G.R. No.

128315 June 29, 1999

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO and VIRGINIA S.
DIO, respondents.

PANGANIBAN, J.:

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a
prescribed period. It also signals the time when penalties and protests begin to accrue against the taxpayer. To
enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and
received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax
liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment
that can be questioned before the Court of Tax Appeals.

Statement of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying for the
nullification of the October 30, 1996
Decision 1 of the Court of Appeals 2 in CA-GR SP No. 40853, which effectively affirmed the January 25, 1996
Resolution 3 of the Court of Tax Appeals 4 CTA Case No. 5271. The CTA disposed as follows:

WHEREFORE, finding [the herein petitioner's] "Motion to Dismiss" as UNMERITORIOUS, the

same is hereby DENIED. [The CIR] is hereby given a period of thirty (30) days from receipt
hereof to file her answer.

Petitioner also seeks to nullify the February 13, 1997 Resolution 5 of the Court of Appeals denying
reconsideration.

The Facts

As found by the Court of Appeals, the undisputed facts of the case are as follows:

It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong
authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M. Savellano to
examine the books of accounts and other accounting records of Pascor Realty and
Development Corporation. (PRDC) for the years ending 1986, 1987 and 1988. The said
examination resulted in a recommendation for the issuance of an assessment in the amounts
of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.

On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the
Department of Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer
Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671 .00. Private
respondents PRDC, et. al. filed an Urgent Request for Reconsideration/Reinvestigation
disputing the tax assessment and tax liability.
On March 23, 1995, private respondents received a subpoena from the DOJ in connection with
the criminal complaint filed by the Commissioner of Internal Revenue (BIR) against
them.1wphi1.nt

In a letter dated May 17, 1995, the CIR denied the urgent request for
reconsideration/reinvestigation of the private respondents on the ground that no formal
assessment of the has as yet been issued by the Commissioner.

Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the Court of
Tax Appeals on a petition for review docketed as CTA Case No. 5271 on July 21, 1995. On
September 6, 1995, the CIR filed a Motion to Dismiss the petition on the ground that the CTA
has no jurisdiction over the subject matter of the petition, as there was no formal assessment
issued against the petitioners. The CTA denied the said motion to dismiss in a Resolution
dated January 25, 1996 and ordered the CIR to file an answer within thirty (30) days from
receipt of said resolution. The CIR received the resolution on January 31, 1996 but did not file
an answer nor did she move to reconsider the resolution.

Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:

Respondent Court of Tax Appeals acted with grave abuse of discretion and
without jurisdiction in considering the affidavit/report of the revenue officer and
the indorsement of said report to the secretary of justice as assessment which
may be appealed to the Court of Tax Appeals;

Respondent Court Tax Appeals acted with grave abuse of discretion in

considering the denial by petitioner of private respondents' Motion for
Reconsideration as [a] final decision which may be appealed to the Court of
Tax Appeals.

In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:

We agree with petitioners' contentions, that the criminal complaint for tax
evasion is the assessment issued, and that the letter denial of May 17, 1995 is
the decision properly appealable to [u]s. Respondent's ground of denial,
therefore, that there was no formal assessment issued, is untenable.

It is the Court's honest belief, that the criminal case for tax evasion is already anassessment.
The complaint, more particularly, the Joint Affidavit of Revenue Examiners Lagmay and
Savellano attached thereto, contains the details of the assessment like the kind and amount of
tax due, and the period covered:

Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating to
exclusive appellate jurisdiction of this Court, do not, make any mention of "formal assessment."
The law merely states, that this Court has exclusive appellate jurisdiction over decisions of the
Commissioner of Internal Revenue on disputed assessments, and other matters arising under
the National Internal Revenue Code, other law or part administered by the Bureau of Internal
Revenue Code.
 As far as this Court is concerned, the amount and kind of tax due, and the period covered, are
sufficient details needed for an "assessment." These details are more than complete,
compared to the following definitions of the term as quoted hereunder. Thus:

Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386, 387, 163
Tenn. 332. (Words and Phrases, Permanent Edition, Vol. 4, p. 446).

The word assessment when used in connection with taxation, may have more than one
meaning. The ultimate purpose of an assessment to such a connection is to ascertain the
amount that each taxpayer is to pay. More commonly, the word "assessment" means the
official valuation of a taxpayer's property for purpose of taxation. State v. New York, N.H. and
H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325. (Ibid. p. 445)

From the above, it can be gleaned that an assessment simply states how much tax is due from
a taxpayer. Thus, based on these definitions, the details of the tax as given in the Joint Affidavit
of respondent's examiners, which was attached to the tax evasion complaint, more than suffice
to qualify as an assessment. Therefore, this assessment having been disputed by petitioners,
and there being a denial of their letter disputing such assessment, this Court unquestionably
acquired jurisdiction over the instant petition for review. 6

As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition.

Hence, this recourse to this Court. 7

Ruling of the Court of Appeals

The Court of Appeals held that the tax court committed no grave abuse of discretion in ruling that the Criminal
Complaint for tax evasion filed by the Commissioner of Internal Revenue with the Department of Justice
constituted an "assessment" of the tax due, and that the said assessment could be the subject of a protest. By
definition, an assessment is simply the statement of the details and the amount of tax due from a taxpayer.
Based on this definition, the details of the tax contained in the BIR examiners' Joint Affidavit, 8 which was
attached to the criminal Complaint, constituted an assessment. Since the assailed Order of the CTA was merely
interlocutory and devoid of grave abuse of discretion, a petition for certiorari did not lie.

Issues

Petitioners submit for the consideration of this Court following issues:

(1) Whether or not the criminal complaint for tax evasion can be construed as
an assessment.

(2) Whether or not an assessment is necessary before criminal charges for tax
evasion may be instituted.

(3) Whether or not the CTA can take cognizance of the case in the absence of
an assessment. 9

In the main, the Court will resolve whether the revenue officers' Affidavit-Report, which was attached to criminal
revenue Complaint filed the Department of Justice, constituted an assessment that could be questioned before
the Court of Tax Appeals.
 The Court's Ruling

The petition is meritorious.

Main Issue: Assessment

Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any way be
construed as a formal assessment of private respondents' tax liabilities. This position is based on Section 205 of
the National Internal Revenue Code 10 (NIRC), which provides that remedies for the collection of deficient taxes
may be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which
states that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun
without assessment.

Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the collection
of taxes, but merely a notice that the amount stated therein is due as tax and that the taxpayer is required to
pay the same. Thus, qualifying as an assessment was the BIR examiners' Joint Affidavit, which contained the
details of the supposed taxes due from respondent for taxable years ending 1987 and 1988, and which was
attached to the tax evasion Complaint filed with the DOJ. Consequently, the denial by the BIR of private
respondents' request for reinvestigation of the disputed assessment is properly appealable to the CTA.

We agree with petitioner. Neither the NIRC nor the regulations governing the protest of assessments 11 provide
a specific definition or form of an assessment. However, the NIRC defines the specific functions and effects of
an assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert the
nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers.

True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax
liabilities. But not all documents coming from the BIR containing a computation of the tax liability can be
deemed assessments.

To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the
taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the
tax due, in case the taxpayer fails to pay deficiency tax within the time prescribed for its payment in the notice of
assessment. Likewise, an interest of 20 percent per annum, or such higher rates as may be prescribed by rules
and regulations, is to be collected form the date prescribed for its payment until the full payment. 12

The issuance of an assessment is vital in determining, the period of limitation regarding its proper issuance and
the period within which to protest it. Section 203 13 of the NIRC provides that internal revenue taxes must be
assessed within three years from the last day within which to file the return. Section 222, 14 on the other hand,
specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure
to file a return. Also, Section 228 15 of the same law states that said assessment may be protested only within
thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a specific document constitutes
an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or
to protest the same, or whether interest and penalty may accrue thereon.

It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment
is deemed made only when the collector of internal revenue releases, mails or sends such notice to the
taxpayer. 16
In the present case, the revenue officers' Affidavit merely contained a computation of respondents' tax liability. It
did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the
taxpayers.

Respondents maintain that an assessment, in relation to taxation, is simply understood' to mean:

A notice to the effect that the amount therein stated is due as tax and a demand for payment
thereof. 17

Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper
presentation of tax rolls. 18

Even these definitions fail to advance private respondents' case. That the BIR examiners' Joint Affidavit
attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does
not ipso facto make it an assessment. The purpose of the Joint Affidavit was merely to support and substantiate
the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to
the private respondents for payment thereof.

The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to
private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion,
not to issue an assessment. Although the revenue officers recommended the issuance of an assessment, the
commissioner opted instead to file a criminal case for tax evasion. What private respondents received was a
notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the
Bureau of Internal Revenue had made an assessment.

In addition, what private respondents sent to the commissioner was a motion for a reconsideration of the tax
evasion charges filed, not of an assessment, as shown thus:

This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty and
Development Corporation and for the same to be referred to the Appellate Division in order to give my client the
opportunity of a fair and objective hearing. 19

Additional Issues:

Assessment Not

Necessary Before Filing of

Criminal Complaint

Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is
incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is
submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced
without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal
aspects of the case may be pursued simultaneously. In Ungab v. Cusi,20 petitioner therein sought the dismissal
of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The
Court held that such protests could not stop or suspend the criminal action which was independent of the
resolution of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax
evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to
do both.
Private respondents insist that Section 222 should be read in relation to Section 255 of the NLRC, 21 which
penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We
disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge
can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception.
Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required
return. This fact need not be proven by an assessment.

The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is
issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance
to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is
unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and
clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go
through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a
criminal case had been filed against him, not that the commissioner has issued an assessment. It must be
stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation
of the Tax Code.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE. CTA
Case No. 5271 is likewise DISMISSED. No costs.

SO ORDERED.

G.R. No. 120880 June 5, 1997

FERDINAND R. MARCOS II, petitioner,

vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA
D. DE GUZMAN, respondents.

TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and unfair,
suffering the basic and oftly implored requisites of due process of law. Specifically, the petition assails the
Decision 1of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where the said court
held:

In view of all the foregoing, we rule that the deficiency income tax assessments and estate tax
assessment, are already final and (u)nappealable-and-the subsequent levy of real properties is
a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the
National Internal Revenue Code. This summary tax remedy is distinct and separate from the
other tax remedies (such as Judicial Civil actions and Criminal actions), and is not affected or
precluded by the pendency of any other tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition

for certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to costs.
 SO ORDERED.

More than seven years since the demise of the late Ferdinand E. Marcos, the former President of the Republic
of the Philippines, the matter of the settlement of his estate, and its dues to the government in estate taxes, are
still unresolved, the latter issue being now before this Court for resolution. Specifically, petitioner Ferdinand R.
Marcos II, the eldest son of the decedent, questions the actuations of the respondent Commissioner of Internal
Revenue in assessing, and collecting through the summary remedy of Levy on Real Properties, estate and
income tax delinquencies upon the estate and properties of his father, despite the pendency of the proceedings
on probate of the will of the late president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court
of Pasig, Branch 156.

Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with an
application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993, seeking to

I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May
20, 1993, issued by respondent Commissioner of Internal Revenue;

II. Annul and set aside the Notices of Sale dated May 26, 1993;

III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from
proceeding with the Auction of the real properties covered by Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its Decision 2 on November 29, 1994,
ruling that the deficiency assessments for estate and income tax made upon the petitioner and the estate of the
deceased President Marcos have already become final and unappealable, and may thus be enforced by the
summary remedy of levying upon the properties of the late President, as was done by the respondent
Commissioner of Internal Revenue.

WHEREFORE, premises considered judgment is hereby rendered DISMISSING the petition

for Certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to cost.

SO ORDERED.

Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision, assigning the
following as errors:

A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX

REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND
PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE
ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS
PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART
OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO
THE EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.

B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE

THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY BECOME
FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS OF THE
GROUNDS CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX
 ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE
RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND
DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED
THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were issued beyond the period
provided in the Revenue Memorandum Circular No. 38-68.

(2) [a] The numerous pending court cases questioning the late President's
ownership or interests in several properties (both personal and real) make the
total value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents' assessment of the
estate tax and their issuance of the Notices of Levy and Sale are premature,
confiscatory and oppressive.

[b] Petitioner, as one of the late President's compulsory heirs, was never
notified, much less served with copies of the Notices of Levy, contrary to the
mandate of Section 213 of the NIRC. As such, petitioner was never given an
opportunity to contest the Notices in violation of his right to due process of law.

C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT

MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE
RELIEF TO PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN
RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF
COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF
LEVY.

The facts as found by the appellate court are undisputed, and are hereby adopted:

On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and
examinations of the tax liabilities and obligations of the late president, as well as that of his
family, associates and "cronies". Said audit team concluded its investigation with a
Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed to file a
written notice of the death of the decedent, an estate tax returns [sic], as well as several
income tax returns covering the years 1982 to 1986, all in violation of the National Internal
Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional
Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized under Sections 253
and 254 in relation to Section 252 a & b) of the National Internal Revenue Code (NIRC).

The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate
Tax Return for the estate of the late president, the Income Tax Returns of the Spouses Marcos
for the years 1985 to 1986, and the Income Tax Returns of petitioner Ferdinand "Bongbong"
Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-
2-89-91-002464 (against the estate of the late president Ferdinand Marcos in the amount of
P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no. FAC-1-85-91-002452
and Deficiency income tax assessment no. FAC-1-86-91-002451 (against the Spouses
Ferdinand and Imelda Marcos in the amounts of P149,551.70 and P184,009,737.40
representing deficiency income tax for the years 1985 and 1986); (3) Deficiency income tax
assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner Ferdinand
"Bongbong" Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos;
and P6,376.60 Pesos representing his deficiency income taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue avers that copies of the deficiency estate and income
tax assessments were all personally and constructively served on August 26, 1991 and
September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last
known address at No. 204 Ortega St., San Juan, M.M. (Annexes "D" and "E" of the Petition).
Likewise, copies of the deficiency tax assessments issued against petitioner Ferdinand
"Bongbong" Marcos II were also personally and constructively served upon him (through his
caretaker) on September 12, 1991, at his last known address at Don Mariano Marcos St.
corner P. Guevarra St., San Juan, M.M. (Annexes "J" and "J-1" of the Petition). Thereafter,
Formal Assessment notices were served on October 20, 1992, upon Mrs. Marcos c/o
petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon City. Moreover,
a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to
a conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel but to no
avail.

The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the
other heirs of the late president, within 30 days from service of said assessments.

On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real
property against certain parcels of land owned by the Marcoses to satisfy the alleged estate
tax and deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of
satisfying the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The
foregoing tax remedies were resorted to pursuant to Sections 205 and 213 of the National
Internal Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein
petitioner) calling the attention of the BIR and requesting that they be duly notified of any action
taken by the BIR affecting the interest of their client Ferdinand "Bongbong" Marcos II, as well
as the interest of the late president copies of the aforesaid notices were, served on April 7,
1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and their counsel of
record, "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office".

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of
Tacloban City. The public auction for the sale of the eleven (11) parcels of land took place on
July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the government.
 On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos II filed the instant petition
for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for temporary
restraining order and/or writ of preliminary injunction.

It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the collection of
taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government
and should be collected without unnecessary hindrance. However, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be achieved. 3

Whether or not the proper avenues of assessment and collection of the said tax obligations were taken by the
respondent Bureau is now the subject of the Court's inquiry.

Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late President
Marcos effected by the BIR are null and void for disregarding the established procedure for the enforcement of
taxes due upon the estate of the deceased. The case of Domingo vs. Garlitos 4 is specifically cited to bolster the
argument that "the ordinary procedure by which to settle claims of indebtedness against the estate of a
deceased, person, as in an inheritance (estate) tax, is for the claimant to present a claim before the probate
court so that said court may order the administrator to pay the amount therefor." This remedy is allegedly,
exclusive, and cannot be effected through any other means.

Petitioner goes further, submitting that the probate court is not precluded from denying a request by the
government for the immediate payment of taxes, and should order the payment of the same only within the
period fixed by the probate court for the payment of all the debts of the decedent. In this regard, petitioner cites
the case of Collector of Internal Revenue vs. The Administratrix of the Estate of Echarri (67 Phil 502), where it
was held that:

The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue
(52 Phil 803), relied upon by the petitioner-appellant is good authority on the proposition that
the court having control over the administration proceedings has jurisdiction to entertain the
claim presented by the government for taxes due and to order the administrator to pay the tax
should it find that the assessment was proper, and that the tax was legal, due and collectible.
And the rule laid down in that case must be understood in relation to the case of Collector of
Customs vs. Haygood, supra., as to the procedure to be followed in a given case by the
government to effectuate the collection of the tax. Categorically stated, where during the
pendency of judicial administration over the estate of a deceased person a claim for taxes is
presented by the government, the court has the authority to order payment by the
administrator; but, in the same way that it has authority to order payment or satisfaction, it also
has the negative authority to deny the same. While there are cases where courts are required
to perform certain duties mandatory and ministerial in character, the function of the court in a
case of the present character is not one of them; and here, the court cannot be an organism
endowed with latitude of judgment in one direction, and converted into a mere mechanical
contrivance in another direction.

On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes is
paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not preclude the
assessment and collection, through summary remedies, of estate taxes over the same. According to the
respondent, claims for payment of estate and income taxes due and assessed after the death of the decedent
need not be presented in the form of a claim against the estate. These can and should be paid immediately.
The probate court is not the government agency to decide whether an estate is liable for payment of estate of
income taxes. Well-settled is the rule that the probate court is a court with special and limited jurisdiction.

Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a probate court
over estate of deceased individual, is not a trifling thing. The court's jurisdiction, once invoked, and made
effective, cannot be treated with indifference nor should it be ignored with impunity by the very parties invoking
its authority.

In testament to this, it has been held that it is within the jurisdiction of the probate court to approve the sale of
properties of a deceased person by his prospective heirs before final adjudication; 5 to determine who are the
heirs of the decedent; 6 the recognition of a natural child; 7 the status of a woman claiming to be the legal wife of
the decedent; 8 the legality of disinheritance of an heir by the testator; 9 and to pass upon the validity of a waiver
of hereditary rights. 10

The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal Revenue to
collect by the summary remedy of levying upon, and sale of real properties of the decedent, estate tax
deficiencies, without the cognition and authority of the court sitting in probate over the supposed will of the
deceased.

The nature of the process of estate tax collection has been described as follows:

Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the complete
settlement of an estate, and, under some statutes, it is made the duty of the probate court to
make the amount of the inheritance tax a part of the final decree of distribution of the estate. It
is not against the property of decedent, nor is it a claim against the estate as such, but it is
against the interest or property right which the heir, legatee, devisee, etc., has in the property
formerly held by decedent. Further, under some statutes, it has been held that it is not a suit or
controversy between the parties, nor is it an adversary proceeding between the state and the
person who owes the tax on the inheritance. However, under other statutes it has been held
that the hearing and determination of the cash value of the assets and the determination of the
tax are adversary proceedings. The proceeding has been held to be necessarily a
proceeding in rem. 11

In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as the
legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the National
Internal Revenue Code attests to this:

Sec. 3. Powers and duties of the Bureau. The powers and duties of the Bureau of Internal
Revenue shall comprehend the assessment and collection of all national internal revenue
taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected
therewith, including the execution of judgments in all cases decided in its favor by the Court of
Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and administer the
supervisory and police power conferred to it by this Code or other laws.

Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal treatment of claims for taxes charged
against the estate of the decedent. Such taxes, we said, were exempted from the application of the statute of
non-claims, and this is justified by the necessity of government funding, immortalized in the maxim that taxes
are the lifeblood of the government. Vectigalia nervi sunt rei publicae taxes are the sinews of the state.
 Taxes assessed against the estate of a deceased person, after administration is opened, need
not be submitted to the committee on claims in the ordinary course of administration. In the
exercise of its control over the administrator, the court may direct the payment of such taxes
upon motion showing that the taxes have been assessed against the estate.

Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the
enforcement of tax obligations against the heirs of the decedent, even after distribution of the estate's
properties.

Claims for taxes, whether assessed before or after the death of the deceased, can be collected
from the heirs even after the distribution of the properties of the decedent. They are exempted
from the application of the statute of non-claims. The heirs shall be liable therefor, in proportion
to their share in the inheritance. 13

Thus, the Government has two ways of collecting the taxes in question. One, by going after all
the heirs and collecting from each one of them the amount of the tax proportionate to the
inheritance received. Another remedy, pursuant to the lien created by Section 315 of the Tax
Code upon all property and rights to property belong to the taxpayer for unpaid income tax, is
by subjecting said property of the estate which is in the hands of an heir or transferee to the
payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA
105, September 15, 1967.)

From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal
over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be
argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by
the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing
in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate
settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected.

On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to
authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that
the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court
which approves the assessment and collection of the estate tax.

If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have been
pursued through the proper administrative and judicial avenues provided for by law.

Section 229 of the NIRC tells us how:

Sec. 229. Protesting of assessment. When the Commissioner of Internal Revenue or his
duly authorized representative finds that proper taxes should be assessed, he shall first notify
the taxpayer of his findings. Within a period to be prescribed by implementing regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation in such form and manner as may be prescribed by implementing regulations
within (30) days from receipt of the assessment; otherwise, the assessment shall become final
and unappealable.
 If the protest is denied in whole or in part, the individual, association or corporation adversely
affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of said decision; otherwise, the decision shall become final, executory and
demandable. (As inserted by P.D. 1773)

Apart from failing to file the required estate tax return within the time required for the filing of the same,
petitioner, and the other heirs never questioned the assessments served upon them, allowing the same to lapse
into finality, and prompting the BIR to collect the said taxes by levying upon the properties left by President
Marcos.

Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken by the
Government, collection thereof may have been done in violation of the law. Thus, the manner and method in
which the latter is enforced may be questioned separately, and irrespective of the finality of the former, because
the Government does not have the unbridled discretion to enforce collection without regard to the clear
provision of law." 14

Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing Sections 318 and
324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos properties, were issued
beyond the allowed period, and are therefore null and void:

. . . the Notices of Levy on Real Property (Annexes O to NN of Annex C of this Petition) in

satisfaction of said assessments were still issued by respondents well beyond the period
mandated in Revenue Memorandum Circular No. 38-68. These Notices of Levy were issued
only on 22 February 1993 and 20 May 1993 when at least seventeen (17) months had already
lapsed from the last service of tax assessment on 12 September 1991. As no notices of
distraint of personal property were first issued by respondents, the latter should have complied
with Revenue Memorandum Circular No. 38-68 and issued these Notices of Levy not earlier
than three (3) months nor later than six (6) months from 12 September 1991. In accordance
with the Circular, respondents only had until 12 March 1992 (the last day of the sixth month)
within which to issue these Notices of Levy. The Notices of Levy, having been issued beyond
the period allowed by law, are thus void and of no effect. 15

We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period and in
accordance with the provisions of the present Tax Code. The deficiency tax assessment, having already
become final, executory, and demandable, the same can now be collected through the summary remedy of
distraint or levy pursuant to Section 205 of the NIRC.

The applicable provision in regard to the prescriptive period for the assessment and collection of tax deficiency
in this instance is Article 223 of the NIRC, which pertinently provides:

Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes. (a) In
the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the
tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten (10) years after the discovery of the falsity, fraud, or
omission: Provided, That, in a fraud assessment which has become final and executory, the
fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the
collection thereof.

xxx xxx xxx

 (c) Any internal revenue tax which has been assessed within the period of limitation above
prescribed, may be collected by distraint or levy or by a proceeding in court within three years
following the assessment of the tax.

xxx xxx xxx

The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made
by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in case of failure to file a return,
the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be
collected by levy upon real property within three years following the assessment of the tax. Since the estate tax
assessment had become final and unappealable by the petitioner's default as regards protesting the validity of
the said assessment, there is now no reason why the BIR cannot continue with the collection of the said tax.
Any objection against the assessment should have been pursued following the avenue paved in Section 229 of
the NIRC on protests on assessments of internal revenue taxes.

Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or
interests in several properties (both real and personal) make the total value of his estate, and the consequent
estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the
estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to
question the ownership and interests of the late President in real and personal properties located within and
outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the
collection of estate taxes upon the decedent's estate were among those involved in the said cases pending in
the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The
mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.

Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of
P23,292,607,638.00, stating that this amount deviates from the findings of the Department of Justice's Panel of
Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear evidence of the uncertainty on
the part of the Government as to the total value of the estate of the late President.

This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had already
become final and unappealable.

It is not the Department of Justice which is the government agency tasked to determine the amount of taxes
due upon the subject estate, but the Bureau of Internal Revenue, 16 whose determinations and assessments are
presumed correct and made in good faith. 17 The taxpayer has the duty of proving otherwise. In the absence of
proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at
arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the
assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of
said assessment. 18 In this instance, petitioner has not pointed out one single provision in the Memorandum of
the Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed,
the petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable amount
of the taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the
assessments made.

Moreover, these objections to the assessments should have been raised, considering the ample remedies
afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, as
described earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of
discretion. The course of action taken by the petitioner reflects his disregard or even repugnance of the
established institutions for governance in the scheme of a well-ordered society. The subject tax assessments
having become final, executory and enforceable, the same can no longer be contested by means of a disguised
protest. In the main, Certiorari may not be used as a substitute for a lost appeal or remedy. 19 This judicial policy
becomes more pronounced in view of the absence of sufficient attack against the actuations of government.

On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the respondent
appellate court's pronouncements sound and resilient to petitioner's attacks.

Anent grounds 3(b) and (B) both alleging/claiming lack of notice We find, after
considering the facts and circumstances, as well as evidences, that there was sufficient,
constructive and/or actual notice of assessments, levy and sale, sent to herein petitioner
Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda Marcos.

Even if we are to rule out the notices of assessments personally given to the caretaker of Mrs.
Marcos at the latter's last known address, on August 26, 1991 and September 12, 1991, as
well as the notices of assessment personally given to the caretaker of petitioner also at his last
known address on September 12, 1991 the subsequent notices given thereafter could no
longer be ignored as they were sent at a time when petitioner was already here in the
Philippines, and at a place where said notices would surely be called to petitioner's attention,
and received by responsible persons of sufficient age and discretion.

Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos c/o the
petitioner, at his office, House of Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-
1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum of OSG). Moreover, a notice to taxpayer
dated October 8, 1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, was
furnished the counsel of Mrs. Marcos Dean Antonio Coronel (Annex "B", p. 211, ibid).
Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the petitioner and
their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7,
1993 and June 10, 1993. Despite all of these Notices, petitioner never lifted a finger to protest
the assessments, (upon which the Levy and sale of properties were based), nor appealed the
same to the Court of Tax Appeals.

There being sufficient service of Notices to herein petitioner (and his mother) and it appearing
that petitioner continuously ignored said Notices despite several opportunities given him to file
a protest and to thereafter appeal to the Court of Tax Appeals, the tax assessments subject
of this case, upon which the levy and sale of properties were based, could no longer be
contested (directly or indirectly) via this instant petition for certiorari. 20

Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been issued
without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent, petitioner avers that
he has an interest in the subject estate, and notices of levy upon its properties should have been served upon
him.

We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent
taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner as heir of the
deceased. In the same vein, in the matter of income tax delinquency of the late president and his spouse,
petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax
delinquencies upon the petitioner is not required by law, as under Section 213 of the NIRC, which pertinently
states:

xxx xxx xxx

. . . Levy shall be effected by writing upon said certificate a description of the property upon
which levy is made. At the same time, written notice of the levy shall be mailed to or served
upon the Register of Deeds of the province or city where the property is located and upon the
delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the
business in respect to which the liability arose, or if there be none, to the occupant of the
property in question.

xxx xxx xxx

The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were
furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April 12,
1993 at his office at the Batasang Pambansa. 21 We cannot therefore, countenance petitioner's insistence that
he was denied due process. Where there was an opportunity to raise objections to government action, and such
opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the
oppressor of the orderly functions of government. He who comes to court must come with clean hands.
Otherwise, he not only taints his name, but ridicules the very structure of established authority.

IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of Appeals
dated November 29, 1994 is hereby AFFIRMED in all respects.

SO ORDERED.

G.R. No. L-36181 October 23, 1982

MERALCO SECURITIES CORPORATION (now FIRST PHILIPPINE HOLDINGS

CORPORATION), petitioner,
vs.
HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as heirs of the late
Juan G. Maniago, respondents.

G.R. No. L-36748 October 23, 1982

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as heirs of the late
Juan G. Maniago, respondents.

G.R. No. L-36181

San Juan, Africa, Gonzales & San Agustin for petitioner.

Ramon A. Gonzales for respondents.

TEEHANKEE, J.:

These are original actions for certiorari to set aside and annul the writ of mandamus issued by Judge Victorino
A. Savellano of the Court of First Instance of Manila in Civil Case No. 80830 ordering petitioner Meralco
Securities Corporation (now First Philippine Holdings Corporation) to pay, and petitioner Commissioner of
Internal Revenue to collect from the former, the amount of P51,840,612.00, by way of alleged deficiency
corporate income tax, plus interests and surcharges due thereon and to pay private respondents 25% of the
total amount collectible as informer's reward.

On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his wife and children)
submitted to petitioner Commissioner of Internal Revenue confidential denunciation against the Meralco
Securities Corporation for tax evasion for having paid income tax only on 25 % of the dividends it received from
the Manila Electric Co. for the years 1962-1966, thereby allegedly shortchanging the government of income tax
due from 75% of the said dividends.

Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation after which he found
and held that no deficiency corporate income tax was due from the Meralco Securities Corporation on the
dividends it received from the Manila Electric Co., since under the law then prevailing (section 24[a] of the
National Internal Revenue Code) "in the case of dividends received by a domestic or foreign resident
corporation liable to (corporate income) tax under this Chapter . . . .only twenty-five per centum thereof shall be
returnable for the purposes of the tax imposed under this section." The Commissioner accordingly rejected
Maniago's contention that the Meralco from whom the dividends were received is "not a domestic corporation
liable to tax under this Chapter." In a letter dated April 5, 1968, the Commissioner informed Maniago of his
findings and ruling and therefore denied Maniago's claim for informer's reward on a non-existent deficiency.
This action of the Commissioner was sustained by the Secretary of Finance in a 4th Indorsement dated May 11,
1971.

On August 28, 1970, Maniago filed a petition for mandamus, and subsequently an amended petition for
mandamus, in the Court of First Instance of Manila, docketed therein as Civil Case No. 80830, against the
Commissioner of Internal Revenue and the Meralco Securities Corporation to compel the Commissioner to
impose the alleged deficiency tax assessment on the Meralco Securities Corporation and to award to him the
corresponding informer's reward under the provisions of R.A. 2338.

On October 28, 1978, the Commissioner filed a motion to dismiss, arguing that since in matters of issuance and
non-issuance of assessments, he is clothed under the National Internal Revenue Code and existing rules and
regulations with discretionary power in evaluating the facts of a case and since mandamus win not lie to compel
the performance of a discretionary power, he cannot be compelled to impose the alleged tax deficiency
assessment against the Meralco Securities Corporation. He further argued that mandamus may not lie against
him for that would be tantamount to a usurpation of executive powers, since the Office of the Commissioner of
Internal Revenue is undeniably under the control of the executive department.

On the other hand, the Meralco Securities Corporation filed its answer, dated January 15, 1971, interposing as
special and/or affirmative defenses that the petition states no cause of action, that the action is premature, that
mandamus win not lie to compel the Commissioner of Internal Revenue to make an assessment and/or effect
the collection of taxes upon a taxpayer, that since no taxes have actually been recovered and/or collected,
Maniago has no right to recover the reward prayed for, that the action of petitioner had already prescribed and
that respondent court has no jurisdiction over the subject matter as set forth in the petition, the same being
cognizable only by the Court of Tax Appeals.
On January 10, 1973, the respondent judge rendered a decision granting the writ prayed for and ordering the
Commissioner of Internal Revenue to assess and collect from the Meralco Securities Corporation the sum of
P51,840,612.00 as deficiency corporate income tax for the period 1962 to 1969 plus interests and surcharges
due thereon and to pay 25% thereof to Maniago as informer's reward.

All parties filed motions for reconsideration of the decision but the same were denied by respondent judge in his
order dated April 6, 1973, with respondent judge denying respondents' claim for attorneys fees and for
execution of the decision pending appeal.

Hence, the Commissioner filed a separate petition with this Court, docketed as G.R. No. L-36748 praying that
the decision of respondent judge dated January 10, 1973 and his order dated April 6, 1973 be reconsidered for
respondent judge has no jurisdiction over the subject matter of the case and that the issuance or non-issuance
of a deficiency assessment is a prerogative of the Commissioner of Internal Revenue not reviewable by
mandamus.

The Meralco Securities Corporation (now First Philippine Holdings Corporation) likewise appealed the same
decision of respondent judge in G.R. No. L-36181 and in the Court's resolution dated June 13, 1973, the two
cases were ordered consolidated.

We grant the petitions.

Respondent judge has no jurisdiction to take cognizance of the case because the subject matter thereof clearly
falls within the scope of cases now exclusively within the jurisdiction of the Court of Tax Appeals. Section 7 of
Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax Appeals exclusive appellate
jurisdiction to review by appeal, among others, decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue. The law transferred to the Court of Tax Appeals jurisdiction
over all cases involving said assessments previously cognizable by courts of first instance, and even those
already pending in said courts. 1 The question of whether or not to impose a deficiency tax assessment on
Meralco Securities Corporation undoubtedly comes within the purview of the words "disputed assessments" or
of "other matters arising under the National Internal Revenue Code . . . .In the case of Blaquera vs.
Rodriguez, et al, 2 this Court ruled that "the determination of the correctness or incorrectness of a tax
assessment to which the taxpayer is not agreeable, falls within the jurisdiction of the Court of Tax Appeals and
not of the Court of First Instance, for under the provisions of Section 7 of Republic Act No. 1125, the Court of
Tax Appeals has exclusive appellate jurisdiction to review, on appeal, any decision of the Collector of Internal
Revenue in cases involving disputed assessments and other matters arising under the National Internal
Revenue Code or other law or part of law administered by the Bureau of Internal Revenue."

