CTA Case No. 170 (Decision)

' l ') � CATALINO IGUA<;tO , '"' titioner, - veraus - CCLLECTO P lNTE 'IAL R.CV JUE, �� ondent. DECISI O N The respondent ass ssed a ainst t e p tit oner the s of ~2 , 982. ~5 , representing fixed and percent- a e taxes , including �ur~ha19e , as a manufactur r of hoes from 1949 to 1953, i t emized as foll ows� ros� sales from 1949- Lesspr tC. o2s1t ,o1f ate��r�ia��l�s� 32,067.08 used �� ����� � �������� � T���ble sal s ��� ������� 41.34 5%tax ������ �� � � � � �� .� � Gross sal s from Sept. ,1 . 704_, 70 22, 19~ t c. 31, 2 , 34 . 0 4 1953 �.. � .. . .� �.�... � 586. 51 Lesst Cost of ate- rials used ������� � �� � ~ . ~29. ~ 50� Taxable sal � ���� �� ���� 24 , 3~2. 7 tax ������� �� .��.���� T tal percentag tax due .................. . Plus 25 surchar9e ����� Fixed tax ��� � �� � ��� � �� � Total f i xed and percentage taxe� ����������. .. �� � The assessment of the ercentage tax on sal s of shoes by petitioner le divided into two periods , the first covering the pertnd fr at 1949 to S~te cr 21 , 19~ . and the second , fro "'~tember 22 , 19 t 1953. During the firat period, the rate of tax pres- cribed in ection 186 of the National lnt&mal ev- 141 /..51

DECISI � C. T. A. CASE � 170 - 3- ni p oduc ion & sal . p r p r eek .. ring 6 ntha - - - - - - � for 2 weeka n1 p roduction a lea durin t er ont. - - - p ... s - 1'� Total r duTctotal -nd- a-! - - 1 p r year (1 � divided by 2 � 65 prs. x ~2 e ) -3 , 3 - - - - 18 , e,9Q. OO ---- _. .... 2 , 392. 64 - ...... ~ ... --. .-.. - - - - 26. 3 -- - 4 4. 76 � 47. 24 - ~ - .. ~ � - - 18 , ~ .oo -- - - - - - 24,3 2. i d t X (P -C- 4) fr 1949 t 1 3 - - - - - 50. 00 5 ex on 12 , 62 � 7 t ax 24 , 3 2. /.Jr) Total p rcent taxes due .. 2 , 346. 142

DECISI � C. t �� CASE � 170 - 4 ... n q est of petitioner. a hoaring was c nducted by t � Ccnference Staff of t e Bur au of Internal Rev- on i � af t r giving t tioner ev ry opp rt ty to pr sent his v1d nc , su&t ined the findings of Agonts Qui osing and rcelo. Pursu nt to the ree - end tion f h C nfer ce taff , re pendent d clined to oc sider e 8$ ess nt. t ence, this peal. et1t1 n r soug t t prov that fro 1949 to 1953 he ade s o s uoon o ~ev1o s orders f 1s 1neae ou - t e G o furnished him the raw aterials. (Letter of petltione to re ond nt dated r!l 23, 1~. Exh. ; PP � 5-~ . IR ec rds. ' Late~ , ever, he clai d th t his ai usine . s airl.ng s oes. � d- mitted hav ng n f~ t red o s .ly n April n Dec r of 19 3. & C; PP� - 21 . Dl r rds. ) Th evidence pr nt y p ticner consi te ly of i wn t s t i;, ny en t e ffidavit o t. o his wor~� s wnic w find to be unreli ble and uncon- vincing. e d it d t at � c t no ree rd of his trana etions d rlng ~ c p r i od i n u Gt�on. It i s cla that th eSS �nt l. S incorrect cause - . 143

DECI I - C. T. A. CASE � 170 -5- t pa p rcentaq t xe on the sales made or t be mad by hi . d ring th~ last quar- t er f 1953 even beforo t.he period of the trnn ctioo end b f r th taxi du . � (P g 2 , emorand for Petition � ) Th ze~ xd~ of tho c sh t at th as&ess- �� ent de in he l tter of re on nt d ted ~rch 11, l~. ile it i s txoue that the n � igatl.cn was started on ecc be% 15 , 1.9!> � sud\ inv tl.g tion continuttd up to th ear ly p rt of 1954 8$ it by petitioner hi self 1n hi testi ony f rete n- ference ~""t f f on ece bex l, 1?54. ( � e 4 , Bl r ... cords. ) Couns�l for pet i t ioner quote� l.O is or ncl a portion of Exhibit 4 t prcv that his cliert n ve engaged in th anu! ctur of shoes , xc t i n t e �onths of 'P .til n c mber of 1953. e qu t his me o.randums sist Exhibit 4 !miechv. 1& nt gent J 195 st t es� en ir.t~rv1ew it . � � lg- n cio of ~r 1~ San afa l. lontal- ben , ~ z~l , it ~� ascertained� � � thct he , the �xp~yer was only sup- p!i~ th~ materials by tb St p or s. oe tore t o . 0 c: be:r 1953 t tho present and +hat al l s oes made ut of th at ri ls w r e delivered t o the tep c r oe Store.� If t petition r i enly ri als for th~ anufacture f h ls not a rnanuf'netur er in th y ln fnct, th r s only le e of � Th uot at!c rJado by couno;;el for etition r f hibit 4 i mial ding . h t portion f hili 4, adG aG foll~�s with the d lete p ion, llno l gnacio �\.%>on i ntoni z l, it of b r rio an 144 l (f

