MY Afpuntic of the Philippines. « 2t of Tax Appea\” Iurzon City Shgireering Rquipment & Supply Co, et al. vs. The Cowissioner of Na re Te I | Recece Cece Ne Wa Decisti or This Is an Appesl from the Decision of

DECISION -

CTA CASE NO, 681 5

41. whether petitioner is a manufecturer of air- conditioning units under Section 185(m) of the Mation- al internal fhevenue Code, gupra, oF a contractor under Seetion 191 of the same Code;

2. Whether petitioner is subject to the pereent- age tex imposed by Seetion 125(m) of the “ational Internal Revenue Code, supra, or to the 7% advance sales tax imposed by Section 196 in relation to Seetion 183(b) of the same Code, on the imported air-cendition- ing units and parts or accessories thereof;

3e whether or sot petitioner is subject to the 25% and 50% surcharges imposed by Section 183(a) of the Nations] Internal Revenue Codes ané %. Whether or not the right ef respondent te assess the deficiency advance sales tex and manufac- turer's sales tax has already prescribed under Seetion 331 of the Tax Code, in relation to Section 332(a) of the same Code, Respondent contends that petitioner is menufae- turer and seller of air-conditioning units and parts or accessories thereof and, therefore, it is subject to the 30% preseribed by Section 189(m) of the Nationel Internal Revenue Code, gypra, in relation to Section 194(x) of the same Code which defines a manufacturer as followss ¢x) “Manufacturer” includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw waterial or " 348

DECIGION «

CTa Cask #5, 681 6 manufactured or partially sanufectured in such manner as to prepare it or e special use of uses to which it eould not have been put in its original condition, or who by any such process alters the quelity of any such raw material or menufactured or partially wanufactureéd product so as to reduce it to marketable shape or prepare it fer any of the uses of industry, or who by any such process combines any such raw material or manofectured or partially manufactured products with other ma- terials or s of the same or of 4ifferent kinds and in such manner that the finished product of such process of manufacture can be put to a special use or uses to which such raw material or produce theit sale of distribution to others aaa.

not for his own use or consumption.

Petitioner contends that it is not e manufacturer end seller of air-conditioning units and spere parts or accessories thereof subject to tax under Section 185(m) of the Tax Code but « contractor engeged in the Gesign, supply and installation of the central type air- conditioning system subject to the 3% tax imposed by Seetion 191 of the same Code, the pertinent portion of which reads as follows:

9 > Ee. sup= mT i receipts.

‘The 3% tex imposed by Section 191 of the Mationel Internal Revenue Code is essentially a tax on the sele

DECISION -

OTA CASE NO. 681 ?

of services, labor and weterials of a contractor, while the 30% tax under Section 185(m) of the same Code is imposed upon manufacturer, producer or importer on the original sale, borter, exchange, or transfer of title to the articles enumersted therein. The distinetion between a (1) contract of sale and a (2) contract for aerviees, labor and materials is as follows:

The distinction between s contract ef sele and one for work, labor, and materials is tested by the i wheth- er the thing transferred is one not in exietence and which never would have existed tut for the order of the party Gesiping to scquire it, or a thing which would heve existed end been the subject of sale to soue other person, even if the order had not been given (Groves vs Buek, 3 Mewle @ S. 1784 Towers v. Os- borne, 1 Strange, 5°63; Benjamin on Our Civil Code, however, distinguishes a contract of sale and a contract for piece of work as follows:

ART. 1467. A contract for the delivery at « certain price of an article which the vendor in the ordi- nary course of his business manufactures or s for the general market, whether the same ic on hand at the time or not, is a contract of sale, tut if the goods are to be manufactured s cla for the customer and vpon h special order, and not for the general market, it is e contract for a piece of Veena (Civil Code of the Philippines.)

With the foregoing distinctions es a guidepost, we will examine the evidences of record, documentary and testimonial, te ascertain the nature, scope and operation of the refrigeration ané air-conditioning wusiness of petitioner.

