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TAXATION CASES ON REMEDIES

SMI-ED Phil. Technology, Inc. v. Commissioner of Internal Revenue, G.R. No. 175410, November 12, 2014, citing
Commissioner of Internal Revenue v. FMF Development Corporation,579 Phil. 174 (2008)

In an action for the refund of taxes allegedly erroneously paid, the Court of Tax Appeals may determine whether there are taxes
that should have been paid in lieu of the taxes paid. Determining the proper category of tax that should have been paid is not an
assessment. It is incidental to determining whether there should be a refund.

A Philippine Economic Zone Authority (PEZA)-registered corporation that has never commenced operations may not avail the
tax incentives and preferential rates given to PEZA-registered enterprises. Such corporation is subject to ordinary tax rates
under the National Internal Revenue Code of 1997.

This is a petition for review1 on certiorari of the November 3, 2006 Court of Tax Appeals En Banc decision.2 It affirmed the Court
of Tax Appeals Second Division’s decision3 and resolution4 denying petitioner SMI-Ed Philippines Technology, Inc.’s (SMI-Ed
Philippines) claim for tax refund.5

SMI-Ed Philippines is a PEZA-registered corporation authorized "to engage in the business of manufacturing ultra high-density
microprocessor unit package."6

After its registration on June 29, 1998, SMI-Ed Philippines constructed buildings and purchased machineries and equipment. 7 As
of December 31, 1999, the total cost of the properties amounted to ₱3,150,925,917.00. 8

SMI-Ed Philippines "failed to commence operations."9 Its factory was temporarily closed, effective October 15, 1999. On August
1, 2000, it sold its buildings and some of its installed machineries and equipment to Ibiden Philippines, Inc., another PEZA-
registered enterprise, for ¥2,100,000,000.00 (₱893,550,000.00). SMI-Ed Philippines was dissolved on November 30, 2000.10

In its quarterly income tax return for year 2000, SMI-Ed Philippines subjected the entire gross sales of itsproperties to 5% final
tax on PEZA registered corporations. SMI-Ed Philippines paid taxes amounting to ₱44,677,500.00.11

On February 2, 2001, after requesting the cancellation of its PEZA registration and amending its articles of incorporation to
shorten its corporate term, SMI-Ed Philippines filed an administrative claim for the refund of ₱44,677,500.00 with the Bureauof
Internal Revenue (BIR). SMIEd Philippines alleged that the amountwas erroneously paid. It also indicated the refundable
amount in its final income tax return filed on March 1, 2001. It also alleged that it incurred a net loss of ₱2,233,464,538.00. 12

The BIR did not act on SMI-Ed Philippines’ claim, which prompted the latter to file a petition for reviewbefore the Court of Tax
Appeals on September 9, 2002.13

The Court of Tax Appeals Second Division denied SMI-Ed Philippines’ claim for refund in the decision dated December 29,
2004.14

The Court of Tax Appeals Second Division found that SMI-Ed Philippines’ administrative claim for refund and the petition for
review with the Court of Tax Appeals were filed within the two-year prescriptive period.15 However, fiscal incentives given to
PEZA-registered enterprises may be availed only by PEZA-registered enterprises that had already commenced
operations.16 Since SMI-Ed Philippines had not commenced operations, it was not entitled to the incentives of either the income
tax holiday or the 5% preferential tax rate.17 Payment of the 5% preferential tax amounting to ₱44,677,500.00 was erroneous.18

After finding that SMI-Ed Philippines sold properties that were capital assets under Section 39(A)(1) of the National Internal
Revenue Code of 1997, the Court of Tax Appeals Second Division subjected the sale of SMIEd Philippines’ assets to 6% capital
gains tax under Section 27(D)(5) of the same Code and Section 2 of Revenue Regulations No. 8-98.19 It was found liable for
capital gains tax amounting to ₱53,613,000.00.20 Therefore, SMIEd Philippines must still pay the balance of ₱8,935,500.00 as
deficiency tax,21 "which respondent should perhaps look into."22 The dispositive portion of the Court of Tax Appeals Second
Division’s decision reads:

WHEREFORE, premises considered, the instant petition is hereby DENIED.

SO ORDERED.23

The Court of Tax Appeals denied SMI-Ed Philippines’ motion for reconsideration in its June 15, 2005 resolution. 24
On July 17, 2005, SMI-Ed Philippines filed a petition for review before the Court of Tax Appeals En Banc. 25 It argued that the
Court of Tax Appeals Second Division erroneously assessed the 6% capital gains tax on the sale of SMI-Ed Philippines’
equipment, machineries, and buildings.26 It also argued that the Court of Tax Appeals Second Division cannot make an
assessment at the first instance.27 Even if the Court of Tax Appeals Second Division has such power, the period to make an
assessment had already prescribed.28

In the decision promulgated on November 3, 2006, the Court of Tax Appeals En Banc dismissed SMI-Ed Philippines’ petition
and affirmed the Court of Tax Appeals Second Division’s decision and resolution. 29 The dispositive portion of the Court of Tax
Appeals En Banc’s decision reads:

WHEREFORE, finding no reversible error to reverse the assailed Decision promulgated on December 29, 2004 and the
Resolution dated June 15, 2005, the instant petition for review is hereby DISMISSED. Accordingly, the assailed Decision and
Resolution are hereby AFFIRMED. SO ORDERED. 30

SMI-Ed Philippines filed a petition for review before this court on December 27, 2006,31 praying for the grant of its claim for
refund and the reversal of the Court of Tax Appeals En Banc’s decision. 32

SMI-Ed Philippines assigned the following errors:

A. The honorable CTA En Banc grievously erred and acted beyond its jurisdiction when it assessed for deficiency tax in
the first instance.

B. Even assuming that the honorable CTA En Banc has the right to make an assessment against the petitioner-
appellant, it grievously erred in finding that the machineries and equipment sold by the petitioner-appellant is subject to
the six percent (6%) capital gains tax under Section 27(D)(5) of the Tax Code.33

Petitioner argued that the Court of Tax Appeals has no jurisdiction to make an assessment since its jurisdiction, with respect to
the decisions of respondent, is merely appellate.34 Moreover, the power to make assessment had already prescribed under
Section 203 of the National Internal Revenue Code of 1997 since the return for the erroneous payment was filed on September
13, 2000. This is more than three (3) years from the last day prescribed by law for the filing of the return. 35

Petitioner also argued that the Court of Tax Appeals En Banc erroneously subjected petitioner’s machineries to 6% capital gains
tax.36 Section 27(D)(5) of the National Internal Revenue Code of 1997 is clear that the 6% capital gains tax on domestic
corporations applies only on the sale of lands and buildings and not tomachineries and equipment. 37 Since ¥1,700,000,000.00 of
the ¥2,100,000,000.00 constituted the consideration for the sale of petitioner’s machineries, only ¥400,000,000.00 or
₱170,200,000.00 should be subjected to the 6% capital gains tax.38 Petitioner should be liable only for ₱10,212,000.00.39 It
should be entitled to a refund of ₱34,464,500.00 after deducting ₱10,212,000.00 from the erroneously paid final tax of
₱44,677,500.00.40

In its comment, respondent argued that the Court of Tax Appeals’ determination of petitioner’s liability for capital gains tax was
not an assessment. Such determination was necessary to settle the question regarding the tax consequence of the sale of the
properties.41 This is clearly within the Court of Tax Appeals’ jurisdiction under Section 7 of Republic Act No. 9282. 42 Respondent
also argued that "petitioner failed to justify its claim for refund."43

The petition is meritorious.

Jurisdiction of the Court of Tax Appeals

The term "assessment" refers to the determination of amounts due from a person obligated to make payments. In the context of
national internal revenue collection, it refers the determination of the taxes due from a taxpayer under the National Internal
Revenue Code of 1997.

The power and duty to assess national internal revenue taxes are lodged with the BIR. 44 Section 2 of the National Internal
Revenue Code of 1997 provides:

SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall be under the supervision
and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection ofall
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. The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other
laws. (Emphasis supplied) The BIR is not mandated to make an assessment relative to every return filed with it. Tax returns filed
with the BIR enjoy the presumption that these are in accordance with the law. 45 Tax returns are also presumed correct since
these are filed under the penalty of perjury. 46Generally, however, the BIR assesses taxes when it appears, after a return had
been filed, that the taxes paid were incorrect, 47 false,48 or fraudulent.49 The BIR also assesses taxes when taxes are due but no
return is filed.50 Thus:

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and
Enforcement.–

(A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this
Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the
assessment of the correct amount of tax: Provided, however; That failure to file a return shall not prevent the Commissioner from
authorizing the examination of any taxpayer.The tax or any deficiency tax so assessed shall be paid upon notice and demand
from the Commissioner or from his duly authorized representative.

....

SEC. 222. Exceptions as to 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 failure to file a return, the tax may be assessed, or a
preceeding in court for the collection of such tax may be filed 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. (Emphasis supplied)

The Court of Tax Appeals has no powerto make an assessment at the first instance. On matters such as tax collection, tax
refund, and others related to the national internal revenue taxes, the Court of Tax Appeals’ jurisdiction is appellate in nature.

Section 7(a)(1) and Section 7(a)(2) of Republic Act No. 1125, 51 as amended by Republic Act No. 9282,52 provide that the Court of
Tax Appeals reviews decisions and inactions of the Commissioner of Internal Revenue in disputed assessments and claims for
tax refunds. Thus: SEC. 7. Jurisdiction.- The CTA shall exercise:

a. Exclusive appellate jurisdiction toreview by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue
Code provides a specific period of action, in which case the inaction shall be deemed a denial[.] (Emphasis supplied)
Based on these provisions, the following must be present for the Court of Tax Appeals to have jurisdiction over a case
involving the BIR’s decisions or inactions:

a) A case involving any of the following:

i. Disputed assessments;

ii. Refunds of internal revenue taxes, fees, or other charges, penalties in relation thereto; and

iii. Other matters arising under the National Internal Revenue Code of 1997.

b) Commissioner of Internal Revenue’s decision or inaction in a case submitted to him or her

Thus, the BIR first has to make an assessment of the taxpayer’s liabilities. When the BIR makes the assessment, the taxpayer is
allowed to dispute that assessment before the BIR. If the BIR issues a decision that is unfavorable to the taxpayer or if the BIR
fails to act on a dispute brought by the taxpayer, the BIR’s decision or inaction may be brought on appeal to the Court of Tax
Appeals. The Court of Tax Appeals then acquires jurisdiction over the case.
When the BIR’s unfavorable decision is brought on appeal to the Court of Tax Appeals, the Court of Tax Appeals reviews the
correctness of the BIR’s assessment and decision. In reviewing the BIR’s assessment and decision, the Court of Tax Appeals
had to make its own determination of the taxpayer’s tax liabilities. The Court of Tax Appeals may not make such determination
before the BIR makes its assessment and before a dispute involving such assessment is brought to the Court of Tax Appeals on
appeal.

