REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY
ENBANC
REPUBLIC CEMENT CORPORATION
(as surviving corporation in a merger
involving FR CEMENT CORPORATION),
Petitioner,

CTA EB CASE No. 821

(CTA Case No. 7114)

Members:
ACOSTA, P.J.,
CASTANEDA, JR.,
BAUTISTA,

UY,

-versus-

CASANOVA,
PALANCA-ENRIQUEZ
FASON -VICTORINO,
MINDARO-GRULLA, and
COTANGCO - MANALASTAS,J~

COMMISSIONER OF INTERNAL
REVENUE,
Respondent.

Promulgated :

.,

JUL 1 8 2012

*~~.,..t/'cJI~ /', ~,.

X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X

DECISION
Casanova, J. :

This is an appeal to the Court of Tax Appeals (CTA) En Bane by way of

a verified Petition for Review 1, under Section 3(b), Rule 8 of the Revised
Rules of the Court of Tax Appeals, seeking the reversal of the Decision 2 dated~

1
2

CT A En Bane Roll o, pp. 50-90.

Annex "A" to Petition for Review, Ibid, pp. 92- 11 5.

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 2 of 20

March 17, 2011 (Assailed Decision) and the Amended Decision 3 dated August
2, 2011 (Assailed Amended Decision), both rendered by the CTA Third
Division.
The facts of the case, as found by the CTA Third Division are briefly
narrated as follows 4 :
"Petitioner FR Cement Corporation is a corporation duly
organized and existing under the laws of the Philippines. It is engaged
in the manufacture and distribution of cement, concrete aggregates
and concrete products generally for the building and construction
industry, and to carry on all businesses incident thereto or connected
therewith.
Respondent is the duly appointed Commissioner of the Bureau
Internal Revenue (BIR) who holds office at the BIR National Office
Building, Agham Road, Diliman, Quezon City.
Petitioner filed its 1999 Annual Income Tax Return (ITR) on
April 17, 2000 with the BIR Revenue District Office (RDO) No. 121,
Excise Taxpayers Division in accordance with Section 77 of the
National Internal Revenue Code (NIRC) of 1997. Petitioner's Annual
ITR for taxable year ended December 31, 1999 disclosed a net
operating loss of P183,936,519.00.
Petitioner filed its Quarterly Value-added Tax Returns for
taxable year 1999 on the following dates.

PERIOD
1ST Quarter
2nd Quarter
3ra Quarter
4th Quarter

DATE OF FILING
April 23 1999
July 26, 1999
October 25, 1999
January 25, 2000

For taxable years 2000, 2001, and 2002, petitioner filed its
Annual ITRs on the following dates:

TAXABLE YEAR
2000
2001
2002

DATE OF FILING
April 18, 2001
April 15 2002
April 15, 2003

Petitioner received a Letter of Authority No. 00003024 dated

August 8, 2000 from the BIR, authorizing the examination o~

3
4

Annex "B" to Petition for Rev iew, Ibid., pp. 11 7- 132.

Decision, CTA En Bane Ro llo, pp. 93 -1 02.

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 3 of 20

petitioner's books of accounts and other financial records for all

internal revenue taxes for taxable year ended December 31, 1999.
Petitioner executed a 'Waiver of the Defense of Prescription
Under the Statute of Limitations of the National Internal Revenue
Code' (the 'First Waiver') on December 19, without indicating the year
it was signed by the taxpayer but appears to be notarized on January
7, 2003.
On April 22, 2003, petitioner received a Preliminary
Assessment Notice dated March 3, 2003 for alleged deficiency taxes
pertaining to taxable year ended December 31, 1999.
Subsequently, petitioner was made to execute five (5) other
waivers on May 6, 2003 (the 'Second Waiver'), August 26, 2003 (the
'Third Waiver'), October 15, 2003 (the 'Fourth Waiver'), November 11,
2003 (the 'Fifth Waiver'), and January 6, 2004 (the 'Sixth Waiver'),
purportedly to afford respondent more time to assess and collect
taxes beyond the prescriptive period provided under the NIRC of
1997.
On March 3, 2004, petitioner received from respondent
Assessment Notice Nos. IT-99-00049, WFVAT-99-00001, and WTC99-00020, together with the accompanying Formal Letter of Demand,
all dated February 18, 2004 for alleged deficiency income tax,
withholding of final value-added tax, and withholding tax on
compensation for taxable year ended December 31, 1999 in the
aggregate amount of P450,373,870.86, inclusive of interest and
compromise penalties.
Based on the said Assessment Notices, petitioner is liable for
deficiency income tax of P422,754,163.08, withholding of final VAT of
P27,614,045.70, and withholding tax on compensation in the amount
of P5,662.08, inclusive of interests and compromise penalties,
detailed as follows:

Deficiency I ncome Tax

Tax Due
Add: Interest
Compromise Penalty
TOTAL AMOUNT DU E
Deficiency Withholding of Final VAT
Tax Due
Add: Interest
Compromise Penalty
TOTAL AMOUNT DU E
Deficiency Withholding Tax on