389

DECISION -

CTa CASE NO, 684 In the case at bar, petitioner imported air- conditioning units but some of the parts or accessories thereof were made by ite If the air-conditioning units are not available from petitioner or the local market, the importation thereof is done by the owner of the Dullding (pp. 215-223, 268, tesene)e Petitioner does not manufacture air-conditioning units for sale te the general public, but it imports them and under- takes the negotiations and executions of individual contracts for the design, supply and installation of air-conditioning units of the central type (ppe 20- BG, toBoney Exhse Fy G, B, 1, J, Ky L and M).

Among the factors which petitioner considers in designing, supplying and installing the central type of air-conditioning system are the following: (1) the ares of the space to be sir-conditioned; (2) the nature and type of the building to be air-conditioned; (3) the purposes for which the various sir-conditioning areas are to be useds (4) the number of persons that will oceupy the premisess and (5) the sources of heat gain or cooling load on the machineries to be installed such as sun load, lighting, and other electric appliances whieh may be used in the premises (pp. 31-34%, tea.me) In a nutshell, petitioner fsbricates, assembles, supplies and instelis in the building of its various customers the central type of air-conditioning system; prepares the plans and specifications therefor which are distinet and different from each other; the air- 301 conditioning units and spare parts or eccessories thereef used by petitioner are not the windew type of air-conditioner whieh are uanufactured, assembled and produced leeally for sale to the general narket; and the imported sir-conditioning units end spare parts or accessories thereof are supplied and installed by petitioner upon previcous orders of its customers con- formably with their needs and requirements.

Under the facts and circumstanees of this case, the question of whether petitioner is a “contractor” or a “seller” of the air-conditioning units and spare parts or accessories thereof is certainly a case of first impression in this jurisdiction. ina case involving similar issue, the Supreme Court of Ten- mnessee (U.5.A.) has decided, on February &, 1962, that e pertnership undertaking the construction and furnish- ing of eir-conditioning systems, pursuant te contracts executed by it with ite customers, is a "contractor" and not a “seller” of personel property. Considering the distinctions between a oontract of sale of per- sonsl property and a contrect for a piece of work, Suara, which we have adopted as our guidepost, we are in accord with the said decision, the pertinent portion of which reads as follows:

| itoring avatens in pull TTR ires, 2 to the fur- = oe os as ot a a Socling unit, t res e on facilities” i the installation: ducts

DECISION «

CTA CAGE 0, 681

VU

fleers te convey ecol air to within and through walls, ape ps and ous perts of the 2 ert | : eon <4 hurch of gunicipality.

x x x x x

“The appellee took the position thet the aprellent wes not in the business of solli aipcateli theetng ditioning systene te contrect, was @ contrector engaged in the con- struction or of reel prop- ané equipment used in the consummation its contrects, irrespective of the tex status of its contractees.

eotlings floors te registers, The contracts galled for air conditioning syst ch became per- owt mm treets with its custoners and hataaaas_tnakaid Commissioner of rence “OG. Ve Revenue of the "tate of and of tonnensee, 397 Ba¥rn ba Serige 1000” e es underlining suppiied.)’

Our conformity te the above-eited decision is preaiceted on the fact that, following our guidepost, the supply of the air-conditioning units to peti - 353

