ~ v• • no intention to help m with the ~ pi 1 I need.

Whatever hap~en, hencefo .th 't all your fault.

11 •' '' ·.~ ' , t ·I l • ·1 I had been ta 1 k i~c;{ ' to many ~1 . ~ r business associates ~ncludii1g cef ailn people in your office to 1 t · you ri w what I think of you as ~n empl~ye~, a friend ·and business as!5ociate.' Yo dtJ 't deserve anything.

Al. that 'is e& 1r t to you is money and nd~hing more.

~ :x.t......!.

.I 2& - .)

DECISION -

CTA CASE NO. 2334 m..Y5= h . ..ffi.QJ:J:L.! h~~•!Lln:-..:....! supplied) - 2l - (SigMed) , ·I F. Villa a.araza l ,, From the tenor. of the labove not challenged by respondeNt, ther 'I the intention of Gareza to I Undoubtedly, this impugris \ the credib 1 I , sworn statement.

Thus the 1 committe ~n were aptly stated:

fExh. R, p. l 295, Fold~~ Hd. 76, BIR I records.> "In view of the foregolrig, the committee has the strong belief that due to the character and prop nsities of Mr. Gareza, exposed in his own writings, the government faces the ~eakness of r lying on his written declara~ion , espec! lly ~o that his declarati.oris h vet not b~ n properly corroborated by oth r compet~nt evidences."

' .!I' , ;

I I

With regard to the doc t entary presented by petitioner tb refute 1 respondent that in the ye~rs in sold all its dollar uotas I importations, the letters ,, (:)~ \!;

.

I Division of the Bureitt..t I of Custo I , petitioner of the cancellation '.1 bonds filed to cover the · 4lbove I recommendation of the ' Apbraiser·~ t' strong proof that cdntrary I . !

I II ,.

2.9 ,.

DECISION CTA CASE NO. 2334 - 22 - these tax-free importations exported to their suppliers in Embroidery Law and clea~ed I ' have been

I ·

' ccordahc with ...

by ' the! Bureau Customs.

(Exhs. Z-1 to Z-t-93, Folder 1Nor,.

records) I I

·I I

The same h~l~s true 11 th c . I called "blacked out" importations. ' ri!- the of I .

.

of cancellation of warehouslng bonds cdve~irig thes I importations issued by ~he Chief bf the Law I I Division, Bur-eau of Customs c'Exh.

V-1 to V-12, I Folder No. 52; Exh. Y-1 to Y-5, Folder · Ho. 60, BIR I records) proffered by pe~itioner, indicat that I I ' said importations were processed and ' r - xporte~ to ·.

I their suppliers and theref6re could not h~ve been I ~ I suppressed from the' reco~ds and sold tb I , I textile buyers as . alleged b~ Gareza~ li .

I ' Under Republic At:t. No. , 3137, Law, the rules and regt.Hations· establishment , suspension, Eontrol bonded manufacturing wareho~ses ~ith I 30 .)

DECISION —

CTA CASE NO. 2334 - 23 - importation of embroidery and apparel raw materials to be processed and re-exported, provides for the m liquidation of import entries as follows:

Section 4. Xxx Liquidation of import entries. When the manufacturer © finds, through his records, that all the | raw materials covered by any Import Entry . has been manufactured and re-expotted, te. shall submit to the Board a "Statement at Liquidation." The: statement otha BE | contain a list of all export emtri a under which a particular Import Entry bird been s0 ‘liquidated and shail accompanied by copies of as . Hite "Certificates of Inspection" as there are export entries involved. The Customs | official up on finding eee aE Te dy of =liquidation si particular In Import t_Entry is ree _he _ shall certify to the the a and fee Collector of Customs ¢ as. _ proof for the cancellation of the bond an that corresponding Import Entry. (Underlining supplied) | a In line with the fbregeing provision, the notification of the cancellation of the warehousing bond on an import ,@ntry| by a Customs olticias evinces the manufacture and re-exportataah | ’ 4 te uke é materials covered by maraih: pore pa ae eeeee i Respondent failed Neil controvert Law Division of the Bureau of Cut tonte “of tern boy petitioner: to substantiate its stend. fel ofticial asi cae records, they are enti tied to Hand hae | credence. | DECISION CTA CASE NO. 2334 - 24 - "Entries in official r cords made in the performance of his duty by a public officer of the PHilippines, dr by a person in the perfbrmanc .

of I a · duty specially enjoined rv law, are piiea f'acif!

evidence of 1 the fat:ts 1. t ti"ein stated."

