Commissioner of Internal Revenue vs. Avon Products Manufacturing Inc.

DECISION

MINDARO -GRULLA, J_.:

Subm itted for d ecisio n are consolida ted c a ses o f two (2) Pe titio ns for Review before th e Court En Bane, separate ly filed by the Commissioner o f Interna l Revenue ("CIR") as petitioner on Aug ust 16, &.

CIR v . Avon Products Manu fa c turing , tnc. I Avon Produc ts Manufac turing, tnc . v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038)

D EC ISION

Page 2 o f 45 201 0, docke ted as CTA EB Case No. 661 1 , and by Avon Produc ts Ma nufac turing, Inc. ("AVON" ) as petitioner on Aug ust 18, 201 0, docketed as CTA EB Case No. 6637, und er Sectio n 2(a ) ( 1) , Rule 4, in rela tion to Sec tio n 4(b), Rule 8 of the 2005 Revised Rules of the Court of Tax Appeals, as a m ended, o f the D ec i s i o n :~ and Reso luti o n ~ doted May 13, 20 10 and July 12, 201 0, in CT A Case No. 7038, respectively, rendered by the Special Firs t Division of this Court. The dispositive portio ns thereof, respec tively, read as follows: Decision dated May 13, 2010:

"WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED.

Accordingly, respondent is

ORDERED

TO

CANCEL/ WITHDRAW the Final Demond and Final Assessment

Notices: (1) Assessment No. LTAID- ET-99 -00011 for deficiency

Excise

Tax, (2)

Assessment

No.

LTAID- 11 -VAT-99-00017

for deficiency Value Added Tax, (3) Assessment No. LTAID- 11 -WTC- 9900002 for deficiency Withholding Tax on Compensation - Under Withholding and Later Remittance, and (4) Assessment No. LTAID- EWT-99 -00010 for deficiency Expanded Withholding Tax.

However, p e titioner is ORDERED TO PAY responde nt the d e ficiency Income Tax under Assessment No. LTAID- 11 -IT-99 - 00018 in the amount of P357,345.88 for taxable year 1999.4 1 Filed by Commissio ner o f tnl ernol Revenue within !he ex te nded period o f time gran led by the Court En Bone in o Resolution doled July 29, 20 I 0, docketed as C TA EB No. 661.

2 Filed by Avon Produc ts Manufac turing, Inc. within !he ex te nded p eriod o f time gran ted by the Court En Bone in o Resolu tion do ted August 3, 2010, docke ted as C TA EB No. 663.

3 Penned by Presiding Justice Erneslo D. Acosta and conc urred in by Associa te Justice Lovell R. Boutislo.

Associate Just ice Caesar A. Casanova was o n leave . CfA EB No. 66 1, Docket , pp. 35-73.

4 Penned by hesiding Justice Ernes lo D. Acoslo and conc urred in by Associate Justices Love ll 1~ . Soutislo and Caesar A. Cosonovo, CTA EB No . 661 , Docke t, pp. 74- 81.

CIR v. Avon Products Manufac turing, Inc. I Avon Products Manufacturing, Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038)

DECISION

Page 3 o f 45 In addition, p e titioner is liable to pay: i) a deficiency interest on the deficiency basic income tax due of P 100,7 61 .01 at the rote of 20% per annum from January 31, 2004 until fully paid pursuant to Sec tion 249(B) of the 1997 NIRC and ii) a delinquency interest on the total amount due (inclusive of the deficiency interest) at lhe rote of 20% per annum from July 24, 2004 until fully paid pursuant to Section 249(C ) (3) o f the 1997 NIRC.

DECISION

Page 4 o f 45 Responden t is the duly appointed Commissioner of Internal Revenue who holds o ffice at the Bureau o f Internal Revenue, Notional O ffice, Dilimon, Quezon City, where he may be served with summons.

Petitioner

filed its VAT

Returns

and the

Monthly

Remittance Returns of Income Tax Withheld for the taxable year 1999 on the following dotes:

Return

3 rd Quarte r VAT Re turn 4'h Quarter VAT Return

Monthly

Remittance Return of Income Taxes

Withheld

January

Fe bruary Morc h

April

May

June

.July Augus t Sep tember - Oc tob er

November

Decembe r

Expanded

- February 25, 1999 Morc h 25, 1999 April 26, 1999 May 25, 1999 June 25, 1999 July 26, 1999 Augus t 25, 1999 September 27, 1999 Oc tober 25, 1999 November 25, 1999 December 27, 1999 January 2 ~ , 2000

Date Filed

Oc tober 25, 1999 January 25, 2000

Compensation

February 25, 1999 Marc h 25, 1999 April 26, 1999 May 25, 1999 June 25, 1999 July 26, 1999 August 25, 1999 Sep tember 27, 1999 Oc tob er 25, 1999 - - - --- November 25, 1999 Dec ember 27, 1999 Januory 25, 2000 Petitio ner signed two

Waivers

of the

Defense

of Prescription under the Statute of Limitations of the Notional Internal Revenue Code.

O n July 14, 2004, revenue agents from respondent' s Lorge Taxpayers Collection & Enforcement Division served on petitioner o Collection letter doted July 9, 2004. The Collection Letter required petitioner to pay on aggregate amount of Eighty Millio n Two Hundred Forty Six Thousand Four Hundred Fifty Nine

Pesos

and

Fifteen Centavos

(P80,246,459.15) representing deficiency income tax, excise tax, value added tax, w ithholding tax on compensation and expanded withholding tax, inclusive( CIR v. Avon Produc ts Manu fac turing , Inc . I Avon Produc ts Manufac turing, Inc . v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038)

DECISION

Page 5 o f 45 o f interest and compromise penalties for the taxable year 1999. The amount o f P80,246,459.15 demanded in the Collection Letter is broke n d own as fo llows:

KIND OF

YEAR

BASIC TAX

INTEREST

COMPROMISE

TOTAL

TAX

AMOUNT

II

1999 I' //,O I /,9B ~ 19 I' l:l,/0/,/90.!J I 1'/!J.OOO.OO l':l!J,/~S./7 ~ ./0

II

1999 91 :l,!l I ~ .B/ 6!JB,6/ !J.!J/ /:l,/00 00 I .6 ~ !J.39CH~

VA I

1999 /O./B6,0:l:l.B/ I :l,/!J~.6/ /. ~/ !JO,OOO.OO :n!J90.I I 1.?9 - - - we 1999 ~ ./0/, II{>.JB :l.0 ~ 0,//9.2B ~ !J,OOO.OO OBI ,345.66 -- --

WI

1999

1. 18/,6 10.1lB /6~.6/6.IB /5,000.00 1,9/7,237.06 - - --- - - -

IO IAI

P49,102,260.14 P30, 925,999.01 P218,200.00 P80,246,459.15 The defic ie ncy tax assessmen ts covered b y the Collection letter ore the very some defic ie ncy taxes covered by the Preliminary Assessmen t Notice d o ted November 29, 2002, w hich was received by petitioner on December 23, 2002. In re plying to lhe

Preliminary

Assessmen t Notice, petitioner requested for on extension of lime which was granted by respondent.

Petitio ner was prom p ted to request for exte nsio n o f time to reply to the Preliminary Assessment Notice because o f the C hristmas holidays and the volume of work required to pre p are the reply.

On February 14, 2003, petitioner filed a letter doted February 13, 2003 protesting against the Preliminary Assessment Notice.

Without rulin g on the protest o f p etitio ner to the

Preliminary

Assessment, responden t prepared the

Final

Assessment Notices and Formal Letter of Demond , a ll doted February 28, 2003, copy of which were received by petitioner on April 1 1, 2003.

Except for the amount of interest, the Forma l letter of Demond is the some as the Preliminary Assessment Notice.

The Formal Letter of Demond breaks down the a lleged deficiency taxes as fo llows:

Assessment No. LTAID- ti -IT99-00018

Income Tax

I AXABII INCOMI (I OSS) 1'1 ~ INC: OMI I AX ~I IU~N ADD AI).JLJSIMI NIS I.

I) I SC~ II 'A N C:Y II~ & VAl ~I IU~N SAil S IICU~I S '2.

IAXI S & LIC:I NSI S (I ~INCI Ill Nil II lAX) :wy,, lAX 01 M~ . Kl N Cl llSON p /08,181,930 00 1'6/.911.619.!JB CIR v. Avon Produc ts Manufacturing , Inc . I Avon Produc ts Manu fa c turing, Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038)

D E CISION

1)1 C: l Mil l R 199!3 II\ I I'AYMI N l ADJUS IMI N l 3.

DISC: I-ll I, AN C: Y O N I NDINC INVLN I 01-1 11 S I-ILI II C: Il-l) IN I\ AI ANC: I- Si ll" I I VS. COS I 0 1 SAil S I AXA I\11 INC:OMI 1'1 R IN VI S IICA l iON INC:OMI lAX RAi l INC:OM r I AX DU I I' I R IN VI S IICA liON I I SS IN C:OMI I AX I' i\11 ) I'LI-I I-ll I UR N UNSUPI'OR Il-l) C: RI-1)11 AI\ I I I AX Wll l llll I D

1\ASIC: DI-IICII NC:Y INC:OMI I AX I)UI

Al)l) 1'1 NAI Ill S /0% 1NII RI SII ROM DU I I)A II IOAI'i-111 I ~J,/OCJ:l

CO MI ' I~O M IS I

I 0 I AI Dl IIC: II NC:Y INC:OMI I AX DU I Assessment No. LTAID - ET-99 -00011

Excise Tax

SAi l S SUBJI C: II I) 10 I X CIS I I AX J>J R 1\00K ADD: SAlI S i-ll I URN SAilS SUI.\.J lC: I 10 I XCISF l AX 1' 1 1-1 INVI SIICA IIO N

IXCISI IAXRAII

I XC:ISI l AX DUI 1'1 R INVI SIICAIION 1\1 C. 1\AI ANC: I Dl i'OSII S

AVAil Al\11

11-SS I NDINC 1\AI ANC:I

API'III IJ I XCISI I AX

I\ ASIC I) I IICII NC: Y I XCISI I AX I)UI

ADD: 1' 1 NAI Ill S

/0'){, INII I< I Sl I RO M DUI DA ile 10 Al'i-1 11 I ~l. /003'

COMI'ROM ISI

IOIAI DIIIC: II NC:Y INC:OMI l AX DUI Page 6 o f 45 9/1./1 6!3,/00,031 .00 3-1-1,DL.l.L /:\,/00 00 6~J,663, I )0.67 / 13 ,B -1 ~J .0 60.6/ 90,36!3,!310.02 6!3 3.).) BB5.B3 r /2.012.9!3-1 .19 1 3,/0I,/90.~J I .

2_,'),000.00 -- .1,~J36,99_6.J)..J 39/,9BI. -1 ~l'l2B /O'!i?

