Republic of the Philippines Court of Tax Appeals Quezom Cite ‘Filipinas Auto Sales Corporation, ° vs. = Hon. Misael P. Vera, as Commissioner of Internal an Revenue

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- . 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 vehicle parts from t he Company and/or from any assembler so designated ·n the Philippines fo d i s:tr but · on locally and not elsewhere (See Par & 2, Distri- butor Agreeme,nt as Amended, p. 187, Fol deJ: I, BIR records. ) .

It also appe~ ar s that on Januar y 2l, 1958, another dome·stic corpor ation known as the Con- solidated Assembly, Inc. was granted ly the Chrysler Corporation the exclusive right; .to assemble in the Philippines knocked down cars an trucks i mported from Detroit, Michigan, U.S .. A., and t he ~r ight to i mport s uch veh icles on behalf of he Chrysler Corporation ' s. l'hilippine distributor s in accordance with the terms of their respective distr i butor ' s. agreement.

(See Clause 1 , Agreement between the

Chrysler Corporation Expor

Division of Detroit, Michigan, u.s.A , and the Consol idated Assembly , Inc. of the Philippines, Exhi 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 author i zed 10lJ

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DECISION

C'l'A CASE NO. 23.40 3 - Chr ys.ler distributorsin t he Philippine s t he • buil t -u.p cars and trucks as embl ed by it at t erms and conditions previously agreed to. (See Clause 6 , I bid.) .

Pugs.uan to t he Agreement, t he Conso idated Ass.embly, nc . i mported completely knocked-"ow (CKD) .cars and t rucks which i t as sembl ed i nt o vehicles and t ransfe rred t hem to petitioner which i n t.urn were sold to its petitioner 8 s. .customers .• As distr i butor , petitioner paid onl y t he graduated fixed annual t ax .

Believing that petitioner was depr i vi ng the government of substantial revenues , ~ 0 sponden t on J anuary 22 , 1959 author i zed examiner s Lor enzo M Leynes and Simeon Casingal to i nvestigate peti- . t i oner•~ books of ac~ou nts and other accounti ng records f or business tax purposes for 1958 and · .

all unverified years (Folder I , p . 27, BIR r ecords.)

After conduc i ng an investigati on, the t wo examiners submitted a memorandum dated Apr i l 30 , 1959 to t he provi nci al revenue office of Quezon City wi th a finding that petit i oner i s a contractee- manufacturer and, herefore , the sales to its customers were t he taxable s ales . They ):"ecornrnended t h~ · petitioner be r equire to pay a sales tax of 10'(

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DECISION

CTA CASE NO. 2340 - .4 11988 1 46,4. 6,4 f or 1957 an 1958 i nstead of t he • graduated fixed annual t ax on th gr oss sa e s of car s .

(See Exh. 1, pp. 43 . 4, Folder I, BIR records.

Under the then Sec t i on l 4 of t.he National Internal Revenue Code prior t o i ts amendment by President i al Decree O o 69 , a percen t age ta i s levied, assessed and coll ect ed once o l y on every or i ginal sale, bart er , exchange , o simi l ar t rans- action for nomi nal or valuabl e considerat ions intended to t ransfer 0\'lnershi p of , or t itl e t o , manuf act ured articl es wh i ch i ncluded , among others , aut omobiles .

Acc:or di ng,ly, on J uly 11 . 1960, res- . pendent asse s sed and demanded f rom petitioner t he amount of Pl, 036· 1 341.72 a s manufac 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 as compr omise penalty ' .

(Exh . 2, p . SG, Folder I , BIR r ecords .) On Augus t 22 , 1960 , pe t itioner pr otest ed the asses sme:nt contending t hat i t .was merel y a di s t ribute or dealer of Dodge automobil e an t r ucks purchased f rom t he Consolidated Assembly , Inc ., t he au t hor ized assembler of the Chr ysler Cor poration .

(Exhe 3, pp . 91-92 , Folder I, BIR r ec:or ds. } 108

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DECISION - .

CTA CASE NO. 2340 .s - On October 19, 1960 , r espondent r equi re • pet ' tioner to accomplish a waiver of the statute of l i mi t ation as a condi t i on t o a reinvestigation . The wai ver was execut ed by peti tioner on November 3, 1960.

(Exh. 4, p. 99 , Folder I, BIR r ecords ) Thereafter , r espondent ordered t he co ti- . nuat i on of t he previous invest ' gati on of pe t i t ioner for the years 1957 and 1958 under Authority No . 0351- 64 '1a ted Jul y 28, 196·4.

p. 227, Folder , BIR r ecords .) . I n this connection , r espondent i n a l etter dated November 18 , 1964 , r equested t he Consolidated Assembly, I nc. t hat seni or r even e examiners Ernesto Vict a and Reynoso r : oreza of the I nvestigation Division of t he Bureau o I nternal Revenue be allowed access t o the books of account s and other records bear in9 on he busines-s trans act ions of petitioner .

(p . 262, Fol der I, BIR r ecords. )

As a consequence t her eof , i n a memo randum f or responden t dated November 10 , 1964 , group superv i sor Pabli t o J e Enano,. r ev-enue exami ner Ernes to Vl:ta and supervising r evenue e am' ne

Reynoso

Floreza r ecommended t ha t , r ef er ence be made to t he r eports 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.comi t an t t o t ax f raud be t aken; petitioner be 1 0 ~

DECISION =

CTA CASE NO. 2340 assessed the amount of 82,500,715.75 inclusive of surcharge and penalties for deficiency business tax; and immediate action for collection be pursued. (Exh. 5, Pp. 275-285, Folder I, BIR records.) _ On Maxch 7, 1966, however, respondent issued a rewised assessment against petitioner increasing the sales tax liability from P1,046,241.12 to P13,439,347.93 for the period £rom 1957 to 1963, computed as follows:

1957 1% 75% 1.003 Sales B321,627.55 259,818.00 B1,573,890.00

Less: Deductible

materials (189,407.20 171,837.99 _1,139,122.23 Taxable Amount = B132,220,35 B_87,980,0] B__434,767.7] Sales Tax Due B_92223.43 B_65,985,0L B__434,767.77 ee aS er a Total Sales Tax Due « » « « » 2 «@ © » « F51L0,008.21 Adds 25% surcharge thereOn .. 2 « « » » 127,502.05 50% surcharge thereon . . o « « « » 295,004.16 Total Amount Due for 1957) ascocces £892,514.36 See awewanswaen ara 1958 78% 50% 715% 100% Sales P155,690.00 B253,500.00 297,763.75 PL,698,722.50