(Sf!ction 3'8~ Rulf! 130, tRule<S> o'f· Court. ·' I t The law reposes a public officers that it I discharge theil"' several t!rusts I I fidelity; and, therefore, ~hatever c~ they ~d i n I the discharge of their publ ic duty maybe given in evidence and s ha ll be take~ to be true Uhder stich a I I degree of caution as the hature and" circum5t nces I of each case may appear to require. 1 (Antillon 11 ..

I Barcelon, 37 Phil.

148, f52.J Therle can be no 1 I I t question then, that as against th uhcdrroborlated testimony of Gareza, the dndisputed above entioned official documents should ~e upheld. As to the allegation ,that petitioner ·'tampered ~ with the import · documents importations, the absence of the the possession of respondeht, the' au the alleged "genuine" invoice invoices entered in the official logbOQk can not be I rebutted.

It is so admitted in the me.tlorandum report of the reinve5tigating 32 DECISION CTA CASE NO. 2334 October 13~ 1969 that the originals of the shipping documents are in the h~nds of respondent, as follows:

(Exh.

I,

p. 8l, Folder ~o~ 76, BIR records) "The original and/or dtitplidatt!t I original and photostat copies of ll •the 1, 118 import invoice!s ~ and other hi pp.i.ng , , documents, genuine ana f ke invo ·c•• ' d supporting papers en~ the ·12 :: i ' · 11"'1:!- 1.

shipments, the offic~al logbook

1. of 1·tne EGIP, the books of a9count of EGIP .for the years irl questiondand oth r p~r~ ~ nt records are in the .fficial c:Ltstbdy Of the . Deputy Commissioner o'f Internal Revenue (Operations) ,1 the ·former TSU coord inator under w~ose direction the EGIP was raided succe•sfully. Despite efforts on ~he part qf respondent, l however, the originals of ~he shipping docu~ents in question could no·1 .

longer be located .

Only photostat coples can I be fo~nd in the record~ of the case.

In answer to ttte lette r of the ' Assist~nt Revenue Service Chief (Leg~l Office) dated January 31 ~ 1985 inquiring about the whereabouts of ' the originals of the · doc~ ents : involved bar, the revenue reinvesti gation of the t:.:Hie 1985, a s fo ll owsa "Wi th tax 33 ..1 DECISION CTA CASE NO. 2334 case - 26 - subject matter of C.T.A. Case No. 2334, please be informed of the following facts and circumstances - ·' 1.

My memorandum-repot"t on ttie ta)( case of EGIP (for shdrt) date d Oct- 1969 was submitted i on that dlate thereabouts and it i!s so ta\ted in lny report tha t the : originsl/dttpl!tdat.e original and photostat copi s o lf t, l a import invoices ah4f other sHip l n.g d6cuments, genuine arid fake i~voi~e• hd supporting papers on i~ import shfp•e ,ts, the official logbool< lof EGIP, bpo~ • f accounts arrd other perltinent ret: ~ds re in the official custody of th D ty Commissioner of llntern.:d · IR v m.te (Operations);

2.

The report df the Committee of Messrs.

Samuel A. Verzola as chairman, Mamerto Silangan, Jr.~ Leopolda ~ernab , and Alfredo C. Sercado• then offlcial of Revenue Region No. I 5, Valenzuela , Bulacan, dated June 1, 1 1971 state~, ambng , other things, that the aforem .ntiti e~ documents were not l with the i ddclc:e · referred •to them upon linstruct·on of the Commissioner of Intern•! Revenu : ~n~ I • 3.