Thus, even assuming arguendo that the right granted the taxpayers affected to question and appeal disputed
assessments, under section 7 of Republic Act No. 1125, may be availed of by strangers or informers like the
late Maniago, the most that he could have done was to appeal to the Court of Tax Appeals the ruling of
petitioner Commissioner of Internal Revenue within thirty (30) days from receipt thereof pursuant to section 11
of Republic Act No. 1125. 3 He failed to take such an appeal to the tax court. The ruling is clearly final and no
longer subject to review by the courts. 4

It is furthermore a well-recognized rule that mandamus only lies to enforce the performance of a ministerial act
or duty 5 and not to control the performance of a discretionary power. 6 Purely administrative and discretionary
functions may not be interfered with by the courts. 7 Discretion, as thus intended, means the power or right
conferred upon the office by law of acting officially under certain circumstances according to the dictates of his
own judgment and conscience and not controlled by the judgment or conscience of others. 8 mandamus may
not be resorted to so as to interfere with the manner in which the discretion shall be exercised or to influence or
coerce a particular determination. 9

In an analogous case, where a petitioner sought to compel the Rehabilitation Finance Corporation to accept
payment of the balance of his indebtedness with his backpay certificates, the Court ruled that "mandamus does
not compel the Rehabilitation Finance Corporation to accept backpay certificates in payment of outstanding
loans. Although there is no provision expressly authorizing such acceptance, nor is there one prohibiting it, yet
the duty imposed by the Backpay Law upon said corporation as to the acceptance or discount of backpay
certificates is neither clear nor ministerial, but discretionary merely, and such special civil action does not issue
to control the exercise of discretion of a public officer." 10 Likewise, we have held that courts have no power to
order the Commissioner of Customs to confiscate goods imported in violation of the Import Control Law, R.A.
426, as said forfeiture is subject to the discretion of the said official, 11 nor may courts control the determination
of whether or not an applicant for a visa has a non-immigrant status or whether his entry into this country would
be contrary to public safety for it is not a simple ministerial function but an exercise of discretion. 12

Moreover, since the office of the Commissioner of Internal Revenue is charged with the administration of
revenue laws, which is the primary responsibility of the executive branch of the government, mandamus may
not he against the Commissioner to compel him to impose a tax assessment not found by him to be due or
proper for that would be tantamount to a usurpation of executive functions. As we held in the case
of Commissioner of Immigration vs. Arca 13 anent this principle, "the administration of immigration laws is the
primary responsibility of the executive branch of the government. Extensions of stay of aliens are discretionary
on the part of immigration authorities, and neither a petition for mandamus nor one for certiorari can compel the
Commissioner of Immigration to extend the stay of an alien whose period to stay has expired.

Such discretionary power vested in the proper executive official, in the absence of arbitrariness or grave abuse
so as to go beyond the statutory authority, is not subject to the contrary judgment or control of others. "
"Discretion," when applied to public functionaries, means a power or right conferred upon them by law of acting
officially, under certain circumstances, uncontrolled by the judgment or consciences of others. A purely
ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a given
state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard to or the
exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a
public officer and gives him the right to decide how or when the duty shall be performed, such duty is
discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither
the exercise of official discretion or judgment." 14

Thus, after the Commissioner who is specifically charged by law with the task of enforcing and implementing
the tax laws and the collection of taxes had after a mature and thorough study rendered his decision or ruling
that no tax is due or collectible, and his decision is sustained by the Secretary, now Minister of Finance (whose
act is that of the President unless reprobated), such decision or ruling is a valid exercise of discretion in the
performance of official duty and cannot be controlled much less reversed by mandamus. A contrary view,
whereby any stranger or informer would be allowed to usurp and control the official functions of the
Commissioner of Internal Revenue would create disorder and confusion, if not chaos and total disruption of the
operations of the government.

Considering then that respondent judge may not order by mandamus the Commissioner to issue the
assessment against Meralco Securities Corporation when no such assessment has been found to be due, no
deficiency taxes may therefore be assessed and collected against the said corporation. Since no taxes are to
be collected, no informer's reward is due to private respondents as the informer's heirs. Informer's reward is
contingent upon the payment and collection of unpaid or deficiency taxes. An informer is entitled by way of
reward only to a percentage of the taxes actually assessed and collected. Since no assessment, much less any
collection, has been made in the instant case, respondent judge's writ for the Commissioner to pay respondents
25% informer's reward is gross error and without factual nor legal basis.

WHEREFORE, the petitions are hereby granted and the questioned decision of respondent judge dated
January 10, 1973 and order dated April 6, 1973 are hereby reversed and set aside. With costs against private
respondents.

Melencio-Herrera, Plana, Vasquez and Relova, JJ., concur.

Gutierrez, Jr., J., took no part.

BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M.
RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, ARTURO LOGRONIO,
RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN
DOE, JOHN DOE, and JOHN DOE, Respondents.

San Juan, Africa, Gonzales & San Agustin, for Petitioners.

Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista, Solicitor Pedro A.
Ramirez and Special Attorney Jaime M. Maza for Respondents.

DECISION

VILLAMOR, J.:

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary mandatory
and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing
under the laws of the Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and
void Search Warrant No. 2-M-70 issued by respondent Judge on February 25, 1970; to order respondents to
desist from enforcing the same and/or keeping the documents, papers and effects seized by virtue thereof, as
well as from enforcing the tax assessments on petitioner corporation alleged by petitioners to have been made
on the basis of the said documents, papers and effects, and to order the return of the latter to petitioners. We
gave due course to the petition but did not issue the writ of preliminary injunction prayed for therein.

The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual 1aw library

On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed
to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for
violation of Section 46(a) of the National Internal Revenue Code, in relation to all other pertinent provisions
thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one
of herein respondents, to make and file the application for search warrant which was attached to the letter.

In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent
Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the following papers:
respondent Veras aforesaid letter-request; an application for search warrant already filled up but still unsigned
by respondent De Leon; an affidavit of respondent Logronio subscribed before respondent De Leon; a
deposition in printed form of respondent Logronio already accomplished and signed by him but not yet
subscribed; and a search warrant already accomplished but still unsigned by respondent Judge.

At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy
Clerk of Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned,
respondent Judge was informed that the depositions had already been taken. The stenographer, upon request
of respondent Judge, read to him her stenographic notes; and thereafter, respondent Judge asked respondent
Logronio to take the oath and warned him that if his deposition was found to be false and without legal basis, he
could be charged for perjury. Respondent Judge signed respondent de Leons application for search warrant
and respondent Logronios deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and
accordingly issued.

Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant
petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners lawyers protested
the search on the ground that no formal complaint or transcript of testimony was attached to the warrant. The
agents nevertheless proceeded with their search which yielded six boxes of documents.

On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the search
warrant be quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be
issued, that the search warrant be declared null and void, and that the respondents be ordered to pay
petitioners, jointly and severally, damages and attorneys fees. On March 18, 1970, the respondents, thru the
Solicitor General, filed an answer to the petition. After hearing, the court, presided over by respondent Judge,
issued on July 29, 1970, an order dismissing the petition for dissolution of the search warrant. In the meantime,
or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on petitioner corporation in the
total sum of P2,594,729.97, partly, if not entirely, based on the documents thus seized. Petitioners came to this
Court.

The petition should be granted for the following reasons:chanrob1es virtual 1aw library

1. Respondent Judge failed to personally examine the complainant and his witness.

The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court
are:jgc:chanrobles.com.ph

"(3) The right of the people to be secure in their persons, houses, papers and effects against unreasonable
searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be
determined by the judge after examination under oath or affirmation of the complainant and the witnesses he
may produce, and particularly describing the place to be searched, and the persons or things to be seized." (Art.
III, Sec. 1, Constitution.)

"SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable cause in
connection with one specific offense to be determined by the judge or justice of the peace after examination
under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the
place to be searched and the persons or things to be seized.

"No search warrant shall issue for more than one specific offense.

"SEC. 4. Examination of the applicant. The judge or justice of the peace must, before issuing the warrant,
personally examine on oath or affirmation the complainant and any witnesses he may produce and take their
depositions in writing, and attach them to the record, in addition to any affidavits presented to him." (Rule 126,
Revised Rules of Court.)

The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, par. 3, of
the Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be conducted by the
judge himself and not by others. The phrase "which shall be determined by the judge after examination under
oath or affirmation of the complainant and the witnesses he may produce," appearing in the said constitutional
provision, was introduced by Delegate Francisco as an amendment to the draft submitted by the Sub-
Committee of Seven. The following discussion in the Constitutional Convention (Laurel, Proceedings of the
Philippine Constitutional Convention, Vol. III, pp. 755-757) is enlightening:jgc:chanrobles.com.ph

"SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano.

En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la justicia
mediante el registro inmediato y la incautacion del cuerpo del delito, no cree Su Seoria que causaria cierta
demora el procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de la justicia o si
Su Seoria encuentra un remedio para esto casos con el fin de compaginar los fines de la justicia con los
derechos del individuo en su persona, bienes etcetera, etcetera.

"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Seoria pregunta por la siguiente
razon: el que solicita un mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer en la
Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o peticion de sucuestro. Esa persona que
presenta el registro puede ser el mismo denunciante o alguna persona que solicita dicho mandamiento de
registro. Ahora toda la enmienda en esos casos consiste en que haya peticion de registro y el juez no se
atendra solamente a sea peticion sino que el juez examiner a ese denunciante y si tiene testigos tambin
examiner a los testigos.

"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese denunciante por escrito siempre
requeriria algun tiempo?.

"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible las
vejaciones injustas con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males
debemos escoger. el menor.

x x x

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are incorporating in our
constitution something of a fundamental character. Now, before a judge could issue a search warrant, he must
be under the obligation to examine personally under oath the complainant and if he has any witness, the
witnesses that he may produce . . ."cralaw virtua1aw library

The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid, for it
requires the judge, before issuing a search warrant, to "personally examine on oath or affirmation the
complainant and any witnesses he may produce . . ."cralaw virtua1aw library

Personal examination by the judge of the complainant and his witnesses is necessary to enable him to
determine the existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the
Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of which prohibit the issuance of
warrants except "upon probable cause." The determination of whether or not a probable cause exists calls for
the exercise of judgment after a judicial appraisal of facts and should not be allowed to be delegated in the
absence of any rule to the contrary.

In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant
(respondent De Leon) and his witness (respondent Logronio). While it is true that the complainants application
for search warrant and the witness printed-form deposition were subscribed and sworn to before respondent
Judge, the latter did not ask either of the two any question the answer to which could possibly be the basis for
determining whether or not there was probable cause against herein petitioners. Indeed, the participants seem
to have attached so little significance to the matter that notes of the proceedings before respondent Judge were
not even taken. At this juncture it may be well to recall the salient facts. The transcript of stenographic notes
(pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken at the hearing of this case in the court below shows
that per instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the
depositions of the complainant and his witness, and that stenographic notes thereof were taken by Mrs. Gaspar.
At that time respondent Judge was at the sala hearing a case. After respondent Judge was through with the
hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and witness Logronio went to
respondent Judges chamber and informed the Judge that they had finished the depositions. Respondent Judge
then requested the stenographer to read to him her stenographic notes. Special Deputy Clerk Gonzales testified
as follows:jgc:chanrobles.com.ph

"A And after finishing reading the stenographic notes, the Honorable Judge requested or instructed them,
requested Mr. Logronio to raise his hand and warned him if his deposition will be found to be false and without
legal basis, he can be charged criminally for perjury. The Honorable Court told Mr. Logronio whether he affirms
the facts contained in his deposition and the affidavit executed before Mr. Rodolfo de Leon.

"Q And thereafter?

"A And thereafter, he signed the deposition of Mr. Logronio.

"Q Who is this he?

"A The Honorable Judge.

"Q The deposition or the affidavit?

"A The affidavit, Your Honor."cralaw virtua1aw library

Thereafter, respondent Judge signed the search warrant.

The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant No. 2-M-
70 was thus limited to listening to the stenographers readings of her notes, to a few words of warning against
the commission of perjury, and to administering the oath to the complainant and his witness. This cannot be
consider a personal examination. If there was an examination at all of the complainant and his witness, it was
the one conducted by the Deputy Clerk of Court. But, as stated, the Constitution and the rules require a
personal examination by the judge. It was precisely on account of the intention of the delegates to the
Constitutional Convention to make it a duty of the issuing judge to personally examine the complainant and his
witnesses that the question of how much time would be consumed by the judge in examining them came up
before the Convention, as can be seen from the record of the proceedings quoted above. The reading of the
stenographic notes to respondent Judge did not constitute sufficient compliance with the constitutional mandate
and the rule; for by that manner respondent Judge did not have the opportunity to observe the demeanor of the
complainant and his witness, and to propound initial and follow-up questions which the judicial mind, on account
of its training, was in the best position to conceive. These were important in arriving at a sound inference on the
all-important question of whether or not there was probable cause.

2. The search warrant was issued for more than one specific offense.

Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue Code in
relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The question is:
Was the said search warrant issued "in connection with one specific offense," as required by Sec. 3, Rule 126?

To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to
above. Thus we find the following:chanrob1es virtual 1aw library

Sec. 46(a) requires the filing of income tax returns by corporations.

Sec. 53 requires the withholding of income taxes at source.

Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent
returns.

Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the information
required under the Tax Code.

Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures any article
subject to a specific tax, without having paid the privilege tax therefore, or who aids or abets in the conduct of
illicit distilling, rectifying, compounding, or illicit manufacture of any article subject to specific tax . . .," and
provides that in the case of a corporation, partnership, or association, the official and/or employee who caused
the violation shall be responsible.

Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output removed,
or to pay the tax due thereon.

The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the
violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The second
is the violation of Sec. 53 (withholding of income taxes at source). The third is the violation of Sec. 208 (unlawful
pursuit of business or occupation); and the fourth is the violation of Sec. 209 (failure to make a return of
receipts, sales, business or gross value of output actually removed or to pay the tax due thereon). Even in their
classification the six above-mentioned provisions are embraced in two different titles: Secs. 46(a), 53, 72 and
73 are under Title II (Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax on Business and
Occupation).

Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA 383), is not
applicable, because there the search warrants were issued for "violation of Central Bank Laws, Internal
Revenue (Code) and Revised Penal Code;" whereas, here Search Warrant No 2-M-70 was issued for violation
of only one code, i.e., the National Internal Revenue Code. The distinction more apparent than real, because it
was precisely on account of the Stonehill incident, which occurred sometime before the present Rules of Court
took effect on January 1, 1964, that this Court amended the former rule by inserting therein the phrase "in
connection with one specific offense," and adding the sentence "No search warrant shall issue for more than
one specific offense," in what is now Sec. 3, Rule 126. Thus we said in Stonehill:jgc:chanrobles.com.ph

"Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that
this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that a search warrant shall
not issue but upon probable cause in connection with one specific offense. Not satisfied with this qualification,
the Court added thereto a paragraph, directing that no search warrant shall issue for more than one specific
offense."

3. The search warrant does not particularly describe the things to be seized.

The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in this
manner:jgc:chanrobles.com.ph

"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements books,
customers ledgers); receipts for payments received; certificates of stocks and securities; contracts, promissory
notes and deeds of sale; telex and coded messages; business communications, accounting and business
records; checks and check stubs; records of bank deposits and withdrawals; and records of foreign remittances,
covering the years 1966 to 1970."cralaw virtua1aw library

The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of
the Revised Rules of Court, that the warrant should particularly describe the things to be seized.

In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion, said:jgc:chanrobles.com.ph

"The grave violation of the Constitution made in the application for the contested search warrants was
compounded by the description therein made of the effects to be searched for and seized, to wit:chanrob1es
virtual 1aw library

Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit
journals, typewriters, and other documents and/or paper showing all business transactions including
disbursement receipts, balance sheets and related profit and loss statements.

"Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of
petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the
seizure of all records of the petitioners and the aforementioned corporations, whatever their nature, thus openly
contravening the explicit command of our Bill of Rights that the things to be seized be particularly described
as well as tending to defeat its major objective: the elimination of general warrants."cralaw virtua1aw library

While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said warrant
nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for
the language used therein is so all-embracing as to include all conceivable records of petitioner corporation,
which, if seized, could possibly render its business inoperative.

In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to explain the purpose of
the requirement that the warrant should particularly describe the place to be searched and the things to be
seized, to wit:jgc:chanrobles.com.ph

". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search warrant
should particularly describe the place to be searched and the things to be seized. The evident purpose and
intent of this requirement is to limit the things to be seized to those, and only those, particularly described in the
search warrant to leave the officers of the law with no discretion regarding what articles they shall seize, to
the end that unreasonable searches and seizures may not be made, that abuses may not be committed.
That this is the correct interpretation of this constitutional provision is borne out by American authorities."cralaw
virtua1aw library
The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in
this case.

A search warrant may be said to particularly describe the things to be seized when the description therein is as
specific as the circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the description
expresses a conclusion of fact not of law by which the warrant officer may be guided in making the search
and seizure (idem., dissent of Abad Santos, J.,); or when the things described are limited to those which bear
direct relation to the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court).
The herein search warrant does not conform to any of the foregoing tests. If the articles desired to be seized
have any direct relation to an offense committed, the applicant must necessarily have some evidence, other
than those articles, to prove the said offense; and the articles subject of search and seizure should come in
handy merely to strengthen such evidence. In this event, the description contained in the herein disputed
warrant should have mentioned, at least, the dates, amounts, persons, and other pertinent data regarding the
receipts of payments, certificates of stocks and securities, contracts, promissory notes, deeds of sale,
messages and communications, checks, bank deposits and withdrawals, records of foreign remittances, among
others, enumerated in the warrant.

Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration of
respondent Judges order of July 29, 1970. The contention is without merit. In the first place, when the
questions raised before this Court are the same as those which were squarely raised in and passed upon by the
court below, the filing of a motion for reconsideration in said court before certiorari can be instituted in this Court
is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place, the rule
requiring the filing of a motion for reconsideration before an application for a writ of certiorari can be entertained
was never intended to be applied without considering the circumstances. (Matutina v. Buslon, Et Al., 109 Phil.,
140.) In the case at bar time is of the essence in view of the tax assessments sought to be enforced by
respondent officers of the Bureau of Internal Revenue against petitioner corporation, On account of which
immediate and more direct action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA 768.)
Lastly, the rule does not apply where, as in this case, the deprivation of petitioners fundamental right to due
process taints the proceeding against them in the court below not only with irregularity but also with nullity.
(Matute v. Court of Appeals, Et Al., supra.)

It is next contended by respondents that a corporation is not entitled to protection against unreasonable search
and seizures. Again, we find no merit in the contention.

"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged
with a violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its
constitutional powers, cannot refuse to produce the books and papers of such corporation, we do not wish to be
understood as holding that a corporation is not entitled to immunity, under the 4th Amendment, against
unreasonable searches and seizures. A corporation is, after all, but an association of individuals under an
assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional
immunities appropriate to such body. Its property cannot be taken without compensation. It can only be
proceeded against by due process of law, and is protected, under the 14th Amendment, against unlawful
discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)

"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a
corporation, the ground that it was not privileged from producing its books and papers. But the rights of a
corporation against unlawful search and seizure are to be protected even if the same result might have been
achieved in a lawful way." (Silverthorne Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64
L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to object
against unreasonable searches and seizures, thus:jgc:chanrobles.com.ph

"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the
contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations
have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of
the amount of shares of stock or the interest of each of them in said corporations, whatever, the offices they
hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party
whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely
personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the
use in evidence against them of the documents, papers and things seized from the offices and premises of the
corporations adverted to above, since the right to object to the admission of said papers in evidence belongs
exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate
officers in proceedings against them in their individual capacity . . ."cralaw virtua1aw library

In the Stonehill case only the officers of the various corporations in whose offices documents, papers and
effects were searched and seized were the petitioners. In the case at bar, the corporation to whom the seized
documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner
corporation here stands on a different footing from the corporations in Stonehill.

The tax assessments referred to earlier in this opinion were, if not entirely as claimed by petitioners at
least partly as in effect admitted by respondents based on the documents seized by virtue of Search
Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-half months
after the search and seizure on February 25, 1970, is a strong indication that the documents thus seized served
as basis for the assessments. Those assessments should therefore not be enforced.

PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by
respondent Judge is declared null and void; respondents are permanently enjoined from enforcing the said
search warrant; the documents, papers and effects seized thereunder are ordered to be returned to petitioners;
and respondent officials the Bureau of Internal Revenue and their representatives are permanently enjoined
from enforcing the assessments mentioned in Annex "G" of the present petition, as well as other assessments
based on the documents, papers and effects seized under the search warrant herein nullified, and from using
the same against petitioners in any criminal or other proceeding. No pronouncement as to costs.

G.R. No. 119761 August 29, 1996

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO
CORPORATION, respondents.

VITUG, J.:p

The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent
Court of Appeals 1 affirming the 10th August 1994 decision and the 11th October 1994 resolution of the Court of
Tax Appeals 2 ("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco Corporation vs. Liwayway Vinzons-
Chato in her capacity as Commissioner of Internal Revenue."

The facts, by and large, are not in dispute.

Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of
cigarettes.

On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark
registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January 1987, of then
Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential
Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,'
and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign
companies. However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury' and 'More' to
'Premium More,' thereby removing the said brands from the foreign brand category. Proof was also submitted to
the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation register
and therefore a local brand." 3 Ad Valorem taxes were imposed on these brands, 4 at the following rates:

BRAND AD VALOREM TAX RATE

E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90

Hope Luxury M. 100's

Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5

A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June 1993, by the
legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new law
became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue Code
("NIRC") to read; as follows:

Sec. 142. Cigars and Cigarettes.

xxx xxx xxx

 (c) Cigarettes packed by machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below based on the constructive
manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is
higher:

(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five
percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five
(55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.

(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the
minimum tax shall not be less than Three Pesos (P3.00) per pack.

xxx xxx xxx

When the registered manufacturer's wholesale price or the actual manufacturer's wholesale
price whichever is higher of existing brands of cigarettes, including the amounts intended to
cover the taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty
centavos (P4.80) per pack, the rate shall be twenty percent (20%). 7 (Emphasis supplied)

About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue
Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which
expressed:

REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS

J
u
l
y
1
,
1
9
9
3

REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT: Reclassification of Cigarettes Subject to Excise Tax

TO: All Internal Revenue Officers and Others Concerned.

In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes which
are locally manufactured are appropriately considered as locally manufactured cigarettes
bearing a foreign brand, this Office is compelled to review the previous rulings on the matter.

Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides:
 On locally manufactured cigarettes bearing a foreign brand, fifty-five percent
(55%) Provided, That this rate shall apply regardless of whether or not the
right to use or title to the foreign brand was sold or transferred by its owner to
the local manufacturer. Whenever it has to be determined whether or not a
cigarette bears a foreign brand, the listing of brands manufactured in foreign
countries appearing in the current World Tobacco Directory shall govern.

Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the
locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to
use or title to the foreign brand was sold or transferred by its owner to the local manufacturer.
The brand must be originally owned by a foreign manufacturer or producer. If ownership of the
cigarette brand is, however, not definitely determinable, ". . . the listing of brands manufactured
in foreign countries appearing in the current World Tobacco Directory shall govern. . . ."

"HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco,
Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said directory as being
manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald
Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g)
Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j)
R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J.
Reynolds, USA. "Champion" is registered in the said directory as being manufactured by (a)
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune
Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.

Since there is no showing who among the above-listed manufacturers of the cigarettes bearing
the said brands are the real owner/s thereof, then it follows that the same shall be considered
foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the
National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in
cases where it cannot be established or there is dearth of evidence as to whether a brand is
foreign or not, resort to the World Tobacco Directory should be made."

In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and
"CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby considered
locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on
cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

(SGD) LIWAYWAY
VINZONS-CHATO
Commissioner

On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent via
telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On 15
July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93.

In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco
requested for a review, reconsideration and recall of RMC 37-93. The request was denied on 29 July
1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax
deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8

On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:

WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of

cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad
valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when
R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY
CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as
amended by R.A. No. 7654 and were therefore still classified as other locally manufactured
cigarettes and taxed at 45% or 20% as the case may be.

Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco
Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby
canceled for lack of legal basis.

Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the

deficiency tax assessment made and issued on petitioner in relation to the implementation of
RMC No. 37-93.

SO ORDERED. 9

In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for
reconsideration.

The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th
August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate court's
Special Thirteenth Division affirmed in all respects the assailed decision and resolution.

In the instant petition, the Solicitor General argues: That

I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF

INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX
CODE.

II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION

OF RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW
CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY,
EFFECTIVITY AND ENFORCEABILITY.

III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR

RMC 37-93 ON JULY 2, 1993.

IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL

LOCALLY MANUFACTURED CIGARETTES SIMILARLY SITUATED AS
"HOPE," "MORE" AND "CHAMPION" CIGARETTES.
 V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM
RECLASSIFYING "HOPE," "MORE" AND "CHAMPION" CIGARETTES
BEFORE THE EFFECTIVITY OF R.A. NO. 7654.

VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS

NOT INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO
ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT. 10

In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus
become effective without any prior need for notice and hearing, nor publication, and that its issuance is
not discriminatory since it would apply under similar circumstances to all locally manufactured
cigarettes.

The Court must sustain both the appellate court and the tax court.

Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective
implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such
authority of the Commissioner is not here doubted. Like any other government agency, however, the
CIR may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative
powers.

Let us first distinguish between two kinds of administrative issuances a legislative rule and
an interpretative rule.

In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, 11 the
Court expressed:

. . . a legislative rule is in the nature of subordinate legislation, designed to implement a primary

legislation by providing the details thereof . In the same way that laws must have the benefit of
public hearing, it is generally required that before a legislative rule is adopted there must be
hearing. In this connection, the Administrative Code of 1987 provides:

Public Participation. If not otherwise required by law, an agency shall, as far as practicable,
publish or circulate notices of proposed rules and afford interested parties the opportunity to
submit their views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall
have been published in a newspaper of general circulation at least two (2) weeks before the
first hearing thereon.

(3) In case of opposition, the rules on contested cases shall be observed.

In addition such rule must be published. On the other hand, interpretative rules are designed to
provide guidelines to the law which the administrative agency is in charge of enforcing. 12

It should be understandable that when an administrative rule is merely interpretative in nature, its
applicability needs nothing further than its bare issuance for it gives no real consequence more than
what the law itself has already prescribed. When, upon the other hand, the administrative rule goes
beyond merely providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially adds to or increases the burden of those governed, it
behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter
to be duly informed, before that new issuance is given the force and effect of law.

A reading of RMC 37-93, particularly considering the circumstances under which it has been issued,
convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the
process the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the
NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury,"
"Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing
foreign brands and to thereby have them covered by RA 7654. Specifically, the new law would have its
amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were
not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope
Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured
cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the
enactment of RA 7654, would have had no new tax rate consequence on private respondent's
products. Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes
within the scope of the amendatory law and subject them to an increased tax rate, the now disputed
RMC 37-93 had to be issued. In so doing, the BIR not simply intrepreted the law; verily, it legislated
under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and
of publication should not have been then ignored.

Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

RMC NO. 10-86

Effectivity of Internal Revenue Rules and Regulations

It has been observed that one of the problem areas bearing on compliance with Internal
Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying
public. Unless there is due notice, due compliance therewith may not be reasonably expected.
And most importantly, their strict enforcement could possibly suffer from legal infirmity in the
light of the constitutional provision on "due process of law" and the essence of the Civil Code
provision concerning effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art.
IV, Constitution; Art. 2, New Civil Code).

In order that there shall be a just enforcement of rules and regulations, in conformity with the
basic element of due process, the following procedures are hereby prescribed for the drafting,
issuance and implementation of the said Revenue Tax Issuances:

(1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue
Audit Memorandum Orders; and (c) Revenue Memorandum Circulars and
Revenue Memorandum Orders bearing on internal revenue tax rules and
regulations.

(2) Except when the law otherwise expressly provides, the aforesaid internal
revenue tax issuances shall not begin to be operative until after due notice
thereof may be fairly presumed.

Due notice of the said issuances may be fairly presumed only after the
following procedures have been taken;

xxx xxx xxx

 (5) Strict compliance with the foregoing procedures is
enjoined. 13

Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and
comply with the above requirements before giving effect to its questioned circular.

Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.

Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and
equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated
alike or put on equal footing both in privileges and liabilities. 14 Thus, all taxable articles or kinds of
property of the same class must be taxed at the same rate 15 and the tax must operate with the same
force and effect in every place where the subject may be found.

Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes
and, unless petitioner would be willing to concede to the submission of private respondent that the
circular should, as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his separate
opinion, be considered adjudicatory in nature and thus violative of due process following the Ang
Tibay 16 doctrine, the measure suffers from lack of uniformity of taxation. In its decision, the CTA has
keenly noted that other cigarettes bearing foreign brands have not been similarly included within the
scope of the circular, such as

1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.

(a) "PALM TREE" is listed as manufactured by office of Monopoly, Korea

(Exhibit "R")

2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY

(a) "GOLDEN KEY" is listed being manufactured by United Tobacco, Pakistan

(Exhibit "S")

(b) "CANNON" is listed as being manufactured by Alpha Tobacco, Bangladesh

(Exhibit "T")

3. Locally manufactured by LA PERLA INDUSTRIES, INC.

(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia

(Exhibit "U")

(b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks, Sweden

(Exhibit "V-1")

4. Locally manufactured by MIGHTY CORPORATION

(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia

(Exhibit "U-1")

5. Locally manufactured by STERLING TOBACCO CORPORATION

 (a) "UNION" is listed as being manufactured by Sumatra Tobacco, Indonesia
and Brown and Williamson, USA (Exhibit "U-3")

(b) "WINNER" is listed as being manufactured by Alpha Tobacco, Bangladesh;

Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan;
Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit "U-4"). 17

The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the
Committee on Ways and Means of the House of Representatives; viz:

THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't have
specific information on other tobacco manufacturers. Now, there are other brands which are
similarly situated. They are locally manufactured bearing foreign brands. And may I enumerate
to you all these brands, which are also listed in the World Tobacco Directory . . . Why were
these brand not reclassified at 55 if your want to give a level playing filed to foreign
manufacturers?

MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum
Circular that was supposed to come after RMC No. 37-93 which have really named specifically
the list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes and
includes all these brands that you mentioned at 55 percent except that at that time, when we
had to come up with this, we were forced to study the brands of Hope, More and Champion
because we were given documents that would indicate the that these brands were actually
being claimed or patented in other countries because we went by Revenue Memorandum
Circular 1488 and we wanted to give some rationality to how it came about but we couldn't find
the rationale there. And we really found based on our own interpretation that the only test that
is given by that existing law would be registration in the World Tobacco Directory. So we came
out with this proposed revenue memorandum circular which we forwarded to the Secretary of
Finance except that at that point in time, we went by the Republic Act 7654 in Section 1 which
amended Section 142, C-1, it said, that on locally manufactured cigarettes which are currently
classified and taxed at 55 percent. So we were saying that when this law took effect in July 3
and if we are going to come up with this revenue circular thereafter, then I think our action
would really be subject to question but we feel that . . . Memorandum Circular Number 37-93
would really cover even similarly situated brands. And in fact, it was really because of the
study, the short time that we were given to study the matter that we could not include all the
rest of the other brands that would have been really classified as foreign brand if we went by
the law itself. I am sure that by the reading of the law, you would without that ruling by
Commissioner Tan they would really have been included in the definition or in the classification
of foregoing brands. These brands that you referred to or just read to us and in fact just for your
information, we really came out with a proposed revenue memorandum circular for those
brands. (Emphasis supplied)

(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).

xxx xxx xxx

MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I felt that we
. . . I wanted to come up with a more extensive coverage and precisely why I asked that
revenue memorandum circular that would cover all those similarly situated would be prepared
but because of the lack of time and I came out with a study of RA 7654, it would not have been
 possible to really come up with the reclassification or the proper classification of all brands that
are listed there. . . (emphasis supplied) (Exhibit "FF-2d," page IX-1)

xxx xxx xxx

HON. DIAZ. But did you not consider that there are similarly situated?

MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue
Memorandum Circular No. 37-93, the other brands came about the would have also clarified
RMC 37-93 by I was saying really because of the fact that I was just recently appointed and the
lack of time, the period that was allotted to us to come up with the right actions on the matter,
we were really caught by the July 3 deadline. But in fact, We have already prepared a revenue
memorandum circular clarifying with the other . . . does not yet, would have been a list of locally
manufactured cigarettes bearing a foreign brand for excise tax purposes which would include
all the other brands that were mentioned by the Honorable Chairman. (Emphasis supplied)
(Exhibit "FF-2-d," par. IX-4). 18

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and
effective administrative issuance.

WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED.
No costs.

SO ORDERED.

Kapunan, J., concurs.

G.R. No. L-66653 June 19, 1986

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents.

Sycip, Salazar, Feliciano & Hernandez Law Office for private respondent.

PARAS, J.:

Petition for certiorari to review and set aside the Decision dated June 27, 1983 of respondent Court of Tax
Appeals in its C.T.A. Case No. 3204, entitled "Burroughs Limited vs. Commissioner of Internal Revenue" which
ordered petitioner Commissioner of Internal Revenue to grant in favor of private respondent Burroughs Limited,
tax credit in the sum of P172,058.90, representing erroneously overpaid branch profit remittance tax.

Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through
a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro Manila.

Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to its parent
company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch
profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of P6,499,999.30
computed as follows:

Amount applied for remittance................................ P7,647,058.00

Deduct: 15% branch profit

remittance tax ..............................................1,147,058.70

Net amount actually remitted.................................. P6,499,999.30

Claiming that the 15% profit remittance tax should have been computed on the basis of the amount actually
remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), private
respondent filed on December 24, 1980, a written claim for the refund or tax credit of the amount of
P172,058.90 representing alleged overpaid branch profit remittance tax, computed as follows:

Profits actually remitted .........................................P6,499,999.30

Remittance tax rate .......................................................15%

Branch profit remittance tax-

due thereon ......................................................P 974,999.89

Branch profit remittance

tax paid .............................................................Pl,147,058.70

Less: Branch profit remittance

tax as above computed................................................. 974,999.89

Total amount refundable........................................... P172,058.81

On February 24, 1981, private respondent filed with respondent court, a petition for review, docketed as C.T.A.
Case No. 3204 for the recovery of the above-mentioned amount of P172,058.81.

On June 27, 1983, respondent court rendered its Decision, the dispositive portion of which reads

ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to grant a tax credit in favor of
petitioner Burroughs Limited the amount of P 172,058.90. Without pronouncement as to costs.

SO ORDERED.

Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the instant petition before this
Court with the prayers as herein earlier stated upon the sole issue of whether the tax base upon which the 15%
branch profit remittance tax shall be imposed under the provisions of section 24(b) of the Tax Code, as
amended, is the amount applied for remittance on the profit actually remitted after deducting the 15% profit
remittance tax. Stated differently is private respondent Burroughs Limited legally entitled to a refund of the
aforementioned amount of P172,058.90.
We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii) which
states:

Sec. 24. Rates of tax on corporations....

(b) Tax on foreign corporations. ...

(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head
office shall be subject to a tax of fifteen per cent (15 %) ...