Less: Deductible

materials _113,670.00 (108,183.12 167,799.36 902,697.34 Taxable Amount B_42,020,00 P145,316,88 P129,964.39 P__796,025.16 Sy SS Fat es a en ee ae oe ee OD ee cae Sales Tax Due B 2,941.40 B 72,658.44 #8 97,473.31] B 796,025.16

Less: Sales Tax

already paid by

Consolidated Assem

bly, Inc. ( 785.70) (6,005.28) (13,637.36) (__ 29,679.42) Balance . « « « e B__2,155,70 #_66,603.16 B 83,835.95 PB 766,345.74 Se a === == SS SS SSS SSS SSS 110

DECISION «

CTA CASE No. 2340 Total Balance Due 6 a a Cd eo a e & @a KR oe te a m a a a e e R 918 940.55 Add: 25% sypcharge thereon 4 6 ne 2 oe oe wee oe 229,735.13 503 surcharge thereon @ a ®@ B® 8 & @ @ © F&F @ FB @ 459,470.27 Total Amount Due for 1958 ARORA MAROON OHH AOAENE B1,608,145.9 1959 to 1963 Sales B7,680,674.56 852,500.00 B319,000.00 814,241,220.50

Less: Deductible

materials _4,623,402.53 _ 28,134.34 _184,247.31 | _8,011,755.82 Taxable Amount B3,057,272.03 824,365.66 B134,752.69 B_6,229,464.68 a SE a ae —S—S a. ——e a Sales Tax Due PRP 214,009.04 B12,182.83 B101,064.52 RB 6,229,464.68 Less; Sales tax already paid by Consolidated Ass ( 25,522.58 (2,283.80) 4 21,990.28) ¢ 256,245.77). Balance P__183,486.46 B_9,899,03 B_79,074.24 B5,973,218.91 Se Se ee as near a: Se ee ne Seon Total B alance Due a a a a a a s a eS o a oe a a x @ Add: 25% surcharge there oe oe « a «© » «© © @ « @ 1,562,699.66 50% surcharge thereon 6 4 ao 2 9 8 wo © @ 2 @ 3p h25,339.32 Total Amount Due for 1959 to 1963 -aacccvesears + 2401938637268 « « 26,250 ,678.64

RECAPTTULATION :

Sales tax and surcharges due for 1957 .. 6 » o® 892,514.36 ” . mm ts] * " ™ 1958 . «oo « 1,608,145.95 i a L] % ia bad 1959 to 1963 e @ 10,938 ,687.62 TOTAL SALES TAX & SURCHARGES DUE oeccnnnovannnss oP lo,439 2347.93 Plus an additional sum of B10,000.00 as compromise penalty.

(See Exh. 6, pp. 425-427, Foider I, BIR records.) _ Again, petitioner protested the assessment in a letter dated April 30, 1966. (Exh. C: Exh. 7, pp. 452-457, Folder I, BIR records.} The protest was denied by respondent in a letter dated August 6, 1971, (Exh, 9, pp. 532-535, Folder I, BIR records.) — Hence, the petition for review.

Til

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DECISION -

CTA CASE NO., 2340 - .a -

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petitioner Fil'ipinas Auto Sal es Corporatio • a manufactur e~: pur suan t.o t he t hen Section 4 of t he ational Internal Revenue Code and,hence, l iable fot the deficiency manuf ac t.ure·r ' s sales t ax i n ques t i on in th amoun of Pl3, 439, 47. 93 i nclus i ve of surcharge an penalty?

There is no dispute that th t erm "manufacturer ..

as used i n Section 184 of the National I nternal Revenue Code applies not only to one who actually makes the manufactured art i cle s , but a so to one who causes the manuf actuted arti 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 di str ibute finished articl es is held to be a manufac t urer ot produce within the meaning of · the exc ise t ax l aws even t hough t he actual manuf - actur i ng was performed by ot hers. (Warner Pat terson Co. v. U.S., 68 Ct. Cls 4 237 , 1 USTC , par . 415 . Peti tioner contends that it i~ not a manuf actur er but merely a deal er or i stributor of Dodge motor vehicles , hence , i t shoul d only be subject to the graduated fixed annual tax on the gross sales there- of o suppor t t hi s contenti on , petit i oner mai n- t ains t hat "t had never been engaged in actual 112 ...• f ! ( -.

DECI SION -

CTA CASE NO e 2 3·4:0 - 9 - manuf ac:t ur i nt;H that it' did no · have any par t i ci- . " pation in t he i mportation ex.c.ept tha · i purchased said e:hicles fr om t he Consoli dated Assembly 1 I nc ., 1 t he author i zed assembler , t hen sold them t o i ts cus tome rs3 and t hat petitione and the Co s-olidat ed As.se:mbly, I ne e are t wo distinct and separate enti t ie:s, so t hat their tr ansactions should be treated a t arms length , and f or all i n ents nd purposes , bona fide .

On the other hand , r espondent answer s t he que:r i n t he af fir mative.

We agr ee with respondent t hat pe:t i i oner is a m n u f act ure ~ of s aid motor ehicles and not a \ mer e dealer t hereof.

This conc l usion is borne by the f ac t s and circums t ances of t he cas • As aptly and clear !

de t a ined by r espondent (pp. 162 ~ 6 6 , CTA r ecords) '· which i s competently and s ufficient y s upported by t he evidence presented and t he record .

of the case , and which peti t ioner ailed to con- t rover t :

(1 . There was the agreemen execu .ed in De t ro i t . Michigan, U S.A., on January 2l , 958 , wherein i was s tipulated i n paragraph 1 thereof t hat the Consolidated Assembly , nc ~ was appoint ed t h exclu ive assemble in the Phi lippines of the Chrysle r Corporation CKD complete ly knocked down) 113

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DECISION

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CTA CASE ijp. 234P - .J.O ~ 0 Corporation's. d i stribut ors.

Peti t i oner was at the t ime one of th dis ributors of the cars and t rucks of the Chrysl er Corporation .

By virtue of such a reement 9 t he Consol ' dated Assembly, Inc . impor t ed CKD car s and trucks and assembled them f or peti- . t i oner , which sold the assembled vehicles t o the public nder an agreement be tween the Chrysl e r Corporation and peti t i oner.

