HENG TONG TEXTILES CO., INC. v.

CIR

G.R. No. L-19737

August 26, 1968
Makalintal

FACTS

Note: Heng Tong Textiles Co., Inc. is now Philip Manufacturing Corporation

In 1952, the Collector of Internal Revenue (CIR) assessed against Heng Tong Textiles Co., Inc. (Heng
Tong) deficiency sales taxes and surcharges for the year 1949 and the first four months of 1950 in the
aggregate sum of P89,123.58. Heng Tong appealed this assessment to the Board of Tax Appeals, and
the case was transferred to the CTA. The assessment was affirmed. This prompted Heng Tong to file a
petition before the SC.

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withdrawn from Customs by Pan-Asiatic Commercial Co., Inc. (Pan-Asiatic). Thereafter, Pan-Asiatic paid,
in the name of Heng Tong, the corresponding advance sales tax under Section 183(b) of the Internal
Revenue Code. However, the assessment for the deficiency was made against Heng Tong, 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.

CTA Ruling: The CTA, in affirming the assessment made against Heng Tong, found that Heng Tong was
indeed the importer of the goods, on a number of evidentiary circumstances:
1. Heng Tong and Pan-Asiatic were sister corporations;
2. 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 Heng Tong;
3. In connection with the advance sales tax (the tax paid by Pan-Asiatic in the name of Heng Tong),
Pan-Asiatic wrote Heng Tong a letter, which states that Pan-Asiatic has paid for Heng Tong the
sales tax against the goods Heng Tong ordered from various United States suppliers; and
4. There is both documentary and testimonial evidence — the testimonial evidence being
declarations of the Heng Tong’s own witnesses — that Pan-Asiatic Commercial acted merely as
indentor.

Given this, the CTA ordered Heng Tong to pay the penalty of 50^ on the amount of deficiency sales tax
imposed.

Heng Tong’s Contentions: Heng Tong claims that the importation papers were placed in its name only
for purposes of accommodation. This accommodation is to introduce Heng Tong to textile suppliers
abroad. Heng Tong also claims that it was not in a financial position to make the importations in question.
The circumstances showed by the CTA show nothing but a private arrangement between Heng Tong and
Pan-Asiatic. These circumstances did not affect the role of Heng Tong as the importer, as far as the
government and its right to collect the taxes were concerned.

ISSUE: W/N Heng Tong committed fraud when Pan-Asiatic paid for advance sales taxes in its (Heng
Tong’s) name

RULING: No, Heng Tong did not commit fraud. Heng Tong is still the importer, not Pan-Asiatic.

The SC perceives in the entire set-up between Heng Tong and Pan-Asiatic an arrangement, through
which the sales taxes due could be minimized, by having Pan-Asiatic, as indorsee of the goods,
withdraw the same from Customs upon payment of the advance sales tax, and then execute a sale
thereof to Heng Tong at cost, or at a negligible profit.
According to the CTA, the goods were made to appear as having been sold so that no sales tax was paid
by Heng Tong upon the sales of such goods; and neither was any sales tax paid on the supposed sales
of said goods by the Pan-Asiatic to Heng Tong. as the sales were made apparently at cost.

However, the arrangement between Heng Tong and Pan-Asiatic does not, by itself alone, justify
the penalty imposed.

Section 183(a)(3) of the Internal Revenue Code, as amended by R.A. 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 lightly
to be presumed.

In the present case, no such evidence of fraud is shown. Heng Tong’s actuation is not incompatible with
good faith on its part with a genuine belief that by indorsing the goods to Pan-Asiatic, so that Pan-
Asiatic could take delivery, Pan-Asiatic would then be considered the importer.

It may even be true that it was Pan-Asiatic that financed the importations but placed them in the name of
the Heng Tong 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, Heng Tong was the real importer. Thus, it is still Heng Tong who must be burdened by the
taxes imposed.