1!3,.)9 I ,-19 1.!36 I ,621.192.!36 I L.,300,000.00 1!3,9/1,19/.!39 1_,/ -1 3,!3 I ~J.9_() 11,6!33,916.99 913.~) 1-1.!31 131 ,!31.) . .)1 1,6-1 .),390. -1-1 Assessment No. LTAtD- It - VAT-99 -00017

Value Added Tax

I AXAI\1 1 SAil S 1' 1 R i-ll I URN AI) I) UNSU I'I'OR II I) I XI'OR I SAilS I 0 I AI I AXA I\1 ~ SAil S OUII'UI l AX 3•o OUAR II 1-1 -196,/99.6/ I.BO -196,199,6/ 1.!30 -19,6/9,96/./B -

-1 1H QUAI-l II 1-1

IO IAI

I B3,0~J I .YJ9 .00 6/9,!3.) I ,/36.!\0 !J/,61-1 , 111.!33 !J/,6 1-1, 111.!\3 /-10,66.),6/6.!33 137, -1 6.),3~) -1 .63 / -1 ,066,.)61.68 73,/ -1 6,.)3~J. -1 6 - -- - --- ( CIR v. Avon Produc ts Ma nufac turing, Inc. I Avon Produc ts Monu fac turing, Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CT A Case No. 7038)

DECISION

II SS All OWAilll INI'LJI lAX

INI'LJ I I AX 1'1 ~ ~I ILJ~N

INI'LJ I I AX CA ~~II I) OVI ~ C~LDII ABLL INPUI 1 AX PER VA I Rf ILJ~N I ROM NON VA l SLJI'I'III ~ INI'LJ I I AX ON I OCAI I'LJ~ C IIASI S

All OC:Ailll 10 01111 ~ OLJA~II ~

INI'LJI lAX ON IMI'O~IAII O N All OC:Ailll

10 0111 1 ~QUA~

II~

OVI ~ C: l AIMH) INPLJl lAX 1'1 ~VAl

SCIIII)LJII

OVI ~ C: l AIMII) INI'LJ I I ~OM I KS DISAII OW II) INI'LJ I I AX O N l'lWCI IASI S 31\,~J86,639.09 (I 01\,1\?8 96) (??1\ ,681\.00) (I 8, I ~,6.00) Page 7 o f 45 ?8.983.8?6.88 (I 0,6/8.6/0.98) 11 0,(.'.!_8,6/0.2ill_ IB,30S, 155.90 (999,B9?.80) (1\ ,/MUII /I) (~J/0,61\? .00) 52,891,791\.99 ( I, 101\.3? 176) ( /9 ~J,3?6.00) (30./:ll\:39)

01 AlJ IOMOiliiiS

(IB/, IBUll) (113/, IBI.BI)

AIIOWABII INI'LJIIAXI'I~INVISII CAI

I ON

VAl I'AYAilll

II SS VAl I"AYMI Nl 1'1 ~~I ILJ~N

llASIC DH-ICII NCY VA I DLJI Al)l) 1'1 NAI Ill S ?0% IN II ~I Sl I ~OM I)LJI I)AII 10 Al'~ll I ~' · ?Oo:l

COMI'~O MISI

IOIAI DLFICII NCY VAl lAX DLJI l'l,0/3,/91 1\0 I ~J,093,:l?!l.69 3,9?9,96?./ I / ~)' 000.00 6,6/9,0 19.0~J Assessment No. LTAID- 11-WTC -99 -00002 Withholding Tax on Compensation - Under withholding I AX A Ill f BASIS 1'1 ~ ~I I URN/ AII"I IA liS I Al)l): AI).JLJSIMI NIS COMI'I NSAIION NOI SLJI.l.JI Cl 10 WIIIIIIOII)INC lAX IAXAilll llASIS 1'1 R ALJI)II lAX I)LJI II SS: I'AYMI Nl 1'1 R ~I I URN llASIC Dl IICII NCY WII I IIIOIDINC I AX ON COMI' I-NSA liON Al)l): IJI NAI Ill S /YX, SLJI~CIIARCII) /,/l(l,l\96.~)/ 16,3Y,,O/ 1.11 16.3~J6,0/ I. I I I 0Sl0.6? I . 13 ? ~) '000. 00 ?6,91 I ,69?.?1\ 38,36/, 1/?.9~J 3~J.3/9 , 36?.~J I I ~J.093,3?8 . 69 ?0,286,033 82 l:l , ?~J-1 , 6//.-1/ SO,OOO.OO p 158,891\,693.86 l-1,l11183CJ I ll:l, I-13Sl1.3/ :13.628.31\ I .2-1 lli2.£"',230.86 1\,10?, I 16.38 ?0% IN II Rl Sl I ROM I)LJI I) AII 10 AI'RII I~J , ?OO:l' I' 3,0?/.39000£ CIR v. Avon Products Manufac turing , Inc . I Avon Products Manufac turing, Inc . v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038)

DECISION

COMI'I<OMISI

I 0 1111 Dl IICII NCY WIIIIHOI DINC Ill X ON C:OMI' I_NSIIIION Assessment No. LTAID - 11 -WTC -99 -00002

Withholding Tax on Compensation - Late Remittance

IIIXWIIIIIIIIDI'II<IlOOKIOI< 1111 MONIIIOIDIC:IMI\11< 1999 II SS: Rl MIIIIINCI O N .JIINLJIII<Y /~J. /000

/\MOUN I 01 I IIII 1<1 MlriANC:I

1<1 Mill I I) ON II lli<LJIII<Y /!\, /000 1<1 Mil liD ON 111'1<11 /~J . /000

1'1 Nlll Ill SON IIIII 1<1 MII IIINCI

/0')(, IN III-II Sl II<OM I)LJ I Dil l I 10 Dill I 0 1 1<1 MIIIIINCI

COMI'I<OMISI

I 01111 DI-IICII NC:Y WIIIIIIOIDINC Ill X ON COM PI NSIIIION Page 8 o f 45 /~J.OOO.OO 3, 0~/,390.0Q

P

u~ ~ .~D6.JB

I'

3 . ~J ~ / . I ~lB.~ I - 2.960,!\60.21 sa 1 ,?913.2~ ~J06 , I ~JI I ~J I ~.~J~ 1.09 ~81 ,/98./~ I /,!\39 /B 20,000.00 l' 32.839.28 Assessment No. LTAID - 11 -EWT-99-00010

Withholding Tax - Expanded

IIIXIII\11 1\IISIS F'l I< Rl I LJI<N

ADD: IID.ILJSIMI NIS INCOMI I'IIYMI NIS/1 Xl'l NSI S NOI SLJI\.JI C l 10 I WI

IIIXIII\11 1\IISIS I'll< INVI SIICIIIION

I XI'II NI) I I) WIIIIIIOIDINC lAX DLJ I

I I SS: I'IIYMI NIS I'll< RLILJI<N

1\IISIC: DI IICII NCY I XI'IINDID WIIIII-IOIDINC lAX

IIDI) 1' 1 Nlll Ill S

/0% INIII<I Sl II<OM DLJI Dill I 10 111'1<11 I~J . /Oo:l

COMI'I<OMISI

I 01111 1) 1 IICII NCY I XI' liND I f) WIIIIIIOIDINC Ill X p I ,008,066,/0 I 30 I 1:3,131 CJI9 13 I, I/ I . 9~3.1BCH3 13./1 ll.~JO~J. I~ 1/ , ~J30,1l9~.?1 I, IBI.610.Bil 16~ . 6/6.1!\ /~,000 00 l' UL1.23/ .Q6 The alleged undeclared income of P62,911,619.58 arose from the discrepancy b etween the soles per Monthly and Quarterly VAT Returns and the reported soles per Financial Statement and Income Tax Return .

Petitioner paid the amount of disallowed taxes and licenses of P 152,632. 1 0 and December 1998 FBT payment adjustment of P927.27 or a total of P 153,559.37. In the adjustment lo income captioned "Discrepancy on ending inventories reflected in balance sheet vs. cost of soles- P2,597, 951.72", respondent is impu ting additional income on the' CIR v. Avon Products Manufacturing, Inc. I Avon Products Manufacturing, Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038) alleged difference in the amount of ending inventories per balance sheet of P215,793,000 which is higher than the amount of ending inventories

per Schedule of Cost of Goods

Manufactured and Sold of P213, 195,572.28. With regard to the "Unsupported Creditable Tax Withheld - P344, 151. 17", respondent alleges that: (a) petitioner over- claimed withholding tax credits by P203,645.89 because the total amount indicated in the certifica te of creditable tax is P 12,705,654.11 while the amount claimed in the Income Tax Return is P 12,909,300.00 and (b) petitioner's customer over- issued the certificate of c reditable withholding tax by P 140,505.28 representing the withholding tax on soles mode in 1 998 but paid in 1999 .

With regard to the assessment for deficiency VAT captioned "Unsupported export soles P 57,6 14, 1 19.83 ", respondent alleges tha t exempt and zero-rated soles reported in the VAT returns and export soles book amounted to P57,6 14, 119.83, however, documents/papers needed to substantiate the export soles were not provided or furnished to the Revenue O fficers.

The input VAT in the amount of Pl,l04,321.76 was disallowed because it allegedly come from non-VAT taxpayers. With regard to the input VAT disallowance captioned "Input tax on local purchases from other quarters P8,351 ,005.46", respondent disallowed the input tax credits claimed by petitioner for the 3'd and 41" quarters of 1999 for the sole reason that the supporting supplier's VAT invoice ore doted prior to the particular quarter (Schedule 6 of Details o f Discrepancy).

Respondent argues that under Section 11 O(A) (2) (a) of the Tax Code, input tax on domes tic purchase is creditable to the purchaser upon consummation of the sole of goods or purchase. Hence, input taxes w ith supporting invoices bearing dotes of the prior quarters should be disallowed. With regard to the input VAT disallowance captioned "Input tax on importation from other quarters - P795,326.00", respondent maintained that the input tax on importation is creditable to the importer upon payment o f the VAT prior to the release of the goods from Customs and disallowed the input taxes paid by petitioner in previous quarters.( CIR v. Avon Produc ls Manufac luring, Inc. I Avon Producls Manufac luring, Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No . 7038)

DECISION

Page 10 o f 45 With regard to the input VAT disallowance c aptioned "Overcloimed input tax - P30,734.39", respondent compared the input taxes on importation of goods re flected in the VAT return for the 4 1 ~' quarter of 1999 and the input tax p er Schedule attached to the Quarterly VAT Return and noted that the amount p er Schedule is more than the amount per VAT Return. The alleged over-claimed input tax from

LKS

of P4,056,052.62 represents lhe difference between lhe input tax c laimed by petitioner based on the invoices issued by LKS Construction and Development Corp. in December 1999 of P5,853,011.07 and the input tax of P1 ,796,958. 45 determined by respondent from the payments mode b y the supplier in 1999 of P 19,586,847. 15 (net of 1% withholding tax).

Respondent

disallowed the excess input tax of P 10,678,670.98 in the Quarterly VAT Return for the 4n' Quarter of 1999 which was carried over by petitioner to the first quarter of 2000.

As detailed in Schedule "F" of the Details o f Discrepancy, the assessment for defic ie ncy expanded withholding tax arose from the difference between the balances of the following general ledger accounts and certain income payme nt per

Alpholist:

j,low Molcrioll'urchoscs Supplies on<J I ocililics Ou lsicJe Services j,lc;poirs on<J Moinlcnoncc lnqrccJienls C:on loincr l'oc kcrs l,loles & MoulcJs

Unilorrn

Mql.

Unilorrn

j,l oncJ I ledmicol Supplies l'rocJuc lion Supplies Non Cop I quiprncnl

Ollicc Supplies

!looks oncJ Sut)S(:riplion

Sccurily

I ocili ly I xpcnsc Clconinq Ou lsi<Je i\qcncy I otlOr j,lcpoirs on<J rnoinlcnoncc lvlolcriols

I'

7B3.6B ~ .OI~J00 ~ lil.B~B. 7 I I .00 9./~)/,63300 ~l. I B/.17?.00 171, I~ / 39 IB~./ I 1.1 I 7./ ~0 .316.!J~l ~ . ~ OIH~/.1 I 9o:u 16.39 9B ~ ,_'l/6.BO 19.~6B.B~ 3.6 ~~J .B7 1 . ~/ B I ~ .:l:J/.09 7,910,//6.00 CIR v. Avon Produc ts Manufacturing. Inc . I Avon Produc ts Manufacturing, Inc . v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038)

DECISION

Opcro lin(J I xpenses l(epoirs ond rnoinlenonce

Cosolinc

1-icpoirs oncj rnoin lenonce Con I roc I Non cop Sollwore l'urcr1osc Olher lronspo

Miscelloneous

Unilorrn

M(ll.