(2) . Indeed, i 1956 , 1957 and 195·8, pe titioner contributed t he major working capi tal of the Conso idated Assembly , Inc .

(3) . Then, the Consolidat ed Asseml1ly, Inc ., as assemble , r eceived a f i xed net i ncome of P200 . 00 to P3SO . O per unit car or truck del ivered t o peti t i oner 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 other hand, pe t i tio'ner made a gross profit from the sales of t he cars and trucks in question f rom P3,000 .. 00 to 5,0 0.0. 00 per unit. (p. 221, BIR records , Folder I ) (4) Again , t her e i s that letter of t h Chrysler Corporat ion i nforming t he Centr al Bank of h e P i ippines t at C rysler has approved its Chr_Ysler ) di s t r · butors ' .choice of t he Consolidated 114 r

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DECISION -

CTA CASE NO. 2340 - 11 Assemb y, Inc to nde-rtake t he job of assembling • i ts cars and true in the Philipp ' nes ~ behalf of i ts dis r ibutor s .

One of the distr i u ors on whose behalf the CKD parts were imported and. assembl e was petitio er herein o

(Exhibits 17 &

7- _, pp .. 269- 2_70, BIR r ecords Folder I.) .

(S) . In addi t ion, t here i s also a etter wr i tten by a ey offic i al of the Pacific Bank ing Corporation i nformin t he Central Bank of t he shipping ar rangement governing t he ' mportat ions by the Consolidat ed Assemblyj Inc . of t he CKD parts.

In brief , t he shipping arrangement s tated that the CKD parts will not be releas~ to t he Consolidated Assembly , Inc . without an au thority f r om Chrys ler 8 s. agent i n the Philippines . 16, p. 266 , BIR r ecords , Folder I .. ) .

Exhibit

(6) . Then , too , the bi ling to petitione i s a t actual assembly ost plus f i xe and determined assembly fee or administrative expenses i ncluding s ales t ax paid by the Consolidated Assembly , Inc . for and o behal of pe titioner .

There was o fixed sell ing pr ice of the units all t he selling or transfe pr ices are de er mined by the actual cost plu assemb y f ee and sal es tax per ot or as per l etter of credit cover ed by the impor t at i on . 115

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DECISION -

CTA CASE NO. 2340 - 12 (Exhi bit 5, p • 283 2.8S, BIR r ecolt'ds, Folder I a) . • An nal ysis of he gross profi t earnings r ea ·zed by Consoli dated and pet i t ioner shows the comparativ r eport hereunder :

Consolidated

Filipinas

Sales

Dodge Kingway

Sales to the

1958 to F . l i pinas •s• .P 7,239 ~ 00 Public ••••••• Pl3 , 500.00

Cos

•••••••••••••• • • •• 6, 039 . 00 Cost •.• ••••• 7,239. 00 (7)

Further

t he funds used by the Consolidated Assembly , Inc. for the paymen of marginal depos "ts, taxes, dut ies and other i mportation expenses were found t o have been advanced to the Consolidated Assembl y , I nc. by petitioner t hru t h ~ l ocal banks by means of domest·c letters of credit. 8 ) . Moreover, ·mported CKD parts released by banks to the Consolidated Assembly, Inc . under trus t r ece ipts were guaranteed by petitioner eit her as guarantor of the for e i gn rust r ece i pts agr eemen executed by the Consolida t ed Ass embly, I nc . or by means of l etters of c edi t opene by petitioner.

( 9 ) As a matter of f act, pet i t ioner and ot er distributor s of Chrysler 's products i n the Philippines were found to ave opened a ere i line in favor of h Conso i ate Assembly, Inc. f or the importation of the CKD parts .

Exhib "t 5 , pp . 275-285, BlR r ecords , Folder I.)

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DECISION -

CTA CASE NOe 23 0

- .13 - (10) Last but not l east, petitioner f il d .

o controvert during the hear ·ng of this case the fore~oin indings of respondent or to show t e incorrectness of r espondent 0 s as sessment. Petitioner 0 s contention is , in substance, that the Fi ipinas Auto Sales Corpor ation and the Consolidated Assemb y, Inc. are entirel 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 trucks were imported in t he name of the lat t er.

Respondent does not qua rel with t hese propos · tions .

However, t he appl i cable principles are clea and in the end the decision in this case must res upon i t s own peculiar facts and ciicum- stances As lready deta i led above, these facts and circumstances, which were not disputed by petitioner, 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 vehic es and, therefore , liable to pay . the manuf- acturer'• sales tax in question . All these fact s nd circumstances, taken together , support the concl usion tha the arrangement wh "ch made i t appear that the Consolid ed Assembly, I nc . was the ma1uf- acturer and petitioner was t he dealer reselling 117 .

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DECISIO -

CTA CASE o. 2340 - .1 - the manuf actured vehi cles to the public was availed !)

of f o h purpose of mi ni mizing t h sales t ax due on the assembl ed veh cl es8 The cone us i on r eached ' s reinf orced by t e principle that the burden of proof is on the tax• payer contest i n the va i i ty or correc t ness o an assessment to prove not only t hat the Commi ssioner of I ter na Revenue is wrong · but that he taxpayer) • i rightG (Li no Gutierrez vs . Collector of Inter nal

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Revenue , CTA Case No . 504 , January 28, 1962; see also Ta Guan vse Court of Tax Appeals, L- ~3676,

Apr '

7, 1967 , 19 SCRA 903o) And if no evidence i s p esent ed t o substantia e t he er r nr ·· that are c laimed t o have een committed by t h Commi ssi oner i n making t he assessment , as in t his case, conform abl y to t he doctrine of t he presumptio in f avor of t he cor rectness of t ax assessment (Int er-provi nc ' al Au to- ~u s Co 8i I nc. vs . Collec ur of Internal Revenue , L-~7 4 1, January 31, 1956, 98 Phil. 290: Collec t or o I nt ernal Revenue vs. Bohol Land ~rans ortat ion Co., L ~3 0 9 9 ' L-~34 6 2 , April 29, 1968, 107 Phil . 9oS )~ the Cour t of Tax Appeals will merely sustain th asses sment against the taxpayer (Esso Standa r d Ferti ize & Agr iculcural Chemical Co . , Inc. vs . Commissioner of I nternal Reven e, CTA Cases Nos . 118

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DECISIO

CTA CASE NO. 2340 - 15 - 1862, 879 1 1888, 1893. & 1896, May 30, 1980 ) . It 8 is i ncumbent upon t e t axpayer clearly t o show t hat the assessment. was e r r oneo s in or der to rel i eve himself from it (Inte -provincial Auto- .

bus Co8~ I nc4 vs8 Collector of Inte r nal Revenue , supra.) . This pet i t i oner Filipinaa Au t o Sales Cor porat i on failed o do s o .

