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ENBANC
-versus-
COMMISSIONER OF INTERNAL
REVENUE,
Respondent.
X- - - - - - - - - - - - - - - - - - - - - - - - - - X
COMMISSIONER OF INTERNAL CTAEB NO. 1739
REVENUE, (CTA Case No. 8947)
Petitioner,
Present:
DEL ROSARIO, P.J.,
CASTANEDA, JR.,
UY,
F ABON-VICT ORINO,
-versus -
MINDARO-GRULLA,
RINGPIS-LIBAN, and
MANAHAN ,]].
AGM PACKAGING SYSTEM LTD.
CORP.,
Promulgated:
Respondent. MAR 2 9 2019
~-
1
X--- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - -X
-----
~ /'/}tva _,___ .
DECISION
RINGPIS-LIBAN,J.:
The Case
The Facts
Penned by Associate Justice Caesar A. Casanova, with Associate Justice Juanito C. Castaneda,
Jr. and Catherine T. Manahan concurring. Docket, pp. 813-849.
2
Penned by Associate Justice Caesar A. Casanova, with Associate Justice Juanito C. Castaneda,
Jr. and Catherine T. Manahan concurring. Id., pp. 945-950.
DECISION
CTA EB Nos. 1734 and 1739 (CTA Case No. 8947)
Page 3 of 18
On June 09, 2017, the Second Division promulgated the Assailed Decision
partially granting the Petition for Review, the dispositive portion of which reads:
Deficiency Interest
Tax Type Basic Tax Computed From
Income Tax [Php1424,026.41 Apri115, 2010
Value-Added Tax 128,838.72 January 25, 2010
Expanded
Withholding Tax 17,802.03 January 15, 2010
Improperly
Accumulated
Earnings Tax 1,822,470.28 January 15, 2011
DECISION
CTA EB Nos. 1734 and 1739 (CTA Case No. 8947)
Page 5 of 18
I Documentary
Stamp Tax 778.50 I January 5, 2010
SO ORDERED."4
Aggrieved, both AGM and the CIR filed their Motions for Partial
Reconsideration on June 29, 2017 via personal filin~ and registered mail6 ,
respectively.
On October 20, 2017, the Second Division denied both motions in the
Assailed Resolution, thus:
Meanwhile, the CIR filed his "Petition for Review" on November 09,
2017, docketed as CTA EB No. 1739. 11 On November 28, 2017, a Resolution 12
was issued by the Court ordering AGM to file its comment on the CIR's
"Petition for Review".~
4
Id, pp. 847-849.
5
!d., pp. 850-867.
6 Id, pp. 922-925.
7
Id., p. 950.
8
Rollo (CTA EB No. 1734), pp. 1-4.
9
Id., p. 5.
10
Id, pp. 6-38.
11
Rollo (CTA EB No. 1739), pp. 1-13.
12
Id., pp. 61-62.
DECISION
CTA EB Nos. 1734 and 1739 (CTA Case No. 8947)
Page 6 of 18
dated January 05, 2018. On January 04, 2018, AGM filed its
"Comment/Opposition (To Petitioner's Petition for Review dated November 9,
2017)". 16
On January 10, 2018, in relation to CTA EB No. 1734, the Court ordered
the CIR to file its Comment on AGM's "Petition for Review". 17 On March 23,
2018, the Court gave due course to the petitions and ordered the parties to
submit their respective memoranda. 18
Hence, on May 30, 2018, the Court issued a Resolution submitting the
consolidated cases for decision. 21
The Issues
13
Rollo (CTA EB No. 1734), p. 131.
14
Id., pp. 132-135.
15
Id., p. 147.
16
Id., pp. 136-145.
17
Id., pp. 149-150.
18
Id., pp. 153-154.
19
Id., pp. 155-165.
20
Id., pp. 166-207.
21
Id., pp. 19-20.