DECISION

CTA CASE 0, 681 11 tioner's various customers, whether the said sachin- eries are on hand or not, were specially made for the seid customers and installed in building upon their special order, Unlike the “indow type of air-conditioner, a centralized air-conditioning system requires air-conditioning units which are tailored and suited to the needs and requirements of peti- tioner's customers. ‘Said sir-conditioning units were not manufaetured or intended to be sold by petitioner to the publie in the ordinary course of its business. In short, the sir-conditioning units installed in a central type of air-conditioning system would not have existed but for the order of the party desiring to eequire it and, if it existed without the special order of petitioner's custoner, the said air-condi- tioning units were mot intended fer sale to the general market. Accordingly, we hold that petitioner is not subject to the sanufecturer's sales tax imposed by Section 185(m) of the Nevenve Code, but to the con- tractor’s tax preseribed by Section 191 of the same Code./_) V As @ consequence of our ruling that petitioner is a contractor and not a manufacturer and seller of the air-conditioning units and parts or accessories there- of, it follows that petitioner 4g not subject to the advance sales tax imposed by Seetion 183(b) of the Tax Code, in relation to Section 185(m) of the same Code, gunra, but to the compensating tax imposed by 3904

DECISION «=

CTA CASE M0, 684 12 Section 190 of the Tax Soa@\whieh provides as follows:

SEC, 196, ¢ eAll reons residing or 7 arat Gesinees in the hilippines, who purchase or receive from without the Philiopines any commodities, goods, ohne or werchandise, excepting ose subject to specific taxes under Title IV of this “ode, shell pay on the total value thereof at the time they are received by such persons, incivding freight, postage, insurance, comand seion and all similar charges, & compenseting tax equiv- alent to the percentege taxes imposed under this hin deg original transsctions effected dy me 8, importers, or manufecturers, such tax to be paid before the withdrawal er removal of said commodities, goods wares, or werchandise from the cust se or the post officer hovever, That merchants, 4 ors, nanmfse- turers, who sre subject to tax under sec- tions cone hundred eighty-four = eighty-five, one hundred ei or one hundred eigh ~<A of -. “ht e shall not be Py. Pega tex herein imposed where such caaeal’ | pA wares, or merchandi se purchased or received by them fron without Philippines are to be sold, resold, bertered, or or are to be used th the msnufecture or preparation of articles for sale, berter, Re ex e and are to Nr rt thereof:

tax ed S see to eles to ith used by the Eaeetees mself in the manufacture or preparation of F artieien subject to fic tax, or those fer con- signment abroed and are "te form part ef. If any article withdrawn from the cus- tomhouse or the pest office without neyment of the compensat tex is subsequently ’ eorres mg entry books of eccounts, if any are rent, or a written notice thereof sent to the Col- zeates of Internel rote we: | oes Mis corres compensa within 30 e from the date of such ar me and if te tax ig he tax shall pe_inereaned by 2984 pe increment to,

DECISION

CTA CASE HO, 681 13 The above provision exempts from the compensating tax imported commodities which ere already subjeet to the advance seles taxes if they are sold, resold, bartered or exchanged or used for the preparation of goods for sale, resale, barter and exchenge. There is, however, aN exception to the sald exemption, that is, where the imported commodities are subsequently used for other ournoseg ami not for the purpose of sale, resale, barter, or exchange. In such a case, the corresponding compensating tax must be paid.

The word “use” in the phrase “used for other purposes" shoult be understood in its ordinary and popular meaning. Where words heve more than one mesh ing and are used in a statute, they should be given that meaning wiich will comport with the usuel and populer meaning attached to the words employed (Srad- ley vs. Ames, 19% 5. fh. 272). Webster's Dictionary defines the word "use" as an act of employing or state of being employed; to convert to one’s service, to employ (Trelo v. Iroquis I) Sa Underwriters, 348 Ill. 93; 100 %. B. 575)." As there is no dispute that the imported air-conditioning units and parts or accessories were used by petitioner in its construction exchanged by it, petitioner 4s subject to the compen- eating tex on the said imported articles and not to the advance sales tax. Consequently, the 30% tex in posed by Section 185(m) of the Tax Code on the imported 396