Pet itione having f a iled t o di spute and con- . trover the f a t s and circumstances attendant o t his case which suppor the finding of respondent t hat th CKO c ars and trucks i mported and assembled by the Consolidat ed Assembly, Inc8 were for an on behalf of petit ioner which caused t he ~ a nuf acture of the motor vehicles involved in this proceeding , or to sho t he i ncor r ec tness of respondent ' s. asses sment, t he Court has no other alternative t han to susta i n t he dec i s ion of respondent dated .

August 6, 1971 oldi ng t hat petitioner i s liable 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 urcharge , i mposed under the then Sections 183, 184 and 186 of the National Internal Revenue Code . The compr omise penalty of PlO,OOO oOO suggested by 'e ondent i his assessment should not be imposed or ~ o lle c te d wit ou t he gr eemen and 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 Commi ssioner of Internal Revenue t he amount of Pl3,439 0 347.93 r epresenting manufactu r er•~ sales t ax , incl usive of sur charge, for the years 1957 to 1963, plus interest at the rate of 14% per annum from January 1, 1973 to July 31, 1980 and at the rate of 20%.per annum from August 1, 1980 until fully paid pur suant to Section 193 of the 1977 National Internal Revenue Code as am Q~ded by President'al Decree No. 1705.

WHEREFORE , the decision under review is her eby modified in the sense that the compromise penal~y should not be imposed and is aff irmed .in all other r espects.

Wi t h cos ts against peti tioner.

Presiding Judge

• Associate Judge Con s ta~te c. Roaqu1n d1ssents i a separ ate opinion.

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m~f!'t'lteU ~ o OC~J~tl"' OF' o···.q·,.,.. 4"!1- •

~FILIPINAS AUTO SALES

CORPORATION, Petitioner , - .versus -

COMMISSIONER OF I NTERNAL

REVENUE

Respondent.

DISSENTING OPIN IO

I vigorously disse'nt against the !1\u.jority dec i - s ion dated April a, 1983 reached by my colleagues 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 whi ch are gathere~d from the J:ecords of t his c ase :. It appears t hat petitioner Filipinas Auto Sales Corporation, herein referred to as FASCO, is a domestic corpo ration duly organi zed under the l a\'IS of the: Philjppines on April 13, 195-l (Repor t of Examiner , pp . 181-18 4, Folder 1, BIR rec.; Par . 2, Petition for Review , p .

TA r e:C aJ Ex:hs "A" , "A-2" , Amended Article of I ncorpor ation , pp .

07-113, CTA r ec . ) wi th its pri- mary purpose as follows:

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DI SSENTING OPINIO

CTA CASE NO

2340 • - 2 -

PRIMARY PURPOSE

• To conduct , engage in and c arry on 11 whether as agents , princ pa. s , o factors , he business of i mEQ..rting, buying , selling, distributing an.c1 dea_l ing in all kinds of automobiles, motor trucks , station wagjOns , motorcycles and all other kinds of mecha- nically propelled vehicles and means of transportation_, as well as i n car and 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."

(Underl 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

CITIZENSHIP

Frank R. Haling

American

Sibyle L. Haling

American

Lualhati V. Ferro

Filipina

Manuel c. Macatulod

Filipino

Pedro M. Syquia

:Filipino

RESIDENCE

1131 M .. H. del Pilar , Mla.

J.l 3il M. H. del Pilar , Mla .

1260 V. Concep- cion·, Ml a .

1222 Alf r edo , Mla ..

1131 M. H. del · Pi ar , M1a .

By virtue of distri butor ' s agr eement e nter ed i nto between FASCO and Chrysler Co pora t ion of United States, the f ormer was appointed by the l atter , hereinafter Jreferred to as Chrys.ler f or short, as the franch i se di s t r ibutor i n the Philippines of Dodge automobi l es an trucks.

(Dist ributor ' s. Agreement between Chrysler and FASCO, Folde r 1 , PP c 188-190 , BIR rec. ) r ' . .

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DISSENTING OPINION -

CTA CASE NO. 2340 - 3 - The first s-entence of paragraph 2 of the s.aid • Distribute 8 s gr eement (Folder l, p .

87 , BIR rec .. )

between Chr ys.l e r and petitioner (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 Agreement, Company (Chrys.ler ) qrants to non-exclu- sive riqht to purchase motor ~~e!:.'1£ i es parts from Company

( Chrysle ~ ) and/or

from any ass.embler or man nf act~ (COJ! solidated Assembly , Inc. ) .in the Phi.liE,- pineJL.9;?si qnated by Company (Chrys ler)'· for distribution and resale i n t he fo l - l owing desc J.L: i bed ter r itory and not else- where. ..

(~osed i n parenthesis mine . ) . Sometime on August 16, 1954, a domestic corpo- r ation known as Consolidated Assembly Incorporated , hereinafte · r eferred to as Consolidated , was regis - tered with the Security and Exchange Commissi on with the f ollowi ng individuals as stockholders or i ncorpo- raters:

Mr . Ignacio Jaotayag , Andrea v. J aotayag , Ricardo s. Canl as , Juana J . Canlas and. Leonidas J . Can l as ..

By virtue of an Agreement dated J anuar y 23·, l95S (Folder 1, p . 280 , BIR r ec. ) .enter ed into between Chrysler and Consolidated, the latter was appointed by the former as i ts Assembler of Dodge c ars and t rucks in t he Philippines with the f ollowing t rade names: 111Dodge, • "Plymouth , " " De Sot to ,.. "Valiant , " "Morris," • s · m~a ," and "Fargo ."

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DISSENTING OPI ION

CTA CASE NO

2140 - 4 Cons.olidated was establishe . with the primary • purpos.e of engaging in the business of as.sembling and manufacturing ~otor vehicles , whi ch assembled or manufactured motor vehicles, in t urn, were sold and dist~ib ted to several duly author ized or licensed distr i butor s , and one of whi ch is the herein peti tione FASCO.