238 372,145.64
184 357,017.44
25,000.00
422,754 163.08

15 177 162.34
12,411,883.36
25,000.00
27 614 045.70

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 4 of 20

Compensation
Tax Due
Add: Interest
Compromise Penalty
TOTAL AMOUNT DUE

2 564.68
2,097.40
1 000.00
5,662.08

On April 1, 2004, petitioner filed an administrative protest on

the ground that the assessments are without legal and factual bases.
On December 22, 2004, petitioner received from respondent a
Final Decision on Disputed Assessment, partially granting the protest
of petitioner, together with Assessment Notice Nos. IT-99-00067,
WFVAT-99-00044, and WTC-99-00012, all dated December 16, 2004.
In the assessment of deficiency income tax, respondent
disallowed the deduction from petitioner's gross income from the
write-off of investment during taxable year 1999 for being
unsubstantiated, and noted a discrepancy in the volume of cement
bags produced in the Daily Operation Report and the Production Cost
Summary of petitioner for taxable year 1999. The aforesaid
discrepancy was then concluded to have resulted in an underdeclaration of income in the amount of P4,953,047.36, after
considering the average selling price and unit cost per bag of cement.
Respondent also assessed petitioner of deficiency income tax
pertaining to the clinker sales for taxable year 1999 in the amount of
P34,293,759.25 on the assumption that clinker sales are not covered
by petitioner's Income Tax Holiday in 1999, and that a correcting
entry in the amount of P44,243,824.52 in relation to the purported
disposal of heavy equipment in 1998 is not a deductible expense but
should have been charged to Retained Earnings in 1999. Respondent
disallowed deduction from petitioner's gross income in 1999 of
various payments to suppliers of goods and services amounting to
P63,705,446.21 that were allegedly not subjected to withholding tax.
Respondent also disallowed deduction from petitioner's gross income
in the amount of P2,467,706.25, representing depreciation expense
corresponding to payments made to non-resident foreign
corporations, which were charged to property account but were not
subjected to final withholding tax.
Respondent alleged that petitioner failed to withhold ten
percent (10%) VAT on its payments to non-resident foreign
corporations amounting to P151,771,623.25, broken down as follows:
PAYMENTS
Management fee (royalty)
Retention and Service of Elex Engineers
Krupp Polysius Service Contract
BMH Claudius Engineers

AMOUNT
3 709,248.00
12 663 679.57
115 064 153.53
8, 516 179.13

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 5 of 20

Retention and Service Fee of Mr. Jadgmann

BMH Claudius Engineers
TOTAL

6,840,442.64
4,977 920.38
p

151,771,623.25

In t he Final Decision and the revised Assessment Notices,

respondent assessed petitioner of deficiency income tax of
P100,021,835.16, withholding of final VAT of P30,429,409.29, and
withholding tax on com pensation in the amount of P6,137.82,
inclusive of interest and compromise penalties for taxable year 1999,
computed as follows:

Deficiency Income Tax

Tax Due
Add: Interest
Compromise Penalty
TOTAL AMOUNT DUE
Deficiency Withholding of Final VAT
Tax Due
Add: Interest
Compromise Penalty
TOTAL AMOUNT DUE
Deficiency Withholding Tax on
Compensation
Tax Due
Add: Interest
Compromise Penalty
TOTAL AMOUNT DUE

51,050,048.58
48,946,786.58
25,000.00
100,021 835.16

15,177,162.33
15,227,246.96
25 000.00
30 429 409.29

2 564.68
2 573.14
1,000.00
6,137.82

Consequently, upon receipt of the above-mentioned Final

Decision on Disputed Assessment on December 22, 2004, petitioner
filed the instant Petition for Review on December 23, 2004, praying
that the deficiency income tax and withholding of final VAT in the
amounts of P100,021,835.16 and P30,429,409.29, respectively,
inclusive of interest and com promise penalties, for taxable year 1999
be declared devoid of factual and legal bases, and that the abovementioned assessments be withdrawn and cancelled.
In his Answer fi led on February 21, 2005, respondent
interposed the following Special and Affirmative defenses:
'SPECIAL AND AFFIRMATIVE DEFENSES
3. The right of the government to assess has not
prescribed, as petitioner executed valid waivers of
the statute of limitations extending the prescriptive~

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 6 of 20

period to assess pursuant to Section 222 of the Tax

Code.
INCOME TAX
4. Investment in stock amounting to P5,033,333.33
was written off
and deducted as expense.
However, petitioner failed to meet the deductibility
requirements pursuant to Section 34(A)(l)(b) of
the NIRC, hence disallowed as expense.
5. There was a discrepancy in the taxable sales per
investigation as against taxable sales per income
tax return in the amount of P34,293,759.25
representing clinker sales which is not included for
purposes of Income Tax Holiday, hence, assessed
as income pursuant to Section 32 of the Tax Code.
6. Comparison of production in cement bags per Daily
Operation Report versus Production Cost Summary
resulted to a discrepancy in the number of cement
bags. Since the discrepancy was no longer included
in the inventory, it was considered sold. The
number of cement bags multiplied by average
selling price minus the cost resulted to unreported
income of P4,953,047.36, hence, assessed
pursuant to Section 32 of the Tax Code.
7. Correcting entry in relation to the disposal of heavy
in
1998
amounting
to
equipment
P44,243,620,886.13 was charged to Other Expense
on Management Operation (Depreciation Expense)
instead of Retained Earnings. Verification, likewise,
disclosed that the entry made was to correct the
debit balance of accumulated depreciation, hence,
the disallowance pursuant to Section 34(A)(l)(b) of
the Tax Code.
8. Income payments amounting to P63,705,446.21,
which were not subjected to withholding tax under
Revenue Regulations 2-98, were disallowed as
expense pursuant to Section 34(K) of the Tax
Code.
9. Payments for services to non-resident foreign
corporation amounting to P151,771,623.25 were
not subjected to final tax but were charged to
property account, hence, the disallowance of
depreciation expense pertaining to the months no~