Unilorrn

1-1 oncj I l'roduc:lion Supplies Non-Cop I quiprnenl Ollic:e Supplies Books ond Sutlscriplion 1-iepoirs cmd rnoinlenonce Cosoline 1-icpoirs ond rnoinlencmce Con lroc: l Repoirs ond rnoinlenonc:e

Moleriols

1-/epoirs ond rnoinlencmce

Vehicles

Dolo l'roc Moinl Dolo l'roc: Supplies

Non Cop Swore

C:ornp Swore Moinl Acquisilion o f l'roperly, l' lonl cmcj l.quiprnenl Ac:quisilion ol Cornpuler Sollwore

Page I I of 45

169.100./0 30:3.~)0 .-l .B/ /, 1//, 198./6 30.160./) 5B-1 ,39).B-1 1.3/ I ,-1/9.1/ /.-lO,B/1.9/ -13.03/.3/ 9/./36.90 I /,B2/.06 I ./~)B./Y).B/ BOO,/~)B.I-1 B9 -1 .93B.B6 31 I, 9//.~)6 -1 8~).39 1.3~)/.00 I )0, 190.00 In a letter doted May 9, 2003 which petitioner filed with respondent on the some day, petitioner protested the Final Assessments. In as much as the Preliminary Assessment was the some as the Final Assessment, petitioner re-submitted its protest to the Preliminary Assessment and adopted the some as its protest to the Final Assessment.

Petitioner paid the following portions of the

Final

Assessment on January 30, 2004:

a. Disallowed taxes & licenses/Fringe Benefit Tax adjustment - Pl53,559.37; and b . Withholding

Tax

on

Compensation

Late

Remittance P32,829 .28.

Respondent's

Revenue

Officers

prepared a Memorandum doted May 27, 2004 recommending the enforcement and collection o f the deficiency tax assessments on the sole justific ation that p etitioner foiled to submit supporting documents within the 60-doy p eriod to submit all relevant supporting documents from the filing of the protest as required under Section 228 of the Tax Code.( CIR v. Avon Products Manufacturing, Inc. I Avon Products Manufacturing, Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038)

Based on the Memorandum doted May 27, 2004, the docket of the assessment was forwarded by the LT Audit &

Investigation Division II to the LT-Collection & Enforcement

Division, under a 1st Indorsement doled May 27, 2004. The LT Collection & Enforcement Division served the Collection Letter doted July 9, 2004 on petitioner on July 14, 2004.

In a letter to the Deputy Commissioner for Lorge Taxpayers Service doted July 27, 2004 which was filed with respondent on the some dote, petitioner requested for reconsideration and withdrawal of the Collection Letter on the ground that it is devoid of any legal on[d]/or factual basis and is premature since the respondent has not issued a decision on petitioner's protest letter to the Final Assessment. Respondent did not oct on petitioner's request for reconsideration and withdrawal of the Collection Letter. Thus, petitioner was constrained to treat the Collection Letter as the respondent's denial of the protest. hence, the Petition for Review lo protec1 the interest of petitioner. Petitioner filed the Petition for Review on August 13, 2004. Thereafter, on August 24, 2004, it filed on Urgent Motion for the Suspension of Collection of Tax.

On October 15, 2004, respondent filed his Answer, after submission of two extensions of time lo submit Answer which were all granted by the Court in the Orders doted September 16, 2004 and October 4, 2009. The BIR Records were also forwarded on October 26, 2004.

In his Answer, respond e nt raised th e following special and affirmative defenses:

"8. Section 222 of the Tax Code authorizes the taxpayer and the government to extend by mutual agreement the prescriptive periods for lhe assessment and collection of taxes.

The assessments, all doted February 28, 2003 and received by Petitioner on April 1 1, 2003, ore not barred by prescription as Petitioner's executed valid waivers of the defense of prescription doted October 14, 2002 and December 27, 2002£ ' CIR v. Avon Products Manufacturing, Inc. I Avon Products Manufacturing, Inc. v. CIR CT A EB Case Nos. 661 & 663 (CTA Case No. 7038)

DECISION

Page 13 o f 45 waiving the defense of prescription until January 14, 2003 and April 14, 2003, respectively;

9.

The mere fact that petitioner was not a llegedly furnished with copies of the accepted waivers did not invalidate the some, because such requirement in Revenue Memorandum Order No. 20-90 is merely formal in nature

(Philippine

Journalists, Inc.

vs.

Commissioner of Internal Revenue, CA-GR Sp. No. 72128, August 5, 2003);

1 0. The assessments hod already become final, executory and unappealable in view of the failure of the Petitioner to submit the pertinenl documents in support of its protest within sixty (60) days from filing thereof as provided in Section 228 of the Tax Code;

XXX

XXX

XXX

16.

The assessment for deficiency excise tax in the amount of P 1 ,534,821 .84 arose from the fact that Petitioner foiled to pay excise tax on its soles returns which it admits to be subject to excise tax (Paragraph 49, Petitioner) ;

XXX

XXX

XXX

23.

The input tax in the amount of P 187,181 .18 was disallowed, as input tax on purchases of automobiles is not allowed as creditable input tax under Section 11 O(A) ( 1) (a) (v) of the NIRC of 1997;

24. The assessment for deficiency withholding tax 1n the amount of P7,548,386.21 is the difference between the withholding tax per audit against the amount of such tax withheld and remitted by the taxpayer;

XXX

XXX

XXX

26. The assessment for deficiency expanded withholding tax in the amount of P1 ,925, 177.41 arose from income payments/expenses not subjected to w ithholding taxes as detailed in Schedule F a ttached to the Final Assessment Notices, in violation of Section 2.57.2 of Revenue Regula tion No. 2-98;' CIR v. Avon Produc ts Manufac turing, Inc. I Avon Produc ts Ma nufac turing, Inc. v. CIR CT A EB Case Nos. 66 1 & 663 (CTA Case No . 7038)

DE C ISION

Page 14 o f 45 27.

All

p resumptions ore in favor of the correctn ess o f tax assessm ents. The good faith o f tax assessors and the validity o f their a c tions ore presum ed. They w ill b e presumed to hove toke n into considera tio n all the fa cts to w hic h their a tten tion was ca lled (C IR vs. Construc tio n Resources of Asia, Inc., 145 SCRA 671). It is incumbent up on the taxpayer to p rove the contrary (M indanao Bus Company vs. CIR, 1 SCRA 538; C IR vs. Tuazon, Inc., 173 SCRA 397) and fail ure to d o so shall vest legality to respond e nt's a c tio ns and o ssessm e nts." 5 On May 13, 2010, th e Courl a quo re ndered a Decision6 partially gra nting the Petitio n for Review insofar as it ordered the c ancellation o f th e Final Demond and Final Assessme nt No tices for d e fic ie nc y Exc ise Tax, d e fic ie ncy Value-Added Tax, d e fic ie ncy Withh olding Tax o n Compe nsatio n - Under Withho lding and Later Remittance and d e fic ie nc y Expanded Withholding Tax for th e taxable year 1999.

It

how ever ordered petitio ner to pay d e fic ie nc y Incom e Tax in the amount o f P357,345.88 for the taxable year 1999 including 20% de fic ie ncy interest o n d e fic ie ncy basic income tax due and another 20% defic ie ncy interest o n the tota l a moun t due p ursua nt to Sec tio ns 249(8) and 249(C ) (3) of th e 1997 NIRC, respective ly. Sig nificantly, th e

Court

a quo mo d e th e fo llowin g prono uncem ents:

a . There was no d e privatio n o f due process in th e issuance by the CI R o f the a ssessme nt for de fic iency income tax, d e fic ie ncy( 5 CTA EB No. 661 , Docke t, pp. 36-47.

6 Supra note 3.

CIR v. Avon Products Manufac turing, Inc . I Avon Produc ts Ma nufac turing, Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CT A Case No . 7038) excise tax, deficienc y VAT, defic iency final withholding tax on compe nsation and d e fic ie nc y expanded withholding tax against A VON for the Iotter was afforded on opportunity to explain and present its evidence;

b. Th e Waivers of the Statute o f Limitations executed by A VON ore invalid and ine ffective as !he CIR foiled to provide the former a copy of the acce pted Waivers, a s required under Re venue Mem orandum Order No. 20-90.

Hence, the assessment on AVON's deficiency VAT, deficiency expanded withho lding tax and d efic ie ncy withholding tax on compensation is considered !o hove prescribed ;

c . AVON's failure to submit the re levant doc uments in support o f its protest did not make the assessment final and executory;

d. As to assessment on AVON' s deficiency Income Tax, ( 1) there was no undeclared soles/income in th e amount of P62,9 11 ,619.58 per ITR for the taxable year 1999;

(2) AVON's liability for disallowed taxes and licenses and December 1998 Fringe Benefit Tax payment adjustment in the amount o f P 152,632.1 0 and P927 .27, respective ly, or a total of P 153,559 .37 is extin guished in view o f the payment mode;

(3) th e discrepanc y between Ending Inventories reflected

Balance

Sheet

and Cos !

of

Soles

represents( CIR v. Avon Produc ts Ma nu fa c turing, Inc . I Avon Produc ts Manu fa c turing. Inc . v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No . 7038)

D E CISION

Pa ge 16 o f 45 variance/adjustm ents o n standard cost to a c tual cost allocated to ending inventories and not under-d eclaratio n a s alleg ed by CIR;

(4) AVON 's c laimed tax c redits 1n th e amount o f P203,645.89 was disallow ed a s the some was unsupported by withholding tax certific ates as required under Sectio n 2.58.3 (B) o f Re venue Reg ulations No . 2-98.

How ever, the amount o f P 140,505.28 was upheld a s a proper d educ tio n from its 1999 income tax due; and

e. As to a ssessm e nt o n AVON's d e fic ie nc y exc ise tax, the some is d eemed c ancelled and withdrawn in view o f its Applic ation for Abate m ent over its d e fic ie nc y excise tax a ssessm e nt for the year 1999 and its c orresponding payme nt th ereto . The Motio ns for Partial Reconsideratio n filed by the parties on June 2, 2010 1 a nd June 3, 2010 B, respec tive ly, w ere subsequently d e nied for loc k o f merit in a Resolution9 doted July 12, 2010. Bo th parties thereafter filed their respedive Petitions for Review be fore the Court En Bane .

The CIR a ssigns th e fo llowing issues, to wit: IO( 7 Filed by Avon Produc ts Ma nu fa c turing, Inc .. C IA Case No . 7038, Docke t, pp. 692-709. 8 Filed by Commissioner o f Internal Revenue. C rA C ase No . 7038. Docke t. pp. 711 -726. 9 Supra no te 4.

1o CT A EB No. 66 1. Docke t, pp. 20-2 1.

CIR v. Avon Producls Manufacluring, Inc. I Avon Products Manufacturing, Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038)

1. Whether or not respondent is liable for deficiency income tax, excise tax, value-added tax, withholding tax on compensation and expanded withholding tax assessments for taxable year 1999;

2. Whether or not assessments for value-added tax and withholding taxes for taxable year 1999 hove prescribed;

3. Whether or not the assessments for defic iency income tax, excise tax, value-added tax, withholding tax on compensa tion and expanded withholding tax assessments for taxable year 1999 against respondent has become final, executory and demandable.