In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal
Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon
which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not
on the total branch profits out of which the remittance is to be made. " The said ruling is hereinbelow quoted as
follows:

In reply to your letter of November 3, 1978, relative to your query as to the tax base upon which
the 15% branch profits remittance tax provided for under Section 24 (b) (2) of the 1977 Tax
Code shall be imposed, please be advised that the 15% branch profit tax shall be imposed on
the branch profits actually remitted abroad and not on the total branch profits out of which the
remittance is to be made.

Please be guided accordingly.

Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an overpayment in the
amount of P172,058.90 which is the difference between the remittance tax actually paid of Pl,147,058.70 and
the remittance tax that should have been paid of P974,999,89, computed as follows

Profits actually remitted......................................... P6,499,999.30

Remittance tax rate.............................................................. 15%

Remittance tax due................................................... P974,999.89

is well-taken. As correctly held by respondent Court in its assailed decision-

Respondent concedes at least that in his ruling dated January 21, 1980 he held that under
Section 24 (b) (2) of the Tax Code the 15% branch profit remittance tax shall be imposed on
the profit actually remitted abroad and not on the total branch profit out of which the remittance
is to be made. Based on such ruling petitioner should have paid only the amount of
P974,999.89 in remittance tax computed by taking the 15% of the profits of P6,499,999.89 in
remittance tax actually remitted to its head office in the United States, instead of Pl,147,058.70,
on its net profits of P7,647,058.00. Undoubtedly, petitioner has overpaid its branch profit
remittance tax in the amount of P172,058.90.

Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82
dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum
circular states
 Considering that the 15% branch profit remittance tax is imposed and collected at source,
necessarily the tax base should be the amount actually applied for by the branch with the
Central Bank of the Philippines as profit to be remitted abroad.

Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue
Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance tax
in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given
retroactive effect in the light of Section 327 of the National Internal Revenue Code which provides-

Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the
rules and regulations promulgated in accordance with the preceding section or any of the
rulings or circulars promulgated by the Commissioner shag not be given retroactive application
if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the
following cases (a) where the taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of Internal Revenue; (b) where the
facts subsequently gathered by the Bureau of Internal Revenue are materially different from the
facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN
Broadcasting Corp. v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a retroactive application of
Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of
P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited does
not fall under any of them.

WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED. No
pronouncement as to costs.

SO ORDERED.

G.R. No. L-52306 October 12, 1981

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL REVENUE, respondents.

MELENCIO-HERRERA, J.:

This is a Petition for Review on certiorari of the Decision of the Court of Tax Appeals in C.T.A. Case No. 2809,
dated November 29, 1979, which affirmed the assessment by the Commissioner of Internal Revenue, dated
April 16, 1971, of a deficiency withholding income tax against petitioner, ABS-CBN Broadcasting Corporation,
for the years 1965, 1966, 1967 and 1968 in the respective amounts of P75,895.24, P99,239.18, P128,502.00
and P222, 260.64, or a total of P525,897.06.

During the period pertinent to this case, petitioner corporation was engaged in the business of telecasting local
as well as foreign films acquired from foreign corporations not engaged in trade or business within the
Philippines. for which petitioner paid rentals after withholding income tax of 30%of one-half of the film rentals.
In so far as the income tax on non-resident corporations is concerned, section 24 (b) of the National Internal
Revenue Code, as amended by Republic Act No. 2343 dated June 20, 1959, used to provide:

(b) Tax on foreign corporations.(1) Non-resident corporations. There shall be levied,

collected, and paid for each taxable year, in lieu of the tax imposed by the preceding
paragraph, upon the amount received by every foreign corporation not engaged in trade or
business within the Philippines, from an sources within the Philippines, as interest, dividends,
rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or
other fixed or determinable annual or periodical gains, profits, and income, a tax equal to
thirty per centum of such amount. (Emphasis supplied)

On April 12, 1961, in implementation of the aforequoted provision, the Commissioner of Internal Revenue
issued General Circular No. V-334 reading thus:

In connection with Section 24 (b) of Tax Code, the amendment introduced by Republic Act No.
2343, under which an income tax equal to 30% is levied upon the amount received by every
foreign corporation not engaged in trade or business within the Philippines from all sources
within this country as interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or determinable annual or
periodical gains, profits, and income, it has been determined that the tax is still imposed on
income derived from capital, or labor, or both combined, in accordance with the basic principle
of income taxation (Sec. 39, Income Tax Regulations), and that a mere return of capital or
investment is not income (Par. 5,06, 1 Mertens Law of Federal 'Taxation). Since according to
the findings of the Special Team who inquired into business of the non-resident foreign film
distributors, the distribution or exhibition right on a film is invariably acquired for a
consideration, either for a lump sum or a percentage of the film rentals, whether from a parent
company or an independent outside producer, apart of the receipts of a non-resident foreign
film distributor derived from said film represents, therefore, a return of investment.

xxx xxx xxx

4. The local distributor should withhold 30% of one-half of the film rentals paid to the non-
resident foreign film distributor and pay the same to this office in accordance with law unless
the non- resident foreign film distributor makes a prior settlement of its income tax liability.
(Emphasis ours).

Pursuant to the foregoing, petitioner dutifully withheld and turned over to the Bureau of Internal Revenue the
amount of 30% of one-half of the film rentals paid by it to foreign corporations not engaged in trade or business
within the Philippines. The last year that petitioner withheld taxes pursuant to the foregoing Circular was in
1968.

On June 27, 1968, Republic Act No. 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from
30 % to 35 % and revising the tax basis from "such amount" referring to rents, etc. to "gross income," as
follows:

(b) Tax on foreign corporations.(1) Non-resident corporations.A foreign corporation not

engaged in trade or business in the Philippines including a foreign life insurance company not
engaged in the life insurance business in the Philippines shall pay a tax equal to thirty-five per
cent of the gross income received during each taxable year from all sources within the
Philippines, as interests, dividends, rents, royalties, salaries, wages, premiums, annuities,
 compensations, remunerations for technical services or otherwise, emoluments or other fixed
or determinable annual, periodical or casual gains, profits, and income, and capital
gains, Provided however, That premiums shah not include reinsurance premiums. (Emphasis
supplied)

On February 8, 1971, the Commissioner of Internal Revenue issued Revenue Memorandum Circular No. 4-71,
revoking General Circular No. V-334, and holding that the latter was "erroneous for lack of legal basis," because
"the tax therein prescribed should be based on gross income without deduction whatever," thus:

After a restudy and analysis of Section 24 (b) of the National Internal Revenue Code, as
amended by Republic Act No. 5431, and guided by the interpretation given by tax authorities to
a similar provision in the Internal Revenue Code of the United States, on which the
aforementioned provision of our Tax Code was patterned, this Office has come to the
conclusion that the tax therein prescribed should be based on gross income without t deduction
whatever. Consequently, the ruling in General Circular No. V-334, dated April 12, 1961,
allowing the deduction of the proportionate cost of production or exhibition of motion picture
films from the rental income of non- resident foreign corporations, is erroneous for lack of legal
basis.

In view thereof, General Circular No. V-334, dated April 12, 1961, is hereby revoked and
henceforth, local films distributors and exhibitors shall deduct and withhold 35% of the entire
amount payable by them to non-resident foreign corporations, as film rental or royalty, or
whatever such payment may be denominated, without any deduction whatever, pursuant to
Section 24 (b), and pay the withheld taxes in accordance with Section 54 of the Tax Code, as
amended.

All rulings inconsistent with this Circular is likewise revoked. (Emphasis ours)

On the basis of this new Circular, respondent Commissioner of Internal Revenue issued against petitioner a
letter of assessment and demand dated April 15, 1971, but allegedly released by it and received by petitioner
on April 12, 1971, requiring them to pay deficiency withholding income tax on the remitted film rentals for the
years 1965 through 1968 and film royalty as of the end of 1968 in the total amount of P525,897.06 computed as
follows:

1965

Total amount remitted P 511,059.48

Withholding tax due 153,318.00

thereon

Less: Amount already 89,000.00

assessed

Balance P64,318.00

Add: 1/2% mo. int. fr. 4-16- 11,577.24

66 to 4-16-69
 Total amount due & P 75,895.24
collectible

1966

Total amount remitted P373,492.24

Withholding tax due 112,048.00

thereon

Less: Amount already 27,947.00

assessed

Balance 84,101.00

Add: 11/2%mo. int. fr. 4- 15,138.18

16-67 to 4-116-70

Total amount due & P99,239.18

collectible

1967

Total amount P601,160.65

remitted

Withholding tax due 180,348.00

thereon

Less: Amount 71,448.00

already assessed

Balance 108,900.00

Add: 1/2% mo. int. fr. 19,602.00

4-16-68 to 4-16-71

Total amount due & P128,502.00

collectible

1968

Total amount remitted P881,816.92

Withholding tax due 291,283.00

thereon

Less: Amount already 92,886.00

assessed
 Balance P198,447.00

Add: 1/2% mo. int. fr. 4- 23,813.64

16-69 to 4-29-71

Total amount due & P222,260.44 1

collectible

On May 5, 1971, petitioner requested for a reconsideration and withdrawal of the assessment. However, without
acting thereon, respondent, on April 6, 1976, issued a warrant of distraint and levy over petitioner's personal as
well as real properties. The petitioner then filed its Petition for Review with the Court of Tax Appeals whose
Decision, dated November 29, 1979, is, in turn, the subject of this review. The Tax Court held:

For the reasons given, the Court finds the assessment issued by respondent on April 16, 1971
against petitioner in the amounts of P75,895.24, P 99,239.18, P128,502.00 and P222,260.64 or
a total of P525,897.06 as deficiency withholding income tax for the years 1965, 1966, 1967 and
1968, respectively, in accordance with law. As prayed for, the petition for review filed in this
case is dismissed, and petitioner ABS-CBN Broadcasting Corporation is hereby ordered to pay
the sum of P525,897.06 to respondent Commissioner of Internal Revenue as deficiency
withholding income tax for the taxable years 1965 thru 1968, plus the surcharge and interest
which have accrued thereon incident to delinquency pursuant to Section 51 (e) of the National
Internal Revenue Code, as amended.

WHEREFORE, the decision appealed from is hereby affirmed at petitioner's cost.

SO ORDERED. 2

The issues raised are two-fold:

I. Whether or not respondent can apply General Circular No. 4-71 retroactively and issue a
deficiency assessment against petitioner in the amount of P 525,897.06 as deficiency
withholding income tax for the years 1965, 1966, 1967 and 1968.

II. Whether or not the right of the Commissioner of Internal Revenue to assess the deficiency
withholding income tax for the year 196,5 has prescribed. 3

Upon the facts and circumstances of the case, review is warranted.

In point is Sec. 338-A (now Sec. 327) of the Tax Code. As inserted by Republic Act No. 6110 on August 9,
1969, it provides:

Sec. 338-A. Non-retroactivity of rulings. Any revocation, modification, or reversal of and of

the rules and regulations promulgated in accordance with the preceding section or any of the
rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given
retroactive application if the relocation, modification, or reversal will be prejudicial to the
taxpayers, except in the following cases: (a) where the taxpayer deliberately mis-states or
omits material facts from his return or any document required of him by the Bureau of Internal
Revenue: (b) where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based; or (c) where the taxpayer acted
in bad faith. (italics for emphasis)
It is clear from the foregoing that rulings or circulars promulgated by the Commissioner of Internal Revenue
have no retroactive application where to so apply them would be prejudicial to taxpayers. The prejudice to
petitioner of the retroactive application of Memorandum Circular No. 4-71 is beyond question. It was issued only
in 1971, or three years after 1968, the last year that petitioner had withheld taxes under General Circular No. V-
334. The assessment and demand on petitioner to pay deficiency withholding income tax was also made three
years after 1968 for a period of time commencing in 1965. Petitioner was no longer in a position to withhold
taxes due from foreign corporations because it had already remitted all film rentals and no longer had any
control over them when the new Circular was issued. And in so far as the enumerated exceptions are
concerned, admittedly, petitioner does not fall under any of them.

Respondent claims, however, that the provision on non-retroactivity is inapplicable in the present case in that
General Circular No. V-334 is a nullity because in effect, it changed the law on the matter. The Court of Tax
Appeals sustained this position holding that: "Deductions are wholly and exclusively within the power of
Congress or the law-making body to grant, condition or deny; and where the statute imposes a tax equal to a
specified rate or percentage of the gross or entire amount received by the taxpayer, the authority of some
administrative officials to modify or change, much less reduce, the basis or measure of the tax should not be
read into law." 4 Therefore, the Tax Court concluded, petitioner did not acquire any vested right thereunder as
the same was a nullity.

The rationale behind General Circular No. V-334 was clearly stated therein, however: "It ha(d) been determined
that the tax is still imposed on income derived from capital, or labor, or both combined, in accordance with the
basic principle of income taxation ...and that a mere return of capital or investment is not income ... ." "A part of
the receipts of a non-resident foreign film distributor derived from said film represents, therefore, a return of
investment." The Circular thus fixed the return of capital at 50% to simplify the administrative chore of
determining the portion of the rentals covering the return of capital." 5

Were the "gross income" base clear from Sec. 24 (b), perhaps, the ratiocination of the Tax Court could be
upheld. It should be noted, however, that said Section was not too plain and simple to understand. The fact that
the issuance of the General Circular in question was rendered necessary leads to no other conclusion than that
it was not easy of comprehension and could be subjected to different interpretations.

In fact, Republic Act No. 2343, dated June 20, 1959, supra, which was the basis of General Circular No. V-334,
was just one in a series of enactments regarding Sec. 24 (b) of the Tax Code. Republic Act No. 3825 came next
on June 22, 1963 without changing the basis but merely adding a proviso (in bold letters).

(b) Tax on foreign corporation.(1) Non-resident corporations. There shall be levied,

collected and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph,
upon the amount received by every foreign corporation not engaged in trade or business within
the Philippines, from all sources within the Philippines, as interest, dividends, rents, salaries,
wages, premiums annuities, compensations, remunerations, emoluments, or other fixed or
determinable annual or periodical gains, profits, and income, a tax equal to thirty per centum of
such amount: PROVIDED, HOWEVER, THAT PREMIUMS SHALL NOT INCLUDE
REINSURANCE PREMIUMS. (double emphasis ours).

Republic Act No. 3841, dated likewise on June 22, 1963, followed after, omitting the proviso and inserting some
words (also in bold letters).

(b) Tax on foreign corporations.(1) Non-resident corporations.There shall be levied,

collected and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph,
upon the amount received by every foreign corporation not engaged in trade or business within
 the Philippines, from all sources within the Philippines, as interest, dividends, rents, salaries,
wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or
determinable annual or periodical OR CASUAL gains, profits and income, AND CAPITAL
GAINS, a tax equal to thirty per centum of such amount. 6 (double emphasis supplied)

The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in this case.
It provides that "the re-enactment of a statute substantially unchanged is persuasive indication of the adoption
by Congress of a prior executive construction. 7 Note should be taken of the fact that this case involves not a
mere opinion of the Commissioner or ruling rendered on a mere query, but a Circular formally issued to "all
internal revenue officials" by the then Commissioner of Internal Revenue.

It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of Revenue
Memorandum Circular No. 4-71, that Sec. 24 (b) was amended to refer specifically to 35% of the "gross
income."

This Court is not unaware of the well-entrenched principle that the Government is never estopped from
collecting taxes because of mistakes or errors on the part of its
agents. 8 In fact, utmost caution should be taken in this regard. 9 But, like other principles of law, this also
admits of exceptions in the interest of justice and fairplay. The insertion of Sec. 338-A into the National Internal
Revenue Code, as held in the case of Tuason, Jr. vs. Lingad, 10 is indicative of legislative intention to support
the principle of good faith. In fact, in the United States, from where Sec. 24 (b) was patterned, it has been held
that the Commissioner of Collector is precluded from adopting a position inconsistent with one previously taken
where injustice would result therefrom, 11 or where there has been a misrepresentation to the taxpayer. 12

We have also noted that in its Decision, the Court of Tax Appeals further required the petitioner to pay interest
and surcharge as provided for in Sec. 51 (e) of the Tax Code in addition to the deficiency withholding tax of P
525,897.06. This additional requirement is much less called for because the petitioner relied in good faith and
religiously complied with no less than a Circular issued "to all internal revenue officials" by the highest official of
the Bureau of Internal Revenue and approved by the then Secretary of Finance. 13

With the foregoing conclusions arrived at, resolution of the issue of prescription becomes unnecessary.

WHEREFORE, the judgment of the Court of Tax Appeals is hereby reversed, and the questioned assessment
set aside. No costs.

SO ORDERED.

G.R. No. 81446 August 18, 1988

BONIFACIA SY PO, petitioner,

vs.
HONORABLE COURT OF TAX APPEALS AND HONORABLE COMMISSIONER OF INTERNAL
REVENUE, respondents.

Basilio E. Duaban for petitioner.

SARMIENTO, J.:
This is an appeal from the decision 1 of the respondent Court of Tax Appeals, dated September 30,1987, which
affirmed an earlier decision of the correspondent Commissioner of Internal Revenue in assessment letters
dated August 16, 1972 and September 26, 1972, which ordered the payment by the petitioner of deficiency
income tax for 1966 to 1970 in the amount of P7,154,685.16 and deficiency specific tax for January 2, 1964 to
January 19, 1972, in the amount of P5,595,003.68.