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 7 of 20

covered by ITH in the amount of P2,467,706.25

pursuant to Section 34(K) of the Tax Code.
WITHHOLDING OF FINAL VAT
10. Investigation disclosed that there were payments
for services to non-resident foreign corporations
which were not subjected to final withholding VAT.
Petitioner failed to submit proof that the payments
to Krupp Polysius and Elex Engineers were for 1998
transactions, hence, the assessment in the amount
of P151,771,623.25 pursuant to Section 114 (C) of
the Tax Code and Revenue Regulations No. 7-95.
WITHHOLDING TAX ON COMPENSATION
11. Comparison of withholding tax due per Alphalist of
P16,962,271.66 versus Remittance per Returns of
P16,959,706.98 resulted to a discrepancy of
P2,564.68. Petitioner failed to submit proof of
remittance of said amounts, hence, the assessment
pursuant to Sections 80 and 81 of the Tax Code.
12. The assessment was issued in accordance with law
and regulations.
13. All presumptions are in favor of the correctness of
tax assessments.'
During trial, petitioner presented as witnesses the following:
Ms. Arnie Ajero, Mr. Gilbert Q. Aresta, Mr. Emmanuel Y. Mendoza, and
Mr. Rodel N. Binuya. Thereafter, petitioner filed its Formal Offer of
Evidence on March 3, 2008, submitting Exhibits 'A' to '0', and 'T' to
'MM', inclusive of submarkings.
On March 18, 2008, petitioner filed a Manifestation and
Omnibus Motion praying, among others, for the reduction of the
amount of bond equivalent only to one and one half times the amount
of P30,429,409.29, the remaining deficiency final withholding VAT
being collected or in the total amount of P45,644,113.93, in light of
petitioner's availment of the tax amnesty program on March 6, 2008;
and to order respondent to reflect in the SIR's records the closure and
termination of the deficiency income tax assessment pursuant to
Republic Act (R.A.) No. 9480 by issuing an Authority to Cancel
Assessment or any other document showing the same.
On June 23, 2008, petitioner filed a Supplement [To Petition
for Review dated December 22, 2004 Pursuant to Sec. 6, Rule 10 of
the 1997 Rules of Civil Procedure]. In the said Supplement, petition~

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 8 of 20

alleged that on March 6, 2008, it availed of the tax amnesty program

pursuant to R.A. No. 9480 and paid the amnesty tax amounting to
P7,162,084.00. Thus, petitioner averred that it is immune from the
payment of taxes and the appurtenant civil, criminal or administrative
penalties under the NIRC of 1997, particularly, the assessment for
deficiency income tax for the year 1999, in the amount of
P100,021,835.16. Petitioner further asserted that what remains
pending for the resolution of this Court is the issue of deficiency
withholding of final VAT assessment in the amount of
P30,429,409.29.
In the Resolution dated October 29, 2008 this Court resolved
among others, that petitioner had duly complied with the provisions
of R.A. No. 9480 and thereby noted and granted petitioner's
Manifestation and Motion filed on March 18, 2008. Consequently, the
instant Petition for Review was deemed withdrawn as regards the
issue on petitioner's deficiency income tax and the case covering the
same was considered closed and terminated, subject to the provisions
of R.A. No. 9480. However, petitioner's deficiency withholding of final
VAT and deficiency withholding tax on compensation assessments,
which are not covered by the law, stays.
In a Resolution dated December 4, 2008, this Court, resolved
among others, the admissibility of petitioner's exhibits in its Formal
Offer of Evidence filed on March 3, 2008. On December 22, 2008,
petitioner filed a Motion praying for the reconsideration of the
Resolution dated December 4, 2008 and the admission of Exhibits 'T3', 'BB', 'LL', 'LL-1', and 'MM', which this Court granted in a Resolution
dated February 5, 2009.
On February 23, 2009, petitioner filed a Motion to Amend
Caption of this case from, 'FR Cement Corporation vs. Commissioner
of Internal Revenue' to 'Republic Cement Corporation (as surviving
corporation in a merger involving FR Cement Corporation) vs.
Commissioner of Internal Revenue'. In the Resolution dated March
16, 2009, this Court granted the above motion and the caption of the
case was then changed to 'Republic Cement (as surviving corporation
in a merger involving FR Cement Corporation) vs. Commissioner of
Internal Revenue.'
On the other hand, on September 15, 2009, respondent
presented as lone witness Mr. Aveline P. Domaoan, Jr. Thereafter, on
October 27, 2009 respondent filed his Formal Offer of Evidence
submitting Exhibits '1' to '8', inclusive of sub-markings; which this
Court admitted in a Resolution dated January 5, 2010.
The case was submitted for decision on April 6, 2010, taking
into consideration the Memorandum of petitioner filed on March 15,~

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 9 of 20

2010 and Reply-Memorandum fi led on April 5, 2010; and respondent's

Memorandum filed on March 19, 2010.
The following are the parties' jointly stipulated issues
submitted for this Court's consideration:
'1. Whether or not the right of the Government to
assess deficiency taxes for the taxable year ended
December 31, 1999 (sic) has already prescribed.
2. Assuming the right of the Government to assess
deficiency taxes for taxable year ended December
31, 1999 has not yet prescribed, whether or not
the assessment notices should be cancelled for lack
of factual and legal bases.
3. Whether or not petitioner is liable to pay the
amount of P130,451,244.45 as deficiency income
tax and withholding of final VAT for taxable year
1999.
On March 17, 2011, t he CTA Third Division promulgated the Assailed
Decision partially granting petitioner's claim, to wit:

"WHEREFORE, the instant Petition for Review is hereby

PARTIALLY GRANTED. Accordingly, the assessment of deficiency
creditable withholding VAT for taxable year 1999 is hereby
AFFIRMED with some MODIFICATIONS. Accordingly, petitioner is
hereby ORDERED TO PAY respondent the amount of
P10,044,824.64 inclusive of the twenty-five percent (25%) surcharge
imposed under Section 248 (A)(3) of the NIRC of 1997, as amended,
computed as follows:
p 40 958 527.00
Taxable basis per return
Add:
Royalty payments to Non Resident Foreign Corporation - Sec.
114(C) NIRC
Retention and Service
p 12,663,679.57
of Elex Engineers
Krupp Polysius Service
47,452,006.64
Contract
BMH
Claudius
8,424,547.88
Engineers
Retention and Service
6,840,442 .64
Fee of Mr. Jadgmann
BMH
Claudius
4,977,920 .38
80,358,597.11
Engineers
Taxable basis per Investigation
p 121 317 124.11
Tax Due per Investigation
p 12,131,712.41
Less:
Payments per Return
4 095,852 .70
Deficiency Creditable
p 8,035,859.71
Withholding VAT
Add :
25% Surcharge
2,008 964.93

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 10 of 20

Total Deficiency Creditable

Withholdin VAT

p 10,044,824.64

Likewise, petitioner is hereby ORDERED TO PAY (a)

deficiency interest at the rate of twenty percent (20%) per annum on
the basic deficiency creditable withholding VAT of P8,035,859.71
computed from January 25, 2000, until full payment thereof pursuant
to Section 249(8) of the NIRC of 1997; and (b) delinquency interest
at the rate of twenty percent (20%) per annum on the total
deficiency taxes of P10,044,824.64 and on the 20% deficiency
interest which have accrued as afore-stated in (a) computed from
December 22, 2004 until full payment thereof, pursuant to Section
249(C) of the NIRC of 1997.
SO ORDERED."

On April 5, 2011, petitioner filed its Motion for Partial Reconsideration

[of Decision dated March 17, 2011] 5 while respondent filed its Motion for
Partial Reconsideration (Re: Decision promulgated 17 March 2011) 6 on April
7, 2011.
In a Resolution 7 dated April 18, 2011, CTA Third Division ordered the
parties to comment on each other's Motion for Partial Reconsideration within
10 days from notice thereof.
On May 6, 2011, petitioner filed its Opposition [To Respondent's
Motion for Partial Reconsideration dated April 7, 2011] while respondent
failed to file her Comment on petitioner's Motion for Partial Reconsideration. 8
On August 2, 2011, the CTA Third Division promulgated the Assailed
Amended Decision 9 which resolved the parties' respective Motions for Partial
Reconsideration of the Assailed Decision. In the Assailed Amended Decision,
the CTA Third Division partially granted petitioner's Motion while denying that
of the respondent's, to wit:
"WHEREFORE, premises considered, petitioner's Motion For
Partial Reconsideration [of the Decision dated March 1~ 2011} is

-a.

Division Docket, (Vol. II), pp. 873-904.

Ibid, pp. 872-a-872-h.
7
ld , pp. 906-907.
8
Records of Verification dated June 8, 20 II , ld , p. 926.
9
CTA En Bane Rollo, pp. 117-132.
6

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 11 of 20

hereby PARTLY GRANTED. Accordingly, the reckoning date of the

delinquency interest is from January 31, 2005 until full payment
pursuant to Section 249 (C) of the NIRC.
On the other hand, respondent's Motion for Partial
Reconsideration (Re: Decision promulgated 17 March 2011) is
hereby DENIED for lack of merit.
SO ORDERED."

Hence, the present Petition for Review.

Petitioner raised the following issues before this Court:

I.
WHETHER OR NOT THE ASSESSMENT NOTICES
SHOULD BE CANCELLED FOR LACK OF FACTUAL
AND LEGAL BASES.

II.
WHETHER OR NOT PETITIONER IS LIABLE TO
PAY THE AMOUNT OF P30,429,409.29 AS
DEFICIENCY WITHHOLDING OF FINAL VAT FOR
TAXABLE YEAR 1999.

III.
WHETHER OR NOT THE CTA DIVISION ERRED IN
THE
APPLICATION
OF
THE
DEFICIENCY
INTEREST AND DELINQUENCY INTEREST UNDER
SECS. 249 (B) AND (C) OF THE 1997 NIRC, AS
AMENDED.
On September 16, 2011, the CTA En Bane issued a Resolution 10
ordering respondent to file her Comment to the subject petition. Respondent
failed to file her Comment. 11
On November 17, 2011, the instant case was submitted for decision Y
After a careful and thorough evaluation of the arguments raised by
petitioner, this Court finds no merit in the present petition.
Ibid., pp.213-2 14.
Records Verification Form, !d. , p. 2 15.
12
/d. , pp. 2 17-2 18.
10
11

-a.-

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 12 of 20

We shall discuss the first and second issues jointly, the two being
intrinsically intertwined.
This Court affirms the ruling of the CTA Third Division that there are
factual and legal bases in the assessment for deficiency withholding tax on
VAT imposed upon petitioner in relation to its payments to non-resident
foreign corporations or entities.