AVON, in turn , ra ises th e sole issue o f whether or not the Court a quo erred in applying the "presu m p tio n o f regula rity" in favor o f the CIR and ruling that its right to due process was no t viola ted by the actuatio ns o f CIR's o fficers and agen ts. 11 In CTA EB Case No. 661, the pe tition is devoid o f merit. As to the issues o n the period of assessment and filing of the petition for review, su ffice it to say tha t the Wa ivers of the Sta tute o f Limita tions execu ted by the parties are defective, thereby re ndering the assessm ent o n AVO N's defic ie ncy VAT, expanded withho lding tax and withhold ing tax o n com pensation to have prescribed. The CIR assevera tes tha i lhe assessmen ts for value added tax and w ithho ld ing taxes for the taxable year 1999 have not yet prescribed because the waivers on the defense o f prescription execu ted by both parties were valid a nd lhe requirement to furnish£ 11 CT A EB No. 663, Docket, pp. 17-33.

CIR v. Avon Produc ls Manufacturing, Inc. I Avon Products Manufacturing, Inc. v. CIR CT A EB Case Nos. 66 1 & 663 (CT A Case No. 7038)

DECISION

Page 18 o f 45 AVON with copies of accepted waive rs under Revenue Memorandum Order (RMO) No. 20-90 is merely formal in nature . 1? However, AVON claims that the assessmen ts for value-added tax and withholding taxes for the taxable year 1999 have already prescribed in view o f the CIR's failure to provide AVON with copies of th e accepted Waivers o f the Statute of Limitations as prescribed under RMO No. 20-90. 1:3 Sections 203 and 222 of th e NIRC of 1997 provides for a statute of limitations on the assessment and co llection of internal revenue taxes in order to safeguard th e interest of the taxpayer against unreasonable in ves ti ga ti on.

1 ~ Unreasonable investigation contemplates cases w here the period for assessment extends inde finitely because this d eprives the taxpayer o f the assurance that it will no longer be subjected to furth er inves tigation for taxes after the expiration of a reasonable period of tim e .

1 ~) As a rule, the government is mandated under Section 203 o f the NIRC of 1997 to assess internal revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date o f filing of such re turn , whichever comes later. Thus, an(' 12 CTA EB No. 661, Dockel, pp. 27-28.

13 1d. al190- 194.

14 Philippine Journalists, Inc. v. Commissioner of Internal Revenue. G.R. No. 162852, December 16, 2004 c iting J.C. Vi lug and E. D. Acosla , TAX LAW AND JURISPRUDENCE 295 (2nd ed. 2002) , ciling Reporl of !he Tax Commission, Vol. I, p . 98. 15 1d.

Cll~ v. Avon Products Manufac turing, Inc. I Avon Produc ts Manufac turing , Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CT A Case No. 7038) assessment notice issued after the three-year prescriptive period 1s no longer valid and effective.

However, Section 222 of the NIRC of 1997 provides for exceptions to the above-c ited rule. Paragraph B thereof c learly states that the period of limitation o f assessment and co llec tion of taxes may be extend ed through execution of a written agreement between the CIR and taxpayer be fore expiratio n of the three-year period, thu s: Sec . 222. Exceptions as to Period of limitation of Assessment and Collection of Taxes.-

XXX

(b) If before the expiration of the time prescribed in

Section

203 for the assessment of the tax, both the Commissioner and the taxpayer hove agreed in writing to its assessme nt after such time, the tax may be assessed within the period agreed upon.

The period so agreed upon may be extended by subsequent w ritten agreement mode before the expiration of the period previously agreed upon.

XXX

In imple m enting th e aforesaid waiver o f the stat u te o f limitations, RMO 20-90 and Revenue Delegation of Authority Order (RDAO) No. 05- 0 I were issued on April 4, 1990 and August 2, 2001, respectively, in order to d e lineate the procedure for the proper execution o f the said waiver, viz: 16 "l. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after 19 ", which indicates the expiry dote of the period agreed upon to assess/collect the< 16 Cornrnissioner of Inferno/ Revenue v. Kudos Me tal Corporation , G.R . No. 178087, May 5, 20 10.

CIR v. Avon Produc ts Manufacturing, Inc. I Avon Produc ts Manufac turing, Inc. v. CIR Page 20 o f 45 CT A EB Case Nos. 661 & 663 (CT A Case No. 7038)

DECISION

tax after the regular three-year period of prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly authorized representa tive. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authori ty is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue offic ia l authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized represen ta tive.

5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of p rescription or before the lapse o f the period agreed upon in case a subsequent agreement is executed.

6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement." 11 [Emphasis supplied.] Significantly, the stric t compliance with the procedure fo r proper execution of the waiver of the sta tute o f lim ita tions has been underscored by the Supreme Court in the case of Philippine Journalists, Inc. v. Commissioner of Internal Revenue Ill , the p ertinen t portion o f which reads: C.

17 Jd.

IB G.R. No. 162852, December 16, 2004.

CIR v. Avon Products Manufacturing, Inc. I Avon Produc ts Manufacturing, Inc. v. CIR

CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038)

"A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers' right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed [See Ouano v. Court o f Appeals, G.R. No. 129279, 4 March 2003, 398 SCRA 525, c iting People v. Donato, G.R. No. 72969, 5 June 1991, 198 SCRA 130]. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court o f Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not m ean that the taxpayer relinquishes the right to invoke prescriptio n unequivocally particularly where the language of the docum e nt is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax low provides a slo lule of limitations in the collection of taxes. Thus, the low on prescription, being a remedial measure, should b e liberally construed in order to afford such protection. As a c orollary, the exceptions to the low on p rescription should perforce b e stric tly construed . xxx" 19 [Emphasis supplied.]

Therefore, contrary to the CIR's stance that th e requirement to furnish AVON with copies of accepted waivers under RMO No. 20-90 is m erely formal in nature, the Supreme Court in the same c ase of Philippine Journalists, Inc. v.

Commissioner of Internal Revenue 70

emphasized the importance o f the taxpayer' s actual receipt of the accepted waiver; otherwise, failure to do so sha ll re nder the waiver invalid and ine ffective, thus:

19 fd .

20 /d .

"Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 20-90, the waiver must b e executed in three copies with the second copy for the taxpayer. The Court of Appeals did not think this was important because the p etitioner need not hove a copy of the document it knowingly executed. It stated that the reason C CIR v. Avon Products Manufacturing, Inc . I Avon Products Manufacturing, Inc . v. CIR CT A EB Case Nos. 661 & 663 (CTA Case No. 7038) copies ore furnished is for a party to be notified of the existence of a document, event or proceeding.

The flaw in the appellate court's reasoning stems from its assumption that the waiver is a unilateral act of the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioner's comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not assented. There is compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the

BIR

and the perfection of the agreement."?' [Emphasis supplied .]

Similarly, the CIR's argument that AVON is already estopped to repudiate th e waiver of th e statute of limitations and to raise th e issue of prescription because it has benefited from iF2 is totally misplaced. The Supreme Court held in the recent case of Commissioner of Internal Revenue v. Kudos tal Corporation 73 thai I he BIR can no! apply the doctrine of estoppel to cover ils failure lo comply with the procedures for proper execution of the waiver of statute of limitations under RMO 20-90 and ROAO 05-0 I. The pertinenl portion o f which reads: .'I ld.

"The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. As we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right [La Naval Drug Corporation v. Court of Appeals, G.R. No. 103200, August 31, 1994, 236 SCRA 78, 87]. As such, the doctrine of estoppel cannot give validity to an act that is prohibited ( 22 CTA EB No. 661 , Doc ke t, p. 123, the CIR's Memorandum. 23 G.R. No. 178087, May 5, 2010.

CIR v . Avon Products Manufac turing , Inc. I Avon Produc ts Manufac turing, Inc. v. CIR Page 23 o f 45 CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038)

DECISION

by low or one that is against public policy [Ouano v. Court of Appeals, 446 Phil. 690, 708 (2003)]. It should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the administration of the low, or to accomplish a wrong or secure on undue advantage, or to extend beyond them requirements of the transactions in which they originate [C & S Fishfarm Corporation v. Court of Appeals, 442 Phil. 279, 290 (2002)] .

Simply put, the doctrine of estoppel must be sparingly applied.

Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-01 , which the BIR itself issued. As stated earlier, the BIR foiled to verify whether a notarized written authority was given by the respondent to its accountant, and to indicate the dote of acceptance and the receipt by the respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the taxpayer's righl to security against prolonged and unscrupulous investigations, must be carefully and strictly construed [Philippine Journalist, Inc. v. Commissioner of Internal Revenue, supra note 19 at 231-232]." 7 ~ [Emphasis supplied.]

Based on the foregoing, it is e vide ntly c lear that th e CIR's failure to furnish the taxpaye r of copies of the a ccepte d Waive rs of th e

Statute

of

Limitations

rend e rs the said wa1ver invalid and unenforceable. Hence, it does no t to ll the running of the three (3) -year period o f prescription unde r Section 203 of the NIRC of 1997. A close scru tiny o f the record s o f this c a se re ve als that the CIR and AVON executed two (2) waivers o f the statute o f limitations on Oc tober 14, 2002 and Decembe r 27, 2002 which expired on January 14, 2003 and April 14, 2003, respec tively. However, AVON was able to ' 24 /d.

CIR v. Avon Produc ts Manufacturing, Inc. I Avon Produc ts Manufac turing , Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No . 7038)

DECISION

Page 24 o f 45 prove that it was not furnished with copies of the accepted Waivers of the Statute of Limitations con trary to th e procedural mandate provided under RMO No. 20-90/l Thus, the aforesaid waivers ore incomplete and defective and did not toll th e running of th e 3-yeor prescriptive period.

Accordingly, and as correctly observed by the Court a quo, the a ssessments on d e fic ie ncy VAT, expanded withholding tax and withholding lox on compensation shall hove prescribed on the following dotes:

VAT Return

3rd Quarter of 1999 - 4'h Quorl er o f 1999

Date Filed26

Oc tober 25, 1999 January 25, 2000

Prescription Date

Oc tober 25, 2002 January 25, 2003

Monthly

Remittance Return

Expanded27

Compensation2B

Prescription Date of Income Taxes

(Date Filed)

(Date Filed)

Withheld {JY 1999)

January

February 25, 1999 February 25, 1999 February 25, 2002 _

February

Marc h 25, 1999 March 25, 1999 Marc h 25, 2002 Marc h April 26, 1999 April 26, 1999 ~P!i l 26!_29QI _

April

May 25, 1999 May 25, 1999 May 25, 2002

Mgy

June 25, 1999 June 25, 1999 June 25, 2002 --

June

July 26, 1999 July 26, 1999 July_16, 2002 -

July

Augusl 25, 1999 Augus l 25, 1999 - Augu.?_t 2~, 2002 _ Augus t Sep tember 27, 1999 Sept ember 27, 1999 Seple~J?er:_]7, 2001_ Sep tembe r Oc tober 25, 1999 Oc tob er 25, 1999 Oc lob er 25, 2002 - - Oc tober November 25, 1999 Novemt)er 25, 1999 November 25, 2002

November

December 27, 1999 Decemt)er 27, 1999 December 27, 2002

December

January 25, 2000 January 25, 2000 January 25, 2003 25 CTA Case No. 7038, Docket, p. 424; Exhibits "0-3" and "P-2", Formal O ffer of Evidence do led February 7, 2008.

26 ld., Joint Stipulation of Fac ts and Issues, par. 17, p . 133. 27 /d.