DECISION
CTA EB Nos. 1734 and 1739 (CTA Case No. 8947)
Page 7 of 18
On the other hand, the CIR, in CTA EB No. 1739, assigned the following
errors:
AGM's arguments:
AGM contends that it is the PEZA, under its power provided in Republic
Act ("R.A.") No. 7916 or the "Special Economic Zone Act of 1995", which has
the sole authority to declare upon factual compliance that AGM is a bona fide
PEZA-registered enterprise and its entitlement to Income Tax Holiday ("ITH")
or five percent (5%) Gross Income Tax ("5% GIT"). Therefore, it is PEZA
which should prevail in the determination or qualification of a PEZA-registered
entity's fiscal incentive, and not the CIR. AGM further claims that by virtue of
PEZA Certification No. 2009-855, wherein it is evident that the PEZA
registration of AGM is still valid, not revoked, suspended or cancelled for taxable
year 2009, the CIR can only assess whether Petitioner correctly declared its
income for purposes of imposing the 5% GIT. The CIR cannot totally set aside
the 5% GIT entitlement and instead impose the thirty percent (30%) corporate
income tax and ten percent (10%) IAET upon its finding that AGM has violated
its PEZA Registration Agreement. Absent any categorical declaration from
PEZA that AGM has failed to comply with the terms and conditions of the
PEZA Registration Agreement, then the CIR has the obligation to respect the
tax incentives extended to AGM under PEZA laws.
Likewise, AGM points out that the subcontracting in 2009 between AGM
and AGM Ventures Enterprises, Inc. ("AGM Ventures") does not constitute
"trading" of wooden pallets and cannot be considered as outside the registered
activity of AGM inside the ecozone. The issuance of CEZ-SC-1 0-155 dated July
10, 2010 and other Letters of Authority ("LOA") to cover the subcontracting
/\-
22
Id., p. 11.
23
Rollo (CTA EB No. 1509), p. 11.
DECISION
CTA EB Nos. 1734 and 1739 (CTA Case No. 8947)
Page 8 of 18
agreement with AGM Ventures confirms that the said subcontracting is within
the scope of AGM's registered activity.
Lastly, AGM submits that the CIR's assessment of thirty percent (30%)
normal corporate income tax has no basis since for taxable year 2009, it has opted
to be covered under the 5% GIT regime. Additionally, based on AGM's income
tax returns and audited financial statements for 2007, 2008 and 2009, it is
mathematically impossible for AGM to have accumulated retained earnings of
Php18,224,702.76.
The CIR argues that AGM failed to substantiate its claimed interest
income and foreign exchange loss aggregating to Php141,618.58. Thus, pursuant
to Section 34(A) (1) (b) of the NIRC of 1997, as amended, the same cannot be
allowed as deductions from gross income.
Moreover, the CIR points out that the net loss of Php620,420.63 was
added back as net operating loss carry-over pursuant to Section 34(D)(3) of the
NIRC of 1997, as amended, wherein loss of the business for any taxable year
immediately preceding the current taxable year shall be carried over as a
deduction from gross income for the next three (3) consecutive years
immediately following the year of such loss.
Lastly, the CIR contends that the Supreme Court affirmed the imposition
of surcharge, deficiency and delinquency interest, and even compromise
penalties imposed on the deficiency assessment for DST in Commissioner ofInternal
Revenue v. Fiiinvest Development Corporatiotl4•
At the outset, we note that the issues raised by AGM and the CIR are
rehashed from their arguments before the Court in Division, and have been
sufficiently passed upon and resolved in the Assailed Decision and Assailed
Resolution.
~
CTAEBNo.1734
24
~
G.R. No. 163653, July 19, 2011.
DECISION
CTA EB Nos. 1734 and 1739 (CTA Case No. 8947)
Page 9 of 18
As stated by the Second Division, the power and duty to assess national
internal revenue taxes are lodged with the CIR pursuant to Sections 2 and 6 of
the NIRC of 1997, as amended. The said provisions state:
It logically follows then that the CIR has authority to determine whether
or not a PEZA-registered entity such as AGM paid the proper tax due, more so
considering the tax incentives given to it by virtue of its PEZA Registration.