Retention and Service of Elex Engineers

Petitioner's arguments stating that the payments to Elex Engineers,
BMH Claudius Engineers, Mr. Jadgmann and Krupp Polysius should not be
subject to withholding VAT for being made prior to 1999 cannot be sustained.
Petitioner was not able to sufficiently prove its allegations. The pieces of
evidence that it presented before this Court are but self-serving and
unverifiable.
Petitioner alleges that the payments to Elex Engineers in the total
amount of 12,663,679.57 were actually made prior to 1999 and that Journal
Voucher No. 070125 is a mere reclassification entry from Prepaid Importation
Charges, a temporary expense account, to Factory Ledger, a fixed asset
account, for the purpose of capitalizing the expenses incurred upon
completion of the plant in Teresa, Rizal. It further contends that the
transaction recorded in said journal voucher did not show any corresponding
credit to cash or accounts receivable, and as such, it is evident that the
transaction did not involve payment of any kind. Lastly, petitioner rationalizes
its submission of Journal Voucher No. 070125 as the sole piece of evidence to
support its claim by pointing out that respondent issued the subject
assessment based only on the said journal voucher. Petitioner states that "to
hold that Journal Voucher No. 070125 is 'unverifiable, self-serving, if not
dubious, and can be contrived easily' is like confirming that respondent's
assessment of the payment to Elex Engineers is likewise without basis and
thus, invalid, as respondent solely based its assessment on the same

journa~

CTA EB CASE NO. 821

(CTA case No. 7114)
DECISION
Page 13 of 20

voucher that the Honorable Court passed its judgment upon. In such case,
this particular item of assessment, representing payment to Elex Engineers
should likewise be cancelled and withdrawn."
The Court is not convinced.
Undeniably, Journal Voucher No. 070125, being a document generated
and used by petitioner for internal purposes, is far from being a persuasive
evidence to prove petitioner's claim that the aforementioned entry is a mere
reclassification entry and that the amounts stated therein represent payments
to non-resident foreign corporations/entities made prior to the taxable year
1999. Petitioner has the obligation to sufficiently prove its claim that the said
payments were indeed made prior to 1999, hence should not be subject to
deficiency withholding VAT. This, petitioner failed to do.

Krupp Polysius Service Contract

In the Assailed Decision, this Court held that a perusal of supporting

documents for the payments to Krupp Polysius' account reveals that only the
amount of P67,612,146.89 can be ascertained as payment to domestic
corporation and were made from 1996 to 1998, making the unverified
amount of P47,452,006.64 subject to withholding of final VAT.
Petitioner submits that the payments that were disallowed by the CTA
Third Division were all duly supported by original cash vouchers, billing letters
and provisional receipts, all dated prior to 1999. Moreover, petitioner submits
that under the !CPA Report, the foregoing payments were determined to
have been made prior to 1999 and thus not covered by the present
examination and assessment.
We do not agree with the contentions of petitioner. We affirm the
ruling of the CTA Third Division subjecting the unverified amount of P47,
452,006.64 to withholding of final VAT. This Court finds that the supporting
documents submitted by petitioner do not sufficiently substantiate its claim
that these payments were made prior to 1999 and thus should not be_,_

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 14 of 20

subjected to withholding VAT. As enunciated in the Assailed Amended

Decision, We cannot ascertain the truth of petitioner's allegations based on
the vouchers alone. And, considering that petitioner was able to present
some documents in support of these vouchers which led to the partial grant
of its prayer, We find no reason why petitioner cannot do the same for the
rest of the payments to Krupp.

Payments to BMH Claudius Engineers

In the Assailed Decision, the CTA Third Division ruled that the
aforementioned payments to BMH Claudius Engineers should be subject to
withholding of final VAT as the supporting documents submitted to this Court
revealed that these payments were made in 1999, to BMH Claudius
Engineers,

non-resident

foreign

corporation,

based

in

Germany.

Furthermore, it was ascertained by the Independent CPA that petitioner did

not file nor remit the withholding VAT related to payments made to BMH
Claudius Engineers. Thus, this Court upholds the CTA Third Division's decision
that respondent's assessment of deficiency withholding VAT on petitioner's
payments to BMH Claudius Engineers in the amount of P8,424,547.88.

Retention and Service Fee of Mr. Jadgmann

The Assailed Decision held that the payments recorded in the manual
ledger under the name of Mr. Jadgmann amounting to P6,840,442.64 should
be subject to withholding of creditable VAT. In the case at bench, petitioner
contends that said payment should not be subject to deficiency withholding
VAT on the ground that out of the said amount, P6,612,115.51 represents
payment made prior to 1999 to Babcock Materials Handling in relation to the
retention fee for the purchase of machinery and equipment and P44,727.60
represents payment for the engineering services of Mr. Jadgmann made in
1998.

CfA EB CASE NO. 821

(CfA case No. 7114)
DECISION
Page 15 of 20

Petitioner's contention deserves scant consideration. As found by the

CTA Third Division, petitioner was not able to sufficiently prove its claim that
the amount of P6,612,115.51 represents payment of retention fee in relation
to the purchase of machinery and equipment. The journal voucher submitted
by the petitioner is considered self-serving, and the invoices and Import Entry
and Internal Revenue Declarations it presented do not show the amount
being claimed as retention fee. The CTA Third Division also stressed its
finding that the Independent CPA was not able to validate the supporting
documents on the alleged payment of the said retention fee .
As for the payment for the services of Mr. Jadgmann in the amount of
P44,727.60, petitioner, likewise, failed to prove that such payment was made
prior to 1999. Petitioner presented its journal voucher and the related invoice,
in support of its claim . As previously held by this Court, such pieces of
evidence are considered self-serving and least persuasive in judicial claims
such as in the case at bench .
We note that petitioner failed to submit supporting evidence in relation
to the amount of P183,599.53 representing additional charges on foreign
exchange difference, thus We uphold the ruling of CTA Third Division
subjecting this amount to withholding VAT.
Thus, for grounds discussed above, We affirm the CTA Third Division's
Decision to subject the payment of P6,840,442.64 recorded in the manual
ledger under the name of Mr. Jadgmann to withholding VAT.

Payments to BMH Claudius Engineers

Petitioner claims that the alleged payments to BMH Claudius Engineers
in the amount of P4,977,920.38 were made prior to 1999 and that the
transaction

recorded

in Journal Voucher No.