28 /d.

~ CIR v. Avon Produc ts Manufacturing, Inc. I Avon Products Manufacturing, Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CT A Case No. 7038)

The records disclose that A VON received th e Final Assessme nt No tices and Formal Le tter o f Demand, all dated February 28, 2003, only on April l l , 2003 or way beyond !he 3-year period provided by law to a ssess A VON over its d e fic ie ncy VAT, expanded withholding tax and withholding tax o n compe nsation as shown in the table above. Consequen tly, the assessments for AVON's deficiency VAT, expanded withholding tax and withholding tax on comp e nsation issued by th e BIR beyond th e three-year p eriod have already prescribed. The CIR restates tha1 th e assessments for deficiency incom e lax, excise tax, value added tax, withholding tax o n compe nsation and expanded withholding tax for taxable year 1999 against AVON have become final and executory for failure lo appeal its administrative protest within the 30-day period reckoned fro m the lapse of th e 180- day period before the Court o f Tax Appeals pursuant 1o Section 228, NIRC o f 1997.79 However, A VON counters that th e foregoing assessments did not become final, executory, and demandable because i1 had tim ely filed th e Petition for Review b e fore the Court of Tax Appeals within 30 days following the CIR's final d ecisio n on the disputed assessment pursuan1( 29 CTA EB No . 66 1, Docke t, pp. 28-29.

CIR v. Avon Produc ts Manufacturing, Inc. I Avon Produc ts Manufac turing, Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038)

DECISION

Page 26 o f 45 to Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeols.:lo Also, the CIR's belated attack on the timeliness of its filing of the Petition for Review and the CTA ' s jurisdic tion over the case w ill indubitably transgress its right to due process.3 1 We agree with AVON.

The re m edies of taxpaye rs in c a ses of administrative protests on th e defic iency tax assessments ore laid down in Section 228 o f the NIRC o f 1997, whic h reads:

Sec. 228. Protesting of Assessment.-

XXX

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty

(30) days from receipt of the assessment in such form and manner as may be presc ribed by implementing rules and regulatio ns.

Within sixty (60) days from filing of the protest, a ll relevant supporting documents shall hove been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in port, or is not acted upon within one hundred eighty days from submission of doc ume nts, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty

(30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180) -day period; otherwise, the decision shall become final, execu tory and demandable. [Emphasis supplied.]

Corollary lhere lo, Section 7 o f Republic Act (R.A.) No. 9282,37( 30 /d . at 194-195.

31 /d. a t 196- 197.

32 An Act Expanding the Jurisdic tion o f the Court o f tax Appeals (CTA) , Eleva ting its Rank to the Level o f a Collegiate Court wi th Special Jurisdic tion and Enlarging its Membership, Amending for the Purpose Certain Sec tions of Republic Act No. 11 25, as amended, o therwise known as the Law Crea ting the Court o f Tax Appeals, and for o ther purposes.

CIR v. Avon Produc ls Monufocluring, Inc. I Avon Producls Monufoc luring, Inc. v. CIR CT A EB Case Nos. 66 1 & 663 (CT A Case No. 7038) amending R.A. No. 11 25, otherwise known as the Low Creating the Court of Tax Appeals, provides:

"Sec . 7. Jurisdiction. - The CTA shall exercise:

(a)

Exclusive

appellate jurisdiction to rev1ew by appeal, as herein provided:

( 1)

Decisions of the Commissioner of Internal Revenue

in cases involving disputed assessments, refunds o f internal revenue taxes, fees or other charges, penalties in relation thereto, or o ther matters arising under the Notional Internal Revenue or other lows administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner o f Internal Revenue in cases involving disputed assessments, refunds o f internal revenue taxes, fees or other charges, penalties in relation thereto, or o ther matters arising under the Notional Internal Revenue Code or o ther lows odminislered by the Bureau of Internal Revenue, where the Notional Internal Revenue Code provides a specific period of action, in w hich case the inac tion shall be deemed a d enial;

XXX

Similarly, Section 3, Rule 4 and Section 3(a), Rule 8 of the Re vised Rules of the Court of Tax Appeals provides:

RULE 4

JURISDICTION OF THE COURT

XXX

SEC. 3. Cases within the jurisdiction of th e Court in Division. - The Court in Division shall exerc ise:

(a) Exclusive original or appella te jurisdiction to review by appeal the following:

( 1) Decisions of the Commissioner o f Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the Notional Internal Revenue Code or other lows odminislered by the Bureau of Internal Revenue; ( C IR v. Avon Products Manufac turing, Inc . I Avon Products Manufacturing, Inc. v. CIR CT A EB Case Nos. 661 & 663 (CT A Case No. 7038)

(2)

Inaction by the Commissioner of Internal Revenue

in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Cod e or other laws administered by the Bureau o f Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal dec ision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collec ted, the taxpayer must file a petition for review with the Court prior to the expiration o f the two-year period under Section 229 of the National Internal Revenue Code; x x x [Emphasis supplied.]

RULE 8

PROCEDURE IN CIVIL CASES

XXX

SEC. 3. Who may appeal; period to file petition. -

(a) A party adversely affected by a decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretory of Finance, !he Secre lory of Trade and Industry, the Secretory of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessme nts. In case of inaction o f the Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review within the two-year p eriod prescribed by low ~ CIR v. Avon Products Manufacturing. Inc. I Avon Produc ts Manufacturing. Inc. v. CIR C IA EB Case Nos. 661 & 663 (CTA Case No. 7038) from payment or collection of the taxes. (n) x x x [Emphasis supplied .]

In Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue ,J:l th e Supreme Court hod on occasion to interpret the foregoing provisions and ca tegorica lly ruled thai the jurisdiction of the Court of Tax Appeals has been expanded to include not only decisions o r rulings but inaction as well of th e Commissioner of Internal Revenue, thu s:

"From the foregoing, it is clear that the jurisdiction of the Court of T ox Appeals has been expanded to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to act on the disputed assessments. This 30-doy period within which to file on appeal is jurisdictional ond failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely directory but mandatory and il is beyond the power of the courts to extend the some.

In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options ore mutually exclusive. and resort to one bars the application of the other." [Emphasis supplied.] ( 33 G .R . No. 168498, /\pril24 , 2007.

CIR v. Avon Produc ls Manufoc luring, Inc . I Avon Produc ls Manufacluring, Inc. v. Cl l~ CT A EB Case Nos. 661 & 663 (CTA Case No. 7038)

DECISION

Page 30 ol 45 To reiterate, Section 228 of th e NIRC of 1997 provides two mutually exclusive options on the part of the taxpayers aggrieved by the inaction of the CIR on disputed assessments within the 180-day period from submission of complete documents. First, a taxpayer may file a Petition for Review before the CTA within 30 days from the lapse of the 180-day period. Second, a taxpayer may opt to await th e final decision of the CIR on disputed assessments and appeal such final decision within 30 days from receipt th ereof. In the inslant case, A VON opted to resort to the second remedy,

i. e., lo await the final d ecision of the CIR and appeal the said decision be fore the CTA within 30 days from receipt thereof. Considering that AVON only received the Collection Le iter doled July 9, 2004 on July 14, 2004, :3~ whic h also served as a final decision d enying th e protest, the filing of the Petition for Review before this Court on August 13, 2004 was well within the 30-day period provided under Section 228 of the NIRC of 1997. He nce, this Court has jurisdic tion over th e present controversy. Evidently, it is established that the assessments on deficiency VAT, expanded wilhholding tax and withholding tax on compe nsation have already prescribed and that the Petition for Review be fore this Court was lim ely filed. {.

34 CTA Case No. 7038, Join! Stipula lion o f Facts and Issues, par. 13, Docke1, p . 132.

CIR v. Avon Products Manufac turing, Inc. I Avon Produc ts Manufac turing, Inc. v. CIR CT A EB Case Nos. 661 & 663 (CTA Case No . 7038)

On the remaining assessme nts on d e fic iency income tax and excise tax, AVON's defic ienc y income tax assessment in the amount of P35,245,77 4.70 may be summarized as fol lowsTl : I._Qiscreponcy I IR ~ & VAT Return Sates Figures 2-'-Toxes & ~~e n sesjFrin ge 12_~ n e fit Tax) 34% Tax of Mr. ke n Gibson Decemb er 1998 FB f Paymen t Adjustment

3. Discrepancy on Ending Inventories refl ,c ted in Balance Shee t vs. Cos t o f Soles 4.:__UnsupporleQ_ Creditable Tax Withheld p 62,91 1,619.58 -· 152,632. 10 927.27 2,597,95 1.72 344 ,15 1.1 7 As to the discrepancy between the ITR and VAT Return Sales Figures, the CIR asserts lha I the alleged undeclared income of P62,911 ,619.58 arose from the d iscrepancy between the sales per Mon thly and Quarterly VAT Returns and th e reported sa les per Financ ial Statement and Income Tax Re lurn.:ltJ The CIR's argument is not tenable.

As aptly discussed by the Court a quo, the discrepancy alleged by the CIR does not amount to under-d eclaration of sales per ITR for the taxable year 1999 and should be accordingly c ancelled . The pertinent portion of th e d ecision read s: "A scrutiny of petitioner's Quarterly VAT Returns for the year 1999 shows that the soles figure of P l ,453,792,238. l 2 used by the BIR examiner in arriving a t the a lleged undeclared soles o f P62,9ll,619.58 was higher by Pl76,44l,375.60 when com pared lo the a c tual soles amount of P l ,277,350,862.52 declared by petitioner in its Quarterly VAT Returns, as shown below: ( 35 td. , par. 8, p. 129- 130.

36 /d. , par. 18, p. 133.

CIR v. Avon Pro duc 1s Monufoc luring, Inc. I Avon Produc ls Mo nufoc luring, Inc. v. CIR Page 32 o f 45 Cl A EB Case Nos. 66 1 & 663 (CTA Case No. 7038)

DECISION

-----

Sales per VAT Return

Per BIR

Per VAT Return

Investigation

loxotJIC - Diffe re nc e - I'' quorlcr (I xhitJilllll 6) _

I'

/WJ,/90.M0.90

I'

109 ,:3 -19 ,/B~dO lj I I 6,11-11 ,3/ ~J.60 /9 ~J.6/9. /il -1 .~)() /9 ~J.6/9. /B tl .~JO -196,/99,6//.130 -196,/99,6//.130 113:l.O~l I .5~J9 .00 I B3.0~J I .~J59 .00 ---- - --- /nd quorlcr (I xflitJil llll_/) 3'd quorler (I xhitJil llH-B) t1'h < u~ r~;r (I xr1itJi l l}ll-9 SutJio lo l

I'

1 ,/61,/7 1 ,{~13/.:.20 I' I ,OB-1.B3(J.:l06.60 10 I /6, -1-1 I ,37~J.60 I xernpl (exporl) I st quorler (I xhitJil llll 6) )nd quorler (I xhitJi l Ill} /) 3'd quorlcr (I xr1itJi l ll~ -BJ t1 1h~ orler (I xhitJil llH-9)

SutJiolol

I'

/6.1 //,6/:3.!36 :31.-191.-19:3.9/ 11:3,37-1.~J9~J.~l9 /I .~lB I ,Bt12.~J0 - -

Total

J92.~J/0,525.92 P1.453,792,238.12

I'

/6, I //.6/:3.!36 :31.-191.-19:3 9/ I I :3,:3/-1 .~J9 ~l.~l9 /I .~JB I .B-1/.~JO 19/ .~) /Q.~)~)~). 9/ p 1,277,350,862.52 p 176 441 375.60 As correctly foun d by the

Court-commissioned

inde p e ndent CPA.

the discrepancy o f P176,441 .375.60 represe nts p e titioner' s soles for the months of January and February 1999 whic h w ere not included in the first Q uarterly VAT Return but were declared in the resp ective Monthly VAT Declaro lio ns, os shown b e low:

January

Fe bruary

Total

I xhitJi I 1313 10 I x/lit)i/ 1313 I I Oulpul lox m rellec le<J Soles Nel ol V 1\ I

P

/,13?/,:3?0. I t1 /B,?/:3./0 1.-10

I'

9,B?I,BI/.t1/ 9B,/IB, I/t1./0

I'

I /,6 -1 -1, I :l/.~J6 176.441 ,375.60 Moreover, to a dopt respondent 's computation of the a lleged undeclared soles of P62,9 11,6 19.58 and d educ t the a c tual soles figure o f P 1 .277,350,862.52 shown in the Quarte rly VAT Re turns from the soles/income o f P 1 ,390,880,618.54 re flecte d in petitioner's income tax return for the year 1999 will even show on oversta te me nt of soles per ITR in the a mount o f P 1 1 3.529,7 56.02 os shown b elow:

Soles per V 1\ I Rclurn

I ess: Soles reporle<J per II R Dornes lic Soles (I xr1itJi l llll ?)