(Rev. Exami:1e r Pabli to Enano , Folder 9, pp .. 204-2:10, BIR rec ; underlining On January 22, 1959 , Author ' ty No.

94-R as

issued author i zing examiners Lorenzo M. Leynes and Simeon Casing;al to examine and investigate the books of account s and. ot her accountin9 re, c. cot:-:... ~ f or bus i nes.s tax purposes of petitioner f or t he years 1958 and all unverif i ed years.

(Folder 1, p~ 27, BIR r ec.

After

/ t he aforementioned i nvestigat ion by respondent's exami ners, a memorandum report was submitted y ·t:hem .

dated Apri l 30, 1959 t o t he Provinci al Revnue Of f icer of Quezon Ci t y , fi nding petitioner l iabl e f or sales t ax in the amoun t of P988 , 464 . 64 for t he years 1957 t o 1958 ~ The examiners alleged that FASCO' s sales of automobiles and trucks were original sales , and , therefore, the tax should be collected pursuant to

Section 185

should be Sec.

84) ?f t he Tax Code.

(Folder l, pp .

38-~9 , BIR r ec • . However , on Ju l y 12, , '

I

.· .--

DISSENTING OPINIO

CTA CASE NO .. 2 3;40 1960, respondent assess.ed and demanded from pet ' - ..

t ioner t he higher sum of Pl , 036,341.72 as manufac- tu r er "~ sales ta~ and surcharges for the years 1957 and 19SS pursuant to Secti ons 183, 181: and 186 of

the Tax Codee

(See Exh . N2" , Folder l, p . SG, BIR r ec.) .

This was protested by peti tioner, thru the accounti ng f irm of Sycip, Gorres , Velayo & Co , in i ts l etter dated August 22 , 1960, contending t ha peti tioner i s not a manufacturer of utomobiles and trucks · but i ~ a mere distributor of s uch vehicles, and , therefor e, i t shoul d pa only graduated fix:ed tax ( C-~ 3 ) .for its sales of new an usrd automobiles and t rucks purchased from Consol i dat ed, which is the authorized manufacture of said cars and trucks of Chrysler .

(Exh . "3" , Folder 1, pp. 91-92 BIR r ec. )

In a memorandum addressed t o the Revenue Oper - ation Head, t he Chief Litigati on Division, Cesar L. Kierulf , recommended that a detailed i nvestigation be conducted in order to ascer ta in the correct tax l iabi l ity of the herei n peti t i oner . (Fol der 1, pp .

219-222 , BIR r ec.)

As a consequence thereof , an- other authority No . 0351/64 to investi9ate was issued on J uly 28 6 1964 authorizing Examiner Lorenzo M. Leynes to reinvestigate petiti oner ' s business t ax liability . ' .. ...

--

I

DISSENTING OPINIO

CTA CASE NO. 2340 - .6 - (:Folder 1, p . 227 , BIR rec.) . Eventually, Examiners • Ernes.t o . Enano and Reynoso Floreza a lso inves t i9a ted petitioner • s ta:lt liability.

Afte r t he r einves tigation, r espondent sent t wo l etters to peti t ioner 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 opportuni ty to presen t i ts ev ' denc ·~ and to s.upport its content.ion t hat it is not a manufacturer o f said cars and t rucks but merely a distributor . {Folder 1 , pp . 28G- 287 , BIR r ec. ) . However, there is nothing i n the records to s how what t ranspi r ed in he aforesaid conference.

0 March 7 , 1966, a r evised ase- Glment was issued increasing petitioner'• sales tax liability from Pl ,04 G, 34 .. 12 to Pl3 , 439,347.9 3 cove r ing the year s 1957 to 1963.

(Exh . "6", Folder 1, pp. 425- 427 , BIR rec.)

This increased a ssessmen was aga in protested by s aid petiti oner , thru counsel, Carlos Valde z & Co. , in a l ette r dated Apri l 30 , 1966 . (Exh . "C", Folder 1, pp 452- 459 , BIR r e .)

The Game \'las , h owe\H~r , denied by responde nt i n his l e tter dated August 6i, 1971 .

(Exh . " 9" , Folder l , pp . 532 535, BIR rec.)

He~nce , on Octobe·r 23i 1 1971 peti t ioner appeale'd t o this Cour t. The only issue pos 'd befor e this Cour t for 126 _..-

I

DISSENTING OPI I ON -

CTA CASE NO .

2 ~40 - 7 - determination is \<lhether or not petiti oner FASCO • is a manufactu er pursuant to Se c t ions 1 83-~84 and 186 of the National I nte rna l Revenue Code . Res.pond e~n t claimed that peti t ioner FASCO is contractor-~anufacturer of cars and t r ucks that were , as a fore:said , as;s;emb1ed by the C o ns.ol i dat e~d .. Res:ponde n t presumed Cons.ol ida t ed to be under con- tract t o as;se~mbl e cars and trucks, for a nd in be- ha lf o f FASCO , hence , concludee! that t he l atter is a manufact urer pursuan

to Section 184 of the Tax:

Code .

Respondent, i n arr i v·ing at the c onclusio t hat petitioner- is a manufact urer, r elied 0 n the follow i ng cin:::umz.tances (pp .

1 6 31-~64:, Res.p Memo., CTA Rec .) '· to wit:

1.

That t here exist an agreement executed in Ame~rica on J anuary 231 , 1958 wherei n it was stipula ted t hat Consol i- dat ed was appointed t he exclu s ive a::;:sem blc r i n the Philippines o f Chrysler Corpo- r a t ion CKD cars and trucks f or and in behalf of t he Cor.pora t ion' s (Chrysler) distr ibutors.

Petitioner was at t he t ime one of the distributors o f the c ars and t rucks of Chrysler Corpo iltion . 2.

Pe titioner herein contributed t he major \var king capital of Consoli- da ted Assembly f or t he years 956, 1957 and 1958,the f ormer as manu facture and the latter as c ontractor .

3.

The assembler r eceived a f ix:

i ncome o f P20 0.0 0 to P350 00 per uni of . c a r o r truc:k del ivered to petitioner.

I

DISSENTING OP INION

CTA CASE NO. 23:4,0 - .8 - 4.

That there exist a etter of Chrysle~ Corporat ion informing the Central Bank of the Philippi nes t ha

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 behalf of said dist ributors .