The recor'ds on this tax cage show that it was elevated to the Court of Ta:< Appeals in 1973. 1 A good num er ' of revenue officials (th~ former D.C.I .

~.

, the former regional ditector of Rev. ~ · ~· No. 5, commit tee ~ members and othll?rs Who } may be expe~teJ to ~hed light . on , he whereabouts of the mis5ing r~cor'ds) 1:• d · already retired or' had been setpan · ~ ~ from the . service.

Ther~ is no way 1 ·~ tracing the whereaboLl~s of the g records."

I !I Even during the original by the ATSU examiners J lj itwetitig tio l they cou 1 d 1')0 ' the correctness of the informer's !=1 i~~t shipping documents for 1;118 ,, ' .)

DECISION -

CTA CASE NO. 2334 - 21 - false, for lack of basis. Thus, their memor~hdUm report dated January 3, 1966 reads: (p. 17 ~ FoJde-r No. 78, BIR records) There is nothing in the recc:~rd !showing that such cross checking was made on the ~~ipping • documents in que~tion.

Uhder the the allegation that , these ~ocuments w not stand.

} ' , . I The case of Boni-faci• , Sy Po vs .. ' ' i CTA Oase No ..

3386, Si!pt'll•b•r 30, 1987 (~'f'firmed in G .. R.I 1988, 164 SCRA 524) c i tetd !

application here.

There, No.

81446,1 Au~ust 18, l j by · responden ·: h«S no I petitioner ~~peatedty DECISION CTA CASE NO. 2334 refused and failed to present the · pertinent accounting records and other related documents, t .

whi 1 e in the instant case, a 11 the b 1!51inf!s9 re drds and shipping documents involved ' possession of respondent. In point is the ~ase of I Co••is:fionflr;

' Internal Rf!venuf!

v.s.

I.sla.;,d Garaent ' p,•Au'tlac:furing b .

~ .

.

I l Corporation and · the Court I 'f Tax App• Is . 11 G .. R .. :Ho, · l L-46644, September 11, 1987 (1 53 SCRA 665) wh•rein ~ I the Supreme Court reiterkted t he rule held in Collector Internal Rf!venue vs.

l L-1.JC.. 56 .~ ~1anuary .31, 1962, j4 SCRA 182"' that1 "An assessment f b :e s a nd de ~erminei ·l the tax 1 iabi 1 i ty of ~ ta xpayer. ·, A• oon ,1 as it is served, an O'bl i gation arises on , the part · of the ta xpayer c ncer ned tb p ay the amount assessed a~d d e ma nded . Hene e, ass essments should nolt be based 'on mere presumptions no ma~te~ how r eas orlable or logical said presumpti'ons ma y be ~ )( ~."

"In o r der to ~tand tht:!

~est t o1 judicial scrutiny, the assessment mu~t! bd·· bas ed on actual acts. · The prest,.tmp~ion of correctness af ass~ssment bein~ a ~·r~ presumption cannot be made tb ~e~t 1 dh another presumption." t, ~~, , 1 ·)11.

~ ' I • ,, I I After considering ~nd wei-ghi ~ , ~ i .

I ·J! 1 ! I!

evidence, we here find petitioner. not l•iabl• the deficiency income and advance .;sales taHes assessed against it by respondent f?r ' the · ye•r• 1959 to 1962.

I With this conclusion, tt'le sec:ord I t issue as to whether the imposition I of the 50X DECISION CTA CASE NO. 2334 ~9 I I I s urcharge for fraud is ju1 tified beco~•• academic.

!

WHEREFORE, the decision hereby reversed.

No costs

WE CONCUR1

~£1/ AMANTE~ Presid/ J~tdg<i m~ "-­ CONs1:'~;E -t. ROAdU IN 7 sociate Judge I hereby reached the Court of Section 13, Article ..

I r.

! ·!' H ,, .J