DECISION +

CTA CASE 0, 684 t» air-conditioning unite and parts or secessories thereof should be collected from petitioner. However, the 508 mark-up prescribed by Section 183(b) of the Taz Code, Supra, should not be included in the computation of the compensating tax legally due from petitioner. | As to the second question at issue, respondent charges petitioner of aisdeclaration of the imported air-conditioning units and parts or accessories thereof zo as to make therm subject te a lower rate of percentage tex (7%) under Section 186 of the National Internal Reverme, when they are subject to a higher rate ef tax (30%) under Section 185(m) of the same Code (See pp. 72-73, BIR reo.). In other words, it is contended that petitioner deliberately refrained fron correetly identifying its importations as “air-conditioning units and spare parts or accessories thereof" and instead classified them as refrigeration equipment subject te 7% advance sales tax in order to evade the payment of the 30% tax.

We are amply convinced from the evidence presented by respondent that petitioner deliberately and purposely misdeclared its importations. This evidence consists of letters written by petitioner to its foreign sup- pliers, instructing them on how te invoice and describe the air-conditioning units ordered by petitioner. We are reproducing below the pertinent portions of peti- tioner’s letters which indubitably establish fraudulent intent te evade the 30% tax imposed by Section 185(m) " B37

DNCISION -

CTA CASE WO, 681 15 of the Tax Code.

As early as March 15, 1953, petitioner, in a letter ef even date, wrote to Trane Co. (Exh. 3-Ry pps 152-155, BIR ree.) the followings "Your invoices should be made in the same of Madrigal & Company, Ine., Manila, Fhilippines, efo « Lieeria Equipment end Supply coneeere ppoines «- forwarding Pronto Bow, and gg eooere concerning this order to us and not to the eustomer.

“when invoicing, your Invoices should be queety 5 Geteliad Au She euotensr’s Letter Order dated Nereh 14th, 19230 at- teched, This is in secordance with the Soe fe ba gr import einer ee res te maa e “ vgs geod = mus * on papers e ship bon for this A...

~ give Saeulie creat ad rE ficulties will be ron countered with the Philippine Sureau of Customs when clearing this shipment on its arrival in Manile. invoices and cases shovld be marked THIS EQUIPMBNY YOR RIZAL CEMENT CO.'” (Exh, 3=E=15 pe 152, BIN Peces underlining supplied.)

The seme instruction was made to Acme industries, ince, Sen Vranciseo, California, U, 5. Aey im petitioner's letter of March 19, 1953 (Exhs. j-J & 3-3-1, pp. 150- In another letter, dated April 6, 1953 (Exh.

3-1, poe 147-149, BIN ree.) thus:

"Ag seploined in the second a- graph of letter, the Phild Govera- 358

DECISION

16 —_ is eee in the oe eountry invol ttancesr, thet Petitioner threstened to discontime the for- werding service of Universal Transcontinental Corp. when it wrete to the Trane Company, on April 30, 1953 (Exts "3-4", pe 146, DIN ree.), as follows:

“It will be noted that the Universal te Futures they are tnable to enoperete with yay 0 EP we Gereeeees a | Fy to utilize serv- ice. infore thes thet we vi Ay feilure to a » “}-d-1", De 146, “ore pete) Under lining suppjied) Again, in another letter to Trane Company, dated July iv, 1953 (Tah. "}-0", De 145, BIA ree.), petitioner wrotes 399

DECISION «

CTA CASR No, 684 v7 and t snark is iene in the Phi pines as sir condit ecuipment, This.

are again asking whoever takes care of the processing of our orders be carefully instructed so as ope 145, Ein underliaing sup- To solve petitioner's problem, the Trams Co. wrote on July 30, 1953 (Exh. 3-F, p. ts, BIE rec.), as follows:

“We feel thet we can hag en fst solve ail the problems by fo outlined in your letter of Naren. A wherein you stated thet on would enclose coteele Fn pot our license so t we yr On August 27, 1955, petitioner mace it clear to the Trane Company (lzh. J<(, po 11, SIF rec.) thats “In the process of clearing the shipment from the piers, one of the Cnus- tom inepectors re seated te see the list. locating the the packing list, it wes discovered thet the same was prepared on a copy of your letterhesd which indiested that the Trane Co. manufactured air con- ditioning, heating and heat transfer - ment. Accordingly, the inspectors sted that this equipment wes being imported for » 360