The Court of Tax Appeals’ jurisdiction is not limited to cases when the BIR makes an assessment or a decision unfavorable to
the taxpayer. Because Republic Act No. 112553 also vests the Court of Tax Appeals with jurisdiction over the BIR’s inaction on a
taxpayer’s refund claim, there may be instances when the Court of Tax Appeals has to take cognizance of cases that have
nothing to do with the BIR’s assessments or decisions. When the BIR fails to act on a claim for refund of voluntarily but
mistakenly paid taxes, for example, there is no decision or assessment involved.

Taxes are generally self-assessed. They are initially computed and voluntarily paid by the taxpayer. The government does not
have to demand it. If the tax payments are correct, the BIR need not make an assessment.

The self-assessing and voluntarily paying taxpayer, however, may later find that he or she has erroneously paid taxes.
Erroneously paid taxes may come in the form of amounts thatshould not have been paid. Thus, a taxpayer may find that he or
she has paid more than the amount that should have been paid under the law. Erroneously paid taxes may also come in the
form of tax payments for the wrong category of tax. Thus, a taxpayer may find that he or she has paid a certain kindof tax that he
or she is not subject to.

In these instances, the taxpayer may ask for a refund. If the BIR fails to act on the request for refund, the taxpayer may bring the
matter to the Court of Tax Appeals.

From the taxpayer’s self-assessment and tax payment up to his or her request for refund and the BIR’s inaction,the BIR’s
participation is limited to the receipt of the taxpayer’s payment. The BIR does not make an assessment; the BIR issues no
decision; and there is no dispute yet involved. Since there is no BIR assessment yet, the Court of Tax Appeals may not
determine the amount of taxes due from the taxpayer. There is also no decision yet to review. However, there was inaction on
the part of the BIR. That inaction is within the Court of Tax Appeals’ jurisdiction.

In other words, the Court of Tax Appeals may acquire jurisdiction over cases even if they do not involve BIR assessments or
decisions.

In this case, the Court of Tax Appeals’ jurisdiction was acquired because petitioner brought the case on appeal before the Court
of Tax Appeals after the BIR had failed to act on petitioner’s claim for refund of erroneously paid taxes. The Court of Tax
Appeals did not acquire jurisdiction as a result of a disputed assessment of a BIR decision.

Petitioner argued that the Court of Tax Appeals had no jurisdiction to subject it to 6% capital gains tax or other taxes at the first
instance. The Court of Tax Appeals has no power to make an assessment.

As earlier established, the Court of Tax Appeals has no assessment powers. In stating that petitioner’s transactions are subject
to capital gains tax, however, the Court of Tax Appeals was not making an assessment. It was merely determining the proper
category of tax that petitioner should have paid, in view of its claim that it erroneously imposed upon itself and paid the 5% final
tax imposed upon PEZA-registered enterprises.

The determination of the proper category of tax that petitioner should have paid is an incidental matter necessary for the
resolution of the principal issue, which is whether petitioner was entitled to a refund. 54

The issue of petitioner’s claim for tax refund is intertwined with the issue of the proper taxes that are due from petitioner. A claim
for tax refund carries the assumption that the tax returns filed were correct.55 If the tax return filed was not proper, the
correctness of the amount paid and, therefore, the claim for refund become questionable. In that case, the court must determine
if a taxpayer claiming refund of erroneously paid taxes is more properly liable for taxes other than that paid.

In South African Airways v. Commissioner of Internal Revenue,56 South African Airways claimed for refund of its erroneously paid
2½% taxes on its gross Philippine billings. This court did not immediately grant South African’s claim for refund. This is because
although this court found that South African Airways was not subject to the 2½% tax on its gross Philippine billings, this court
also found that it was subject to 32% tax on its taxable income. 57

In this case, petitioner’s claim that it erroneously paid the 5% final tax is an admission that the quarterly tax return it filed in 2000
was improper. Hence, to determine if petitioner was entitled to the refund being claimed, the Court of Tax Appeals has the duty
to determine if petitioner was indeed not liable for the 5% final tax and, instead, liable for taxes other than the 5% final tax. As in
South African Airways, petitioner’s request for refund can neither be granted nor denied outright without such determination.58
If the taxpayer is found liable for taxes other than the erroneously paid 5% final tax, the amount of the taxpayer’s liability should
be computed and deducted from the refundable amount.

Any liability in excess of the refundable amount, however, may not be collected in a case involving solely the issue of the
taxpayer’s entitlement to refund. The question of tax deficiencyis distinct and unrelated to the question of petitioner’s entitlement
to refund. Tax deficiencies should be subject to assessment procedures and the rules of prescription. The court cannot be
expected to perform the BIR’s duties whenever it fails to do so either through neglect or oversight. Neither can court processes
be used as a tool to circumvent laws protecting the rights of taxpayers.

II

Petitioner’s entitlement to benefits given to PEZA-registered enterprises

Petitioner is not entitled to benefits given to PEZA-registered enterprises, including the 5% preferential tax rate under Republic
Act No. 7916 or the Special Economic Zone Act of 1995. This is because it never began its operation.

Essentially, the purpose of Republic Act No. 7916 is to promote development and encourage investments and business
activities that will generate employment. 59 Giving fiscal incentives to businesses is one of the means devised to achieve this
purpose. It comes with the expectation that persons who will avail these incentives will contribute to the purpose’s achievement.
Hence, to avail the fiscal incentives under Republic Act No. 7916, the law did not say that mere PEZA registration is sufficient.

Republic Act No. 7916 or The Special Economic Zone Act of 1995 provides:

SEC. 23. Fiscal Incentives.— Business establishments operating within the ECOZONES shall be entitled to the fiscal incentives
as provided for under Presidential Decree No. 66, the law creating the Export Processing Zone Authority, or those provided
under Book VI of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987.

Furthermore, tax credits for exporters using local materials as inputs shall enjoy the same benefits provided for in the Export
Development Act of 1994.

SEC. 24. Exemption from Taxes Under the National Internal Revenue Code. — Any provision of existing laws, rules and
regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating
within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises
within the ECOZONE shall be remitted tothe national government. This five percent (5%) shall be shared and distributed as
follows:

a. Three percent (3%) to the national government;

b. One percent (1%) to the localgovernment units affected by the declaration of the ECOZONE inproportion to their
population, land area, and equal sharing factors; and

c. One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities
outside and contiguous to each ECOZONE: Provided, however, That the respective share of the affected local
government units shall be determined on the basis of the following formula:

1. Population - fifty percent (50%);

2. Land area - twenty-five percent (25%); and

3. Equal sharing - twenty-five percent (25%). (Emphasis supplied)

Based on these provisions, the fiscal incentives and the 5% preferential tax rate are available only to businesses operating
within the Ecozone.60 A business is considered in operation when it starts entering into commercial transactions that are not
merely incidental to but are related to the purposes of the business. It is similar to the definition of "doing business," as applied in
actions involvingthe right of foreign corporations to maintain court actions. In Mentholatum Co. Inc., et al. v. Mangaliman, et
al.,61 this court said that the terms "doing" or "engaging in" or "transacting" business":

. . . impl[y] a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of
its organization.62 Petitioner never started its operations since its registration on June 29, 1998 63 because of the Asian financial
crisis.64 Petitioner admitted this.65 Therefore, it cannot avail the incentives provided under Republic Act No. 7916. It is not entitled
to the preferential tax rate of 5% on gross income in lieu of all taxes. Because petitioner is not entitled to a preferential rate, it is
subject to ordinary tax rates under the National Internal Revenue Code of 1997.

III

Imposition of capital gains tax

The Court of Tax Appeals found that petitioner’s sale of its properties is subject to capital gains tax.

For petitioner’s properties to be subjected to capital gains tax, the properties must form part ofpetitioner’s capital assets.

Section 39(A)(1) of the National Internal Revenue Code of 1997 defines "capital assets":

SEC. 39. Capital Gains and Losses. -

(A) Definitions.- As used in this Title -

(1) Capital Assets.- the term ‘capital assets’ means property held by the taxpayer (whether or not connected with his trade or
business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade orbusiness, or property used in the trade or business, of a character which is
subject to the allowance for depreciation provided in Subsection (F) of Section 34; or real property used in trade or business of
the taxpayer. (Emphasis supplied) Thus, "capital assets" refers to taxpayer’s property that is NOT any of the following:

1. Stock in trade;

2. Property that should be included inthe taxpayer’s inventory at the close of the taxable year;

3. Property held for sale in the ordinary course of the taxpayer’s business;

4. Depreciable property used in the trade or business; and

5. Real property used in the trade or business.

The properties involved in this case include petitioner’s buildings, equipment, and machineries. They are not among the
exclusions enumerated in Section 39(A)(1) of the National Internal Revenue Code of 1997. None of the properties were used in
petitioner’s trade or ordinary course of business because petitioner never commenced operations. They were not part of the
inventory. None of themwere stocks in trade. Based on the definition of capital assets under Section 39 of the National Internal
Revenue Code of 1997, they are capital assets.

Respondent insists that since petitioner’s machineries and equipment are classified as capital assets, their sales should be
subject to capital gains tax. Respondent is mistaken.

In Commissioner of Internal Revenue v. Fortune Tobacco Corporation,66 this court said:

The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously. A tax cannot be imposed without clear and express words for that purpose. Accordingly, the
general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication. In answering the question of who is subject to tax statutes, it is
basic that in case of doubt, such statutes are to be construed most strongly against the government and in favor of the subjects
or citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly
import. As burdens, taxes should not be unduly exacted nor assumed beyond the plain meaning of the tax laws. 67 (Citations
omitted)

Capital gains of individuals and corporations from the sale of real properties are taxed differently. Individuals are taxed on capital
gains from sale of all real properties located in the Philippines and classified as capital assets. Thus:

SEC. 24. Income Tax Rates.

....
(D) Capital Gains from Sale of Real Property. –

(1) In General. - The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price
or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed
upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the
Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals,
including estates and trusts: Provided, That the tax liability, if any, on gains from sales or other dispositions of real property to
the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be
determined either under Section 24 (A) or under this Subsection, at the option of the taxpayer.68 (Emphasis supplied)

For corporations, the National Internal Revenue Code of 1997 treats the sale of land and buildings, and the sale of machineries
and equipment, differently. Domestic corporations are imposed a 6% capital gains tax only on the presumed gain realized from
the sale of lands and/or buildings. The National Internal Revenue Code of 1997 does not impose the 6% capital gains tax on the
gains realized from the sale of machineries and equipment. Section 27(D)(5) of the National Internal Revenue Code of 1997
provides:

SEC. 27. Rates of Income tax on Domestic Corporations. -

....

