HENG TONG TEXTILES CO., INC., (BEFORE), PHILIP MANUFACTURING CORPORATION (NOW), PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, RESPONDENTS.

In 1952 the then Collector of Internal Revenue assessed against
the petitioner deficiency sales taxes and surcharges for the year 1949 and the
first four months of 1950 in the aggregate sum of P89,123.58.  The assess­ment was appealed to the Board of
Tax Appeals, whence the case was transferred to the Court of Tax Appeals upon
its organization in 1954, and there was affirmed in its decision dated February
28, 1952.  The matter was thereafter
elevated to this Court for review.

The deficiency taxes in question were assessed on importations of
textiles from abroad.  The goods were
with­drawn from Customs by Pan-Asiatic Commercial Co., Inc., which paid, in the
name of the petitioner, the corresponding advance sales tax under section 183(b) of the
Internal Revenue Code.  The assessment
for the deficiency, however, was made against the petitioner, Heng Tong
Textiles Co., Inc (now Philip
Manufacturing Corporation) on the ground that it was the real importer of the
goods and did not pay the taxes due on the basis of the gross selling prices
thereof.  There is no dispute as to the
amount as computed by the internal revenue examiners and confirmed by the
Collector.  The only issues posed in the
instant petition for review are (1) whe­ther or not the petitioner was the importer
of the goods; and (2) whether or not it was guilty of fraud so as to warrant
the imposition of a penalty of
50% on the deficiency.

The Court of Tax Appeals based its decision of affirmance,
finding the petitioner the importer of the goods, on a number of evidentiary circumstances.  First, Heng Tong Textiles Co., Inc. and
Pan-Asiatic Commercial were sister corporations.  This is not controverted by the petitioner.  Second, the commercial documents covering the
importations (shipping documents, insurance papers, and records of pay­ment of
the advance sales tax in the Bureau of Customs) were all in the name of the
petitioner.  Third, in connection with
the advance sales tax aforesaid, Pan-Asiatic Commercial wrote the petitioner
the following letter:

“In compliance with your request regarding the 5% Sales Tax
that we paid for you for the year 1949 and the first quarter of 1950 against
the goods that you ordered from various United States suppliers, through us, we
attach hereto a list giving a breakdown of this 5% Sales Tax, together with the
corresponding Official Receipt Numbers and other details relative to the orders
covered by these payments.”

Fourth, there is both documentary and
testimonial evidence – the latter being declarations of the petitioner’s own
wit­nesses – that Pan-Asiatic Commercial acted merely as indentor.  Indeed the original petition for review below
contains the allegation that “during the taxable year 1949, Heng Tong
Textiles Co., Inc. placed through Pan-Asiatic Commercial Co. Inc. orders for
importations of textiles from the United States in the sum of
P2,190,948.66.”

Petitioner excepts to the conclusion of the Court of Tax Appeals
and avers that the importation papers were placed in the name of the petitioner
only for purposes of accommodation, that is, to introduce the petitioner to tex­tile
suppliers abroad; and that the petitioner was not in a financial position to
make the importations in question, valued at over a million pesos, since its
paid-up capital was only P30,000.00.  These
circumstances show nothing but a private arrangement between the petitioner and
Pan-Asiatic Commercial, which in no way affected the role of the peti­tioner as
the importer as far as the
Government and its right to collect the taxes were concerned.  Pan-Asiatic Commercial might have furnished
the necessary financing for the importations in question, but that did not
militate against the petitioner’s being the importer; nor did the idea of
building up its reputation among textile suppliers abroad render it necessary
for the withdrawal of the goods from customs and the payment of the advance
sales tax to be made in the petitioner’s name, these being purely local
operations or for Pan-Asiatic Commercial to affirm, in the private
communication sent by it to the petitioner, that the latter was the one that
ordered the goods from the United States.

If anything, we perceive in the entire set-up an arrangement
through which the sales taxes due could he minimized, by having Pan-Asiatic
Commercial, as indorsed of the goods, withdraw the same from Customs upon
payment of the advance sales tax and then execute a sale thereof to Heng Tong
Textiles at cost, or at a-negligible profit. 
As it turned out, according to the Court of Tax Appeals, “the goods
were made to appear as having (thus) been sold. . . . so that no sales tax was paid by
petitioner upon the sales of such goods…(and) neither was any sales tax paid
on the supposed sales of said goods by the Pan-Asiatic Com­mercial to the
petitioner as the sales were made apparently at cost.” This is so because
“during the period in question,” the Court of Tax Appeals added, “the
sales tax on sales of imported articles was based on the gross selling price
thereof, the Advance sales tax paid upon removal of the goods from the
customhouse being credited against the tax on the actual gross selling price
paid by the importer.  (See Rep. Act No.
253; General Circular No. V-106, February 19, 1951.)”

In our opinion, however, the arrangement resorted to does not by
itself alone justify the penalty imposed. 
Section 183(a), paragraph 3, of the Internal Revenue Code, as amended by
Republic Act No. 253, speaks of willful neglect to file the return or willful
making of a false or fraudulent return. 
An attempt to minimize one’s tax does not necessarily constitute
fraud.  It is a settled principle that a
taxpayer may diminish his liability by any means which the law permits.  “The intention to minimize taxes, when
used in the context of fraud, must be proved to exist by clear and convincing
evidence amounting to more than mere preponderance, and cannot be justified by mere speculation.  This is because fraud is never light to be presumed.” (Yutivo
Sons Hardware Co., vs. CTA, G. R. No. L-13203,
and cases cited.) No such evidence is shown by the record in the case of the
herein petitioner.  Its actuation not
incompatible with good faith on its part, that is, with a genuine belief that by indorsing
the goods to Pan-Asiatic Commercial so that the latter could, as it did, take
delivery thereof, Pan-Asiatic Commercial
would in law be con­sidered the importer.  It
may even be true, as the peti­tioner insists, that it was Pan-Asiatic
Commercial that financed the importations but placed them in the name of the petitioner as a matter
of accommodation, in which case the element of fraud would be ruled out,
although from the legal viewpoint and as far as the right of the Government to collect the taxes was
concerned the petitioner was the
real importer and hence must shoulder the tax
burden.

The decision of the Court of Tax Appeals is modified, by eliminating therefrom the penalty of 50% on the amount of deficiency sales taxes
imposed, and is
affirmed in all other
respects.  No pronouncement as to costs.

Concepcion, C.J., Reyes, Dizon, Zaldivar, Sanchez, Castro,
Angeles, and Fernando, JJ., concur.