070127 was merely a

reclassification entry from Prepaid Importation Charges, a temporary expense

account, to PPE Expansion, a fixed asset account, for the purpose of

-Iii-

CTA EB CASE NO. 821

(CTA case No. 7114)
DECISION
Page 16 of 20

capitalizing the expenses incurred upon the completion of the expansion

project of petitioner's plant in Teresa, Rizal.
Petitioner submitted Journal Voucher No. 070127 to support its
allegations, saying that the primary reason for doing so is to show that
respondent based her assessment solely on such journal voucher, which is
extremely unfounded. Petitioner further claims that the said journal voucher
showed no indication that the transaction recorded therein is a payment.
Petitioner added that the Independent CPA's findings reveal that the
transaction covered was a mere reclassification entry.
This Court does not agree with petitioner. As previously held by this
Court, journal vouchers, being a document used for internal purposes, is
unverifiable and self-serving. Absent any other document to corroborate the
allegations it presented, We cannot subscribe to the submissions of
petitioner. It is the obligation of petitioner to fully substantiate its claim
before this Court. Unlike tax assessments that enjoy the presumption of
regularity, taxpayers' claims of no liability against deficiency taxes should be
sufficiently established and, by that, clear and convincing evidence should be
presented to support such claims.

The Imposition of Deficiency and Delinquency Interests

Anent the issue of the imposition of deficiency and delinquency
interests pursuant to Sec. 249 (B) and (C) of the 1997 NIRC, We hold that
the CTA Third Division did not err in applying the following interests to the
case at bench: deficiency interest at the rate of twenty (20%) per annum on
basic deficiency creditable withholding VAT of P8,035,859.71 computed from
January 25, 2000 until full payment thereof pursuant to 249 (B) of the 1997
NIRC Section and delinquency interest at the rate of

twenty (20%) per

annum on total deficiency taxes of P10,044,824.64 and on 20% deficiency

interest from January 31, 2005 until full payment thereof pursuant to Section
249 (C) of the 1997

NIRC.~

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 17 of 20

Section 249 of the 1997 NIRC is clear on the imposition of these

interests in the event that the taxpayer is held liable for deficiency taxes.
Section 249 states that:

"SEC. 249. Interest (A) In General. - There shall be assessed and collected on any
unpaid amount of tax, interest at the rate of twenty
percent (20%) per annum, or such higher rate as may be
prescribed by rules and regulations, from the date
prescribed for payment until the amount is fully paid.

(B) Deficiency Interest. -Any deficiency in the tax due,

as the term is defined in this Code, shall be subject
to the interest prescribed in Subsection {A) hereof,
which interest shall be assessed and collected from
the date prescribed for its payment until the full
payment thereof.
{C) Delinquency Interest. - In case of failure to pay:
{1) The amount of the tax due on any return to be
filed, or
(2) The amount of the tax due for which no return
is required, or
(3) A deficiency tax, or any surcharge or interest
thereon on the due date appearing in the notice
and demand of the Commissioner, there shall be
assessed and collected on the unpaid amount,
interest at the rate prescribed in Subsection (A)
hereof until the amount is fully paid, which interest
shall form part of the tax.
(D) Interest on Extended Payment. - If any person required to
pay the tax is qualified and elects to pay the tax on
installment under the provisions of this Code, but fails to
pay the tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed for
its payment, or where the Commissioner has authorized an
extension of time within which to pay a tax or a deficiency
tax or any part thereof, there shall be assessed and
collected interest at the rate hereinabove prescribed on
the tax or deficiency tax or any part thereof unpaid from
the date of notice and demand until it is paid.~

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 18 of 20

Petitioner contends that the Assailed Decision and Assailed Amended

Decision erred in ruling on the periods within which the interests, particularly
the deficiency interest, will run. It alleges that deficiency interest under
Section 249 (B) of the 1997 NIRC should be computed from date prescribed
for the payment of deficiency tax until the last day to pay the same under the
Assessment Notice. Applying this rule in the instant case, it is petitioner's
contention that the deficiency interest should be computed from January 25,
2000 to January 31, 2005. On the other hand, petitioner alleges that
delinquency interest should be imposed from February 1, 2005 until full
payment thereof. In making the aforementioned submissions, petitioner cited
the provisions of Revenue Memorandum Circular (RMC) No. 46-99 and
Revenue Regulations (RR) No. 12-99 as support.

It is a well-settled rule that in case of discrepancy between the basic

law and the implementing rules and regulations, the basic law prevails
because rules and regulations cannot go beyond the provisions of the basic
law it seeks to implement. 13 The Supreme Court held, in the case of Felix B.
Perez and Amante G. Doria vs. Philippine Telegraph and Telephone Company
and Jose Luis Santiago14 :

"At the outset, we reaffirm the time-honored doctrine that, in

case of conflict, the law prevails over the administrative regulations
implementing it The authority to promulgate implementing rules
proceeds from the law itself. To be valid, a rule or regulation must
conform to and be consistent with the provisions of the enabling
statute. As such, it cannot amend the law either by abridging or
expanding its scope."
The law cannot be more explicit as to the period covered for the
computation of the aforementioned interests. The deficiency interest shoul ~
13

Rodolfo G. Navarro, Victor F. Bernal, and Rene 0 . Medina vs. Executive Secretary Eduardo Ermita,
Representing the Presi dent of the Philip pines; Senate of the Philippines, represented by the Senate
President; House of Representatives, represented by the House Speaker; Governor Robert Ace S.
Barbers, Representing the Mother Province of Surigao Del Norte; Governor Geraldine Ecleo
Vi llaroman, represe nting the New Province of Dinagat Islands, G.R. No. 180050, May 12, 20 10,
Commissioner of Internal Revenue, vs. Bicolandia Drug Corporation (formerly known as Elmas Drug
Co.), G.R. No. 148083, July 2 1, 2006.
14
G.R. No. 152048, April 7, 2009.