(D) Rates of Tax on Certain Passive Incomes. -

....

(5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings. - A final tax of six percent (6%) is
hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings
which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price of
fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, of such lands and/or
buildings. (Emphasis supplied)

Therefore, only the presumed gain from the sale of petitioner’s land and/or building may be subjected to the 6% capital gains
tax. The income from the sale of petitioner’s machineries and equipment is subject to the provisions on normal corporate income
tax.

To determine, therefore, if petitioner is entitled to refund, the amount of capital gains tax for the sold land and/or building of
petitioner and the amount of corporate income tax for the sale of petitioner’s machineries and equipment should be deducted
from the total final tax paid. Petitioner indicated, however, in its March 1, 2001 income tax return for the 11-month period ending
on November 30, 2000 that it suffered a net loss of ₱2,233,464,538.00. 69 This declaration was made under the pain of perjury.
Section 267 of the National Internal Revenue Code of 1997 provides:

SEC. 267. Declaration under Penalties of Perjury. - Any declaration, return and other statement required under this Code, shall,
in lieu of an oath, contain a written statement that they are made under the penalties of perjury. Any person who willfully files a
declaration, return or statement containing information which is not true and correct as to every material matter shall, upon
conviction, be subject to the penalties prescribed for perjury under the Revised Penal Code. Moreover, Rule 131, Section 3(ff) of
the Rules of Court provides for the presumption that the law has been obeyed unless contradicted or overcome by other
evidence, thus:

SEC. 3. Disputable presumptions.— The following presumptions are satisfactory if uncontradicted, but may be contradicted and
overcome by other evidence:

....

(ff) That the law has been obeyed;

The BIR did not make a deficiency assessment for this declaration. Neither did the BIR dispute this statement in its pleadings
filed before this court. There is, therefore, no reason todoubt the truth that petitioner indeed suffered a net loss in 2000.

Since petitioner had not started its operations, it was also not subject to the minimum corporate income tax of 2% on gross
income.70 Therefore, petitioner is not liable for any income tax.

IV
Prescription

Section 203 of the National Internal Revenue Code of 1997 provides that as a general rule, the BIR has three (3) years from the
last day prescribed by law for the filing of a return to make an assessment. If the return is filed beyond the last day prescribed by
law for filing, the three-year period shall run from the actual date of filing. Thus:

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes
shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day.

This court said that the prescriptive period to make an assessment of internal revenue taxes is provided "primarily to safeguard
the interests of taxpayers from unreasonable investigation."71 This court explained in Commissioner of Internal Revenue v. FMF
Development Corporation72 the reason behind the provisions on prescriptive periods for tax assessments: Accordingly, the
government must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment and deprive
the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of
reasonable period of time.73

Rules derogating taxpayers’ right against prolonged and unscrupulous investigations are strictly construed against the
government.74

[T]he law on prescription should beinterpreted in a way conducive to bringing about the beneficent purpose of affording
protection to the taxpayer within the contemplation of the Commission which recommended the approval of the law. To the
Government, its tax officers are obliged to act promptlyin the making of assessment so that taxpayers, after the lapse of the
period of prescription, would have a feeling of security against unscrupulous tax agents who will always try to find an excuse to
inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of a possible opportunity to
harass even law-abiding businessmen. Without such legal defense, taxpayers would be open season to harassment by
unscrupulous tax agents.75

Moreover, in Commissioner of Internal Revenue v. BF Goodrich Phils.:76

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law
provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be
strictly construed[.]

....

. . . . Such instances of negligence or oversight on the part of the BIR cannot prejudice taxpayers, considering that the
prescriptive period was precisely intended to give them peace of mind.77 (Citation omitted)

The BIR had three years from the filing of petitioner’s final tax return in 2000 to assess petitioner’s taxes. Nothing stopped the
BIR from making the correct assessment. The elevation of the refund claim with the Court of Tax Appeals was not a bar against
the BIR’s exercise of its assessment powers.

The BIR, however, did not initiate any assessment for deficiency capital gains tax. 78 Since more than a decade have lapsed from
the filing of petitioner's return, the BIR can no longer assess petitioner for deficiency capital gains taxes, if petitioner is later
found to have capital gains tax liabilities in excess of the amount claimed for refund.

The Court of Tax Appeals should not be expected to perform the BIR's duties of assessing and collecting taxes whenever the
BIR, through neglect or oversight, fails to do so within the prescriptive period allowed by law.

WHEREFORE, the Court of Tax Appeals' November 3, 2006 decision is SET ASIDE. The Bureau of Internal Revenue is ordered
to refund petitioner SMI-Ed Philippines Technology, Inc. the amount of 5% final tax paid to the BIR, less the 6% capital gains tax
on the sale of petitioner SMI-Ed Philippines Technology, Inc. 's land and building. In view of the lapse of the prescriptive period
for assessment, any capital gains tax accrued from the sale of its land and building that is in excess of the 5% final tax paid to
the Bureau of Internal Revenue may no longer be recovered from petitioner SMI-Ed Philippines Technology, Inc.

SO ORDERED.
FACTS: SMI-Ed Philippines is a PEZA-registered corporation authorized “to engage in the business of manufacturing ultra
high-density microprocessor unit package.”6

SMI-Ed Philippines “failed to commence operations.”. On August 1, 2000, it sold its buildings and some of its installed
machineries and equipment to Ibiden Philippines, Inc., another PEZA-registered enterprise, for ¥2,100,000,000.00
(₱893,550,000.00). SMI-Ed Philippines was dissolved on November 30, 2000. In its quarterly income tax return for year
2000, SMI-Ed Philippines subjected the entire gross sales of itsproperties to 5% final tax on PEZA registered
corporations. SMI-Ed Philippines paid taxes amounting to ₱44,677,500.00.

On Feb 2, 2001, SMI-Ed Philippines filed an administrative claim for the refund of ₱44,677,500.00 with the Bureau of
Internal Revenue (BIR). SMIEd Philippines alleged that the amount was erroneously paid. It also indicated the refundable
amount in its final income tax return filed on March 1, 2001. It also alleged that it incurred a net loss of
₱2,233,464,538.00.

The BIR – did not act on SMI-Ed Philippines’ claim, which prompted the latter to file a petition for review before the
Court of Tax Appeals on September 9, 2002.

It also argued that the Court of Tax Appeals Second Division cannot make an assessment at the first instance. Its
jurisdiction to make an assessment since its jurisdiction, with respect to the decisions of respondent, is merely appellate.

Even if the Court of Tax Appeals Second Division has such power, the period to make an assessment had already
prescribed under Section 203 of the National Internal Revenue Code of 1997 since the return for the erroneous payment
was filed on September 13, 2000. This is more than three (3) years from the last day prescribed by law for the filing of
the return.

The Court of Tax Appeals Second Division denied SMI-Ed Philippines’ claim for refund in the decision dated December
29, 2004, WITH THE findings:

The court found that SMI-Ed Philippines’ administrative claim for refund and the petition for review with the Court of
Tax Appeals were filed within the two-year prescriptive period.

However, fiscal incentives given to PEZA-registered enterprises may be availed only by PEZA-registered enterprises that
had already commenced operations. Since SMI-Ed Philippines had not commenced operations, it was not entitled to the
incentives of either the income tax holiday or the 5% preferential tax rate. Payment of the 5% preferential tax
amounting to ₱44,677,500.00 was erroneous. (so erroneous ang self-assessment ni SMI)

After finding that SMI-Ed Philippines sold properties that were capital assets under Section 39(A)(1) of the National
Internal Revenue Code of 1997, the Court of Tax Appeals Second Division subjected the sale of SMIEd Philippines’ assets
to 6% capital gains tax under Section 27(D)(5) of the same Code and Section 2 of Revenue Regulations No. 8-98. It was
found liable for capital gains tax amounting to ₱53,613,000.00. Therefore, SMIEd Philippines must still pay the balance
of ₱8,935,500.00 as deficiency tax “which respondent should perhaps look into.

In its comment, respondent argued that the Court of Tax Appeals’ determination of petitioner’s liability for capital gains
tax was not an assessment.

Such determination was necessary to settle the question regarding the tax consequence of the sale of the properties.
This is clearly within the Court of Tax Appeals’ jurisdiction under Section 7 of Republic Act No. 9282.42 Respondent also
argued that “petitioner failed to justify its claim for refund.”

CTA EN BANC- AFFIRMED CTA DIVISION’S RULING

SMI-Ed Philippines filed a petition for review before this court on December 27, 2006, praying for the grant of its claim
for refund and the reversal of the Court of Tax Appeals En Banc’s decision.

ISSUES:
W/O the honorable CTA En Banc grievously erred and acted beyond its jurisdiction when it assessed for deficiency tax in
the first instance.

HELD:

Jurisdiction of the Court of Tax Appeals- there is jurisdiction

The term “assessment” refers to the determination of amounts due from a person obligated to make payments. In the
context of national internal revenue collection, it refers the determination of the taxes due from a taxpayer under the
National Internal Revenue Code of 1997.

The power and duty to assess national internal revenue taxes are lodged with the BIR.

Section 2 of the National Internal Revenue Code of 1997 provides:

SEC. 2. Powers and Duties of the Bureau of Internal Revenue. – The Bureau of Internal Revenue shall be under the
supervision and control of the Department of Finance and its powers and duties 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.

The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other
laws. (Emphasis supplied) The BIR is not mandated to make an assessment relative to every return filed with it. Tax
returns filed with the BIR enjoy the presumption that these are in accordance with the law. Tax returns are also
presumed correct since these are filed under the penalty of perjury.. Generally, however, the BIR assesses taxes when it
appears, after a return had been filed, that the taxes paid were incorrect or false, or fraudulent. The BIR also assesses
taxes when taxes are due but no return is filed.

Thus:

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration
and Enforcement.–

(A) Examination of Returns and Determination of Tax Due. – After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any
taxpayer and the assessment of the correct amount of tax: Provided, however; That failure to file a return shall not
prevent the Commissioner from authorizing the examination of any taxpayer. The tax or any deficiency tax so assessed
shall be paid upon notice and demand from the Commissioner or from his duly authorized representative.

The Court of Tax Appeals has no power to make an assessment at the first instance. On matters such as tax collection,
tax refund, and others related to the national internal revenue taxes, the Court of Tax Appeals’ jurisdiction is appellate in
nature.