DECISION «

CTA CASE WO. 681 18 air conditioning purposes. To date, we have not heen able to clear the ahip- ha t indicate in soy vax_that_ti aid Ts tionir : 4s realized th at sisa broad request and fairly difficult to administer, but.we believe with proper caution it can be executed. Your cooper- ation and close supervision as these matters will be appreciated." (Exh. ae’)? i141, BIER ree.s underlining sup- Pp e Ageing in a letter dated February 21, 1956, petitioner intimated to Trane Co., Wiseonsin, J. 5. A. (Axh. J+A, pp. 137-139, BIA rec.) as follows:

“At the present time, there are two obstacles which prevent in ement in our present Ormance.s first and most “aierioult is that :

¢ tr pling as air-con- ditioning, You can readily see that we have serious Sines 66 uneda in the air conditi fielé." (ixh, J-A-4 pe 138, BIR rec.; underlining supplied.)

The above communications leave no room for doubt as to petitioner's intention in 1953 to 1956 to fraud- wlently aisdeclare its importations of air-conditioning units and spare parts or accessories thereof, in order to evade the payment of the 30% tax, As air- conditioning units are classified as semi-luxsury itess 864

DBCISION -

CTA CASE NO, 684 19 umer Section 18§ of the “etional Internal Revenue Code at the time of their importation, the arbitrary and underhanded classification thereof by petitioner as ordinary articles subject to 7% tax, although seemingly in compliance with Gentrel bank rules end regulations, constitute freud against the legitimate revenue of the government.

As the third and fourth questions of 25% and 508 sureharges and preseription of assessment are interrelated, we deem it appropriate to discuss then jointly. Petitioner claims that it is not subjeet to the 25% and 50% surcharges imposed by Section 183(a) of the Tax Code, gunra, because a texpayer who is subject either to the compensating tax or the advance sales tax is not required under the said section of the lew "to mike a true and complete return of the amount of his, her or ite gross monthly selea, receipts or earnings, or gross value of output actually removed from the factory or mill warehouse and within twenty days after the end of each month, pay the tax due thereon." Petitioner, therefore, argues that since the law does not require it to file the return end pay the tax within tventy days after the end of the month, it cannot be held subject to the 25% and 50% surcharges beeanse it paid the 7% edvance sales tex on the imported articles before they were released from customs custody. In short, petitioner contends that only those taxpayers who are required to file their 362

DECISION =

CTA CAGE 86, 681 20 monthly returns ané pay the percentage tax within twenty days after the end of the month are subject to the 25% end §0% surcharges imposed by Section 183(a) ‘of the National Internal Revenue Code.

At first blush it would seem that the contention of petitioner that it is not subject to the delin- queney surcharge of 25% is sound, valid and tenable. llowever, a serious study end eritical enalysis of the historical provisions of Section 190 of the Tax Code Gealing on compensating tax, in relation to Seetian 183(a) of the same Code, will that the contention of petitioner is without cerit," The original text of Séetion 190 of Commonvealth Act No. 466, otherwise known as the Nationsl Internal Revenue Code, os amended by Commonwealth Act No, 503, effective on vetober 1, 1939, does not provide for the filing of a surcharge for lete payment thereof, Under the original text of Section 190 of the Tax Code, as anended by Commonvealth Act Ho, 503, the cootentien of the peti- tioner that it is not subject te the 25% surcharge appears to be legelly tenable. WNowever, Section 190 of the Tax Code was subsequently emended by Kepublic Act Hos. 48, 253, 361, 1511 and 1612, effective on October 1, 1946, July 1, 1948, June 9, 1949, June 16, 1956 and August 2, 1956, respectively,| whtoh in variably provides, among others, the following:

363 ay "x x xatIf any erticle withdrew from the customhouse or the post office without payment of the compensating tax oP sent he the tallaater af Yatereal heave inet be correspondin og tax gade within thirty days fr In view of our ruling that the imported aire conditioning units and spare parts or sccessories thereof are subject to the compensating tex of 308 (not to the advance sales tex of 7% plus mark-up) because the imported articles were used in the con- struction business of petitioner, it is incusbent upon petitioner to comply with the requirements of Section 190 of the Tax Code, as amended, aunga, by posting in its books of secounts or notifying the Collector (Coomizsioner) of Internal flevenve thet the imported articles were used for other purposes, vithin thirty days from the date of such entry or notice and the compensating tax paid within the said period; other- wise, the amount of the tax is subject to the 255 sur- charge.

asic hate lst elcai of Section 19° of the Tax Code and the amendatory provisions of Commonwealth Act No, 593 do not require the filing of a compensating tex return and the payment “ 364 of 25% surcharge for delinquency, the same section of the Tax Code, as amended by Nepublie Act Nos. 4, 253, 361, 1591 and 1612, embodies the said require~ anit. \ Bis other words, when the imported articles subject te the advance seles tax were not sold, re- sold, bartered or exchanged but were subsequently used by the importer for other purposes, it is the duty of the said importer to enter in its books of accounts or notify the Commissioner of Internal Reve-~ me in writing that the imported articles were used for other purposes, within thirty days from the date of such entry or notice, end compensating tax paid within the said period. “Consequently, as the 30% compensating tax was not peid by petitioner within the time preseribed by Section 190 of the Tax Code, as amended, guata, it is subject to the 25% surcharge for delinquency in the payment of the said tax. \ After disposing the question of the 25% surcharge, we will now resolve the question of the 50% surcharge prescribed by Section 183(a) of the Tex Code. At the outset, it may be stated thet we sustain respondent's findings of frand. Be that es it may, the legal question for resolution is whether or not there is a valid and legal justification for the imposition of the 50% surcharge as fraud penalty under Section 183(e) of the Tax Code, guurae Section 183(e) of the Tax Code requires every person subject to the percentage tax under Title ¥ of " 365

DECISION «

CTA CASE 50. 684 33 the same Code te sake a true and couplete return of his gross senthly ssles, receipts, or earnings and within twenty éays after the end of each month, pey the tex dve thereon, The persons referred to therein are the verchant, senufacturer, or producer nentioned in Seetions 106, 185 and 196 of the Tax Codey the preprieters or operators «of rope factories, sugar centrale, coconut ef] aflle, esstava wills and desi-- cated eocemut factories nentioned in fection 189 of the fax Code; read, irrigation, artesian well, vater~ works, and/or eonstruetion work contractors, proprie- ters or cperaters of dockyards, and others sentioned im Seetion 191 of the Tax “odes the cerriers and keepers of garages mentioned in Section 192 ef the Tex Code; and the stock, reel estete, commereial, evstons and famigratien brokers ané cinezateorraphic film owners, lessors, or distributors sentioned in feetion 195 of the Tax Code. ‘ It is clear from the foregoing enuner~ ation that an importer whe 19 subject te the conpen- | eating tax unger Section 190 ef the Tax Code is act required by Seetion 183(a) of the same Code to sake a return beaause he has oo taxable gress acathly sales, recetpts or earnings. The reason is chvicus, A per-~ son who ig subject to the compensating tax pays the seme before the release cf the imported erticles from customs custody without the seeeseity of making and filing the return eontemplated in “ection 1/3(a) of the Tax Cade.