We adopt the respondent court's finding of facts, to wit:

Petitioner is the widow of the late Mr. Po Bien Sing who died on September 7, 1980. In the
taxable years 1964 to 1972, the deceased Po Bien Sing was the sole proprietor of Silver Cup
Wine Factory (Silver Cup for brevity), Talisay, Cebu. He was engaged in the business of
manufacture and sale of compounded liquors, using alcohol and other ingredients as raw
materials.

On the basis of a denunciation against Silver Cup allegedly "for tax evasion amounting to
millions of pesos" the then Secretary of Finance Cesar Virata directed the Finance-BIR--NBI
team constituted under Finance Department Order No. 13-70 dated February 19, 1971 (Exh- 3,
pp. 532-553, Folder II, BIR rec.) to conduct the corresponding investigation in a memorandum
dated April 2, 1971 (p. 528, Folder II, BIR rec.). Accordingly, a letter and a subpoena duces
tecum dated April 13,1971 and May 3,1971, respectively, were issued against Silver Cup
requesting production of the accounting records and other related documents for the
examination of the team. (Exh. 11, pp. 525-526, Folder II, BIR rec.). Mr. Po Bien Sing did not
produce his books of accounts as requested (Affidavit dated December 24, 1971 of Mr.
Generoso. Quinain of the team, p. 525, Folder H, BIR rec.). This prompted the team with the
assistance of the PC Company, Cebu City, to enter the factory bodega of Silver Cup and
seized different brands, consisting of 1,555 cases of alcohol products. (Exh. 22, Memorandum
Report of the Team dated June 5, 1971, pp. 491-492, Folder II, BIR rec.). The inventory lists of
the seized alcohol products are contained in Volumes I, II, III, IV and V (Exhibits 14, 15, 16, 17,
and 18, respectively, BIR rec.). On the basis of the team's report of investigation, the
respondent Commissioner of Internal Revenue assessed Mr. Po Bien Sing deficiency income
tax for 1966 to 1970 in the amount of P7,154,685.16 (Exh. 6 pp. 17-19, Folder I, BIR rec.) and
for deficiency specific tax for January 2,1964 to January 19, 1972 in the amount of
P5,595,003.68 (Exh. 8, p. 107, Folder I, BIR rec.).

Petitioner protested the deficiency assessments through letters dated October 9 and October
30, 1972 (Exhs. 7 and 9, pp. 27-28; pp. 152-159, respectively, BIR rec.), which protests were
referred for reinvestigation. The corresponding report dated August 13, 1981 (Exh. 1 0, pp.
355, Folder I, BIR rec.) recommended the reiteration of the assessments in view of the
taxpayer's persistent failure to present the books of accounts for examination (Exh. 8, p. 107,
Folder I, BIR rec.), compelling respondent to issue warrants of distraint and levy on September
10, 1981 (Exh. 11, p. 361, Folder I, BIR rec.).

The warrants were admittedly received by petitioner on October 14, 1981 (Par. IX, Petition;
admitted par. 2, Answer), which petitioner deemed respondent's decision denying her protest
on the subject assessments. Hence, petitioner's appeal on October 29,1981. 2

The petitioner assigns the following errors:

I
RESPONDENT INTENTIONALLY ERRED IN HOLDING THAT PETITIONER HAS NOT PRESENTED ANY
EVIDENCE OF RELEVANCE AND COMPETENCE REQUIRED TO BASH THE TROUBLING
DISCREPANCIES AND SQUARE THE ISSUE OF ILLEGALITY POSITED ON THE SUBJECT
ASSESSMENTS.

II

RESPONDENT COURT OF TAX APPEALS PALPABLY ERRED IN DECIDING THE CASE IN A WAY
CONTRARY TO THE DOCTRINES ALREADY LAID DOWN BY THIS COURT.

III

RESPONDENT COURT OF TAX APPEALS GRAVELY ERRED IN FINDING PO BEEN SING TO HAVE
INCURRED THE ALLEGED DEFICIENCY TAXES IN QUESTION. 3

We affirm.

Settled is the rule that the factual findings of the Court of Tax Appeals are binding upon this Honorable Court
and can only be disturbed on appeal if not supported by substantial evidence.4

The assignments of errors boils down to a single issue previously raised before the respondent Court, i.e.,
whether or not the assessments have valid and legal bases.

The applicable legal provision is Section 16(b) of the National Internal Revenue Code of 1977 as amended. It
reads:

Sec. 16. Power of the Commissioner of Internal Revenue to make assessments.

xxx xxx xxx

(b) Failure to submit required returns, statements, reports and other documents. - When a
report required by law as a basis for the assessment of an national internal revenue tax shall
not be forthcoming within the time fixed by law or regulation or when there is reason to believe
that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue
shall assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law,
or willfully or otherwise, files a false or fraudulent return or other documents, the Commissioner
shall make or amend the return from his own knowledge and from such information as he can
obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all
legal purposes.

The law is specific and clear. The rule on the "best evidence obtainable" applies when a tax report required by
law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent.

In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner to present their books
of accounts for examination for the taxable years involved left the Commissioner of Internal Revenue no other
legal option except to resort to the power conferred upon him under Section 16 of the Tax Code.
The tax figures arrived at by the Commissioner of Internal Revenue are by no means arbitrary. We reproduce
the respondent court's findings, to wit:

As thus shown, on the basis of the quantity of bottles of wines seized during the raid and the
sworn statements of former employees Messrs. Nelson S. Po and Alfonso Po taken on May 26,
and 27,1971, respectively, by the investigating team in Cebu City (Exhs. 4 and 5, pp. 514-517,
pp. 511-513, Folder 11, BIR rec.), it was ascertained that the Silver Cup for the years 1964 to
1970, inclusive, utilized and consumed in the manufacture of compounded liquours and other
products 20,105 drums of alcohol as raw materials 81,288,787 proof liters of alcohol. As
determined, the total specific tax liability of the taxpayer for 1964 to 1971 amounted to
P5,593,003.68 (Exh. E, petition, p. 10, CTA rec.)

Likewise, the team found due from Silver Cup deficiency income taxes for the years 1966 to
1970 inclusive in the aggregate sum of P7,154,685.16, as follows:

1966 P207,636.24

1967 645,335.04

1968 1,683,588.48

1969 1,589,622.48

1970 3,028,502.92

Total amount due.

and collectible P7,154,685.16

The 50% surcharge has been imposed, pursuant to Section 72 * of the Tax Code and tax 1/2% monthly interest
has likewise been imposed pursuant to the provision of Section 51(d) ** of the Tax Code (Exh. O, petition). 5

The petitioner assails these assessments as wrong.

In the case of Collector of Internal Revenue vs. Reyes, 6 we ruled:

Where the taxpayer is appealing to the tax court on the ground that the Collector's assessment
is erroneous, it is incumbent upon him to prove there what is the correct and just liability by a
full and fair disclosure of all pertinent data in his possession. Otherwise, if the taxpayer
confines himself to proving that the tax assessment is wrong, the tax court proceedings would
settle nothing, and the way would be left open for subsequent assessments and appeals in
interminable succession.

Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to
prove otherwise. 7 In the absence of proof of any irregularities in the performance of duties, an assessment duly
made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be
disturbed. 8 All presumptions are in favor of the correctness of tax assessments. 9
On the whole, we find that the fraudulent acts detailed in the decision under review had not been satisfactorily
rebutted by the petitioner. There are indeed clear indications on the part of the taxpayer to deprive the
Government of the taxes due. The Assistant Factory Superintendent of Silver Cup, Nelson Po gave the
following testimony:

Annexes "A", "A-1 " to "A-17" show that from January to December 1970, Silver Cup had used
in production 189 drums of untaxed distilled alcohol and 3,722 drums of untaxed distilled
alcohol. Can you tell us how could this be possible with the presence of a revenue inspector in
the premises of Silver Cup during working hours?

Actually, the revenue inspector or storekeeper comes around once a week on

the average. Sometimes, when the storekeeper is around in the morning and
Po Bein Sing wants to operate with untaxed alcohol as raw materials, Po Bien
Sing tells the storekeeper to go home because the factory is not going to
operate for the day. After the storekeeper leaves, the illegal operation then
begins. Untaxed alcohol is brought in from Cebu Alcohol Plant into the
compound of Silver Cup sometimes at about 6:00 A.M. or at 12:00 noon or in
the evening or even at mid-night when the storekeeper is not around. When
the storekeeper comes, he sees nothing because untaxed alcohol is brought
directly to, and stored at, a secret tunnel within the bodega itself inside the
compound of Silver Cup.

In the same vein, the factory personnel manager testified that false entries were entered in the
official register book: thus,

A As factory personnel manager and all-around handy man of Po Bien

Sing, owner of Silver Cup, these labels were entrusted to me to make the false
entries in the official register book of Silver Cup, which I did under the direction
of Po Bien Sing. (Sworn statement, p. 512, Folder II, BIR rec.) 10 (Emphasis
ours)

The existence of fraud as found by the respondents can not be lightly set aside absent substantial evidence
presented by the petitioner to counteract such finding. The findings of fact of the respondent Court of Tax
Appeals are entitled to the highest respect.11 We do not find anything in the questioned decision that should
disturb this long-established doctrine.

WHEREFORE, the Petition is DENIED. The Decision of the respondent Court of Tax Appeals is hereby
AFFIRMED. Costs against the petitioner.

SO ORDERED.

Melencio-Herrera, Paras and Padilla, JJ., concur.

G.R. No. 136975 March 31, 2005

COMMISSION OF INTERNAL REVENUE, Petitioner,

vs.
HANTEX TRADING CO., INC., respondent.

DECISION
CALLEJO, SR., J.:

Before us is a petition for review of the Decision1 of the Court of Appeals (CA) which reversed the Decision2 of
the Court of Tax Appeals (CTA) in CTA Case No. 5126, upholding the deficiency income and sales tax
assessments against respondent Hantex Trading Co., Inc.

The Antecedents

The respondent is a corporation duly organized and existing under the laws of the Philippines. Being engaged
in the sale of plastic products, it imports synthetic resin and other chemicals for the manufacture of its products.
For this purpose, it is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry)
with the Bureau of Customs under Section 1301 of the Tariff and Customs Code.

Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic
Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported
synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57.3 According to the informer,
based on photocopies of 77 Consumption Entries furnished by another informer, the 1987 importations of the
respondent were understated in its accounting records.4 Amoto submitted a report to the EIIB Commissioner
recommending that an inventory audit of the respondent be conducted by the Internal Inquiry and Prosecution
Office (IIPO) of the EIIB.5

Acting on the said report, Jose T. Almonte, then Commissioner of the EIIB, issued Mission Order No. 398-
896 dated November 14, 1989 for the audit and investigation of the importations of Hantex for 1987. The IIPO
issued subpoena duces tecum and ad testificandum for the president and general manager of the respondent to
appear in a hearing and bring the following:

1. Books of Accounts for the year 1987;

2. Record of Importations of Synthetic Resin and Calcium Carbonate for the year 1987;

3. Income tax returns & attachments for 1987; and

4. Record of tax payments.7

However, the respondents president and general manager refused to comply with the subpoena, contending
that its books of accounts and records of importation of synthetic resin and calcium bicarbonate had been
investigated repeatedly by the Bureau of Internal Revenue (BIR) on prior occasions. 8 The IIPO explained that
despite such previous investigations, the EIIB was still authorized to conduct an investigation pursuant to
Section 26-A of Executive Order No. 127. Still, the respondent refused to comply with the subpoena issued by
the IIPO. The latter forthwith secured certified copies of the Profit and Loss Statements for 1987 filed by the
respondent with the Securities and Exchange Commission (SEC).9 However, the IIPO failed to secure certified
copies of the respondents 1987 Consumption Entries from the Bureau of Customs since, according to the
custodian thereof, the original copies had been eaten by termites. 10

In a Letter dated June 28, 1990, the IIPO requested the Chief of the Collection Division, Manila International
Container Port, and the Acting Chief of the Collection Division, Port of Manila, to authenticate the machine
copies of the import entries supplied by the informer. However, Chief of the Collection Division Merlita D. Tomas
could not do so because the Collection Division did not have the original copies of the entries. Instead, she
wrote the IIPO that, as gleaned from the records, the following entries had been duly processed and released
after the payment of duties and taxes:
 IMPORTER HANTEX TRADING CO., INC. SERIES OF 1987
ENTRY NO. DATE ENTRY NO. DATE
RELEASED RELEASED
03058-87 1/30/87 50265-87 12/9/87
09120-87 3/20/87 46427-87 11/27/87
18089-87 5/21/87 30764-87 8/21/87
19439-87 6/2/87 30833-87 8/20/87
19441-87 6/3/87 34690-87 9/16/87
11667-87 4/15/87 34722-87 9/11/87
23294-87 7/7/87 43234-87 11/2/87
45478-87 11/16/87 44850-87 11/16/87
45691-87 12/2/87 44851-87 11/16/87
25464-87 7/16/87 46461-87 11/19/87
26483-87 7/23/87 46467-87 11/18/87
29950-87 8/11/87 48091-87 11-27-8711

Acting Chief of the Collection Division of the Bureau of Customs Augusto S. Danganan could not authenticate
the machine copies of the import entries as well, since the original copies of the said entries filed with the
Bureau of Customs had apparently been eaten by termites. However, he issued a certification that the following
enumerated entries were filed by the respondent which were processed and released from the Port of Manila
after payment of duties and taxes, to wit:

Hantex Trading Co., Inc.

Entry No. Date Released Entry No. Date Released
3903 1/29/87 22869 4/8/87
4414 1/20/87 19441 3/31/87
10683 2/17/87 24189 4/21/87
12611 2/24/87 26431 4/20/87
12989 2/26/87 45478 7/3/87
17050 3/13/87 26796 4/23/87
17169 3/13/87 28827 4/30/87
18089 3/16/87 31617 5/14/87
19439 4/1/87 39068 6/5/87
21189 4/3/87 42581 6/21/87
43451 6/29/87 42793 6/23/87
42795 6/23/87 45477 7/3/87
35582 not received 85830 11/13/87
45691 7/3/87 86650 not received
46187 7/8/87 87647 11/18/87
46427 7/3/87 88829 11/23/87
57669 8/12/87 92293 12/3/87
 62471 8/28/87 93292 12/7/87
63187 9/2/87 96357 12/16/87
66859 9/15/87 96822 12/15/87
67890 9/17/87 98823 not received
68115 9/15/87 99428 12/28/87
69974 9/24/87 99429 12/28/87
72213 10/2/87 99441 12/28/87
77688 10/16/87 101406 1/5/87
84253 11/10/87 101407 1/8/87
85534 11/11/87 3118 1-19-8712

Bienvenido G. Flores, Chief of the Investigation Division, and Lt. Leo Dionela, Lt. Vicente Amoto and Lt.
Rolando Gatmaitan conducted an investigation. They relied on the certified copies of the respondents Profit
and Loss Statement for 1987 and 1988 on file with the SEC, the machine copies of the Consumption Entries,
Series of 1987, submitted by the informer, as well as excerpts from the entries certified by Tomas and
Danganan.

Based on the documents/records on hand, inclusive of the machine copies of the Consumption Entries, the EIIB
found that for 1987, the respondent had importations totaling P105,716,527.00 (inclusive of advance sales tax).
Compared with the declared sales based on the Profit and Loss Statements filed with the SEC, the respondent
had unreported sales in the amount of P63,032,989.17, and its corresponding income tax liability
was P41,916,937.78, inclusive of penalty charge and interests.

EIIB Commissioner Almonte transmitted the entire docket of the case to the BIR and recommended the
collection of the total tax assessment from the respondent.13

On February 12, 1991, Deputy Commissioner Deoferio, Jr. issued a Memorandum to the BIR Assistant
Commissioner for Special Operations Service, directing the latter to prepare a conference letter advising the
respondent of its deficiency taxes.14

Meanwhile, as ordered by the Regional Director, Revenue Enforcement Officers Saturnino D. Torres and
Wilson Filamor conducted an investigation on the 1987 importations of the respondent, in the light of the
records elevated by the EIIB to the BIR, inclusive of the photocopies of the Consumption Entries. They were to
ascertain the respondents liability for deficiency sales and income taxes for 1987, if any. Per Torres and
Filamors Report dated March 6, 1991 which was based on the report of the EIIB and the documents/records
appended thereto, there was a prima facie case of fraud against the respondent in filing its 1987 Consumption
Entry reports with the Bureau of Customs. They found that the respondent had unrecorded importation in the
total amount of P70,661,694.00, and that the amount was not declared in its income tax return for 1987. The
District Revenue Officer and the Regional Director of the BIR concurred with the report.15

Based on the said report, the Acting Chief of the Special Investigation Branch wrote the respondent and invited
its representative to a conference at 10:00 a.m. of March 14, 1991 to discuss its deficiency internal revenue
taxes and to present whatever documentary and other evidence to refute the same. 16 Appended to the letter
was a computation of the deficiency income and sales tax due from the respondent, inclusive of increments:

B. Computations:
1. Cost of Sales Ratio A2/A1 85.492923%
 2. Undeclared Sales Imported A3/B1 110,079,491.61
3. Undeclared Gross Profit B2-A3 15,969,316.61
C. Deficiency Taxes Due:
1. Deficiency Income Tax B3 x 35% 5,589,261.00
50% Surcharge C1 x 50% 2,794,630.50
Interest to 2/28/91 C1 x 57.5% 3,213,825.08
Total 11,597,825.58
2. Deficiency Sales Tax
at 10% 7,290,082.72
at 20% 10,493,312.31
Total Due 17,783,395.03
Less: Advanced Sales Taxes Paid 11,636,352.00
Deficiency Sales Tax 6,147,043.03
50% Surcharge C2 x 50% 3,073,521.52
Interest to 2/28/91 5,532,338.73
Total 14,752,903.2817

The invitation was reiterated in a Letter dated March 15, 1991. In his Reply dated March 15, 1991, Mariano O.
Chua, the President and General Manager of the respondent, requested that the report of Torres and Filamor
be set aside on the following claim:

[W]e had already been investigated by RDO No. 23 under Letters of Authority Nos. 0322988 RR
dated Oct. 1, 1987, 0393561 RR dated Aug. 17, 1988 and 0347838 RR dated March 2, 1988, and re-
investigated by the Special Investigation Team on Aug. 17, 1988 under Letter of Authority No. 0357464
RR, and the Intelligence and Investigation Office on Sept. 27, 1988 under Letter of Authority No.
0020188 NA, all for income and business tax liabilities for 1987. The Economic Intelligence and
Investigation Bureau on Nov. 20, 1989, likewise, confronted us on the same information for the same
year.