Thus, the BIR first has to make an assessment of the taxpayer’s liabilities. When the BIR makes the assessment, the
taxpayer is allowed to dispute that assessment before the BIR. If the BIR issues a decision that is unfavorable to the
taxpayer or if the BIR fails to act on a dispute brought by the taxpayer, the BIR’s decision or inaction may be brought on
appeal to the Court of Tax Appeals. The Court of Tax Appeals then acquires jurisdiction over the case.

When the BIR’s unfavorable decision is brought on appeal to the Court of Tax Appeals, the Court of Tax Appeals reviews
the correctness of the BIR’s assessment and decision. In reviewing the BIR’s assessment and decision, the Court of Tax
Appeals had to make its own determination of the taxpayer’s tax liabilities. The Court of Tax Appeals may not make such
determination before the BIR makes its assessment and before a dispute involving such assessment is brought to the
Court of Tax Appeals on appeal.

The Court of Tax Appeals’ jurisdiction is not limited to cases when the BIR makes an assessment or a decision
unfavorable to the taxpayer. Because Republic Act No. 1125 also vests the Court of Tax Appeals with jurisdiction over
the BIR’s inaction on a taxpayer’s refund claim, there may be instances when the Court of Tax Appeals has to take
cognizance of cases that have nothing to do with the BIR’s assessments or decisions.

WHEN THE BIR FAILS TO ACT ON A CLAIM FOR REFUND OF VOLUNTARILY BUT MISTAKENLY PAID TAXES, FOR EXAMPLE,
THERE IS NO DECISION OR ASSESSMENT INVOLVED.

Taxes are generally self-assessed. They are initially computed and voluntarily paid by the taxpayer. The government does
not have to demand it. If the tax payments are correct, the BIR need not make an assessment. The self-assessing and
voluntarily paying taxpayer, however, may later find that he or she has erroneously paid taxes. Erroneously paid taxes
may come in the form of amounts that should not have been paid. Thus, a taxpayer may find that he or she has paid
more than the amount that should have been paid under the law. Erroneously paid taxes may also come in the form of
tax payments for the wrong category of tax. Thus, a taxpayer may find that he or she has paid a certain kind of tax that
he or she is not subject to.

In these instances, the taxpayer may ask for a refund. If the BIR fails to act on the request for refund, the taxpayer may
bring the matter to the Court of Tax Appeals.

From the taxpayer’s self-assessment and tax payment up to his or her request for refund and the BIR’s inaction, the BIR’s
participation is limited to the receipt of the taxpayer’s payment. The BIR does not make an assessment; the BIR issues no
decision; and there is no dispute yet involved. Since there is no BIR assessment yet, the Court of Tax Appeals may not
determine the amount of taxes due from the taxpayer. There is also no decision yet to review. However, there was
inaction on the part of the BIR. That inaction is within the Court of Tax Appeals’ jurisdiction.

In other words, the Court of Tax Appeals may acquire jurisdiction over cases even if they do not involve BIR assessments
or decisions.

In this case, the Court of Tax Appeals’ jurisdiction was acquired because petitioner brought the case on appeal before
the Court of Tax Appeals after the BIR had failed to act on petitioner’s claim for refund of erroneously paid taxes. The
Court of Tax Appeals did not acquire jurisdiction as a result of a disputed assessment of a BIR decision.

Petitioner argued that the Court of Tax Appeals had no jurisdiction to subject it to 6% capital gains tax or other taxes at
the first instance. The Court of Tax Appeals has no power to make an assessment.

As earlier established, the Court of Tax Appeals has no assessment powers. In stating that petitioner’s transactions are
subject to capital gains tax, however, the Court of Tax Appeals was not making an assessment. It was merely
determining the proper category of tax that petitioner should have paid, in view of its claim that it erroneously imposed
upon itself and paid the 5% final tax imposed upon PEZA-registered enterprises.

The determination of the proper category of tax that petitioner should have paid is an incidental matter necessary for
the resolution of the principal issue, which is whether petitioner was entitled to a refund.

The issue of petitioner’s claim for tax refund is intertwined with the issue of the proper taxes that are due from
petitioner. A claim for tax refund carries the assumption that the tax returns filed were correct.55 If the tax return filed
was not proper, the correctness of the amount paid and, therefore, the claim for refund become questionable. In that
case, the court must determine if a taxpayer claiming refund of erroneously paid taxes is more properly liable for taxes
other than that paid.

If the taxpayer is found liable for taxes other than the erroneously paid 5% final tax, the amount of the taxpayer’s
liability should be computed and deducted from the refundable amount.

Any liability in excess of the refundable amount, however, may not be collected in a case involving solely the issue of the
taxpayer’s entitlement to refund. The question of tax deficiencyis distinct and unrelated to the question of petitioner’s
entitlement to refund. Tax deficiencies should be subject to assessment procedures and the rules of prescription. The
court cannot be expected to perform the BIR’s duties whenever it fails to do so either through neglect or oversight.
Neither can court processes be used as a tool to circumvent laws protecting the rights of taxpayers.
Petitioner’s entitlement to benefits given to PEZA-registered enterprises

Petitioner is not entitled to benefits given to PEZA-registered enterprises, including the 5% preferential tax rate under
Republic Act No. 7916 or the Special Economic Zone Act of 1995. This is because it never began its operation.

Essentially, the purpose of Republic Act No. 7916 is to promote development and encourage investments and business
activities that will generate employment.59 Giving fiscal incentives to businesses is one of the means devised to achieve
this purpose. It comes with the expectation that persons who will avail these incentives will contribute to the purpose’s
achievement. Hence, to avail the fiscal incentives under Republic Act No. 7916, the law did not say that mere PEZA
registration is sufficient.

Republic Act No. 7916 or The Special Economic Zone Act of 1995 provides that the fiscal incentives and the 5%
preferential tax rate are available only to businesses operating within the Ecozone.60 A business is considered in
operation when it starts entering into commercial transactions that are not merely incidental to but are related to the
purposes of the business. It is similar to the definition of “doing business,” as applied in actions involving the right of
foreign corporations to maintain court actions:

“a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and
object of its organization” Petitioner never started its operations since its registration on June 29, 199863 because of the
Asian financial crisis.64 Petitioner admitted this.65 Therefore, it cannot avail the incentives provided under Republic Act
No. 7916. It is not entitled to the preferential tax rate of 5% on gross income in lieu of all taxes. Because petitioner is not
entitled to a preferential rate, it is subject to ordinary tax rates under the National Internal Revenue Code of 1997.

The BIR did not make a deficiency assessment for this declaration. Neither did the BIR dispute this statement in its
pleadings filed before this court. There is, therefore, no reason todoubt the truth that petitioner indeed suffered a net
loss in 2000.

Since petitioner had not started its operations, it was also not subject to the minimum corporate income tax of 2% on
gross income.70 Therefore, petitioner is not liable for any income tax.

Prescription

Section 203 of the National Internal Revenue Code of 1997 provides that as a general rule, the BIR has three (3) years
from the last day prescribed by law for the filing of a return to make an assessment. If the return is filed beyond the last
day prescribed by law for filing, the three-year period shall run from the actual date of filing. This court said that the
prescriptive period to make an assessment of internal revenue taxes is provided “primarily to safeguard the interests of
taxpayers from unreasonable investigation.” Accordingly, the government must assess internal revenue taxes on time so
as not to extend indefinitely the period of assessment and deprive the taxpayer of the assurance that it will no longer be
subjected to further investigation for taxes after the expiration of reasonable period of time.73

Rules derogating taxpayers’ right against prolonged and unscrupulous investigations are strictly construed against the
government.74

The BIR had three years from the filing of petitioner’s final tax return in 2000 to assess petitioner’s taxes. Nothing
stopped the BIR from making the correct assessment. The elevation of the refund claim with the Court of Tax Appeals
was not a bar against the BIR’s exercise of its assessment powers.

The BIR, however, did not initiate any assessment for deficiency capital gains tax.78 Since more than a decade have
lapsed from the filing of petitioner’s return, the BIR can no longer assess petitioner for deficiency capital gains taxes, if
petitioner is later found to have capital gains tax liabilities in excess of the amount claimed for refund.

The Court of Tax Appeals should not be expected to perform the BIR’s duties of assessing and collecting taxes whenever
the BIR, through neglect or oversight, fails to do so within the prescriptive period allowed by law.
WHEREFORE, the Court of Tax Appeals’ November 3, 2006 decision is SET ASIDE. The Bureau of Internal Revenue is
ordered to refund petitioner SMI-Ed Philippines Technology, Inc. the amount of 5% final tax paid to the BIR, less the 6%
capital gains tax on the sale of petitioner SMI-Ed Philippines Technology, Inc. ‘s land and building. In view of the lapse of
the prescriptive period for assessment, any capital gains tax accrued from the sale of its land and building that is in
excess of the 5% final tax paid to the Bureau of Internal Revenue may no longer be recovered from petitioner SMI-Ed
Philippines Technology, Inc.

----------------------------------------------

Republic v. GMCC United Development Corp., G.R. No. 191856, December 7, 2016

Before this Court is a Petition for Review on Certiorari


1 assailing the Court of Appeals' Decision2 dated September 8, 2009 and
3 4
Resolution dated March 30, 2010 in CA-G.R. SP No. 100380. The Court of Appeals affirmed the May 26, 2006 Resolution of the Department
of Justice, which dismissed the criminal complaint for tax evasion filed by the Bureau of Internal Revenue against GMCC United Development
Corporation's corporate officers on the ground that the period to assess the tax had already prescribed.
5

On March 28, 2003, the Bureau of Internal Revenue National Investigation Division issued a Letter of Authority, authorizing its revenue
officers to examine the books of accounts and other accounting records of GMCC United Development Corporation (GMCC) covering taxable
years 1998 and 1999.6 On April 3, 2003 GMCC was served a copy of said Letter of Authority and was requested to present its books of
accounts and other accounting records.7 GMCC failed to respond to the Letter of Authority as well as the subsequent letters requesting that its
records and documents be produced.8

Due to GMCC's failure to act on the requests, the Assistant Commissioner of the Enforcement Service of the Bureau of Internal Revenue
issued a Subpoena Duces Tecum on GMCC president, Jose C. Go (Go).9When GMCC still failed to comply with the Subpoena Duces Tecum, the
revenue officers were constrained to investigate GMCC through Third Party Information.10

The investigation revealed that in 1998, GMCC, through Go, executed two dacion en pago agreements to pay for the obligations of GMCC's
sister companies, Ever Emporium, Inc., Gotesco Properties, Inc. and Ever Price Club, Inc., to Rizal Commercial Banking Corporation.11 GMCC
allegedly failed to declare the income it earned from these agreements for taxation purposes in 1998.12 Moreover, these transactions
constituted a donation in favor of GMCC's sister companies for which GMCC failed to pay the corresponding donor's tax.13 The BIR also
assessed the value added tax over the said transactions.14

It was also discovered that in 1999, GMCC sold condominium units and parking slots for a total amount of P5,350,000.00 to a Valencia K.
Wong.15 However, GMCC did not declare the income it earned from these transactions in its 1999 Audited Financial Statements.16

Thus, on November 17, 2003, the Bureau of Internal Revenue issued a Notice to Taxpayer to GMCC, which GMCC ignored. 17 On December 8,
2003, the Bureau of Internal Revenue issued a Preliminary Assessment Notice. 18 It was only when the Bureau of Internal Revenue issued the
Final Assessment Notice that GMCC responded.19 In a Letter dated November 23, 2004, GMCC protested the issuance of the Final Assessment
Notice citing that the period to assess and collect the tax had already prescribed. The Bureau of Internal Revenue denied the protest in a Final
Decision dated February 10, 2005.20 .