One

Of the distributors on whose behalf the CKD parts t:ere i mporte and assem bled was the petitioner herein . 5.

That there exis a l etter that the CKD parts liill not be r .~­ l eased to Consolidated without any au thority from Chrysler agents in the Philippines., 6.

The selling price of the units 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 marginal 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 released by banks to Cons.olidated under trust receipt 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 of s a id CKD parts. The provisi on of t.he law applicable at t he time is Section 184 of the Tax Code which provides as follows :

" Sec ~ 184.

Percen t age t ax on sales of x x x automobiles ·x x . - There shall . be levied , ass:es:sed and collected once 12()

I

I

DISSENTING OPI NION -

CTA CASE 0.

23>~:0 - .9 - only on every ori9inal sale, barte!.L ~chang~, or similar trat;sacti'?n for nominal or valuable cons1derat1ons intended to transfer ownership of , or title to, x x x x such tax to be paid by t he manu~act~ o producer . ..

(Unde:rlinin;J supplied ) I believe t hat t he circumstances found and assertedb respondent in arriving at t he conclusion t hat petitioner PASCO is a manufactur \!r subject to s.ales tax under Section 184 of the Tax Code are not suffic ient ..

The records show t hat the petiti one

FASCO and

Consolidated a r e ent ir e~l y separate and distinct corporati ons, with entirely separat stockho ders and officer s and performing separate a~d distinct t ransacti ons .

In short, t hese t'..ZO co porations have separate juridical personaliti es. I t is worth not- i ng that none of the stockholders and/ or officers of petitioner FASCO are stockholders and/or officers .

of Consol "dated and vice vers.a. PASCO is definitely governed by its ar ticl es of incorporation, \'lhic:h is the very source of its power and au thor i ty . 'fhe primary purpose 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 basis for conc l uding that ' petitioner FASCO is vest ed with authority to engage 12 ~ ..

.-"-

I

DISSENTING OPINION •

CTA CASE NO. 234:0 - 10 - in t he business o f manufactur i ng car s and t r ucks i n 0 oltder t hat it may be c onsidered a anufacturer pur- suant t o Sect ion 184. o f the Tax Code . Definitely , insofa r a s i t s corporate a i ms and pur pose& a r e concerned , pet itione PASCO can only e x.:e r cise t he powers that are expressly conferred by law and i ts artie e s of incorporati on. It was i n 1953 that petitioner 11 by virtue of a contract, w~ s appointed a s a franchise d istributor i n the Philippines by Chrysler .

There is nothing in the r ecords i nde~ed that wi l l s·h ow that these t .\'/O corporations, peti- t ioner FASCO and Consolidate:d, had any busi nes:s affiliation or i dentical purpos es. Tb! only business r elation bet'IJ.een pe ti tioner:· FASCO and Con sol ida ted i s '''hen t he fo rmer purchas.es the cars and t r uck s from the latte r which manufactured them .. The Supreme Cour t in the c:as·.e of Manila Tradi n·g & Suppl y Co ., v s . C'J. ty .

of Manila , et al ., G.R . No. L- 12156, Apr i l 29, 1959 ; 105 Ph i l. 581., defined manu f acture r a s fol lows: 9'Manufacturer Defined . - One who i m- por·ts: raw mater i als and as.sembles them l ate r to t urn t hem i nto finished pr oducts i s a manufacturer becaus e the word "manu- factu r er" in its pla i n and ordinary mean- i ng includes: "the process of assembl ing articles which while c omplete and f inis:hed , have no i ndependent ti l i ty but are de signed to e sed i n combination 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 used , 130 ···--

I

DISSENTING OPINION -

CTA CASE NO. 2340 - ll the proces:s of assembling usuall y , i f not always, involves t he exercis.e of manual or mechanical sk i ll and labor and the more or l es s extensive use of auxiliary machinery.

(M. H. Rowe c o.

vs. Beck , 131 A. 509 , 511-512) ~ " Words and Phrases , Vol . 26 , a t pages 631 and 637, defines "'manuf acturer "' as fo l l ows: "A •manufacturer' i s one \vho eng- ages i n t he business of work i ng raw materials into wares &uitable f or use 17 who gives new shapes, new qual i t i es, ew combinations to mat t er which has already gone through some artifici a process. State v. Magnolia Packing Co., 35 so. 2d 422, 423, 424, 213 La . 661." "Motor company manufacturing and sel ling t o an automobile dealer a motor- truck chassis with mot or and cab , as a ' manu f actu~er 8 .within Certificate of Title Act .

Motor 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 cars ass·.embled by Cons:olidated and res,old the same .

to the public in general, as evidenced by t he agree- ment beb1een Chrys:ler and PASCO , is cons.tituted by Chrysler only as one of its Phil ippine di stributors . There exist no doubt that t h evidence i n this case will show t hat Cons.olidated i s the manufac:turer and not the peti t ione r .

The Sales I nvo i ce of spare parts t o b use in as.sembly cars ~ nd tJ:uc s e r e i n the name of Cons,olidated.

(Exh . ''D", Folder No. 2, 131 ..... ~--

I

DISSENTING OPINI ON •

CTA CASE

0. 2 34:0 - .1 2 - p .. 42 , BIR r ec ., ) The Trans f er Cert i ficate (Exchange " .

Quota ) of t h Central Bank wil l show t hat t he i mport c harges were made against the account o f Consol i dated Ass-embly Incorporated ., (Exh .. "E' 0 , Folde r

o. 2 , p . 4:1 , BIR rec .. ) . The Application a nd Agreement f or Commercial Letter of Credit. was made b:t· Cons·.olidated Assembly Incor por ated .

(Exh. "F", Fo l -::r No . 2o p . 3·9 1 BIR rec. ) . Lette r of Credit ill sho tha t the i mpor ter is Cons-ol i dated Ass embly I ncorporated (Exh . "G" , Fol der No . 2, p 8 38 , BIR r ec.) Advi ce of Letter of Credit was opened to show that t he i mporter i a Cons-olida ted Assembly Incorporated..

(Exh

"H",

Folder No

2 , p . 37 , BIR r ec. ) . The S L .. tement of Charges were made by a Brokerage Fir m agai nst Conso- lidated Assembly I ncorporated for brokerage s ervices and on "MORRIS" i mpor tation (CKD •. (Exh . " I " , Folde r No . 2 , p. 31 , BIR rec .) . Cent r al Bank Release Ce.rti- fica t e No. 1 0064 was i ssued in f avor o Consolidat ed.