I x Jorl Soles (I xhi!?il 1\1\<3) __ !::xporl no l lo IIC_(_Sxr1it:2!.1. 1313 tlj SutJio lol 1\<j<J: Olhcr Income (I xhitJil llll ~l) Olr1er Income Coin on sole ol properly I oreign exchonge goin

Per BIR

Per VAT Return

Differe nce lnv_~ t i gat io n I' l,t153,/9?,2:3B.I/ I' I,/// ,3 ~JO,B6?.~J?

I' l/6,-1t11 ,3/~J.60

Per BIR

Investigation

I' I .7~Jt1,/B9.-1~J~l.-1~J I :30,096,0YJ. I :3 ._,j .B I (J.:lB?. 96 ~ ,3§9,69~J.I393.~Jt1

I'

-16/. 1/6.00 /6-1 . ~J I /.00 tlYl.OB/.00

Per VAT Return

I' I .7~J t1,/B9 , -1 ~l~l. -1~J 130 ,0 96.0~)~) 13 t1.~.3B?._26_ I' 1.3B9 .69 ~J.B9:3.~J t1

I'

-16/ , I /6.00 /6~.~) I/ 00 t1Y3,013/ 00 Differe nce C IR v. Avon Produc ts Manufac turing, Inc. I Avon Produc ts Manu fac turing, Inc . v. CI R CTA EB Case Nos . 66 1 & 663 (CTA Case No . 7038)

DECISION

Page 33 o f 45

Sublolol

lolol Understate d (ove rstated) sales

I'

I

, I B ~ . I7~J.00 I' 1.390.B!l0.6 I B.~l~ p 62911619.58

I'

l , lil~ .I7~J.00 I' 1.390.BB0.6 I B.~l ~ p ( 113,529.756.02) p 176441 ::, 60~ 1 Potently, it is erroneous for the respondent to conclude hastily that petitioner hod under-declared its soles for income purposes in the amount of P62,911,619.58 merely on the basis of comparing the soles figure per petitioner's VAT returns and those reflected in its ITR.

A further investigation should hove been performed by the BIR to support its c laim of under-declaration. Clearly, as per the reconciliation established by the

Court-commissioned

Independent

CPA

(I CPA), the P62,9 1 1,619.58 soles discrepancy does not constitute taxable 1ncome on the port of the petitioner for income tax purposes, thus:

I olol Soles per VA I Relurn _

Add:

(deduc l) reconciling ilcrns:

_ I,, ond ?nd quorler e xpo rl soles per Cl inc luded in lr1e 3•d quorler e xporl mles ornounl per V AI relurn

Annex I

l)orneslic: soles lo Alc os lo r lr1e 1 "· 3•d oncJ ~ ~ h qumlers inclucJecJ in tJOih e xpor I oncJ ?

cJorneslic soles ornoun l per VII I relurn Annex?

Sole o l obsole le in ~jrec:Jienl s ond conloine rs c:Jircclly c mcJile cJ lo invenlory o ccoun l oncJ reporlecJ os dornes lic sole in lhe 3•d onc:J ~th 3 quorler V Ill relurm.

Annex 3

I o rei(Jn exc hon ~je (JOin subjec lecJ lo inc ome lox tllJ I no l sutlje c: lecJ lo VIII since lr1ese loble ~ resul lecJ lro rn exporl soles.

1.11.1 Nel tJOok volue o l osscls solcJ subjec: lecJ lo

~J

VAl bu l nol subjec l lo income lox.

Annex~

Diflercnce in sole lo Avon Cosrnc lics Inc. (ACI) tlelween VIII relurns vs. G l / III-I (VIII 6 lower) .

Annex :l O lr1er income ornoun l per Cl nol included in

I

VII I relurn.

Annex 3

V Ill o ulpul on lully cJepreciolecJ lixecJ ossels

B

(I 6.~J00.00)

Annex ~J

l)iflcrence in lllcos ornounl recorcJecJ in V Ill 9 relurns vs. Q.t:noun l in exporl Cl (VAI_higher) .

I 0

Rounding o ff cJiflcrence lolol reconc iling ilerns lolol Sole~ per II R

Annex 3

(? , /79 , 1~J6 .09) (?. 1 ? ~ .O~J/.?B) ? I ,6/3.16 (0.~­ (0 l{l) (6?.91 1.6 19 .~JB) I' I ,390.Bil0,6 I B. ~l~ Based on the above reconciliation. the discrepancy of P62,911 ,619.58 was largely due to the amount of P58,408,045.61 representing the sum of the export soles for the first and second quarters of 1999 in the respective amounts of P26, 122,623.86 and P32,285,42 1.75 as recorded in pe titioner's General Ledger (GL) .

It is to be noted that the soles figures recorded in petitioner's GL make up the total amount of soles declared by petitioner in its income tax return for the year 1999.( CIR v. Avon Products Manufacturing, Inc. I Avon Products Manufacturing, Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038)

Aside from declaring the amount of P58,408,045.61 in the first and second Quarterly VAT Returns, petitioner also reflected the some amount in the third Quarterly VAT Returns because the amount of P 113,324,595.59 declared therein by petitioner represents the export soles balance per GL as of September 30, 1999 which covers the first, second and third quarters of 1999. Clearly, petitioner did not under-declare its soles per ITR but erroneously overstated its soles per VAT returns in the amount of p 58,408,045.61 .

However, it was noted that the export soles for the first and second quarters per GL in the amount of P58,408,045.61 do not tally with the export soles of P 57,61 4, 1 1 7.83 reflected per petitioner's Quarterly VAT Returns for the some periods. The difference of P793,927.78 pertains to petitioner's domestic soles to Alcos Global Corporation for the second quarter of 1999 which was erroneously booked under the "Gross Soles - Others - Export" account in the GL but correctly included in the domestic soles and excluded from export soles in the second Quarterly VAT Return.

As to the reconciling item amounting to P2,729, 156.09. the some pertains to petitioner's domestic soles to Alcos Global Corporation for the first. third and fourth quarters which were included in both export and domestic soles per VAT returns. Again, petitioner did not under-declare its soles per income tax return but erroneously overstated its soles per VAT returns in the amount of P2,729, 156.09.

As to the reconciling item amounting to P2, 124.057.28, it actually pertains to petitioner's sole of obsolete ingredients and containers directly credited to inventory account and reported as domestic soles in its third and fourth Quarterly VAT Returns for the year 1 999. Since these items were sold at cost. there was neither a gain nor loss to be reported for income tax purposes. As to the foreign exchange gain of P453,087.00 which represents the difference between the peso equivalent of petitioner's US denominated export soles at the time of sole and at the time of collection, the some was not subjected to VAT but was included in petitioner's taxable income for the year 1999.

With regard the reconciling amount of P280,903.30, records show that the some represents the net book value Qf assets sold by petitioner for the year 1999, computed as follows: < CIR v. Avon Produc ts Ma nufac turing , Inc. I Avon Produc ts Ma nufac turing , Inc. v. CIR CT A EB Case Nos. 661 & 663 (CTA Case No . 7038)

DECISION

I

~~ ----- ixc <J Asse ts css:

Accurnuto tccJ Dc prcc:io tron Net Book Value of Asse ts Sold

I'

p I ,23~J. I 4 ~J.33 9~J -1 ,2 -1 ?.? ~J 280 903.08 Page 35 o f 45 The net b ook value of P280,903.08 is not subject to income tax.

However, the proceeds from the aforesaid so le a mounting to P 545.41 5.29 formed p ort o f the P 561.915.30 soles of fixed assets that were subjected to VAT in petitioner's 1999 fourth Quarterly VAT Re turn while the rela ted gain in the amount of P264,51 2. 21 was included in p etitioner's taxable inc ome for 1999:

-tJroc:cecj s Ne t o f VA I I css l Ne t lloc~Vo l uc Sold Net Book Value of Asse ts Sold

I'

) .-l ~J. -1 I ~J . ?9 ?B0,9Cl:30B p 264 512.21 With refere nce to the reconc iling amount of P 172,283.55, the some pertains to the d iffere nce in soles to Avon C osmetics, Inc. (ACI ) as re flected in the VAT returns and as declared in the income tax return for 1999, c om puted as follows:

Sales Per VAT

1999

Return

I"Oir

IJ

?B-1, I -1 ?.~J 16.00 ?nd O lr 29 -1 ./0~J. ~)!? .30 - J •d Otr -1 9 ~J.690,693. I 0

Sales Per Gl/ ITR

I'

?B -1 ,1 -1 ?,?/?93 ?9 -1 ,///,.-lBO BJ -- - -1 9 ~J.690,693.0B Sate s pe r Gl/ ITR is over( unde r)

I'

(? -1 3.0/) I I ,9013.~J3 (0.02) ------ -- - - -1 'h O tr IBO,O/B,:l'JO ~JO lBO. 11'.1,0086 I 100.6 lB. I I

Total

P 1 ,254.617,171.90 P 1,254,789,455.45 P 172,283.55 Pe titioner's soles to ACI, as reported in its ITR, was higher by P 172,283.55 due to the difference in soles amounting to P71 ,908.53 w hich was subjec ted to inc ome tax but was not subjected to VAT and soles returns amounting to PI 00,618.1 1 erroneo usly debited 1o lngredien1s invent ory a ccount in the GL instead of soles returns and allowances subjecte d to income tax as found by the ICP A.

With regard the rec onciling amount of P2 1 ,673.16, the some re fers to the other inc ome (sc rap soles to petitioner's employees) not subjected to VAT; b u1 inc luded as port of pe titio ner's gross inc ome p er ITR, computed as fo llows : 1999 fs'Oir ?nd Olr

Sates to APMI Employees - Scrap

Sates Per VAT

Return

I'

I V>./~J-1 10 I :lO.?!l-1 -10 -- ---· ------

Sales Per Gl/ ITR

I'

16-1 , /!B.~J9 I :lO.?B3.B6

Sates per

Gl/ ITR is over( unde r)

I'

/,%-1.-19 (O.~J -1') ( CIR v. Avon Produc ls Monufoc luring, Inc . I Avon Produc ls Monufoc luring, Inc . v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No . 7038)

D E CISION

:l•d Otr ~· h Olr

Total

66.736.67 97, I I 1.90 p 445 453.02 /6,/69.76 9!d!J~.~/ p 467126.18 IOSl/.6 ~ :l. I /6.!J/ p 2 1 673.16

Page 36 of 45

Regarding the reconciling item amounting to P 16,500.00, the same refers to the 1 0% output VAT due on the P 165,000.00 sale o f fully-depreciated fixed assets, computed as follows:

Soles per V/\1 Return

Coin on Sole per III-I

VAT Output

I'

p 16!J,000 ()() I ~il.!JOO.OO 16 500.00 The taxable sale for VAT purposes is the gross amount o f P 1 65,000.00 wh ile the taxable income for income tax purposes is based on the gain on sale of P 148,500.00, resulting to a recon c iling amount of P 16,500.00.