In light of the discovered tax deficiencies, the Bureau of Internal Revenue, on October 7, 2005, filed with the Department of Justice a criminal
complaint for violation of Sections 254,21 255,22 and 267,23 of the National Internal Revenue Code against GMCC, its president, Jose C. Go,
and its treasurer, Xu Xian Chun.24

In his Counter-Affidavit, Go prayed that the complaint be dismissed, arguing, among others, that the action had already prescribed and that
GMCC did not defraud the government.25 Assuming that the period to assess had not yet prescribed, GMCC argued that there was nothing to
cralawred

declare since it earned no income from the dacion en pago transactions.26 Furthermore, even though the dacion en pagotransactions were not
included in the GMCC 1998 Financial Statement, they had been duly reflected in the GMCC 2000 Financial Statement.

On May 26, 2006, the Department of Justice, through the Chief State Prosecutor, issued a Resolution27dismissing the criminal complaint
against the GMCC officers. The State Prosecutor ruled that there was no proof that GMCC defrauded the government. The Bureau went
beyond its authority when it assessed and issued the Letter of Authority knowing that the period to assess had already lapsed. Moreover, the
prosecutor ruled that since GMCC did not gain from the assailed transactions, the imposition of income, VAT, and donor's taxes were
improper.28 The dispositive portion of the Resolution reads: ChanRoblesVi rtua lawlib rary

All told, we find no probable cause to warrant indictment of respondents for violation of Sections 254, 255 and 267 of the National Internal
Revenue Code of 1997.

WHEREFORE, it is respectfully recommended that the instant complaint be DISMISSED.29

The Bureau of Internal Revenue filed a Motion for Reconsideration,30 which the Department of Justice denied in the Resolution dated August
31, 2006.31
Aggrieved, the Bureau of Internal Revenue filed before the Court of Appeals a Petition for Certiorari.32The Bureau argued that the Department
of Justice gravely abused its discretion in dismissing the criminal complaint against GMCC's officers. On September 8, 2009, the Court of
Appeals denied the Petition and affirmed in toto the Department of Justice's Resolution. The dispositive portion of the Decision33 reads: ChanRoblesVirtualawl ibra ry

WHEREFORE, the foregoing considered, the instant petition is hereby DISMISSED and the assailed resolutions AFFIRMED in toto. No costs.

SO ORDERED. cralawlawlibra ry
34

The Bureau of Internal Revenue moved for reconsideration, but it was denied in the Resolution 35 dated March 30, 2010.

Petitioner Bureau of Internal Revenue is now before this Court, insisting that the Court of Appeals erred in finding that the applicable period of
prescription in its case is the three-year period under Section 203 of the NIRC and not the ten-year prescriptive period under Section 222.36

The issues before us are as follows: chanRoblesvirtual Lawlib ra ry

First, whether the Court of Appeals erred in declaring that the Secretary of Justice did not commit grave abuse of discretion when he found no
probable cause and dismissed the tax evasion case against the respondent officers of GMCC.

Second, whether the applicable prescriptive period for the tax assessment is the ten-year period or the three-year period.

The Petition must be denied.

We are convinced that the Court of Appeals committed no reversible error in affirming the ruling of the Secretary of Justice that there was no
probable cause to file a tax evasion case against the respondent officers. Since the assessment for the tax had already prescribed, no
proceeding in court on the basis of such return can be filed.

The petitioner filed a criminal complaint against respondents for violating Articles 254, 255, and 267 of the National Internal Revenue Code.
The Articles provide: ChanRoblesVi rtua lawlib rary

SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully attempts in any manner to evade or defeat any tax imposed under this
Code or the payment thereof shall, in addition to the other penalties provided by law, upon conviction thereof, be punished by a fine of not
less than Thirty thousand pesos (P30,000.00) but not more than One hundred thousand pesos (P100,000.00) and suffer imprisonment of not
less than two (2) years but not more than four (4) years: Provided, That the conviction or acquittal obtained under this Section shall not be a
bar to the filing of a civil suit for the collection of taxes.

SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes
Withheld on Compensation. - Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make
a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record,
or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the
time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be
punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than
ten (10) years.

Any person who attempts to make it appear for any reason that he or another has in fact filed a return or statement, or actually files a return
or statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp of receipt of an
internal revenue office wherein the same was actually filed shall, upon conviction therefore, be punished by a fine of not less than Ten
thousand pesos (P10,000) but not more than Twenty thousand pesos (P20,000) and suffer imprisonment of not less than one (1) year but not
more than three (3) years.

SEC. 267. Declaration under Penalties of Perjury. - Any declaration, return and other statements required under this Code, shall, in lieu of an
oath, contain a written statement that they are made under the penalties of perjury. Any person who willfully files a declaration, return or
statement containing information which is not true and correct as to every material matter shall, upon conviction, be subject to the penalties
prescribed for perjury under the Revised Penal Code. chanroblesv irtuallawl ib rary

In ruling that there was no probable cause to indict the respondent officers for the acts charged, the Court of Appeals said there was no clear
showing that there was deliberate intent on the part of the respondents to evade payment of the taxes. Both the State Prosecutor37 and the
Court of Appeals38emphasized that if respondents really intended to evade payment, they would have omitted the assailed transactions
completely in all their financial statements. We agree.

As it stands, while the dacion en pago transactions were missing in the GMCC 1998 Financial Statement, they had been listed in the GMCC
2000 Financial Statement.39 Respondents' act of filing and recording said transactions in their 2000 Financial Statement belie the allegation
that they intended to evade paying their tax liability. Petitioner's contention that the belated filing is a mere afterthought designed to make it
appear that the non-reporting was not deliberate, does not persuade considering that the filing of the 2000 Financial Statement was done
prior to the issuance of the March 2003 Letter of Authority, which authorized the investigation of GMCC's books.40

In any case, this Court has a policy of non-interference in the conduct of preliminary investigations. In First Women's Credit Corporation v.
Baybay41 the Court said: ChanRoblesVi rtualaw lib rary
It is settled that the determination of whether probable cause exists to warrant the prosecution in court of an accused should be consigned
and entrusted to the Department of Justice, as reviewer of the findings of public prosecutors. The court's duty in an appropriate case is
confined to a determination of whether the assailed executive or judicial determination of probable cause was done without or in excess of
jurisdiction or with grave abuse of discretion amounting to want of jurisdiction. This is consistent with the general rule that criminal
prosecutions may not be restrained or stayed by injunction, preliminary or final, albeit in extreme cases, exceptional circumstances have been
recognized. The rule is also consistent with this Court's policy of non-interference in the conduct of preliminary investigations, and of leaving
to the investigating prosecutor sufficient latitude of discretion in the exercise of determination of what constitutes sufficient evidence as will
establish probable cause for the filing of an information against a supposed offender. While prosecutors are given sufficient latitude of
discretion in the determination of probable cause, their findings are subject to review by the Secretary of Justice.

Once a complaint or information is filed in court, however, any disposition of the case, e.g., its dismissal or the conviction or acquittal of the
accused rests on the sound discretion of the Court.42

Moreover, a prosecutor's grave abuse of discretion in dismissing a case must be clearly shown before the Courts can intervene. Elma v
Jacobi,43 explained: ChanRoblesVi rtua lawlib rary

The necessary component of the Executive's power to faithfully execute the laws of the land is the State's self-preserving power to prosecute
violators of its penal laws. This responsibility is primarily lodged with the DOJ, as the principal law agency of the government. The prosecutor
has the discretionary authority to determine whether facts and circumstances exist meriting reasonable belief that a person has committed a
crime. The question of whether or not to dismiss a criminal complaint is necessarily dependent on the sound discretion of the investigating
prosecutor and, ultimately, of the Secretary (or Undersecretary acting for the Secretary) of Justice. Who to charge with what crime or none at
all is basically the prosecutor's call.

Accordingly, the Court has consistently adopted the policy of non interference in the conduct of preliminary investigations, and to leave the
investigating prosecutor sufficient latitude of discretion in the determination of what constitutes sufficient evidence to establish probable
cause. Courts cannot order the prosecution of one against whom the prosecutor has not found a prima facie case; as a rule, courts, too,
cannot substitute their own judgment for that of the Executive.

In fact, the prosecutor may err or may even abuse the discretion lodged in him by law. This error or abuse alone, however, does not render
his act amenable to correction and annulment by the extraordinary remedy of certiorari. To justify judicial intrusion into what is
fundamentally the domain of the Executive, the petitioner must clearly show that the prosecutor gravely abused his discretion amounting to
lack or excess of jurisdiction in making his determination and in arriving at the conclusion he reached. This requires the petitioner to establish
that the prosecutor exercised his power in an arbitrary and despotic manner by reason of passion or personal hostility; and it must be so
patent and gross as to amount to an evasion or to a unilateral refusal to perform the duty enjoined or to act in contemplation of law, before
judicial relief from a discretionary prosecutorial action may be obtained.44

Based on the foregoing, absent any indication that the Secretary of Justice gravely abused his discretion in not finding probable cause for the
complaint against respondent officers to prosper, the dismissal stands.

II

As to the issue on the applicable prescriptive period, it is the three-year prescriptive period that applies in this case.

The power of the Commissioner of Internal Revenue to assess and collect taxes is provided under Section 2 of the National Internal Revenue
Code: ChanRoblesVi rtua lawlib rary

SEC. 2. Powers and Duties of the Bureau of Internal Revenue - The Bureau of Internal Revenue shall be under the supervision and control of
the Department of Finance and its powers and duties 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.