~
DECISION
CTA EB Nos. 1734 and 1739 (CTA Case No. 8947)
Page 10 of 18
Hence, there is no other conclusion but that it is clearly within the CIR's
authority, in the exercise of his power to assess, to determine whether AGM is
qualified to avail of the preferential income tax rate granted to PEZA registered
entities.
There is no dispute that during taxable year 2009, AGM is duly registered
with the PEZA as an ecozone export enterprise entitled to the five percent (5%)
preferential tax rate under Section 24 ofR.A. No. 7916, otherwise known as "The
Special Economic Zone Act of 1995~
25
Regulations Implementing Section 24 of RA. No. 8748, Entitled "An Act Amending Republic Act
No. 7916," Otherwise Known as the Special Economic Zone Act of 1995, Amending for this
Purpose Revenue Regulations No. 12-97, November 12, 1999.
26
Amending Revenue Regulations No. 1-2000 Further Implementing Section 4 of R.A. No. 8748,
Entitled "An Act Amending R.A. No. 7916, Otherwise Known as the Special Economic Zone Act
of 1995", November 14, 2002.
27
Emphasis and underscoring supplied.
28 Docket, Exhibits "P-17'' and "P-19", pp. 690-697 and "700-701".
DECISION
CTA EB Nos. 1734 and 1739 (CTA Case No. 8947)
Page 11 of 18
The only issue in the case is whether or not the subcontracting activity of
AGM in 2009 is part of its registered activity, and thus subject to the 5% GIT
regime. Lamentably, a review of the evidence presented by AGM show
otherwise.
However, as pointed out by the Court a quo, the examination of the Letters
of Authority30 from the PEZA, particularly No. CEZ-SC-10-155, discloses that
the sub-contracting was approved only on July 13, 2010, which was valid for a
period of six (6) months or until January 13, 2011, and subject to renewal for
another six (6) months. In other words, there was no approval for the
subcontracting in the year 2009 and hence not in accord with AGM's registration
agreement with the PEZA. In sum, notwithstanding the several letters of
authority from PEZA for the years 2011 to 2015, the fact is that there was no
letter of authority for the year 2009.
Thus, We see no reason to deviate from the ruling of the Second Division
as follows:
Payee
Per Alphalist
Income Payment EWT
Per Assessment
Income Payment EWT
Discrepancy
Income Payment EWT ~
PurchaJeJ of
.Roods:
j
:\Gl\1
!
Ventures
Enterprises,
Inc. [Php ]3 7,020,986.3 7 [Phpj370,209.86 [Phpj3 7,858,250.25 [Php]378,582.50 [Php]837,263.88 J!?hrJ8,372.6J
I
I
Purchases of I
ser11zces: J
Delivery
expenses 198,023.10 J
I
Membership
dues & fees 19,258.94
Repairs & I
maintenance 85,982.04
Seminars &
training 13,900.00
1
!
Shipping & i
freight 27,339.37 I
Telephone
i
expense 66,259.62
~
Utilities 60,706.29 i
I
Total [Php )37 ,020,986.37 [Php)370,209.86 [Php )38,329, 719.61 [Php )388,011.89 [Php)1,308,733.24 [Php)17,802.03
CTAEBNo.1739
We disagree.
Considering that the other issues raised by the CIR in his "Petition for
Review" were already addressed earlier, the Court will no longer belabor on the
rest of the arguments raised therein.
10963 ("TRAIN Law") 33 on January 01, 2018 and the issuance of RR No. 21-
201834 dated September 14, 2018.
The assessment issued by CIR against AGM for taxable year 2009
covering deficiency income tax, VAT, EWT, IAET and DST is UPHELD.