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 19 of 20

be computed from the date prescribed for the payment of the deficiency tax
until full payment thereof. On the other hand, delinquency interest should be
computed from the due date prescribed under the Assessment Notice until
the full payment thereof.
In sum, the CTA En Bane finds no cogent justification to disturb the
findings and conclusion spelled out in the Assailed Decision dated March 17,
2011 and the Assailed Amended Decision dated August 2, 2011, both
promulgated by the CTA Third Division. What the instant petition seeks is for
the Court En Bane to view and appreciate the arguments/discussions raised
by the petitioner in its own perspective of things, which unfortunately had
already been considered and passed upon by the Court.

WHEREFORE, premises considered, the instant Petition for Review is

hereby DISMISSED for lack of merit.

Accordingly, the March 17, 2011

Decision and the August 2, 2011 Amended Decision of the CTA Third Division
are hereby AFFIRMED

in toto.

SO ORDERED.

CAESA~NOVA
Associate Justice

WE CONCUR:

~~ .~

~r:Es~oD.1il'5T~~ o~-~ ~
Presiding Justice

c:;b~~ C. . a.:h:-<~1 Q .

XJANITO C. CASTANEDA, ~R.

Associate Justice

CTA EB CASE NO. 821

(CTA Case No. 7114)
DECISION
Page 20 of 20

ER~UY

L{n~
OLGA PALANCA-ENRIQUEZ
Associate Justice

Associate Justice

~ N. M ~.GtwU...

CIELITO N. MINDARO-GRULLA
Associate Justice

p/-~4/--AMELIA R. COTANGCO-MANALASTAS
Associate Justice

CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby
certified that the conclusions in the above decision were reached in
consultation before the case was assigned to the writer of the opinion of the
Court.

~\_p. ~

ERNESTO D. ACOSTA
Presiding Justice

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS
QUEZON CITY

ENBANC
REPUBLIC CEMENT CORPORATION
(as surviving corporation in a
Merger involving FR CEMENT
CORPORATION)
Petitioner,

C.T.A. EB No. 821

(C .T.A. Case Nos. 7114)

Present:
ACOSTA, PJ.
CASTANEDA, JR.,
BAUTISTA,

UY,

-versus-

CASANOVA,
PALANCA-ENRIQUEZ,
FABON-VICTORINO,
MINDARO-GRULLA and,
COTANGCO-MANALASTAS, JJ. .
COMMISSIONER OF INTERNAL
REVENUE,
Respondent.

Promulgated:

JUL 1 8 2012

/ii'AA--t:~

-i",Vtll jJ ~ ,

x---------------------------------------------------------------------------------x
CONCURRING AND DISSENTING OPINION
I agree with the majority that petitioner is liable for deficiency creditable
withholding tax but humbly disagrees with the manner the deficiency interest
and delinquency interests are computed.
The imposition of civil penalties is provided in Section 249 (A) , (B) and
(C) of the 1997 Tax Code, provides :
SEC. 249. Interest. (A) In General. - There shall be assessed and collected on any unpaid amount
of tax, interest at the rate of twenty percent (20%) per annum , or such higher

CONCURRING AND DISSENTING OPINION

CTA EB Case No. 821
CTA Case Nos. 7114
Page2of5

rate as may be prescribed by rules and regulations , from the date prescribed fo r
payment until the amount is fully paid .
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in
this Code, shall be subject to the interest prescribed in Subsection (A) hereof,
which interest shall be assessed and collected from the date prescribed for its
payment until the full payment thereof.

(C) Delinquency Interest. -In case of failure to pay:

(1) The amount of the tax due on any return to be filed , or
(2) The amount of the tax due for which no return is requi red , or
(3) A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner, there shall be
assessed and collected on the unpaid amount, interest at the rate prescribed in
Subsection (A) hereof until the amount is fully paid , which interest shall form part
of the tax.

The majority opines that the deficiency interest is to be computed from

the date prescribed for the payment of deficiency tax until full payment thereof.
The delinquency interest, on the hand , is to be computed from the due date
prescribed under the Assessment Notice until the full payment thereof.

In effect, it is the opinion of the majority that an imposition of the

deficiency interest runs simultaneous with the delinquency interest after the
date prescribed by the FAN , which effectively results in the imposition of at
least a 40% interest per annum on the deficiency withholding tax. Clearly, this
is not the intent of the law. I believe that an imposition of at least a 40% per
annum interest on any unpaid tax is grossly excessive and unjust, one that
partakes the nature of an imposition that is penal , rather than compensatory.

The Supreme Court, in the old case of Jamora, et al. vs. Meer, etc., et
al. (7 4 Phil. 22 (1942) , stressed that the imposition of penalties for unpaid

taxes , such as interest, is mandatory and cannot be condoned lightly:

" xxx Tax laws imposing penalties for delinquencies are clearly intended to
hasten tax payments or to punish evasions or neglect of duty in respect thereof.

fiV'

CONCURRING AND DISSENTING OPINION

CTA EB Case No. 821
CTA Case Nos. 7114
Page3of5

If delays in tax payments are to be condoned for light reasons, the law imposing
penalties for delinquencies would be rendered nugatory, and the maintenance of
the government and its multifarious activities would be as precarious as tax
payers are willing or unwilling to pay their obligations to the state in time. The
imperatives of public welfare will not approve of this result. "

However, despite its mandatory imposition, the Supreme Court ruled that
penalties for unpaid taxes due are not penal in character but are actually
compensatory and laid down the rationale in imposing the same, 1 viz:
"As regards interest, the reason is The imposition of 1% monthly is but a just compensation to the State for the
delay in paying the tax and for the concomitant use by the taxpayer of
funds that rightfully should be in the government's hands. (U.S. vs.
Goldstein, 189 F (2d) 752; Ross vs. U.S. 148 Fed. Supp. 330; U.S. vs.
Joffray 97 Fed. (2d) 488.) The fact that the interest charged is made
proportionate to the period of delay constitutes the best evidence that
such interest is not penal but compensatory (Castro vs. Collector of Internal
Revenue , G.R. L-12174 , Dec. 28, 1662, Resolution on Motion for
Reconsideration .)" (Emphasis ours.)