In all of these investigations, save your request for an informal conference, we welcomed them and
proved the contrary of the allegation. Now, with your new inquiry, we think that there will be no end to
the problem.

Madam, we had been subjected to so many investigations and re-investigations for 1987 and nothing
came out except the payment of deficiency taxes as a result of oversight. Tax evasion through
underdeclaration of income had never been proven.18

Invoking Section 23519 of the 1977 National Internal Revenue Code (NIRC), as amended, Chua requested that
the inquiry be set aside.

The petitioner, the Commissioner of Internal Revenue, through Assistant Commissioner for Collection Jaime M.
Maza, sent a Letter dated April 15, 1991 to the respondent demanding payment of its deficiency income tax
of P13,414,226.40 and deficiency sales tax of P14,752,903.25, inclusive of surcharge and interest.20 Appended
thereto were the Assessment Notices of Tax Deficiency Nos. FAS-1-87-91-001654 and FAS-4-87-91-001655.21

On February 12, 1992, the Chief of the Accounts Receivables/Billing Division of the BIR sent a letter to the
respondent demanding payment of its tax liability due for 1987 within ten (10) days from notice, on pain of the
collection tax due via a warrant of distraint and levy and/or judicial action. 22 The Warrant of Distraint and/or
Levy23was actually served on the respondent on January 21, 1992. On September 7, 1992, it wrote the
Commissioner of Internal Revenue protesting the assessment on the following grounds:

I. THAT THE ASSESSMENT HAS NO FACTUAL AS WELL AS LEGAL BASIS, THE FACT THAT NO
INVESTIGATION OF OUR RECORDS WAS EVER MADE BY THE EIIB WHICH RECOMMENDED ITS
ISSUANCE.24

II. THAT GRANTING BUT WITHOUT ADMITTING THAT OUR PURCHASES FOR 1987 AMOUNTED
TO P105,716,527.00 AS CLAIMED BY THE EIIB, THE ASSESSMENT OF A DEFICIENCY INCOME
TAX IS STILL DEFECTIVE FOR IT FAILED TO CONSIDER OUR REAL PURCHASES
OF P45,538,694.57.25

III. THAT THE ASSESSMENT OF A DEFICIENCY SALES TAX IS ALSO BASELESS AND
UNFOUNDED CONSIDERING THAT WE HAVE DUTIFULLY PAID THE SALES TAX DUE FROM
OUR BUSINESS.26

In view of the impasse, administrative hearings were conducted on the respondents protest to the assessment.
During the hearing of August 20, 1993, the IIPO representative presented the photocopies of the Consumption
and Import Entries and the Certifications issued by Tomas and Danganan of the Bureau of Customs. The IIPO
representative testified that the Bureau of Customs failed to furnish the EIIB with certified copies of the
Consumption and Import Entries; hence, the EIIB relied on the machine copies from their informer. 27

The respondent wrote the BIR Commissioner on July 12, 1993 questioning the assessment on the ground that
the EIIB representative failed to present the original, or authenticated, or duly certified copies of the
Consumption and Import Entry Accounts, or excerpts thereof if the original copies were not readily available; or,
if the originals were in the official custody of a public officer, certified copies thereof as provided for in Section
12, Chapter 3, Book VII, Administrative Procedure, Administrative Order of 1987. It stated that the only copies
of the Consumption Entries submitted to the Hearing Officer were mere machine copies furnished by an
informer of the EIIB. It asserted that the letters of Tomas and Danganan were unreliable because of the
following:

In the said letters, the two collection officers merely submitted a listing of alleged import entry numbers
and dates released of alleged importations by Hantex Trading Co., Inc. of merchandise in 1987, for
which they certified that the corresponding duties and taxes were paid after being processed in their
offices. In said letters, no amounts of the landed costs and advance sales tax and duties were stated,
and no particulars of the duties and taxes paid per import entry document was presented.

The contents of the two letters failed to indicate the particulars of the importations per entry number,
and the said letters do not constitute as evidence of the amounts of importations of Hantex Trading Co.,
Inc. in 1987.28

The respondent cited the following findings of the Hearing Officer:

[T]hat the import entry documents do not constitute evidence only indicate that the tax assessments
in question have no factual basis, and must, at this point in time, be withdrawn and cancelled. Any new
findings by the IIPO representative who attended the hearing could not be used as evidence in this
hearing, because all the issues on the tax assessments in question have already been raised by the
herein taxpayer.29
The respondent requested anew that the income tax deficiency assessment and the sales tax deficiency
assessment be set aside for lack of factual and legal basis.

The BIR Commissioner30 wrote the respondent on December 10, 1993, denying its letter-request for the
dismissal of the assessments.31 The BIR Commissioner admitted, in the said letter, the possibility that the
figures appearing in the photocopies of the Consumption Entries had been tampered with. She averred,
however, that she was not proscribed from relying on other admissible evidence, namely, the Letters of Torres
and Filamor dated August 7 and 22, 1990 on their investigation of the respondents tax liability. The
Commissioner emphasized that her decision was final.32

The respondent forthwith filed a petition for review in the CTA of the Commissioners Final Assessment Letter
dated December 10, 1993 on the following grounds:

First. The alleged 1987 deficiency income tax assessment (including increments) and the alleged 1987
deficiency sales tax assessment (including increments) are void ab initio, since under Sections 16(a) and 49(b)
of the Tax Code, the Commissioner shall examine a return after it is filed and, thereafter, assess the correct
amount of tax. The following facts obtaining in this case, however, are indicative of the incorrectness of the tax
assessments in question: the deficiency interests imposed in the income and percentage tax deficiency
assessment notices were computed in violation of the provisions of Section 249(b) of the NIRC of 1977, as
amended; the percentage tax deficiency was computed on an annual basis for the year 1987 in accordance
with the provision of Section 193, which should have been computed in accordance with Section 162 of the
1977 NIRC, as amended by Pres. Decree No. 1994 on a quarterly basis; and the BIR official who signed the
deficiency tax assessments was the Assistant Commissioner for Collection, who had no authority to sign the
same under the NIRC.

Second. Even granting arguendo that the deficiency taxes and increments for 1987 against the respondent
were correctly computed in accordance with the provisions of the Tax Code, the facts indicate that the above-
stated assessments were based on alleged documents which are inadmissible in either administrative or judicial
proceedings. Moreover, the alleged bases of the tax computations were anchored on mere presumptions and
not on actual facts. The alleged undeclared purchases for 1987 were based on mere photocopies of alleged
import entry documents, not the original ones, and which had never been duly certified by the public officer
charged with the custody of such records in the Bureau of Customs. According to the respondent, the alleged
undeclared sales were computed based on mere presumptions as to the alleged gross profit contained in its
1987 financial statement. Moreover, even the alleged financial statement of the respondent was a mere
machine copy and not an official copy of the 1987 income and business tax returns. Finally, the respondent was
following the accrual method of accounting in 1987, yet, the BIR investigator who computed the 1987 income
tax deficiency failed to allow as a deductible item the alleged sales tax deficiency for 1987 as provided for under
Section 30(c) of the NIRC of 1986.33

The Commissioner did not adduce in evidence the original or certified true copies of the 1987 Consumption
Entries on file with the Commission on Audit. Instead, she offered in evidence as proof of the contents thereof,
the photocopies of the Consumption Entries which the respondent objected to for being inadmissible in
evidence.34 She also failed to present any witness to prove the correct amount of tax due from it. Nevertheless,
the CTA provisionally admitted the said documents in evidence, subject to its final evaluation of their relevancy
and probative weight to the issues involved.35

On December 11, 1997, the CTA rendered a decision, the dispositive portion of which reads:

IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered DENYING the herein petition.
Petitioner is hereby ORDERED TO PAY the respondent Commissioner of Internal Revenue its
 deficiency income and sales taxes for the year 1987 in the amounts of P11,182,350.26
and P12,660,382.46, respectively, plus 20% delinquency interest per annum on both deficiency taxes
from April 15, 1991 until fully paid pursuant to Section 283(c)(3) of the 1987 Tax Code, with costs
against the petitioner.

SO ORDERED.36

The CTA ruled that the respondent was burdened to prove not only that the assessment was erroneous, but
also to adduce the correct taxes to be paid by it. The CTA declared that the respondent failed to prove the
correct amount of taxes due to the BIR. It also ruled that the respondent was burdened to adduce in evidence a
certification from the Bureau of Customs that the Consumption Entries in question did not belong to it.

On appeal, the CA granted the petition and reversed the decision of the CTA. The dispositive portion of the
decision reads:

FOREGOING PREMISES CONSIDERED, the Petition for Review is GRANTED and the December 11,
1997 decision of the CTA in CTA Case No. 5162 affirming the 1987 deficiency income and sales tax
assessments and the increments thereof, issued by the BIR is hereby REVERSED. No costs.37

The Ruling of the Court of Appeals

The CA held that the income and sales tax deficiency assessments issued by the petitioner were unlawful and
baseless since the copies of the import entries relied upon in computing the deficiency tax of the respondent
were not duly authenticated by the public officer charged with their custody, nor verified under oath by the EIIB
and the BIR investigators.38 The CA also noted that the public officer charged with the custody of the import
entries was never presented in court to lend credence to the alleged loss of the originals.39 The CA pointed out
that an import entry is a public document which falls within the provisions of Section 19, Rule 132 of the Rules
of Court, and to be admissible for any legal purpose, Section 24, Rule 132 of the Rules of Court should
apply.40 Citing the ruling of this Court in Collector of Internal Revenue v. Benipayo,41 the CA ruled that the
assessments were unlawful because they were based on hearsay evidence. The CA also ruled that the
respondent was deprived of its right to due process of law.

The CA added that the CTA should not have just brushed aside the legal requisites provided for under the
pertinent provisions of the Rules of Court in the matter of the admissibility of public documents, considering that
substantive rules of evidence should not be disregarded. It also ruled that the certifications made by the two
Customs Collection Chiefs under the guise of supporting the respondents alleged tax deficiency assessments
invoking the best evidence obtainable rule under the Tax Code should not be permitted to supplant the best
evidence rule under Section 7, Rule 130 of the Rules of Court.

Finally, the CA noted that the tax deficiency assessments were computed without the tax returns. The CA
opined that the use of the tax returns is indispensable in the computation of a tax deficiency; hence, this
essential requirement must be complied with in the preparation and issuance of valid tax deficiency
assessments.42

The Present Petition

The Commissioner of Internal Revenue, the petitioner herein, filed the present petition for review under Rule 45
of the Rules of Court for the reversal of the decision of the CA and for the reinstatement of the ruling of the
CTA.
As gleaned from the pleadings of the parties, the threshold issues for resolution are the following: (a) whether
the petition at bench is proper and complies with Sections 4 and 5, Rule 7 of the Rules of Court; (b) whether the
December 10, 1991 final assessment of the petitioner against the respondent for deficiency income tax and
sales tax for the latters 1987 importation of resins and calcium bicarbonate is based on competent evidence
and the law; and (c) the total amount of deficiency taxes due from the respondent for 1987, if any.

On the first issue, the respondent points out that the petition raises both questions of facts and law which
cannot be the subject of an appeal by certiorari under Rule 45 of the Rules of Court. The respondent notes that
the petition is defective because the verification and the certification against forum shopping were not signed by
the petitioner herself, but only by the Regional Director of the BIR. The respondent submits that the petitioner
should have filed a motion for reconsideration with the CA before filing the instant petition for review. 43

We find and so rule that the petition is sufficient in form. A verification and certification against forum shopping
signed by the Regional Director constitutes sufficient compliance with the requirements of Sections 4 and 5,
Rule 7 of the Rules of Court. Under Section 10 of the NIRC of 1997,44 the Regional Director has the power to
administer and enforce internal revenue laws, rules and regulations, including the assessment and collection of
all internal revenue taxes, charges and fees. Such power is broad enough to vest the Revenue Regional
Director with the authority to sign the verification and certification against forum shopping in behalf of the
Commissioner of Internal Revenue. There is no other person in a better position to know the collection cases
filed under his jurisdiction than the Revenue Regional Director.

Moreover, under Revenue Administrative Order No. 5-83,45 the Regional Director is authorized to sign all
pleadings filed in connection with cases referred to the Revenue Regions by the National Office which,
otherwise, require the signature of the petitioner.

We do not agree with the contention of the respondent that a motion for reconsideration ought to have been
filed before the filing of the instant petition. A motion for reconsideration of the decision of the CA is not a
condition sine qua non for the filing of a petition for review under Rule 45. As we held in Almora v. Court of
Appeals:46

Rule 45, Sec. 1 of the Rules of Court, however, distinctly provides that:

A party may appeal by certiorari from a judgment of the Court of Appeals, by filing with the
Supreme Court a petition for certiorari within fifteen (15) days from notice of judgment, or of the
denial of his motion for reconsideration filed in due time. (Emphasis supplied)

The conjunctive "or" clearly indicates that the 15-day reglementary period for the filing of a petition for
certiorari under Rule 45 commences either from notice of the questioned judgment or from notice of
denial of the appellants motion for reconsideration. A prior motion for reconsideration is not
indispensable for a petition for review on certiorari under Rule 45 to prosper. 47

While Rule 45 of the Rules of Court provides that only questions of law may be raised by the petitioner and
resolved by the Court, under exceptional circumstances, the Court may take cognizance thereof and resolve
questions of fact. In this case, the findings and conclusion of the CA are inconsistent with those of the CTA, not
to mention those of the Commissioner of Internal Revenue. The issues raised in this case relate to the propriety
and the correctness of the tax assessments made by the petitioner against the respondent, as well as the
propriety of the application of Section 16, paragraph (b) of the 1977 NIRC, as amended by Pres. Decree Nos.
1705, 1773, 1994 and Executive Order No. 273, in relation to Section 3, Rule 132 of the Rules of Evidence.
There is also an imperative need for the Court to resolve the threshold factual issues to give justice to the
parties, and to determine whether the CA capriciously ignored, misunderstood or misinterpreted cogent facts
and circumstances which, if considered, would change the outcome of the case.

On the second issue, the petitioner asserts that since the respondent refused to cooperate and show its 1987
books of account and other accounting records, it was proper for her to resort to the best evidence obtainable
the photocopies of the import entries in the Bureau of Customs and the respondents financial statement filed
with the SEC.48 The petitioner maintains that these import entries were admissible as secondary evidence
under the best evidence obtainable rule, since they were duly authenticated by the Bureau of Customs officials
who processed the documents and released the cargoes after payment of the duties and taxes due. 49 Further,
the petitioner points out that under the best evidence obtainable rule, the tax return is not important in
computing the tax deficiency.50

The petitioner avers that the best evidence obtainable rule under Section 16 of the 1977 NIRC, as amended,
legally cannot be equated to the best evidence rule under the Rules of Court; nor can the best evidence rule,
being procedural law, be made strictly operative in the interpretation of the best evidence obtainable rule which
is substantive in character.51 The petitioner posits that the CTA is not strictly bound by technical rules of
evidence, the reason being that the quantum of evidence required in the said court is merely substantial
evidence.52

Finally, the petitioner avers that the respondent has the burden of proof to show the correct assessments;
otherwise, the presumption in favor of the correctness of the assessments made by it stands. 53 Since the
respondent was allowed to explain its side, there was no violation of due process.54

The respondent, for its part, maintains that the resort to the best evidence obtainable method was illegal. In the
first place, the respondent argues, the EIIB agents are not duly authorized to undertake examination of the
taxpayers accounting records for internal revenue tax purposes. Hence, the respondents failure to accede to
their demands to show its books of accounts and other accounting records cannot justify resort to the use of the
best evidence obtainable method.55 Secondly, when a taxpayer fails to submit its tax records upon demand by
the BIR officer, the remedy is not to assess him and resort to the best evidence obtainable rule, but to punish
the taxpayer according to the provisions of the Tax Code.56

In any case, the respondent argues that the photocopies of import entries cannot be used in making the
assessment because they were not properly authenticated, pursuant to the provisions of Sections 2457 and
2558 of Rule 132 of the Rules of Court. It avers that while the CTA is not bound by the technical rules of
evidence, it is bound by substantial rules.59 The respondent points out that the petitioner did not even secure a
certification of the fact of loss of the original documents from the custodian of the import entries. It simply relied
on the report of the EIIB agents that the import entry documents were no longer available because they were
eaten by termites. The respondent posits that the two collectors of the Bureau of Customs never authenticated
the xerox copies of the import entries; instead, they only issued certifications stating therein the import entry
numbers which were processed by their office and the date the same were released. 60

The respondent argues that it was not necessary for it to show the correct assessment, considering that it is
questioning the assessments not only because they are erroneous, but because they were issued without
factual basis and in patent violation of the assessment procedures laid down in the NIRC of 1977, as
amended.61 It is also pointed out that the petitioner failed to use the tax returns filed by the respondent in
computing the deficiency taxes which is contrary to law;62 as such, the deficiency assessments constituted
deprivation of property without due process of law.63

Central to the second issue is Section 16 of the NIRC of 1977, as amended,64 which provides that the
Commissioner of Internal Revenue has the power to make assessments and prescribe additional requirements
for tax administration and enforcement. Among such powers are those provided in paragraph (b) thereof, which
we quote:

(b) Failure to submit required returns, statements, reports and other documents. When a report
required by law as a basis for the assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by law or regulation or when there is reason to believe that any such
report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best
evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law,
or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall
make or amend the return from his own knowledge and from such information as he can obtain through
testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes. 65

This provision applies when the Commissioner of Internal Revenue undertakes to perform her administrative
duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayers failure to file one,
or to amend a return already filed in the BIR.