0 IS1C6 � C.I . A. CASE O. 170 .. 6 .. w a as~ertained ea evidence by 1G affi- davit (hereby attached) and sales invoices os. 696 & 723 of the Step er She on, 42 Oriente , St. ila , that h�� the tax- payer ��� only aUpplied th materials by the Step OVer ho� Store fro O.Ce~J: 1953 t � the pnsent and th�t all shoe� made out of the materials were d�livered to tbe t Over Shoe tore. � There ls nothin.g from this portt n of th.e report of Aasiatant A ent Abeja ieh admits as a fact that petit! ner w s erely bein SUpplied raw materiels by the t er Snoe tore for whic he undertook to ake shoes. A ej merely repe ted th allegation of pet~tioner in the latter ' s affi vit attached to hia report. And to an that he s n t convinced, he ~eco ded �tnat the tep �~ Shoe Store boo s of account& and records b in ected to ascertain the veracity of the allegation of � 1 nacio. � (Las p ra raph of Exh. 4. ) Afte.r exa inatio of t e b o a of the tep er Shoe Sto~ by Abeja hi self� he subcU.tt~ t e following reports � sp ctfully ret~xn d to the ol- lector of Inte%nal R.avenue. nila � �thru the rov1nc1al enue Ag~t . Inspect! District . e. 43, Pasig, Rlzal with the information that on examination of the booka of accounta, pur(hase in ic a, s lea invoices and other record$ of the Step e.r !hoe , 42 Ot-iente � Binondo , 1- la , it was ascertained that � Ignacio was nly bUying the Upper leathers of the shoes to the said store and that he r . Ignacio w s buying the other ateriala to some other stores. �It is furt er infozmed that ~. Ig- nacio ��� selling his shoes to the t~ el' Sh at the same price as that of the oth r shoemaker� from arikina � Rizal. �rbe undersigned could not ettablish the allegation� of � Ignacio that the St Over hoe was supplying him materials and that h only aupplied labor b caua 1.45

DECISl � C.T� � CASB O. 170 - 7- as per .y findings he only buys the uppe~ l�athers to said ato~ whteh will n eo lete a aho�� In view of tht above it was found ut that � � lgnaci~ �~� th anufactu~er of the 1ho� and �that he- 1� the one liable to pay the percentage tax. � (Exh. 4- B. ) spondent re ented in evidence Exhibit& 9 t 9.C �COvering pure ���� of certain teriala by p�ti- tion r to prove that the latt�r was not aking shoea on previous ozde:.rs of other persons h supplied t it i� elai ed on behalf f pet i- tloner th t said at�riala were exclusiv ly used in repairing shoes. It bas be�n eatal>liched , h ever, that � e Gf said mat erials were used mainly in the nufaeture of new s oes and not in the repair of old and om-out shoes. etit1oner contends that at mo�t h co~ld � eld liable fo:r the sales t x only on the a ount& cov�~�d by five sales invoices issued by 1 (Exht. 0 to ) nd presented in evidence by raepondent . t o witJ Np. Q( InvpS,Gt Qltt 1. 8 � Oct . l 1953 .3~2...... X)9 Oct. 15 , 1~3 318 ov. 28, 19~3 319 Nov. 28, 19!)3 - - Dee.8, 1..9..5.3...... Total sales The all~at1on th t petitioner could b held liable f r the ealet tax only on sales evidenced by !ivt isolated 1nvo1c�� � without petition�~ giving an ccount of the ot �~ invoice� issued by 1m, con� 1ncea us beyond reasonable doubt th�t petit! ner is out to axtrieate 146

DECISIC!~ � C. T�� CA E NO. 170 - 8 .. hiJJ.\$elf from his legal obligati n by fair :ans or foul. To cc ropositl dv , c d by petition- er is t plac h vernment t th ey of un Cl:U� pul ou� taxpayer � 11 at t tax:p r do to fne hi sel fr � any t x lia books and cords 1: to ke no r c rei at � stroy ll of h s transactions. cannot iv in t a prop iti n f raught wi sinl tor 1 licationa. lt ts ik is alleged t petition r an - f ttured shoes in 1 a r of 1953 sol ly a an experi nt dete ne w 1 tl i t a pr fit- ab � to engage in the busines s . In tnat xperil:lent pet1tioner all� a that the cost of r material used in t � anufacture of Shoes as at~ of the 11� ing prices of 5. ~ a for d t d 3. 0 a paix- �or childNn. n at he paid is orkers 1. 00 for eac p i of o s fo~ dulte and � for eac pa~r of chil reo'� s o � � the all cy of this pr - tans on as ~en. e 0$.0 by t 1e Ccmfezence Staff of the Bureau of Int ernal venu taus- �!her are oth ci eumstanees in t e c e nich ~ nd z ~~ evid nc pi - ented by the taxpayer unreliable. � averr 1 �iS ffi vit ( xh. � �) that the cos f terialG sed in the enuf et r of s.oe s i ty ( ) per e�nt of t e selling pxie cf said � oe � l s 5t t n s i id vit swell as in his te tia ny before th Con erenc t ff (t� �lk p. 14, l aring of December l . 19~) that th shoes fo~ adult� wer sold at ~. a ai and t. e for ehild n a 3. 00 a p i � The sell- ing pri s th &h co rob rated by i t n ss s for th t xp )CJ � Nie n r Valdez (t. &. n. p . 2, h ring of 0 cec ~ 10� � � � 1954) nd egalado Cast% (t�� n. 147