The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws. chanroble svirtuallaw lib rary

However, this power to assess and collect taxes is limited by Section 203 of the National Internal Revenue Code: ChanRoblesVi rtualaw lib rary

SEC. 203. Period of Limitation Upon Assessment and Collection.- Except as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period
prescribed by law, the three (3)-year period shall be counted from the day the return was filed.

For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last
day. chanroble svirtuallaw lib rary

The Court, in Republic v. Ablaza,45 explained the purpose behind this limitation: ChanRoblesVirtualawl ibra ry

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the
Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the
period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the
books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest peaceful, law-abiding
citizens. Without such a legal defense[,] taxpayers would furthermore be under obligation to always keep their books and keep them open for
inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a
way conducive to bringing about the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission
which recommend the approval of the law.46

Petitioner contends that Section 203 finds no application in this case and insists that it is Section 222 of the same Code, which should be
applied. Section 222 in part states:ChanRoblesVi rtua lawlib rary

SEC. 222. Exceptions as to 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 failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be filed 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.

In arguing for the application of the 10-year prescriptive period, petitioner claims that the tax return in this case is fraudulent and thus, the
three-year prescriptive period is not applicable.47

Petitioner fails to convince that respondents filed a fraudulent tax return. The respondents may have erred in reporting their tax liability when
they recorded the assailed transactions in the wrong year, but such error stemmed from the wrong application of the law and is not an
indication of their intent to evade payment. If there were really an intent to evade payment, respondents would not have reported and
subsequently paid the income tax, albeit in the wrong year.

In Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc.,48 the Court emphasized that the Bureau of Internal Revenue must show
that the return was filed fraudulently with intent to evade payment. The Court ruled: ChanRoblesVirtualawl ibra ry

Ineludibly, the BIR failed to show that private respondent's 1974 return was filed fraudulently with intent to evade the payment of the correct
amount of tax. Moreover, even though a donor's tax, which is defined as "a tax on the privilege of transmitting one's property or property
rights to another or others without adequate and full valuable consideration," is different from capital gains tax, a tax on the gain from the
sale of the taxpayer's property forming part of capital assets, the tax return filed by private respondent to report its income for the year 1974
was sufficient compliance with the legal requirement to file a return. In other words, the fact that the sale transaction may have partly
resulted in a donation does not change the fact that private respondent already reported its income for 1974 by filing an income tax return.

Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent return with the intent to evade tax, or that it had
failed to file a return at all, the period for assessments has obviously prescribed. Such instances of negligence or oversight on the part of the
BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely intended to give them peace of mind.49

As found by the Court of Appeals, there is no clear and deliberate intent to evade payment of taxes in relation to the dacion en
pago transactions50 or on the sale transaction with Valencia Wong.51 The dacion en pago transactions, though not included in the 1998
Financial Statement, were properly listed in GMCC's Financial Statement for the year 2000.52 Regarding the sale transaction with Valencia
Wong, the respondents said that it was not reflected in the year 1999 because it was an installment sale. Units sold on installment, they
explained, are recognized not in the year they are fully paid, but in the year when at least 25% of the selling price is paid.53 In this instance,
the unit and the parking lot were sold prior to 1996, thus, in the Schedule of Unsold Units filed by GMCC as of December 31, 1996, the said
properties were no longer included.54

For the ten-year period under Section 222(a) to apply, it is not enough that fraud is alleged in the complaint, it must be established by clear
and convincing evidence.55 The petitioner, having failed to discharge the burden of proving fraud, cannot invoke Section 222(a).

Having settled that the case falls under Section 203 of the Tax Code, the three-year prescriptive period should be applied. In GMCC's case,
the last day prescribed by law for filing its 1998 tax return was April 15, 1999.56 The petitioner had three years or until 2002 to make an
assessment. Since the Preliminary Assessment was made only on December 8, 2003, the period to assess the tax had already prescribed.

A reading of Section 203 will show that it prohibits two acts after the expiration of the three-year period. First, an assessment for the
collection of the taxes in the return, and second, initiating a court proceeding on the basis of such return. The State Prosecutor was correct in
dismissing the complaint for tax evasion since it was clear that the prescribed return cannot be used as basis for the case.

All told, the dismissal of the tax evasion case against respondent officers was proper. The Court of Appeals did not err in affirming the
dismissal. Petitioner failed to prove that respondent officers wilfully intended to evade paying tax. Moreover, having found no basis to
disregard the three-year period of prescription, it is clear that the assessments were issued beyond the statute of limitations.

WHEREFORE, the Petition is DENIED. The Decision dated September 8, 2009 and the Resolution dated March 30, 2010 of the Court of
Appeals in CA-GR. SP No. 100380 are AFFIRMED.

SO ORDERED. cralawlawlibra ry
3.b. If the three (3) year period to assess a tax return under Sec. 203 has already lapsed, the BIR can no longer file
acomplaint for tax evasion on the basis of such return.A reading of Sec. 203 will show that it prohibits two acts after the
expiration of the three-year period. First , an assessment for the collection of the taxes in the return, and second,
initiating a court proceeding on the basis of such return. The State Prosecutor was correct in dismissing the complaint
for tax evasion since it was clear that the prescribed return cannot be used as basis for the case.

----------------------------------------------

Banco de Oro v. Republic, G.R. No. 198756, January 13, 2015

The case involves the proper tax treatment of the discount or interest income arising from the ₱35 billion worth of 10-year zero-
coupon treasury bonds issued by the Bureau of Treasury on October 18, 2001 (denominated as the Poverty Eradication and
Alleviation Certificates or the PEA Ce Bonds by the Caucus of Development NGO Networks).

On October 7, 2011, the Commissioner of Internal Revenue issued BIR Ruling No. 370-20111 (2011 BIR Ruling), declaring that
the PEACe Bonds being deposit substitutes are subject to the 20% final withholding tax. Pursuant to this ruling, the Secretary of
Finance directed the Bureau of Treasury to withhold a 20% final tax from the face value of the PEACe Bonds upon their
payment at maturity on October 18, 2011.

This is a petition for certiorari, prohibition and/or mandamus 2 filed by petitioners under Rule 65 of the Rules of Court seeking to:

a. ANNUL Respondent BIR's Ruling No. 370-2011 dated 7 October 2011 [and] other related rulings issued by BIR of
similar tenor and import, for being unconstitutional and for having been issued without jurisdiction or with grave abuse of
discretion amounting to lack or· excess of jurisdiction ... ;

b. PROHIBIT Respondents, particularly the BTr; from withholding or collecting the 20% FWT from the payment of the
face value of the Government Bonds upon their maturity;

c. COMMAND Respondents, particularly the BTr, to pay the full amount of the face value of the Government Bonds
upon maturity ... ; and

d. SECURE a temporary restraining order (TRO), and subsequently a writ of preliminary injunction, enjoining
Respondents, particularly the BIR and the BTr, from withholding or collecting 20% FWT on the Government Bonds and
the respondent BIR from enforcing the assailed 2011 BIR Ruling, as well asother related rulings issued by the BIR of
similar tenor and import, pending the resolution by [the court] of the merits of [the] Petition. 3

Factual background

By letter4 dated March 23, 2001, the Caucus of Development NGO Networks (CODE-NGO) "with the assistance of its financial
advisors, Rizal Commercial Banking Corp. ("RCBC"), RCBC Capital Corp. ("RCBC Capital"), CAPEX Finance and Investment
Corp. ("CAPEX") and SEED Capital Ventures, Inc. (SEED)," 5 requested an approval from the Department of Finance for the
issuance by the Bureau of Treasury of 10-year zerocoupon Treasury Certificates (T-notes).6 The T-notes would initially be
purchased by a special purpose vehicle on behalf of CODE-NGO, repackaged and sold at a premium to investors as the PEACe
Bonds.7 The net proceeds from the sale of the Bonds"will be used to endow a permanent fund (Hanapbuhay® Fund) to finance
meritorious activities and projects of accredited non-government organizations (NGOs) throughout the country."8

Prior to and around the time of the proposal of CODE-NGO, other proposals for the issuance of zero-coupon bonds were also
presented by banks and financial institutions, such as First Metro Investment Corporation (proposal dated March 1,
2001),9 International Exchange Bank (proposal dated July 27, 2000),10 Security Bank Corporation and SB Capital Investment
Corporation (proposal dated July 25, 2001), 11 and ATR-Kim Eng Fixed Income, Inc. (proposal dated August 25, 1999). 12 "[B]oth
the proposals of First Metro Investment Corp. and ATR-Kim Eng Fixed Income indicate that the interest income or discount
earned on the proposed zerocoupon bonds would be subject to the prevailing withholding tax." 13

A zero-coupon bondis a bond bought at a price substantially lower than its face value (or at a deep discount), with the face value
repaid at the time of maturity.14 It does not make periodic interest payments, or have socalled "coupons," hence the term zero-
coupon bond.15 However, the discount to face value constitutes the return to the bondholder.16

On May 31, 2001, the Bureau of Internal Revenue, in reply to CODENGO’s letters dated May 10, 15, and 25, 2001, issued BIR
Ruling No. 020-200117 on the tax treatment of the proposed PEACe Bonds. BIR Ruling No. 020-2001, signed by then
Commissioner ofInternal Revenue René G. Bañez confirmed that the PEACe Bonds would not be classified as deposit
substitutes and would not be subject to the corresponding withholding tax:

Thus, to be classified as "deposit substitutes", the borrowing of funds must be obtained from twenty (20) or more individuals or
corporate lenders at any one time. In the light of your representation that the PEACe Bonds will be issued only to one entity, i.e.,
Code NGO, the same shall not be considered as "deposit substitutes" falling within the purview of the above definition. Hence,
the withholding tax on deposit substitutes will not apply.18 (Emphasis supplied)

The tax treatment of the proposed PEACe Bonds in BIR Ruling No. 020-2001 was subsequently reiterated in BIR Ruling No.
035-200119 dated August 16, 2001 and BIR Ruling No. DA-175-0120 dated September 29, 2001 (collectively, the 2001 Rulings). In
sum, these rulings pronounced that to be able to determine whether the financial assets, i.e., debt instruments and securities are
deposit substitutes, the "20 or more individual or corporate lenders" rule must apply. Moreover, the determination of the phrase
"at any one time" for purposes of determining the "20 or more lenders" is to be determined at the time of the original issuance.
Such being the case, the PEACe Bonds were not to be treated as deposit substitutes.