The petitioner may avail herself of the best evidence or other information or testimony by exercising her power
or authority under paragraphs (1) to (4) of Section 7 of the NIRC:

(1) To examine any book, paper, record or other data which may be relevant or material to such inquiry;

(2) To obtain information from any office or officer of the national and local governments, government
agencies or its instrumentalities, including the Central Bank of the Philippines and government owned
or controlled corporations;

(3) To summon the person liable for tax or required to file a return, or any officer or employee of such
person, or any person having possession, custody, or care of the books of accounts and other
accounting records containing entries relating to the business of the person liable for tax, or any other
person, to appear before the Commissioner or his duly authorized representative at a time and place
specified in the summons and to produce such books, papers, records, or other data, and to give
testimony;

(4) To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry; 66

The "best evidence" envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and
accounting records of the taxpayer who is the subject of the assessment process, the accounting records of
other taxpayers engaged in the same line of business, including their gross profit and net profit sales. 67 Such
evidence also includes data, record, paper, document or any evidence gathered by internal revenue officers
from other taxpayers who had personal transactions or from whom the subject taxpayer received any income;
and record, data, document and information secured from government offices or agencies, such as the SEC,
the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs Commission.

The law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It
places no limit or condition on the type or form of the medium by which the record subject to the order of the
BIR is kept. The purpose of the law is to enable the BIR to get at the taxpayers records in whatever form they
may be kept. Such records include computer tapes of the said records prepared by the taxpayer in the course
of business.68 In this era of developing information-storage technology, there is no valid reason to immunize
companies with computer-based, record-keeping capabilities from BIR scrutiny. The standard is not the form of
the record but where it might shed light on the accuracy of the taxpayers return.

In Campbell, Jr. v. Guetersloh,69 the United States (U.S.) Court of Appeals (5th Circuit) declared that it is the
duty of the Commissioner of Internal Revenue to investigate any circumstance which led him to believe that the
taxpayer had taxable income larger than reported. Necessarily, this inquiry would have to be outside of the
books because they supported the return as filed. He may take the sworn testimony of the taxpayer; he may
take the testimony of third parties; he may examine and subpoena, if necessary, traders and brokers accounts
and books and the taxpayers book accounts. The Commissioner is not bound to follow any set of patterns. The
existence of unreported income may be shown by any practicable proof that is available in the circumstances of
the particular situation. Citing its ruling in Kenney v. Commissioner,70 the U.S. appellate court declared that
where the records of the taxpayer are manifestly inaccurate and incomplete, the Commissioner may look to
other sources of information to establish income made by the taxpayer during the years in question. 71

We agree with the contention of the petitioner that the best evidence obtainable may consist of hearsay
evidence, such as the testimony of third parties or accounts or other records of other taxpayers similarly
circumstanced as the taxpayer subject of the investigation, hence, inadmissible in a regular proceeding in the
regular courts.72 Moreover, the general rule is that administrative agencies such as the BIR are not bound by
the technical rules of evidence. It can accept documents which cannot be admitted in a judicial proceeding
where the Rules of Court are strictly observed. It can choose to give weight or disregard such evidence,
depending on its trustworthiness.

However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include
mere photocopies of records/documents. The petitioner, in making a preliminary and final tax deficiency
assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of
records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof
of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative
value as basis for any deficiency income or business taxes against a taxpayer. Indeed, in United States v.
Davey,73 the U.S. Court of Appeals (2nd Circuit) ruled that where the accuracy of a taxpayers return is being
checked, the government is entitled to use the original records rather than be forced to accept purported copies
which present the risk of error or tampering.74

In Collector of Internal Revenue v. Benipayo,75 the Court ruled that the assessment must be based on actual
facts. The rule assumes more importance in this case since the xerox copies of the Consumption Entries
furnished by the informer of the EIIB were furnished by yet another informer. While the EIIB tried to secure
certified copies of the said entries from the Bureau of Customs, it was unable to do so because the said entries
were allegedly eaten by termites. The Court can only surmise why the EIIB or the BIR, for that matter, failed to
secure certified copies of the said entries from the Tariff and Customs Commission or from the National
Statistics Office which also had copies thereof. It bears stressing that under Section 1306 of the Tariff and
Customs Code, the Consumption Entries shall be the required number of copies as prescribed by
regulations.76 The Consumption Entry is accomplished in sextuplicate copies and quadruplicate copies in other
places. In Manila, the six copies are distributed to the Bureau of Customs, the Tariff and Customs Commission,
the Declarant (Importer), the Terminal Operator, and the Bureau of Internal Revenue. Inexplicably, the
Commissioner and the BIR personnel ignored the copy of the Consumption Entries filed with the BIR and relied
on the photocopies supplied by the informer of the EIIB who secured the same from another informer. The BIR,
in preparing and issuing its preliminary and final assessments against the respondent, even ignored the records
on the investigation made by the District Revenue officers on the respondents importations for 1987.

The original copies of the Consumption Entries were of prime importance to the BIR. This is so because such
entries are under oath and are presumed to be true and correct under penalty of falsification or perjury.
Admissions in the said entries of the importers documents are admissions against interest and presumptively
correct.77

In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving weight to the machine
copies of the Consumption Entries in fixing the tax deficiency assessments against the respondent.

The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be determined by
estimation. The petitioner is not required to compute such tax liabilities with mathematical exactness.
Approximation in the calculation of the taxes due is justified. To hold otherwise would be tantamount to holding
that skillful concealment is an invincible barrier to proof.78 However, the rule does not apply where the
estimation is arrived at arbitrarily and capriciously.79

We agree with the contention of the petitioner that, as a general rule, tax assessments by tax examiners are
presumed correct and made in good faith. All presumptions are in favor of the correctness of a tax assessment.
It is to be presumed, however, that such assessment was based on sufficient evidence. Upon the introduction of
the assessment in evidence, a prima facie case of liability on the part of the taxpayer is made.80 If a taxpayer
files a petition for review in the CTA and assails the assessment, the prima facie presumption is that the
assessment made by the BIR is correct, and that in preparing the same, the BIR personnel regularly performed
their duties. This rule for tax initiated suits is premised on several factors other than the normal evidentiary rule
imposing proof obligation on the petitioner-taxpayer: the presumption of administrative regularity; the likelihood
that the taxpayer will have access to the relevant information; and the desirability of bolstering the record-
keeping requirements of the NIRC.81

However, the prima facie correctness of a tax assessment does not apply upon proof that an assessment is
utterly without foundation, meaning it is arbitrary and capricious. Where the BIR has come out with a "naked
assessment," i.e., without any foundation character, the determination of the tax due is without rational
basis.82 In such a situation, the U.S. Court of Appeals ruled83 that the determination of the Commissioner
contained in a deficiency notice disappears. Hence, the determination by the CTA must rest on all the evidence
introduced and its ultimate determination must find support in credible evidence.

The issue that now comes to fore is whether the tax deficiency assessment against the respondent based on
the certified copies of the Profit and Loss Statement submitted by the respondent to the SEC in 1987 and 1988,
as well as certifications of Tomas and Danganan, is arbitrary, capricious and illegal. The CTA ruled that the
respondent failed to overcome the prima facie correctness of the tax deficiency assessment issued by the
petitioner, to wit:

The issue should be ruled in the affirmative as petitioner has failed to rebut the validity or correctness of
the aforementioned tax assessments. It is incongruous for petitioner to prove its cause by simply
drawing an inference unfavorable to the respondent by attacking the source documents (Consumption
Entries) which were the bases of the assessment and which were certified by the Chiefs of the
Collection Division, Manila International Container Port and the Port of Manila, as having been
processed and released in the name of the petitioner after payment of duties and taxes and the duly
certified copies of Financial Statements secured from the Securities and Exchange Commission. Any
such inference cannot operate to relieve petitioner from bearing its burden of proof and this Court has
no warrant of absolution. The Court should have been persuaded to grant the reliefs sought by the
petitioner should it have presented any evidence of relevance and competence required, like that of a
certification from the Bureau of Customs or from any other agencies, attesting to the fact that those
consumption entries did not really belong to them.
 The burden of proof is on the taxpayer contesting the validity or correctness of an assessment to prove
not only that the Commissioner of Internal Revenue is wrong but the taxpayer is right (Tan Guan v.
CTA, 19 SCRA 903), otherwise, the presumption in favor of the correctness of tax assessment stands
(Sy Po v. CTA, 164 SCRA 524). The burden of proving the illegality of the assessment lies upon the
petitioner alleging it to be so. In the case at bar, petitioner miserably failed to discharge this duty. 84

We are not in full accord with the findings and ratiocination of the CTA. Based on the letter of the petitioner to
the respondent dated December 10, 1993, the tax deficiency assessment in question was based on (a) the
findings of the agents of the EIIB which was based, in turn, on the photocopies of the Consumption Entries; (b)
the Profit and Loss Statements of the respondent for 1987 and 1988; and (c) the certifications of Tomas and
Danganan dated August 7, 1990 and August 22, 1990:

In reply, please be informed that after a thorough evaluation of the attending facts, as well as the laws
and jurisprudence involved, this Office holds that you are liable to the assessed deficiency taxes. The
conclusion was arrived at based on the findings of agents of the Economic Intelligence & Investigation
Bureau (EIIB) and of our own examiners who have painstakingly examined the records furnished by the
Bureau of Customs and the Securities & Exchange Commission (SEC). The examination conducted
disclosed that while your actual sales for 1987 amounted to P110,731,559.00, you declared for taxation
purposes, as shown in the Profit and Loss Statements, the sum of P47,698,569.83 only. The difference,
therefore, of P63,032,989.17 constitutes as undeclared or unrecorded sales which must be subjected to
the income and sales taxes.

You also argued that our assessment has no basis since the alleged amount of underdeclared
importations were lifted from uncertified or unauthenticated xerox copies of consumption entries which
are not admissible in evidence. On this issue, it must be considered that in letters dated August 7 and
22, 1990, the Chief and Acting Chief of the Collection Division of the Manila International Container Port
and Port of Manila, respectively, certified that the enumerated consumption entries were filed,
processed and released from the port after payment of duties and taxes. It is noted that the certification
does not touch on the genuineness, authenticity and correctness of the consumption entries which are
all xerox copies, wherein the figures therein appearing may have been tampered which may render said
documents inadmissible in evidence, but for tax purposes, it has been held that the Commissioner is
not required to make his determination (assessment) on the basis of evidence legally admissible in a
formal proceeding in Court (Mertens, Vol. 9, p. 214, citing Cohen v. Commissioner). A statutory notice
may be based in whole or in part upon admissible evidence (Llorente v. Commissioner, 74 TC 260
(1980); Weimerskirch v. Commissioner, 67 TC 672 (1977); and Rosano v. Commissioner, 46 TC 681
(1966). In the case also of Weimerskirch v. Commissioner (1977), the assessment was given due
course in the presence of admissible evidence as to how the Commissioner arrived at his
determination, although there was no admissible evidence with respect to the substantial issue of
whether the taxpayer had unreported or undeclared income from narcotics sale. 85

Based on a Memorandum dated October 23, 1990 of the IIPO, the source documents for the actual cost of
importation of the respondent are the machine copies of the Consumption Entries from the informer which the
IIPO claimed to have been certified by Tomas and Danganan:

The source documents for the total actual cost of importations, abovementioned, were the different
copies of Consumption Entries, Series of 1987, filed by subject with the Bureau of Customs, marked
Annexes "F-1" to "F-68." The total cost of importations is the sum of the Landed Costs and the Advance
Sales Tax as shown in the annexed entries. These entries were duly authenticated as having been
processed and released, after payment of the duties and taxes due thereon, by the Chief, Collection
Division, Manila International Container Port, dated August 7, 1990, "Annex-G," and the Port of Manila,
 dated August 22, 1990, "Annex-H." So, it was established that subject-importations, mostly resins,
really belong to HANTEX TRADING CO., INC.86

It also appears on the worksheet of the IIPO, as culled from the photocopies of the Consumption Entries from
its informer, that the total cost of the respondents importation for 1987 was P105,761,527.00. Per the report of
Torres and Filamor, they also relied on the photocopies of the said Consumption Entries:

The importations made by taxpayer verified by us from the records of the Bureau of Customs and xerox
copies of which are hereto attached shows the big volume of importations made and not declared in the
income tax return filed by taxpayer.

Based on the above findings, it clearly shows that a prima facie case of fraud exists in the herein
transaction of the taxpayer, as a consequence of which, said transaction has not been possibly entered
into the books of accounts of the subject taxpayer.87

In fine, the petitioner based her finding that the 1987 importation of the respondent was underdeclared in the
amount of P105,761,527.00 on the worthless machine copies of the Consumption Entries. Aside from such
copies, the petitioner has no other evidence to prove that the respondent imported goods
costing P105,761,527.00. The petitioner cannot find solace on the certifications of Tomas and Danganan
because they did not authenticate the machine copies of the Consumption Entries, and merely indicated therein
the entry numbers of Consumption Entries and the dates when the Bureau of Customs released the same. The
certifications of Tomas and Danganan do not even contain the landed costs and the advance sales taxes paid
by the importer, if any. Comparing the certifications of Tomas and Danganan and the machine copies of the
Consumption Entries, only 36 of the entry numbers of such copies are included in the said certifications; the
entry numbers of the rest of the machine copies of the Consumption Entries are not found therein.

Even if the Court would concede to the petitioners contention that the certification of Tomas and Danganan
authenticated the machine copies of the Consumption Entries referred to in the certification, it appears that the
total cost of importations inclusive of advance sales tax is only P64,324,953.00 far from the amount
of P105,716,527.00 arrived at by the EIIB and the BIR,88 or even the amount of P110,079,491.61 arrived at by
Deputy Commissioner Deoferio, Jr.89 As gleaned from the certifications of Tomas and Danganan, the goods
covered by the Consumption Entries were released by the Bureau of Customs, from which it can be presumed
that the respondent must have paid the taxes due on the said importation. The petitioner did not adduce any
documentary evidence to prove otherwise.

Thus, the computations of the EIIB and the BIR on the quantity and costs of the importations of the respondent
in the amount of P105,761,527.00 for 1987 have no factual basis, hence, arbitrary and capricious. The
petitioner cannot rely on the presumption that she and the other employees of the BIR had regularly performed
their duties. As the Court held in Collector of Internal Revenue v. Benipayo,90 in order to stand judicial scrutiny,
the assessment must be based on facts. The presumption of the correctness of an assessment, being a mere
presumption, cannot be made to rest on another presumption.

Moreover, the uncontroverted fact is that the BIR District Revenue Office had repeatedly examined the 1987
books of accounts of the respondent showing its importations, and found that the latter had minimal business
tax liability. In this case, the presumption that the District Revenue officers performed their duties in accordance
with law shall apply. There is no evidence on record that the said officers neglected to perform their duties as
mandated by law; neither is there evidence aliunde that the contents of the 1987 and 1988 Profit and Loss
Statements submitted by the respondent with the SEC are incorrect.
Admittedly, the respondent did not adduce evidence to prove its correct tax liability. However, considering that it
has been established that the petitioners assessment is barren of factual basis, arbitrary and illegal, such
failure on the part of the respondent cannot serve as a basis for a finding by the Court that it is liable for the
amount contained in the said assessment; otherwise, the Court would thereby be committing a travesty.

On the disposition of the case, the Court has two options, namely, to deny the petition for lack of merit and
affirm the decision of the CA, without prejudice to the petitioners issuance of a new assessment against the
respondent based on credible evidence; or, to remand the case to the CTA for further proceedings, to enable
the petitioner to adduce in evidence certified true copies or duplicate original copies of the Consumption Entries
for the respondents 1987 importations, if there be any, and the correct tax deficiency assessment thereon,
without prejudice to the right of the respondent to adduce controverting evidence, so that the matter may be
resolved once and for all by the CTA. In the higher interest of justice to both the parties, the Court has chosen
the latter option. After all, as the Tax Court of the United States emphasized in Harbin v. Commissioner of
Internal Revenue,91 taxation is not only practical; it is vital. The obligation of good faith and fair dealing in
carrying out its provision is reciprocal and, as the government should never be over-reaching or tyrannical,
neither should a taxpayer be permitted to escape payment by the concealment of material facts.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals is SET
ASIDE. The records are REMANDED to the Court of Tax Appeals for further proceedings, conformably with the
decision of this Court. No costs.

SO ORDERED.