(Exh. "J", Folder No. 2, p . 27, BIR r ec . )

Santos

Brokerage Receipt was f rom Consol idated As s embly I ncorporated .

(Exh . "K", Folder No . 2, p . 26, BIR / r ec.) . Bill of Lading was i n t he name of Consolidated Assembly I ncorporated.

(Exh . "L", Folder No . 2 , P o 25 , BIR r ec . Delivery Receipts were in t he name of Consolidated Assembly I ncorporated by SantosBr o kerage . 132 • 't

DISSENTING OPINION =

CTA CASE NO. 2340

» LE -

(Exhs. ™M" to “M~4", Folder No, 2, pp. 18-23, BIR rece} _ Notices of Shipment by Shipper were directed to Consolidated Assembly Incorporated. (Exhs, "N" to "N-2", Folder No, 2, pp. 13, 14 & 15, BIR rec.) _

Supplement to Amendment of Commercial Letter of

Credit Import Department, Central Bank, in the name of Consolidated Assembly Incorporated. (Exh. "O", Folder No, 2, Pp. 9, BIR rec.) Notices made to

Pacific Banking Corporation by Consolidated Assembly

Incorporated, res Amended Letter of Credit. (Exhs. "Pp" to "P-2", Folder No, 2, pp. 5 to 7, BIR rec.) | Sales. (Shipping) Invoice of Chrysler International directed to Consolidated Assembly Ineo.porated. (Exhs, "Q" to "QO-2", Folder No. 3, pp. 37-39, BIR rec.) Luzon Brokerage Corporation = Request for Government Taxes addressed to Consolidated Assembly. (Exh, "R", Folder No. 3, p. 36, BIR rec.) Import Entry and Internal Revenue Declaration were in the name Of Consolidated Assembly Incorporated. (Exhs. "S", Folder No, 3, p. 35, BIR rec.) Notice of Consolidated Assembly Incorpoxated from Bank of Asia. (Exhs. "Tf" to mp2", Folder No. 3, pp. 32-34, BIk rec.) Letter of Pacific Far East Lines, Inc. was addressed to Consolidated to the effect that its shipment will arrive on February 14, 1964 from New 133

DISSENTING OPINION

CTA CASE NO . 2340 - 14 York .

Exh. "U", Folder No . 3 , p. 31 , BIR rec .. ) " Various Shipping doc:uments. in the name of Conscli- dated Assembly I nc .. (Exhs. " " 1 "V-ll", Folder No .. l , pp . 19-30 , .BIR rec .. )

Central Bank Release Cer t i - fica e was issued t o Consolidated which authorizes the r elease o f i mported Gpare pi.:irts of cars and truckG in its f avor ..

(Exh .. "W" , F olde ~r No .

1 P• 17, BIR rec.) . Luzon Brokerage Corpora t ion Way Bills , in t he name of Con5elida ted Assembly I ncorporated. (Exhs:,. "X'6 t o "X- 7." 1 Folder

o. 3 , pp. 9-16, BIR rec. ) . Computati on f Taxes wh i ch s:hall be pa i d by Consolidated in connection wi t h its i mportati on of 12 knock down units of Dodge 440 Sedan. (Exh . "Y", Fol der No . 3, p . 8 , BIR r ec .. ) . Applicat i on for With- drawal from I nterna Rev·enue Bonded Warehouse No. 2 by Luzon Brokerage Corporati on fo · Consol idated Assembly Incorporated.

(Exh . "Z" , Folder No . 4:,·

p. 14, BIR rec. ) With the aforesaid ar ray of evide 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 not 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 and d i str i bu ted and res ol d the s ame to the public in 9ener al . The nature of

I

DISSENT NG OPINION -

CTA CASE NO 2340

-.15 petitioner • s. bus.iness t rans.action is merely t ha t of • a dealer and not a manuf acturer . wor ds and Phrase s , Vol e 11, PP e 1 5 2-~53 , 1958 Eds, defined dealers as follows : "A person whose bus i ness is to buy and sell i s a ' dealer ' .

State v . Si l ver man , 70 As 1076, 1077 , 1078, 75 N. H 50 e" "A ' deale·r 9 '_is not one who buys to keep , or makes t o s:ell , but one •,.zho buys t o sell again.

He depends for his prof't, not upon t he l abour he bes ows o hi s commodities, but upon the s kil l and f or - sight with which he watches t he markets. People v . Ste:vens, 51 P. 2d 1179, 1180 , 10 Cal . App . 2d Supp . 763.• The allegati on t hat petitioner FASCO contributed the ma j or working capital of Conso idated during the years 956 , 1957 and 1958 is not zubttantiated by eithe documentary or testimonial evidence.

Res-

pendent r elied entirely on t he examiner s ' reports submitted by Simeon G. Casingal and Lorenzo M. Leynes . It i s. unfortunate that t he said examiners were not presented as witnesses by respondent during t he trial of the instant case in t his Court . I c annot, there- fore , give the appropria t e c:r edenc:e; value and correct ness to s aid r eports.

While petitioner FASCO does not deny that it made fi nancia l advance s to Consolidated , these advances \'ler however appl ied aga i ns t he delive r ies of car s and trucks made by Consol i da t ed which was the manu- facturer of t he car s and t rucks. Advances made b y 130 ---

I

DISSENTING OPINION -

CTA CASE NO

2340 - l~- purchasers like petitioner FASCO to Consol i dated • has been treated as part of the accept ed business practi e of t he trade and/or bus iness i n or der to i ns.ure deliveries of the merchandise on t i me as &a isfactorily explained by petitioner FASCO in its let t e r of protest dated June 17 , 959 , a por- tion of whi ch r eads:

"With respect to advances made by Filipinas Auto Sal es Corporat io to Conso lidated Assembly 17 I nc. , we have to state t hat such advances ,.,ere made on account of purchases made by t he former 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 or 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 of 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 pay a mar ginal deposi t to suppliers in t he United Stat e s before s hipment can be made.

(Underlining

supplied; see petition protest dated June 17 , 1959 , Folder No. 1 , pp .

45-~6 , BIR rec.