Meanwhile, in the memorandum21 dated July 4, 2001, Former Treasurer Eduardo Sergio G. Edeza (Former Treasurer Edeza)
questioned the propriety of issuing the bonds directly to a special purpose vehicle considering that the latter was not a
Government Securities Eligible Dealer (GSED).22 Former Treasurer Edeza recommended that the issuance of the Bonds "be
done through the ADAPS"23 and that CODE-NGO "should get a GSED to bid in [sic] its behalf."24

Subsequently, in the notice to all GSEDs entitled Public Offering of Treasury Bonds 25 (Public Offering) dated October 9, 2001,
the Bureau of Treasury announced that "₱30.0B worth of 10-year Zero[-] Coupon Bonds [would] be auctioned on October 16,
2001[.]"26 The notice stated that the Bonds "shall be issued to not morethan 19 buyers/lenders hence, the necessity of a manual
auction for this maiden issue."27 It also required the GSEDs to submit their bids not later than 12 noon on auction date and to
disclose in their bid submissions the names of the institutions bidding through them to ensure strict compliance with the 19
lender limit.28 Lastly, it stated that "the issue being limitedto 19 lenders and while taxable shall not be subject to the 20% final
withholding [tax]."29

On October 12, 2001, the Bureau of Treasury released a memo 30 on the "Formula for the Zero-Coupon Bond." The memo stated
inpart that the formula (in determining the purchase price and settlement amount) "is only applicable to the zeroes that are not
subject to the 20% final withholding due to the 19 buyer/lender limit."31

A day before the auction date or on October 15, 2001, the Bureau of Treasury issued the "Auction Guidelines for the 10-year
Zero-Coupon Treasury Bond to be Issued on October 16, 2001" (Auction Guidelines). 32 The Auction Guidelines reiterated that
the Bonds to be auctioned are "[n]ot subject to 20% withholding tax as the issue will be limited to a maximum of 19 lenders in the
primary market (pursuant to BIR Revenue Regulation No. 020 2001)."33The Auction Guidelines, for the first time, also stated that
the Bonds are "[e]ligible as liquidity reserves (pursuant to MB Resolution No. 1545 dated 27 September 2001)[.]" 34

On October 16, 2001, the Bureau of Treasury held an auction for the 10-year zero-coupon bonds.35 Also on the same date, the
Bureau of Treasury issued another memorandum36 quoting excerpts of the ruling issued by the Bureau of Internal Revenue
concerning the Bonds’ exemption from 20% final withholding tax and the opinion of the Monetary Board on reserve eligibility. 37

During the auction, there were 45 bids from 15 GSEDs.38 The bidding range was very wide, from as low as 12.248% to as high
as 18.000%.39 Nonetheless, the Bureau of Treasury accepted the auction results.40 The cut-off was at 12.75%.41

After the auction, RCBC which participated on behalf of CODE-NGO was declared as the winning bidder having tendered the
lowest bids.42 Accordingly, on October 18, 2001, the Bureau of Treasury issued ₱35 billion worth of Bonds at yield-to-maturity of
12.75% to RCBC for approximately ₱10.17 billion,43 resulting in a discount of approximately ₱24.83 billion.

Also on October 16, 2001, RCBC Capital entered into an underwriting Agreement 44 with CODE-NGO, whereby RCBC Capital
was appointed as the Issue Manager and Lead Underwriter for the offering of the PEACe Bonds. 45RCBC Capital agreed to
underwrite46 on a firm basis the offering, distribution and sale of the 35 billion Bonds at the price of ₱11,995,513,716.51.47 In
Section 7(r) of the underwriting agreement, CODE-NGO represented that "[a]ll income derived from the Bonds, inclusive of
premium on redemption and gains on the trading of the same, are exempt from all forms of taxation as confirmed by Bureau of
Internal Revenue (BIR) letter rulings dated 31 May 2001 and 16 August 2001, respectively."48

RCBC Capital sold the Government Bonds in the secondary market for an issue price of ₱11,995,513,716.51. Petitioners
purchased the PEACe Bonds on different dates.49

BIR rulings
On October 7, 2011, "the BIR issued the assailed 2011 BIR Ruling imposing a 20% FWT on the Government Bonds and
directing the BTr to withhold said final tax at the maturity thereof, [allegedly without] consultation with Petitioners as bond
holders, and without conducting any hearing."50

"It appears that the assailed 2011 BIR Ruling was issued in response to a query of the Secretary of Finance on the proper tax
treatment of the discount or interest income derived from the Government Bonds."51 The Bureau of Internal Revenue, citing three
(3) of its rulings rendered in 2004 and 2005, namely: BIR Ruling No. 007-0452 dated July 16, 2004; BIR Ruling No. DA-491-
0453 dated September 13, 2004; and BIR Ruling No. 008-0554 dated July 28, 2005, declared the following:

The Php 24.3 billion discount on the issuance of the PEACe Bonds should be subject to 20% Final Tax on interest income from
deposit substitutes. It is now settled that all treasury bonds (including PEACe Bonds), regardless of the number of
purchasers/lenders at the time of origination/issuance are considered deposit substitutes. In the case of zero-coupon bonds, the
discount (i.e. difference between face value and purchase price/discounted value of the bond) is treated as interest income of
the purchaser/holder. Thus, the Php 24.3 interest income should have been properly subject to the 20% Final Tax as provided in
Section 27(D)(1) of the Tax Code of 1997. . . .

....

However, at the time of the issuance of the PEACe Bonds in 2001, the BTr was not able tocollect the final tax on the
discount/interest income realized by RCBC as a result of the 2001 Rulings. Subsequently, the issuance of BIR Ruling No. 007-
04 dated July 16, 2004 effectively modifies and supersedes the 2001 Rulings by stating that the [1997] Tax Code is clear that
the "term public means borrowing from twenty (20) or more individual or corporate lenders at any one time." The word "any"
plainly indicates that the period contemplated is the entire term of the bond, and not merely the point of origination or issuance. .
. . Thus, by taking the PEACe bonds out of the ambit of deposits [sic] substitutes and exempting it from the 20% Final Tax, an
exemption in favour of the PEACe Bonds was created when no such exemption is found in the law.55

On October 11, 2011, a "Memo for Trading Participants No. 58-2011 was issued by the Philippine Dealing System Holdings
Corporation and Subsidiaries ("PDS Group"). The Memo provides that in view of the pronouncement of the DOF and the BIR on
the applicability of the 20% FWT on the Government Bonds, no transferof the same shall be allowed to be recorded in the
Registry of Scripless Securities ("ROSS") from 12 October 2011 until the redemption payment date on 18 October 2011. Thus,
the bondholders of record appearing on the ROSS as of 18 October 2011, which include the Petitioners, shall be treated by the
BTr asthe beneficial owners of such securities for the relevant [tax] payments to be imposed thereon." 56

On October 17, 2011, replying to anurgent query from the Bureau of Treasury, the Bureau of Internal Revenue issued BIR
Ruling No. DA 378-201157 clarifying that the final withholding tax due on the discount or interest earned on the PEACe Bonds
should "be imposed and withheld not only on RCBC/CODE NGO but also [on] ‘all subsequent holders of the Bonds.’" 58

On October 17, 2011, petitioners filed a petition for certiorari, prohibition, and/or mandamus (with urgent application for a
temporary restraining order and/or writ of preliminary injunction)59 before this court.

On October 18, 2011, this court issued a temporary restraining order (TRO)60 "enjoining the implementation of BIR Ruling No.
370-2011 against the [PEACe Bonds,] . . . subject to the condition that the 20% final withholding tax on interest income there
from shall be withheld by the petitioner banks and placed in escrow pending resolution of [the] petition." 61

On October 28, 2011, RCBC and RCBC Capital filed a motion for leave of court to intervene and to admit petition-in-
intervention62 dated October 27, 2011, which was granted by this court on November 15, 2011.63

Meanwhile, on November 9, 2011, petitioners filed their "Manifestation with Urgent Ex Parte Motion to Direct Respondents to
Comply with the TRO."64 They alleged that on the same day that the temporary restraining order was issued, the Bureau of
Treasury paid to petitioners and other bondholders the amounts representing the face value of the Bonds, net however of the
amounts corresponding to the 20% final withholding tax on interest income, and that the Bureau of Treasury refused to release
the amounts corresponding to the 20% final withholding tax.65On November 15, 2011, this court directed respondents to: "(1)
SHOW CAUSE why they failed to comply with the October 18, 2011 resolution; and (2) COMPLY with the Court’s resolution in
order that petitioners may place the corresponding funds in escrow pending resolution of the petition." 66

On the same day, CODE-NGO filed a motion for leave to intervene (and to admit attached petition-in-intervention with comment
on the petitionin-intervention of RCBC and RCBC Capital).67 The motion was granted by this court on November 22, 2011.68

On December 1, 2011, public respondents filed their compliance.69 They explained that: 1) "the implementation of [BIR Ruling
No. 370-2011], which has already been performed on October 18, 2011 with the withholding of the 20% final withholding tax on
the face value of the PEACe bonds, is already fait accompli . . . when the Resolution and TRO were served to and received by
respondents BTr and National Treasurer [on October 19, 2011]";70 and 2) the withheld amount has ipso facto become public
funds and cannot be disbursed or released to petitioners without congressional appropriation.71 Respondents further aver
that"[i]nasmuch as the . . . TRO has already become moot . . . the condition attached to it, i.e., ‘that the 20% final withholding tax
on interest income therefrom shall be withheld by the banks and placed in escrow . . .’has also been rendered moot[.]" 72

On December 6, 2011, this court noted respondents' compliance.73

On February 22, 2012, respondents filed their consolidated comment 74 on the petitions-in-intervention filed by RCBC and RCBC
Capital and On November 27, 2012, petitioners filed their "Manifestation with Urgent Reiterative Motion (To Direct Respondents
to Comply with the Temporary Restraining Order)."75

On December 4, 2012, this court: (a) noted petitioners’ manifestation with urgent reiterative motion (to direct respondents to
comply with the temporary restraining order); and (b) required respondents to comment thereon.76

Respondents’ comment77 was filed on April 15,2013, and petitioners filed their reply78 on June 5, 2013.

Issues

The main issues to be resolved are:

I. Whether the PEACe Bonds are "deposit substitutes" and thus subject to 20% final withholding tax under the 1997
National Internal Revenue Code. Related to this question is the interpretation of the phrase "borrowing from twenty (20)
or more individual or corporate lenders at any one time" under Section 22(Y) of the 1997 National Internal Revenue
Code, particularly on whether the reckoning of the 20 lenders includes trading of the bonds in the secondary market;
and

II. If the PEACe Bonds are considered "deposit substitutes," whether the government or the Bureau of Internal Revenue
is estopped from imposing and/or collecting the 20% final withholding tax from the face value of these Bonds

a. Will the imposition of the 20% final withholding tax violate the non-impairment clause of the Constitution?

b. Will it constitute a deprivation of property without due process of law?

c. Will it violate Section 245 of the 1997 National Internal Revenue Code on non-retroactivity of rulings?