DE I!ilOt � C. T. A. Cf.SE NO. 170 .. 9 - P� 2, h� rinq of Dee 10 P�� , 1954). The taxp yer p id his e loye a by the number f air f sh � finish by th at the r te of 1. 00 per ~air o e ult -1 aho a an P. el' air l childr n '� s oes (t. a.n. p. 16, hearing of ~ 1, 1954 � Thi r t f ay nt iS alee co�robor t texpeyer'e wit ea& ic�nor V lde2 nd a by 1 do Ca tro (t~s.n. � 15, be ring o c411nber lv { � � ), l ~� and P� 2, h ring of � cember 10 \P. M.), 1954). If e get , of ~. ~ nd 93 .t , tne sell� ing price of the sh a, w will ave . 40 �nd 2. aa t oat materi�l� u ed 1n the snanuf cture of &ho a for adults and ildr n, espectively. ~ng to � latt r ounts th co t of labor of 1. for adult's a. oe& and � f r children 's sho s, e will rrive at the t tal oat of nufaet r f 5. f r a ult'� a oes ana 3. for Children's ahoes. Deductin t cost of nufacture fr the selling prices of � and 3. 00 .of adult '� nd dlildr '� shoe , respectively, the usult would be a profit of .10 fro air of adult�� shoes and los$ of � f~o oa1r o children�s hoes. ~ince the t xoayer el 1 s tha constantly anufactu ed an sold pairs of ahces a ~ during the onth of r1 and December, 1953, 1 pai~� of wh ch r� for dults nd the other 15 air f r chil- dren , t a ove -all result f his oper tiona is net loss of 3.00 a � It ee inconc ivable t4 OJ Ule axpayer wn clai s to be oor an ith ery limit d c it 1 to fin nc: ~iness can a ford to lose 3. 00 a ee thxoughou the whole year o 1953 �~thout giving su h e loaing buti- n ss b t, on t c ntrary, incre ed i� number of orker$ i 1954 f sev n to twen- ty (t�� n. p. , he ~ ng of e r 10 (A. � ), 1954). a ( � 1 -12, h. 7J � 89- 91, IR rec rds. ) � cannot add t nor s tr t ny h~ t 4 oba r- v tin of the Ccnftr nee ta f, ven n the ace o a late c~ui sc nee by coun � or titi er o the determinati n de y re dent of the ell� 1ng pric of shoe ie a r a naule sti ate of the cost of r aw t :rial& used in t anufacture o oes. inally, p titionor elai s that - �x x x the a ent of t e res n ent have n t teken the necessary steps to aasur 148

.. D SIOtt - C. T. ~ � CASE � 17 - 10 - as stble t obt If p titioner li&v t at s n bl nd ccur te a se nt c uld hav b n obt in th uo of th thod sugg t d by 1 c h id h not pr sent th nee � ry dat to ~n bl thi C l.lrt to c n 1der the d t r ore r dily av il~bl t hi h n t t xpa r c n- n t d at y th lidity f n s s nt by 11 - ir.g t at a n bl b si for t s s th n o us d Xi ts nd tr n f lding his h n g n th_ng , p nt for con id l.'at1 n of th Court at e b liev t :r s n ... ect. ll ed c i s Co rt y authority to c t yer to 't!r lnt a c pro � gr in t is 11. v~ t1 . 309 0 uth rizing the enu en nt t - ae any civil or oth r c ing d r does n t e t 1 et taxpayer, to co rce - nto c Mise ag ent. eo r mise r �nt ~nt r d int �. 149

cD.ETC.lAS . ON - O. 170 CASE - 11 ... ot erwi e th n by a c 1 te underst ndin and ol- - untary e t nee of the proposed s�ttl ent uld be � null y.J ( ~ rinas v. Collector, c. r.A. o. 16, s t . 14, 955; u. S.T. v. c ll etor, C. T. A. o. � . t . 10, 19 ' nd .c es CJ.t t 10 , ) Fir �ng n r1 in th peel, c t ith resp ct t h �c r lty", h ciai n ap- pealed ro i(, her hy af 1 � it Cti t ag in petiUone � OOtD o. nila. zch 24, 1958. E s 150