366

DECISION «

Cts CASE NO. 681 ae

1. tiie teenie ti We Wil eentames emeansiiteia by Section 183(a) of the Tax Code is based on willful neglect to file the sonthly return within twenty days after the end of each month or in case a false or fraudulent return is willfully made, it can readily be seen that petitioner cannot legelly be held subject te the 50% surcharge imposed by Section 1£3(a) of the Tax Code. Neither can petitioner be held subjeet to the 50% surcharge under Section 190 ef the Tax Code dealing on compensating tex because the provisions thereof do not include the 50% surcharge. where a particular provision of the Tax Cede does not impose the 50% surcharge as fraud penalty, we eannot enforce @ non-existing provision of law notwithstanding the assessment ef respondent to the contrary. \ Instances of the exelusion in the Tax Code of the 50* sureharge are those dealing on tax on banks, taxes on reseipts ef insurance companies, and franchise tax (See Sec- tions 250, 256 and 299 of the Tax Code). However, if the Tax Code imposes the 50° surcharge as fraud pen- alty, 1t expressly so provides as in the cases of income tax, estate an@ inheritance taxes, gift taxes, mining tax, amusement tax, and the aonthly pereentage taxes (See Sections 72, 102, 120, 205, 260 and 163(a) of the Tax Code). Accordingly, we held that peti- tioner ie aot subject to the 50% surcharge despite the existenee of fraud in the absence of legal basis to suppert the imposition thereef.

367

DECISION -

CTA CASE MO, 681 25 After deciding that petitioner is net subjeet to the 50% sureharge beeause the provisions of Section 196 of the Tax Code, whether in the original text or in the subsequent amendments thereof, do not impose the 50% surcharge, we will new resolve the question ef preseription of the tax assessment here in question under the provisions of Sections 331 and 332 ef the Tax Code, in relation te Section 183{a) of the sane — AURIA.

Legally speaking, we have stated that a person — subject te the compensating tax under Seetion 190 of the Tax Code is not required to file the tax return or declaration mentioned and contemplated in Seetion 183(a) ef the same Code. Under the latter section of the Tax Code, we have emmerated the persons or tax- payers whe are required by lew to file the return for percentage tax purposes. In the case at bar, however, | this Court ean take judicial notice of the fact that petitioner filed a tax return or deciaration with the Bureau of Customs before paying the advance sales tax of 7%. This is se because of the standard operating procedure in the said Bureau requiring that, before the imperted articles eculd be released f customs custody, the importer must inveriably file the correspond- ing imperter's revenue declaration. | How, 1% way be asked: What is the effeet of the tax return or declaration filed by petitioner with the Bureau of Customs insofar

DECISION -

CTA CASE HO. 681 26 as the prescription of tax assessment is concerned? fhe answer is found in Section 332(a) of the Tax Code which provides as follows:

or fraudulent return with intent to evade tax or of a failure to file a return, the cause Tir am Geleeeaen such tax A be begun without assessment, at any time within ten years after the &i scovery of the falsity, fraud, or omission.

Considering the preponderance of evidence of fraud with the intent to evade the higher rate of percentage tax due from petitioner, we hold that the tax assessment here in dispute was made within the period preseribed by law and prescription has not tolled against the Government except with respect te the assessment from #946 to 1952. However, our ruling on this point should not be confused with the false or fraudulent return mentioned and referred to in Section 183(a) of the Tax Code.

V Despite the existence of fraud, we agree with petitioner that the disputed tax assessment should not have included the deficiency tax covering the years 1948 to 1952 since no evidence of fraud was presented by respondent for those years. It is a well-settled doctrine in taxation that fraud is not to be presumed and it is incumbent upon respondent to prove its existence to gustify the inclusion of the deficiency tax assessment for 1946 te 1952. Respondent, however, 369