Accordingly, AGM Packaging System Ltd. Corp. is ORDERED TO PAY
NINE MILLION FOUR HUNDRED NINETY-FIVE THOUSAND
THREE HUNDRED NINETY TWO AND 14/100 PESOS
(Php9,495,392.14) representing deficiency taxes for taxable year 2009, inclusive
of twenty-five percent (25%) surcharge imposed under Section 248(A)(3) of the
Tax Code, as amended, and twenty percent (20%) deficiency interest and 20%
delinquency interest imposed under Section 249(A) and (B), respectively, of the
same Code, computed until December 31,2017, which is prior to its amendment
under the TRAIN Law, thus:
33
An Act Amending Sections 5, 6, 24, 25, 27, 31, 32, 33, 34, 51, 52, 56, 57, 58, 74, 79, 84, 86,
90, 91, 97, 99, 100, 101, 106, 107, 108, 109, 110, 112, 114, 116, 127, 128, 129, 145, 148,
149, 151, 155, 171, 174, 175, 177, 178, 179, 180, 181, 182, 183, 186, 188, 189, 190, 191,
192, 193, 194, 195, 196, 197, 232, 236, 237, 249, 254, 264, 269, and 288; Creating New
Sections 51-A, 148-A, 150-A, 150-B, 237-A, 264-A, 264-B, and 265-A; and Repealing Sections
35, 62, And 89; All Under Republic Act No. 8424, Otherwise Known as the National Internal
Revenue Code of 1997, as Amended, and for Other Purposes.
34
Regulations Implementing Section 249 (Interest) of the National Internal Revenue Code (NIRC)
of 1997, as amended under Section 75 of the Republic Act (RA) No. I 0963 or the "Tax Reform
for Acceleration and Inclusion (TRAIN Law)"
35
The FDDA stated that the tax liabilities should be paid immediately upon receipt. Docket, Exhibit
"P-15", pp. 685-688.
DECISION
CTA EB Nos. 1734 and 1739 (CTA case No. 8947)
Page 17 of 18
r,
[Php1,731.15 X 20% X
140/365 days}
Total Amount Due,
Php1,759,024.35 Php543,648.10 Php75,275.96 Php7,114,144.92
1,081.38
Php3,298.82
I ,081.38
~i
Php9,495,392.14
I
I
SO ORDERED.
~- 4c..~ ~ "-
MA. BELEN M. RINGPIS-LIBAN
Associate Justice
WE CONCUR:
'
~a..«~ c.~"' ~
JUANITO C. CASTANEbA, JR.
Associate Justice
ERL~.UY
Associate Justice
DECISION
CTA EB Nos. 1734 and 1739 (CTA Case No. 8947)
Page 18 of 18
~"J.M~,b~
(U7ith due reJpect, I join Pj's
Concurring and Dissenting Opinion)
CIELITO N. MINDARO-GRULLA
Associate Justice
c~~J'.~
CATHERINE T. MANAHAN
Associate Justice
CERTIFICATION
Presiding Justice
REPUBLIC OF THE PHILIPPINES
Court of Tax Appeals
QUEZON CITY
ENBANC
-versus-
COMMISSIONER OF INTERNAL
REVENUE,
Respondent,
X-----------------------------------------X
COMMISSIONER OF INTERNAL CTA EB NO. 1739
REVENUE, (CTA Case No. 8947)
Petitioner,
Present:
XXX
XXX
Had the MOA been accorded the same legal effect as an LOA
itself, then RMO No. 43-90 would not have categorically stated that
"revalidation of UAs ... shall require the issuance of a new UA." The
use of the phrase "shall require the issuance of new UA" emphasizes
the mandatory nature of the said requirement. Needless to say, the
BIR has the duty of exacting compliance therewith as it has the
burden of ensuring that the right of the government to assess and
collect tax deficiencies would not be defeated by its failure to comply
with its own rules.
Moreover, the Court agrees with the CTA en bane that the
Referral Memorandum issued by a Revenue District Officer
directing RO Cruz to continue with the examination of CMI's
records is not equivalent to an LOA nor does it cure RO Cruz's
lack of authority. To be sure, Revenue Memorandum Order No.
43-90, which specified the guidelines in the issuance of LOAs
states that any reassignment or transfer of cases to another RO
or revalidation of an expired LOA shall require the issuance of
a new LOA." (Boldfacing supplied) c')
Presiding Justice
8Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No.
185371, December 8, 2010.