G.R. No. L-18598 July 23, 1968
TAN GUAN, petitioner, vs. HONS. MARIANO NABLE, AUGUSTO M. LUCIANO, ROMAN M. UMALI, JOSE ARAÑAS or COMMISSIONER OF INTERNAL REVENUE, respondents.

FACTS

Petitioner Tan Guan, a principal partner and cashier of the Imperial Tobacco Company (Imperial), seeks a review of a Court of Tax Appeals decision upholding two assessments by the Commissioner of Internal Revenue. The first assessment was for P72,450, representing specific taxes on cigarettes that could have been produced from 300 bobbins of cigarette paper allegedly disposed of by Imperial to the Marikina Cigarette Factory. The Commissioner found this transaction fictitious. The second assessment was for P128,800, representing specific taxes on cigarettes that could have been manufactured from 800 bobbins of cigarette paper purchased by Imperial from the Philippine Cigarette Manufacturing Co., Inc. Imperial was dissolved in 1951. The Commissioner initially assessed Imperial through its president, Gonzalo Padua, for the P72,450 in 1953. After an appeal to the conference staff by Padua and subsequent proceedings, the Commissioner reiterated the demand in May 1953. A criminal action against Padua was later dismissed due to prescription. In 1958, the Commissioner assessed Tan Guan for both amounts. The assessment for P128,800 was originally made against the Manufacturing Co., but after a hearing where evidence of delivery to Imperial was presented, the Commissioner withdrew that assessment and levied it against Imperial/Tan Guan instead. A civil action to recover the taxes was filed on May 7, 1958. Tan Guan raised the defense of prescription and challenged the factual bases of the assessments.

ISSUE

1. Whether the civil action for the collection of the specific taxes had prescribed.
2. Whether the assessment for P72,450, based on the alleged fictitious sale of 300 bobbins, was valid.
3. Whether the assessment for P128,800, based on the sale of 800 bobbins, was duly established.

RULING

1. The action had not prescribed. For the P72,450 assessment, the five-year prescriptive period was interrupted on February 9, 1953, when Padua appealed to the conference staff, and a subsequent demand was made on May 8, 1953. The civil action filed on May 7, 1958, was within five years from that demand. Furthermore, the ten-year prescriptive period under Section 332(a) of the National Internal Revenue Code for cases involving a failure to file a return applied, as held in Bisaya Land Transportation Co. v. Collector of Internal Revenue. The action was filed well within this ten-year period.
2. The assessment for P72,450 was valid. The Court upheld the finding that the sale to Marikina was fictitious because: (a) Imperial’s request for permission to sell lacked the written confirmation from the buyer required by revenue regulations; (b) the signature on the alleged permit was forged; (c) Marikina was not a registered entity and was non-existent; and (d) the person who allegedly acknowledged receipt was also fictitious.
3. The assessment for P128,800 was duly established. The sale was supported by the Manufacturing Co.’s request for permission to sell (which included Imperial’s written statement of intent to purchase), invoices, official receipts for payments, and affidavits from those who delivered the goods. The lack of records from Imperial was attributed to its failure to keep books of account. The findings of the Commissioner and the Tax Court were supported by substantial evidence.
The Court also declined to rule on the validity of Section 10 of Revenue Regulations No. V-7, as the issue was not raised before the Court of Tax Appeals. The decision of the Court of Tax Appeals was affirmed.