In summary, there fore, it was established that petitioner had no undeclared sales per ITR for taxable year 1999. The P62,9 11 ,6 19.58 undeclared sales/income b eing charged by respondent against petitioner is erroneous and should be c ance lled.'' 31 Consequently, we see no cogent reason to d eviate from the factua l findings of the Court a quo in dismissing the CIR's claim of under-declara tion of sales solely based on the existe nce of disparity between the sales per Monthly and Quarterly VAT Returns and the reported sales per Financ ia l Stateme nt and Income Tax Return. Evidently, there is no basis to assess AVON of undeclared sales/income in the amount of P62,9 11,619.58; hence, the same should therefore be ca ncelled.

On the Taxes & Licenses (Fringe Bene fit Tax) , as stipulated upon by the parties, A VON has paid the amount of the disallowed taxes and< 37 CT A EB No . 66 I , Dockel, pp. 62-68.

CIR v. Avon Produc ls Ma nufac luring. Inc. I Avon Produc ls Ma nu fac turing, Inc . v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038) licenses of P 152, 632 .10 and December 1998 FBT payment adjustment of P927 .27 or in the total amount of P 153,559.37 .:m In e ffect, A VON has ac knowledged the disallowance o f the foregoing taxes, and in view of the pa yme nt there of, its liability inso far a s th ese taxes are concerned is there fore exting uished .

As to th e discrepanc y on e nding Invento ries reflected in th e Bala nce Sheet vs . Cost o f Sales, the CIR maintains th a t the alleged discrepanc y arose from the differe nce in the amount o f ending inventories per balance sheet of P2 15,793,000.00 whic h is higher th a n the amount o f e nding inventories per Schedule o f Cost o f Good s Ma nufac tured and Sold o f P213, 195,572.2s .:w How ever, A VON claims th a t th e a lleged discrepancy represents variatio ns o f a c tual cos t from standard cost allocated to ending inventories and is part o f ite m "Varia tions- P15,798,844.41 ".~o AVON's c la im is tenable .

As c orrectly o bserved by the Co urt a quo, there was no under- declaratio n o n the part o f AVON in !he a lleged discrepa nc y between ending inventories re flected in the Bala nce Sheet and Cos t of Goods Manufac tured and Sold a s th e alleg ed inventory overstate ment merely represents va ria nce/adjustments on sta ndard cost to actual cost( 38 CT A Case No. 7038, .Join! Slipulalion of Fac ls and Issues. par. 19, Docke l, p . 133. 39 /d. , par. 20, p. 133.

4o CTA EB Case No. 66 1, AVON's Memorandum, par. 65, Docke l, p. 164.

CIR v. Avon Produc ts Manufacturing, Inc. I Avon Produc ts Manufacturing, Inc . v. CIR CT A EB Case Nos. 661 & 663 (CTA Case No. 7038) allocated to ending inve ntories. -1 1 Indeed , a s records of the case would reveal, the apparent discrepancy arose from the difference in the presentation o f ending inve ntories per Balance Sheet and per Sched ule of Cost of Goods Manufac tured and Sold. He nce, th e said assessmen t must necessarily be cancelled. On lhe unsupported Creditable Tax Withheld, the CIR reiterates her argument that AVON over-claimed its tax credit in the amount of P344, 15 1.1 7, broken d own as follows-17:

a. Over-claimed withholding tax credits by P203,645.89 arising from the difference between th e to tal amounts stated in the certificate of creditable tax (P 12,705,654 .11) and the amount c laimed in the ITR (P1 2,909,300.00) ; and

b. Over-issuance o f certific a le o f c reditable tax withheld by

Avon

Cosmetics, Inc.

(ACI)

by P 140,505.28 representing withholding tax on sales made in 1998 but paid in 1999 in vio la tion of Sec. 2.58 .3 (A) o f Revenue Regulations No. 2-98.

But Avon maintains that the vanance between th e amount of creditable tax per certifica tes o f tax withheld issued by the withholding age nt and the amoun t per books as re flected in its ITR are mere timing differences between the issua nce of the certifica te of withholding tax by the withholding agent a nd its recording of the c reditable withholding lax when income is co ll ected.~ :~ ( 4 1 ld. a t 68-69.

42/d. , lhe Cll~'s Mernorondurn , pp. 119- 120. 43 /d. , AVO N's Mernorondurn , par. 70, p . 167.

CIR v. Avon Produc ts Manufacturing, Inc. I Avon Produc ts Manufacturing, Inc . v. Cll~ CT A EB Case Nos. 661 & 663 (CTA Case No. 7038)

We affirm the ruling of the Court a quo in finding the CIR's disallowance o f AVON's claimed tax c redits amounting to P203,645.89 proper but not as to the amount of P 140,505.28. Section 2.58.3 (B) o f Revenue Regulations No. 2-98 provides: SECTION 2.58.3. Claim for Tax Credit or Refund. - (B) Claims for tax c redit or refund of any creditable income tax which was deducted and w ithheld on income payments sha ll be given due course only when it is shown that the income payment has been declared as port of the gross income and the fact of withholding is established by a copy of the withholding tax statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom.

Proof o f remittance is the responsibility of the w ithholding agent. [Emphasis supplied.]

It is clear from th e foregoing that a copy o f the withholding tax certifica te duly issued by the payor to th e payee is a requisite in c laiming c reditable withho lding lox.

In the instant case, records would reveal that A VON foiled to present the withholding tax certific ates in its c laimed tax c redits in th e amount of P203,645.89.

Instead, in a futile attempt to prove its e ntitle ment to the claimed c reditable withholding tax, AVON submitled a print-out o f "Browse Account Document Details of Accrued Income Tox-ACI" ~~ for the year 1999. However, a close scrutiny of the records reveals that AVON 's customer, ACI, issued AVON ( 44 CT A C ase No. 7038, Avon 's Formal Offer of Evide nce, Exhibit "CC ", Docke t, p. 428.

CIR v. Avon Produc ls Manufacluring, Inc. I Avon Producls Manufacturing, Inc. v. CIR CTA EB Case Nos. 661 & 663 (CTA Case No. 7038) a withholding tax c redit certifica te amounting to P 140,505.28 in 1999 for sales made in 1998 but paid in 1999. Therefore, con trary to AVON's claim, ACI in fac t recognizes the withholding tax not from accrual of sales but upon payment.

Clearly th en, the liming difference in the recognition of tax c redits as alleged by AVON is unwarranted. Hence, the CIR is correct in disallowing th e same as a deduction from AVON's income tax liability.

As to the Deficiency Excise Tax, the CIR a ssessed AVON of its deficiency excise tax in the amount o f P 1 ,645,390.44, inc lusive of interes l and compromise for th e taxable year 1999. ~ ~) However, during the pendency o f th e insta nt Petition, A VON fil ed an Application for Abatemen t over its deficiency excise lax pursuant to Revenue Regulations (RR) No. 15-2006 and paid 100% of the basic deficiency excise tax due in the amount of P913,514.87. Consequently, th e parties filed a Joint Manifestation~ 6 on February 21, 2007 statin g therein AVON's application for abatement of its deficiency excise tax and payment thereof. The Court a quo noted the joint manifestation filed by the parties and ordered the ca ncellation o f the deficiency excise lax assessment o f AVON for the taxable year 1999.'- 45/d. , .Join! Slipulolion o f Focls and Issues, par. 8, p. 130. 46 /d. ol 284-289.

CIR v. Avon Produc ls Monufoc luring, Inc. I Avon Produc ls Monufoc luring, Inc. v. CIR CT A EB Case Nos. 66 1 & 663 (CTA Case No. 7038)

Considering AVON 's ovoilment of the abate me nt program pursuant to RR No. 15-2006 and its corresponding payment of the basic deficiency excise tax, the interest and compromise therein w ere abated. Thus, th e a ssessme nt for deficiency excise tax against AVON for the taxable year 1999 is dee med cance lled and withdrawn . In CTA EB No. 663, AVON's pe tition similarly loc ks merit. On the issuance of the assessments for deficiency income tax, excise tax, value added tax, withholding tax on compensation, and expa nded withholding tax, AVON res tates !hat it was deprived o f its right to due process when th e CIR issued ide ntical Preliminary

Assessment

No tice (PAN) , Final

Assessment

Notice

(FAN) , and Collection Le tt er d espite its protests, supporting documents and con ferences with the BIR e xaminers. ~~ Thus, it asseverates thai the presumption o f regularity ca nnot be applied in favor o f the CIR as the latter's inaction and failure to give due consideration lo the evide nce submitted be fore it is a blatant transgression of its right to due process as explained in Ang Tibay v. Court o f Industrial Relations ~ B and Mendoza v. Commissio n on E lec tions~ 'l . :lo We disagree., 4 7 C r !\ EB No. 663, Docke l, p. 31.

48 69 Phil. 635 (1 940).

49 c; .R. No. 188308, 603 SCRA 692, October 15, 2009. so CT A EB No. 663, Dockel. p. 33.

CIR v. Avon Produc ts Manufac turing , Inc . I Avon Produc ls Manufac turing, Inc . v. CIR CT A EB Case Nos. 66 1 & 663 (CTA Case No . 7038)

DECISION

Page 42 o f 45 We ll-se tlle d is the rule that tax assessments by tax examin ers are prima fa c ie presumed c orrec t and made in good failh. ~> 1 Abse nt any proof of any irregularities in the performance of official dutie s, an a ssessme nt will not b e disturb e d . ~> 7 Likewise, the essence of due process 1n administrative proceedings is that a party be afforded a reasonable opportunity to be heard and to submit any evidence he may have in support of his d e fe n se. ~>3 It must b e underscore d that "[w] hat the law pro sc ribes is th e lack of opportunity to b e heard. As long as a party is give n the opportunity to d e fe nd his interes ts in due course, he w ould have no reaso n to complain, for it is this opportunity to b e heard that makes up the essence of due proc es s . " ~> ~ In th e instant c ase, the records clearly show that AVON was a ccorded by the CIR a reasonable opportunity to explain and prese nt its e vid e nce c onsisting of its le tter-reply, financ ial state m e nts and other supporting d ocume nts. II c anno t there fore b e argue d that AVON was d e nied of due proc ess.{ 5I Commission o f In fern a l Revenue v. Honte x 7roding Co., Inc., G.R. No . 136975, March 3 1' 2005.

52 .J.C. Vitug and E.D. Acos la, TAX LAW AND JURISPRUDENCE, (3•d ed. 2006), p. 293. 53 Aquilino T. Lorin v. Th e Exec utive Secre tory, e t a /. , G.R . No. 11 2745, Oc to ber 16, 1997 c iting Midas Touch Food Corp. vs. NLRC G.R. No . 111639, July 29, /996, 259 SCRA 652. 54 Spouses Estores v. Co urt of Appeals, e l o l., G.R . No. 144 755, June 8, 2005.