Noteworthy is the old case of Commissioner of Internal Revenue vs.

Connel Bros. Company (Phil.) and Court of Tax Appeals 2 , wherein the
Supreme Court explained the application of Republic Act No. 2342, from
which the practice of imposing interest for delinquency, on top of the interest
for deficiency tax started, to wit:
Herein petitioner, Commissioner of Internal Revenue, now claims that in the
imposition of interests and surcharges on the delinquent taxes in these cases,
the respondent Court of Tax Appeals should have observed the old or
unamended provision of Section 51 (e) of the Internal Revenue Code which was
enforcible when the assessments were made, and not that of Section 51 (d) of
the same Code, as amended by Republic Act 2343, which went into effect only
on 20 June 1959. It may be pointed out that before its amendment, Section 51(e)
prescribed

1
2

Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue, G.R. No. L-29790 February 25 , 1982.
G.R. Nos. L-27752-53 August 30, 1971 .

CONCURRING AND DISSENTING OPINION

CTA EB Case No. 821
CTA Case Nos. 7114
Page 4 of5

SEC. 51 . Assessment and payment of income tax . XXX XXX XXX

(e) Surcharge and interest in case of delinquency. -To any sum or sums due
and unpaid after the dates prescribed in subsections (b) , (c) and (d) for the
payment of the same, there shall be added the sum of five per centum on the
amount of tax unpaid and interest at the rate of one per centum a month upon
said tax from the time the same became due, except from the estates of insane,
deceased , or insolvent persons.
As amended by Republic Act 2343 , effective 20 June 1959, the provision now
reads :

SEC. 51 . XXX XXX XXX

(d) Interest on deficiency. - Interest upon the amount determined as a

deficiency shall be assessed at the same time as the deficiency and shall be
paid upon notice and demand from the Commissioner of Internal Revenue; and
shall be collected as part of the tax, at the rate of six per centum per annum from
the date prescribed for the payment of the tax (or, if the tax is paid in
installments, from the date prescribed for the payment of the first installment) to
the date the deficiency is assessed: Provided , that the maximum amount that
may be collected as interest on deficiency shall in no case exceed the amount
corresponding to a period of three years, the present provisions regarding
prescription to the contrary notwithstanding.
(e) Additions to the tax in case of non-payment. XXX XXX XXX

(2) Deficiency. - Where a deficiency, or any interest assessed in connection

therewith under paragraph (d) of this section , or any addition to the taxes
provided for in section seventy-two of this Code is not paid in full within thirty-two
days from the date of notice and demand from the Commissioner of Internal
Revenue, there shall be collected upon the unpaid amount, as part of the tax,
interest at the rate of one per centum , a month from the date of such notice and
demand until it is paid : Provided, That the maximum amount that may be
collected as interest on deficiency shall in no case exceed the amount
corresponding to a period of three years, the present provisions regarding
prescription to the contrary notwithstanding.
(3) Surcharge . - If any amount included in the notice and demand from the
Commissioner of Internal Revenue is not paid in full within thirty days after such
notice and demand , there shall be collected in addition to the interest prescribed
herein and in paragraph (d) above and as part of the tax a surcharge of five per
centum of the amount of tax unpaid.

In other words, under the old Section 51 (e), a delinquent taxpayer would
have to pay, in addition to the unpaid tax, a 5% surcharge thereon
computed from the time the tax became due, plus interest on the whole
unpaid amount at the rate of 1% a month. Under the amendatory act

CONCURRING AND DISSENTING OPINION

CTA EB Case No. 821
CTA Case Nos. 7114
Page5of5

(Republic Act 2343), the delinquent taxpayer shall pay, in addition to the
tax, a deficiency interest thereon at the rate of 6% per annum computed
from the date prescribed for payment of the income tax up to the
assessment of the delinquency tax, but which shall not exceed the amount
corresponding to a period of 3 years. The interest of 1% a month and
surcharge of 5% on the whole unpaid amount shall be imposed only in
case the delinquency tax and deficiency interest are not paid within 30
days from the date they become due. xxx (Emphasis ours.)

From the foregoing , it can be deduced that the imposition of deficiency

interest should be made from the date prescribed for payment until the
assessment of the Commissioner of Internal Revenue for delinquency. Should
the taxpayer fail to pay the assessed deficiency tax with corresponding
deficiency interest, the imposition of delinquency interest is thereafter made.

Again , in summary, I believe that an imposition of 40% per annum

interest on unpaid tax is grossly excessive and onerous.

The proper

computation should be that the 20% deficiency interest runs from the date
prescribed for the payment of the unpaid or deficiency tax until only the date
prescribed by the Final Assessment Notice (FAN) issued by the Commissioner
of Internal Revenue. After which , only the delinquency interest (on the
deficiency tax, deficiency interest and surcharge) is imposed on the taxpayer
which will run until final payment of the total amount due.

t-t:" fQ . ~
ERNESTO D. ACOSTA
Presiding Justice