As r egar ds. the allegation that Consolidated r eceived a fixed net income of P200 e00 t o P350.0 0 per uni t of car or t r uc k manufactur.e·d and delivered to peti tioner as assembly f ee docs not at all indi- cate or show t hat petitione r i s t he manufacturer . The aforesaid fix:ed income recei ved by Consolidat ed is a ~eason ab le i ncom t aking i nto consideration t hat in the year s 1957- 963 the values of c ars and 138 ...

I

,

DISSENTING OPI I ON -

CTA CASE NO. 2l4:

- 17 - trucks were actuall very mu h l ess, and t he cor r es- ponding peso va ue was t hen high compared to value of cars and truc ks purchased and the correspondi ng purchasing powe~ of the peso at pr esent. Besides , the examine s, ·s imeon Casinga l and Lorenzo Leynes 6 who ori inally investigat ed the petitioner and \<rho made t hese fi ndi ngs were never presen ~ec1 as witnesses during the hearing of the instant c:ase befor e t his Court t o substantiate or confi r m the ir findings which altogether deprived petitioner t he right to conf ront the:m on t heir r epor t..

Hence , the r eport, t o my mind , is of no value.

Respondent also con t ends that he as come acros s a letter of Chrysler informing the Centr al Bank of the Philippines that Chrysle approved Consolidated as its choice t o undertake t he job of assembling its cars and t rucks i n t he Philippines in behalf of ·al l its d i stributors one of which i s petitioner PASCO herein.

Also , respondent i ns i sts that ano t her letter shows that CKD parts will not be r ~leased t o Consoli- dated withou t author i ty from Chr ysle r 0 s agents in

the Philippines

Responden t f urther con tends that the f unds sed by Consolidated f or payments o its margi na depos its , ta~es , duties, and ot er i mport- ations , expenses , \ver e advanced t o Consolidated by 13'1

I

DISSENTING OPINION -

CTA CASE NO ~ 2340

- 18 - petiti oner , and tha t petitioner and o ther d i stri • butors were found to have t a ken a cred i t line i n f avor of Consolidated for i mportation of said CKD parts.

t is \oJort.h noting hat t.hese advances made b~ the distributors are me r e l ~ trade or business arrangements in order to facilitate business trans- act ion among corporations , and t his arrangement does not t he least draw a conclusi on t.hat petitioner i s the manufacturer of the car s a nd trucks. There exist no direct evidence what s oever linking petitioner 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 corpo- r ations having two separate and distinct personal- i ties.

There is no di r ect or clear evi dence establish ing the f act that Consol i dat ed is a mere conduit, .

instrumentality or alter ego of peti tioner FASCO for the: pur pose of perpetuat · ng f raud agains t r e- venue.

Whe r e no direct evidence eKi st on t his matter , dis.regard of t he corporate enti ty of FASCO c annot be done.

l1oreover., dis.regard of corporate entity is the exception and not t he general rule . In th i s connection , M~r ten ' ~ as t his t o s ay : " ln conclusi 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 13o --

I

DISSENTING OPINION -

CTA CASE O. 2340 , 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 ons have been def i ned very clearly by t he courts as shown above ~ owever , many cases have arisen whi ch were shadowed with doubt , and until the court s had decided t he i ssue, no one could 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 Taxat i on1 Vol,. 1 , Chap . JS , pp.

2 4- ~5 , 1956 ed.) .

Even assumi ng that Consoli dated and petitioner FASCO have agreed as t o the manner in wh i ch their business transactions are to be managed , and t his arrangement was merely f or t he pur pose of mi nimizing the t axes t o which t hey ar e liable, by means which the l aw does permit , the Supr eme Cou t in one c ase (Yutivo Sons Har dware Co., vs . Court of ':~'a x Appeals and Coll . of Internal Revenue , 110 Phil . 759) ~ held thus;

" I n the third place , Sections

B4 to

186 of the said Code provide that t he s al es tax shall be collected 1110nce only on every original sale , barter , exchange . x to be paid by the manufacturer , producer or i mporter .. • . The use of t he wor d 'or i ginal' and the express provision that the t ax was collectible 'once only' evi dently has made the provisions susceptibl .e of differ- en t interpretati ons.

In this connecti on , i t s hould be stated t hat a taxEayer has the l egal riqht to decreasethe amount. of what otherwise would be his taxes or al t o- 9ether avoid them by means \'lhich the l aw permits.

(U . s . vs .. Isham. 17 Wall . 496 , 596; Gregory vs. Helver'ng, 29 3, u.s. 469 ;

Comm vs

Tower 0 327 u.s. 280; Lawton vs. Comm ., 1 94 F /2:_/ 380 ) •.

Any legal mean~> used EY the taxpayer t o reduce taxes ar e all r ight Benny vs . Comm . 25 T. Cl . 78) .

A

man may t herefore, perfo m an ac t t hat he 138 ...

DISSENTING OPINION •

CTA CASE NO.

23 ~0 - 20 - honestly believes t o be suffic ien t to exe·mpt 'him from taxes.

He doe s not i ncur fraud thereby even if the act i there- after found t o be suff icient .

Thus in

the case of Cour t Hol ding Co . vs . C omm ~ 2 T. Cl . 531, it was held t hat t hough an i ncorrec position in law had been t aken by the corpor 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 enumer ated contentions of res.pondent in his memor andum being merely inferences , and not based on actual facts, which points , in effect , t hat peti- tione FASCO is a manufacturer cannot hold water . The presumption of cor rectness of an assessment b· respondent can be mainta ined only when t he s aid assessment is based on fac ts and not on mere infer- ences The Supreme Court , 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 182 , held t hus:

" In order t o stand t he test of j udi- cial scrutiny , the assessment rnui t be based on actual facts .

The pres mption of cor- rectnes s of asses sment being a mer e pre- . sumption c annot be made to rest on another presumption that the circumst ances i 952 and 1953 are presumed to be t he same as those existing in 1949 to 1951 and J uly 1955.

I n t he case under consideration ther e are no s ubstantia l f acts to suppor the assessment in questi on x x x~ " In view of t he foregoing , I r egi s er my dissent- i ng ot e against the major i t y decision wi t h t he v~e~ 140 /-- '

I

DISSENTING OPINION -

CTA CASE ·o. 2340 - .2 that petit io~e r s hould no be liable f or taxes as a manufactur er under Sec t i on 184 of the National Internal Revenue Code.

Quezo City , Metro Man "l a , 141 , 198 3 .

ROAQUIN

J udge ·,