CIR v. Avon Produc ts Manufac turing, Inc. I Avon Produc ts Manufacturing, Inc. v. CIR CTA EB Case Nos. 66 1 & 663 (CTA Case No. 7038)

DECISION

Page 43 o f 45 Further, as correctly pointed out by the Court a quo , the CIR's failure to apprecia te th e supporting doc ume nts presented by A VON be fore her is not tantamount to d e nial of due process, thus: "It is not the loc k of opportunity to present its side, but the resp ondent's failure to appreciate the documents submitted by petitioner that beset the Iotter.

The difference in the appreciation by the respondent of petitioner's supporting documents which led to respondent's assessment of petitioner's deficiency taxes is not violative of due process. The respondent has the duty to receive the c larifications, explana tions and conjectures forwarded to him by the taxpayer, however, he does not hove the duty to accept them on face value . The determination of the actual liability of a taxpayer in on assessment re lies on respondent's appreciation of the evide nce presented before him.

And absent any arbitrariness, the presumption is that respondent has mode the assessment based on his findings and in good faith. As a logical outgrowth o f the presumption in favor of the validity of the assessments, when suc h assessments ore assailed, the burden of proof is upon the complaining party. It is incumbent upon the property owner clearly to show that the assessment was erroneous, in order to relieve himself from it."~' ~' [Emphasis supplied.]

In fine, this Court finds that the CIR's non-appreciation of AVON 's arguments and supportin g documents submitted b e fore her which led to the su b sequent issuance o f ide ntic al PAN, FAN, and Collection Le tter cannot in any way be cons tru ed as d e privation of AVON's right to due process absen t any proof o f any irregularity in the performance of her duties. Thus, the presumption o f regularity in the p erformance of the CIR's offic ial duties shall th ere fore stand.£ 55 CT A EB No. 661 , Docket. pp. 52-53.

Cll\ v. Avon l'roduc ls Monulocluring, Inc. I /\von l)roducls Mcmu foc luring, Inc . v. Cll~ CIA I I) Coso Nos. 661 & 663 (C IA Coso No. 703B)

DEC ISION

WHEREFORE prem1ses considered, the res p eclive Pe titio ns for Review o f lhe CI R and AVON 1n CTA EB Ca se Nos . 66 1 a nd 663 ore hmeby DENIED . Th e Decision and Resolu tion o f th e Sp ecia l First Division of !his Court in CTA Case No. 7038 doled May 13,2010 and July 12, 20 10 o re AFFIRMED . No p ro nouncem e nt as to costs.

WE CONCUR :

Associa te Justice t:J..-.. '- cL., ~ ERNESTO D. ACOSTA Presid ing Justice ~~~- <EAs~~R.~.

Associa te Justice '

TISTA

E~.UY

I

As~~~u s tice [}_ _ .. _ CAESAR A. CASANOVA Associa te Jus tice w~~~ - (wil*;;ia~u~~

O LGA PALANCA-ENRIQUEZ

Associa te Justice (on wei/ness leave) ESPERANZA R. FABON-VICTORINO Associo 1e Justice ~~-~~,-/~ AMELIA R. COTANGCO-MANA LASTAS

Associate Justice

CIR v. Avon Produc ls Mo nu fo c luring, Inc . I Avon Produc ls Mo nufoc luring, Inc. v. CIR CT A EB Case Nos. 66 1 & 663 (CT A Case No . 7038)

D EC ISION

Page 45 o f 45

CERTIFICATION

Pursuant to Article VIII, Sec lion 13 of the Constitution, it is hereby certified that the c onc lusions in the above Decision w ere rea c hed in c onsultation among the members of the Co urt En Bone before the c a se was a ssigned to the writ er of the opinion o f the Court En Bone. ~"lie , c -..L- ERNESTO D. ACOSTA

Presiding Justice

REPUBLIC OF THE PHILIPPINES

Court of Tax Appeals

QUEZON CITY

ENBANC

COMMISSIONER

REVENUE,

OF

-versus-

INTERNAL

Petitioner, AVON PRODUCTS MANUFACTU RING, INC., Respondent.

)(-----------------------------------------)( AVON PRODUCTS MANUFACTURING, INC., Petitioner, -versus-

COMMISSIONER

OF

INTERNAL

REVENUE, Respondent.

C.T.A. EB N0.661 (C.T.A. CASE

0. 7038) C.T.A. EB N0.663 (C.T.A. CASE NO. 7038)

Present:

ACOSTA, Presiding Justice, CASTANEDA, JR., BAUTISTA, UY, CASANOVA, PALANCA-EN RIQUEZ, F ABON-VICTORINO, MIN DARO-GRULLA, and COTANGCO-MANALASTAS, JJ.

Promulgated:

Nnv 0 9 2011 ~~~v"----~~

...., .. "'/~/".d"2! ...c , .... t:' ""' . """"" , X ------------------------------------------------------------------------------------ X

SEPARATE CONCURRING OPINION

PALANCA-ENRIQUEZ, J.:

Prior to the enactment of RA 8424, otherwise known as the N!RC of I 997, as amended, taxpayers were required to wait for the decision of the C.T.A. EB Nos. 66 1 and 663 (C.T.A. Case No. 7038)

Separate Concurring Opinion

2 Commissioner before they may appeal to the CT A, as the inaction of the Commissioner to their protests was then not appealable to the CTA. Thus, Collections Letters were considered as a denial of the taxpayer's protest on the assessment that may be appealed to the CTA. However, with the amendment on the inclusion of the provision on inaction of the Commissioner within a period of 180-days , introduced in Section 228 of the NIRC of 1997, as amended, the lawmakers clearly intended to add another ground when the taxpayer may appeal to the CT A and when an assessment may become final.

As a consequence thereof, Collection Letters issued after the lapse of the 180-day period cannot be considered as the decision of the Commissioner on the taxpayer's protest on the assessment that is appealable to the CTA. Section 228 of the NIRC of 1997, as amended, provides: "xxx xxx Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. l f the protest is denied in whole or in part, or is not acted upon within one hundred eighty ( 180) days from submission of documents, the taxpayer adversely affected by C.T.A. EB Nos. 66 1 and 663 (C.T.A. Case No. 7038)

Separate Concurring Opinion

the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the One Hundred Eighty ( 1 80)- day period; otherwise the decision shall become final, executory and demandable."

3 Pursuant to the above provision, it is clear that a taxpayer adversely affected by the decision or inaction of the CIR within the 180-day period, may appeal to the Court of Tax Appeals ("CTA"), within thirty (30) days from receipt of the decision, or from the lapse of the 180-day period; otherwise, the decision shall become final, executory and demandable. Settled is the rule that if a statutory remedy provides as a condition precedent that the action to enforce it must be commenced within a prescribed time, such requisite is jurisdictional and failure to comply therewith may be raised in a motion to dismiss (Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, 491 SCRA 221) . Moreover, it is a well-settled rule that if the words of the law are clear and free of ambiguity, it must be given its literal meaning and applied without any interpretation (Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, 554 SCRA 398, 409) . The general rule of requiring adherence to the letter in construing statutes applies with particular strictness to tax laws and provisions of a taxing act is not to be extended by imp) ication (Commissioner of Internal Revenue vs. Ariete, 610 SCRA C.T.A. EB Nos. 66 1 and 663 (C.T.A. Case No. 7038) Separate Concurring O pinion 472) .

4 Clearly, the period to appeal within 30-days after the lapse of the 180-day period under Section 228 of the NIRC of 1997, as amended, is mandatory and jurisdictional.

On the other hand, Section 3, Rule 4 of the 2005 Revised Rules of the CTA, as amended, provides, as follows: "SEC. 3. Cases Within the Jurisdiction of the Court in Division. - The Court in Division shall exercise: (a) Exclusive original or appellate jurisdiction to review by appeal the fo llowing:

XXX

XXX

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case;

Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of C.T.A. EB Nos. 66 1 and 663 (C.T.A. Case No. 7038)

Separate Concurring Opinion

these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code.

XXX

XXX."

5 The above provision was applied by the Supreme Court in the case of RCBC vs. Commissioner of Internal Revenue, 522 SCRA 152-153, as follows:

"From the foregoing, it is clear that the j urisdiction of the Court of Tax Appeals has been expanded to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to act on the disputed assessments. This 30-day period within which to file an appeal is jurisdictional and fai lure to comply therewith would bar the correctness of the assessments. Such period is not merely directory but mandatory and it is beyond the power of the courts to extend the same. In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: 1) fi le a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive, and resort to one bars the application of the other."

C.T.A. EB Nos. 66 1 and 663 (C.T.A. Case No. 7038)

Separate Concurring Opinion

6 Hence, based on the RCBC case and the aforequoted Section 3, Rule 4 of the 2005 Revised Rules of the CTA, as mnended, in case of inaction of the CIR to decide the protest within the 180-day period, a second option is afforded to the taxpayer, to wit: to wait for the final decision of the CIR on the disputed assessment even after the expiration of the 180-day period and appeal such final decision to the CT A, within 30 days from receipt of the decision. However, nowhere in Section 228 of the NJRC of 1997, as amended, is there a provision that the taxpayer is given a second option to wait for the CIR's decision even after the expiration of the 180-day period. Section 228 is explicit in providing that should the taxpayer fails to appeal within 30 days after the expiration of the 180-day period, the decision shall become final, executory and demandable.

It is my humble opinion that the second option afforded to the taxpayer in Section 3, Rule 4 of the 2005 Revised Rules of the CTA, as amended, is without legal basis as it would render nugatory the 180-day period for the CIR to decide the protest under Section 228. Well-settled is the rule that rules and regulations adopted and promulgated must not, however, subvert or be contrary to existing statutes. Thus, in the recent case of Lakin, Jr. vs. Commission on Elections, G. R. Nos. 17943 1-32 and C.T.A. EB Nos. 66 1 and 663 (C.T.A. Case No. 7038) Separate Concurri ng Opi nion 180443, June 22, 2010, the Supreme Court ruled, as fo llows: "The authority to make IRRs in order to carry out an express legislative purpose, or to effect the operation and enforcement of a law is not a power exclusively legislative in character, but is rather admin istrative in nature. The rules and regulations adopted and promulgated must not, however, subvert or be contrary to existing statutes. The function of promulgating IRRs may be legitimately exercised only for the purpose of carrying out the provisions of a law. The power of administrative agencies is confined to implementing the law or putting it into effect. Corollary to this is that administrative regulation cannot extend the law and amend a legislative enactment. It is axiomatic that the clear letter of the law is controlling and cannot be amended by a mere administrative rule issued for its implementation. Indeed, administrative or executive acts shall be valid only when they are not contrary to the laws or the Constitution." 7 There is absolutely no legal basis to rule that taxpayers may wait indeterminately for the decision of the Commissioner, as the inevitable consequence thereof would nullify the intent of the law in providing for the 180-day and 30-day periods under Section 228 and make the assessments, which are subject to the reconsideration of the Commissioner, imprescriptible.

Moreover, it will j ust encourage taxpayers to sleep on their duties and hope that the BIR forgets to collect or collects after the prescriptive period of collection. In view, however, of the ruling of the Supreme Court in the RCBC case, and the Supreme Court, being the court of last resort, and is the fi nal C.T.A. EB Nos. 661 and 663 (C.T.A. Case No. 7038)

Separate Concurring Opinion

8 arbiter of all legal questions properly brought before it, and considering that its decision in any given case constitutes the law of that particular case; I have no alternative, but to follow the ruling of the Supreme Court in the RCBC case.

For all the foregoing, I am therefore constrained to concur with the Majority in ruling that the Petition for Review filed in C.T.A. Case No. 7038 was fi led on time.

~~~

OLGA 'P ALANCA-ENRIQUEZ

Associate Justice