DECISION -

CTA CaSE WO, 68% 27 failed in this respect. \ The factual question to be resolved is vhether or not the faported afr-conditioning unite valued «ft P218,207.12 and used by petitioner in Contract &C-173 with Madrigel © Co. shoul¢ be excluded from the landed eost of the imported saterials. ‘*etitioner contends that the articles in question were imported by Medrigal & Co. becanse the tax receipts evidencing payment thereof were issued in the sane of said eca- pany (Exhs. V¥, V-t to Ve{2). flewever, an evaluation of the exhibite of responient shove othervise. As shown by the evidence (fuhe. ", Ut © U+2) and as admitted by petitioner's counsel, the total value of the iuported sir-conditioning units are included in the contract price for services, lebor and esterials (p. 438, t.8.5.). if Madrigal @ Co. we really the importer of the said articles, the amount thereof should heve been emeluded by petitioner from the contract price. The fact that the contract price includes the valeoe of the imported materials proves that it wea petitioner which imported the air-conditioning units and not Nedrigal 4 Co. Therefore, the amcunt of #218,207.12 was properly included as part of petitioner's cost of imported aaterials.

Petitioner wants to exclude from the totel cost of the imported air-conditioning units the amount of #39,320.%7, representing the cost ef imported ssterials for Contract 5C-230, on the ground thet it hed already 3979

DECISION «

CTA CASE HO, 684 26 paid the 30% advance sales tax thereon. However, pay~ ment of said tax was denied by respondent (p. 415, tesened)e the records, however, show that the edvance sales tax on the said importetion had elresdy been paid by petitioner (See Bah. 10, pe 117, BIR recess Pe 564-565, teseme). Consequently, the emount of 39,320.17 should be excluded from petitioner's total cost of the imported naterisls.

in their last two reports, revenue examiners ~mesede and Catudan ended their computation of the 308 edvence sales tax on September 21, 1956 because petitioner started paying the 30% advance sales tax after enid date (See Bah. 6, pre 74-79, BIR rece; Bxhe 9 Pps 162-170, BIR rece, pre 53%, 990-593, te#om.). “xcept for one shipment which arrived on September 12, 1956, a1] the rest arrived after teptes- ber 21, 1956 (Sxh. 5, pp. 3945, BIA rec.). The 30% afvance sales tex must have been paid on the letter shipments. Andi, the 30% advanee seles tax on the ship- ment thet arrived on September 12, 1956 had elready been paid. This payment was admitted by respondent's examiners (See Suh. 4, po 65, BIR recs; Bxh. 5, guura).

Petitioner is, therefore, liable for compensating tex and 29% surcharge in the tetal sum of #17,'1.62 computed as follows:

" 371

DECISION ~

CTA CASE §O, 681 9 Landed cost of imported meterials for the period Sept. 22, 1950 to Dee- ember 31, 1956 (BIR Memo dated Auge 27, 1962) . eee eeeee 942,967.72 Less: Landed cost of imported materials for the rt} 1950 to 1952 (Sxh. Ta) . « _ 190,601.29 Landed cost of imported materi- als for the years 1953 to 1 se 8# @ # @ @ *® © &@€ @ © Lesa: Materials for which 30% advance sales tax was QB (WGH290) we sn eee wend 2g 328052 edvance sales tax was peid. ...++ ++ £212,996s26 Landed cost of materials less % e@vance sales tex based on 25% mark-up (?712,956.26 - e s*eee# #* ¢?.F7 #® #® @ @ e 07525276643 ting eos ° e for late paynent Total gue sec ecevnver POR ALL THE POREGOINO CONSIDERATIONS, the decision of respondent appealed from is hereby modified, and petitioner, as s contractor, is declared exempt from the deficiency senmufsecturer's sales tax covering the period from June 1, 194 to September 21, 1956. How ever, petitioner is ordered to pay respondent or his duly authorized collection agent, the sum of #17%,1%1.62 as compensating tax and 255 surcharge for the period from 1953 to September 21, 1956. With costs against petitioner.

80 ORDRARD, Quesen City, November 29, 1966.7: . TAS

7 A [77

HIGLAO R. AL.

We CONCUR: —@_he-Ztnal__ Associate Judge ROMAT H. "Seles * 372