Haligi Manufacturing Corporation (HMC) is a VAT-registered manufacturer of furniture and home décor. On June 1, 2024, HMC decided to cease operations and retire from business. In connection with its closure, HMC distributed to its shareholders, as return of capital, goods from its inventory with a cost of ₱2,000,000 and a fair market value (FMV) of ₱3,500,000. The BIR issued a VAT assessment on this transaction, treating it as transactions deemed sale. HMC disputes the assessment. Is the BIR correct? Explain your answer.