Arguments of petitioners, RCBC and RCBC


Capital, and CODE-NGO

Petitioners argue that "[a]s the issuer of the Government Bonds acting through the BTr, the Government is obligated . . . to pay
the face value amount of Ph₱35 Billion upon maturity without any deduction whatsoever."79 They add that "the Government
cannot impair the efficacy of the [Bonds] by arbitrarily, oppressively and unreasonably imposing the withholding of 20% FWT
upon the [Bonds] a mere eleven (11) days before maturity and after several, consistent categorical declarations that such bonds
are exempt from the 20% FWT, without violating due process"80 and the constitutional principle on non-impairment of
contracts.81 Petitioners aver that at the time they purchased the Bonds, they had the right to expect that they would receive the
full face value of the Bonds upon maturity, in view of the 2001 BIR Rulings. 82 "[R]egardless of whether or not the 2001 BIR
Rulings are correct, the fact remains that [they] relied [on] good faith thereon."83

At any rate, petitioners insist that the PEACe Bonds are not deposit substitutes as defined under Section 22(Y) of the 1997
National Internal Revenue Code because there was only one lender (RCBC) to whom the Bureau of Treasury issued the
Bonds.84 They allege that the 2004, 2005, and 2011 BIR Rulings "erroneously interpreted that the number of investors that
participate in the ‘secondary market’ is the determining factor in reckoning the existence or non-existence of twenty (20) or more
individual or corporate lenders."85 Furthermore, they contend that the Bureau of Internal Revenue unduly expanded the definition
of deposit substitutes under Section 22 of the 1997 National Internal Revenue Code in concluding that "the mere issuance of
government debt instruments and securities is deemed as falling within the coverage of ‘deposit substitutes[.]’"86 Thus, "[t]he
2011 BIR Ruling clearly amount[ed] to an unauthorized act of administrative legislation[.]" 87

Petitioners further argue that their income from the Bonds is a "trading gain," which is exempt from income tax. 88They insist that
"[t]hey are not lenders whose income is considered as ‘interest income or yield’ subject to the 20% FWT under Section 27 (D)(1)
of the [1997 National Internal Revenue Code]"89 because they "acquired the Government Bonds in the secondary or tertiary
market."90
Even assuming without admitting that the Government Bonds are deposit substitutes, petitioners argue that the collection of the
final tax was barred by prescription.91 They point out that under Section 7 of DOF Department Order No. 141-95,92 the final
withholding tax "should have been withheld at the time of their issuance[.]" 93 Also, under Section 203 of the 1997 National
Internal Revenue Code, "internal revenuetaxes, such as the final tax, [should] be assessed within three (3) years after the last
day prescribed by law for the filing of the return."94

Moreover, petitioners contend that the retroactive application of the 2011 BIR Ruling without prior notice to them was in violation
of their property rights,95 their constitutional right to due process96 as well as Section 246 of the 1997 National Internal Revenue
Code on non-retroactivity of rulings.97 Allegedly, it would also have "an adverse effect of colossal magnitude on the investors,
both localand foreign, the Philippine capital market, and most importantly, the country’s standing in the international commercial
community."98 Petitioners explained that "unless enjoined, the government’s threatened refusal to pay the full value of the
Government Bonds will negatively impact on the image of the country in terms of protection for property rights (including
financial assets), degree of legal protection for lender’s rights, and strength of investor protection." 99 They cited the country’s
ranking in the World Economic Forum: 75th in the world in its 2011–2012 Global Competitiveness Index, 111th out of 142
countries worldwide and 2nd to the last among ASEAN countries in terms of Strength of Investor Protection, and 105th
worldwide and last among ASEAN countries in terms of Property Rights Index and Legal Rights Index. 100 It would also allegedly
"send a reverberating message to the whole world that there is no certainty, predictability, and stability of financial transactions
in the capital markets[.]"101 "[T]he integrity of Government-issued bonds and notes will be greatly shattered and the credit of the
Philippine Government will suffer"102 if the sudden turnaround of the government will be allowed,103 and it will reinforce "investors’
perception that the level of regulatory risk for contracts entered into by the Philippine Government is high," 104 thus resulting in
higher interestrate for government-issued debt instruments and lowered credit rating.105

Petitioners-intervenors RCBC and RCBC Capital contend that respondent Commissioner of Internal Revenue "gravely and
seriously abused her discretion in the exercise of her rule-making power"106 when she issued the assailed 2011 BIR Ruling which
ruled that "all treasury bonds are ‘deposit substitutes’ regardless of the number of lenders, in clear disregard of the requirement
of twenty (20)or more lenders mandated under the NIRC."107 They argue that "[b]y her blanket and arbitrary classification of
treasury bonds as deposit substitutes, respondent CIR not only amended and expanded the NIRC, but effectively imposed a
new tax on privately-placed treasury bonds."108Petitioners-intervenors RCBC and RCBC Capital further argue that the 2011 BIR
Ruling will cause substantial impairment of their vested rights 109 under the Bonds since the ruling imposes new conditions by
"subjecting the PEACe Bonds to the twenty percent (20%) final withholding tax notwithstanding the fact that the terms and
conditions thereof as previously represented by the Government, through respondents BTr and BIR, expressly state that it is not
subject to final withholding tax upon their maturity."110 They added that "[t]he exemption from the twenty percent (20%) final
withholding tax [was] the primary inducement and principal consideration for [their] participat[ion] in the auction and underwriting
of the PEACe Bonds."111

Like petitioners, petitioners-intervenors RCBC and RCBC Capital also contend that respondent Commissioner of Internal
Revenue violated their rights to due process when she arbitrarily issued the 2011 BIR Ruling without prior notice and hearing,
and the oppressive timing of such ruling deprived them of the opportunity to challenge the same.112

Assuming the 20% final withholding tax was due on the PEACe Bonds, petitioners-intervenors RCBC and RCBC Capital claim
that respondents Bureau of Treasury and CODE-NGO should be held liable "as [these] parties explicitly represented . . . that the
said bonds are exempt from the final withholding tax."113

Finally, petitioners-intervenors RCBC and RCBC Capital argue that "the implementation of the [2011 assailed BIR Ruling and
BIR Ruling No. DA 378-2011] will have pernicious effects on the integrity of existing securities, which is contrary to the State
policies of stabilizing the financial system and of developing capital markets." 114

For its part, CODE-NGO argues that: (a) the 2011 BIR Ruling and BIR Ruling No. DA 378-2011 are "invalid because they
contravene Section 22(Y) of the 1997 [NIRC] when the said rulings disregarded the applicability of the ‘20 or more lender’ rule to
government debt instruments"[;]115 (b) "when [it] sold the PEACe Bonds in the secondary market instead of holding them until
maturity, [it] derived . . . long-term trading gain[s], not interest income, which [are] exempt . . . under Section 32(B)(7)(g) of the
1997 NIRC"[;]116 (c) "the tax exemption privilege relating to the issuance of the PEACe Bonds . . . partakes of a contractual
commitment granted by the Government in exchange for a valid and material consideration [i.e., the issue price paid and
savings in borrowing cost derived by the Government,] thus protected by the non-impairment clause of the 1987
Constitution"[;]117 and (d) the 2004, 2005, and 2011 BIR Rulings "did not validly revoke the 2001 BIR Rulings since no notice of
revocation was issued to [it], RCBC and [RCBC Capital] and petitioners[-bondholders], nor was there any BIR administrative
guidance issued and published[.]"118CODE-NGO additionally argues that impleading it in a Rule 65 petition was improper
because: (a) it involves determination of a factual question;119 and (b) it is premature and states no cause of action as it amounts
to an anticipatory third-party claim.120

Arguments of respondents
Respondents argue that petitioners’ direct resort to this court to challenge the 2011 BIR Ruling violates the doctrines of
exhaustion of administrative remedies and hierarchy ofcourts, resulting in a lack of cause of action that justifies the dismissal of
the petition.121 According to them, "the jurisdiction to review the rulings of the [Commissioner of Internal Revenue], after the
aggrieved party exhausted the administrative remedies, pertains to the Court of Tax Appeals."122 They point out that "a case
similar to the present Petition was [in fact] filed with the CTA on October 13, 2011[,] [docketed as] CTA Case No. 8351 [and]
entitled, ‘Rizal Commercial Banking Corporation and RCBC Capital Corporation vs. Commissioner of Internal Revenue, et al.’" 123

Respondents further take issue on the timeliness of the filing of the petition and petitions-in-intervention.124 They argue that under
the guise of mainly assailing the 2011 BIR Ruling, petitioners are indirectly attacking the 2004 and 2005 BIR Rulings, of which
the attack is legally prohibited, and the petition insofar as it seeks to nullify the 2004 and 2005 BIR Rulings was filed way out of
time pursuant to Rule 65, Section 4.125

Respondents contend that the discount/interest income derived from the PEACe Bonds is not a trading gain but interest income
subject to income tax.126 They explain that "[w]ith the payment of the Ph₱35 Billion proceeds on maturity of the PEACe Bonds,
Petitioners receive an amount of money equivalent to about Ph₱24.8 Billion as payment for interest. Such interest is clearly an
income of the Petitioners considering that the same is a flow of wealth and not merely a return of capital – the capital initially
invested in the Bonds being approximately Ph₱10.2 Billion[.]"127

Maintaining that the imposition of the 20% final withholding tax on the PEACe Bonds does not constitute an impairment of the
obligations of contract, respondents aver that: "The BTr has no power to contractually grant a tax exemption in favour of
Petitioners thus the 2001 BIR Rulings cannot be considered a material term of the Bonds"[;] 128 "[t]here has been no change in the
laws governing the taxability of interest income from deposit substitutes and said laws are read into every contract"[;] 129 "[t]he
assailed BIR Rulings merely interpret the term "deposit substitute" in accordance with the letter and spirit of the Tax
Code"[;]130 "[t]he withholding of the 20% FWT does not result in a default by the Government as the latter performed its
obligations to the bondholders in full"[;]131 and "[i]f there was a breach of contract or a misrepresentation it was between
RCBC/CODE-NGO/RCBC Cap and the succeeding purchasers of the PEACe Bonds."132

Similarly, respondents counter that the withholding of "[t]he 20% final withholding tax on the PEACe Bonds does not amount to a
deprivation of property without due process of law."133 Their imposition of the 20% final withholding tax is not arbitrary because
they were only performing a duty imposed by law; 134 "[t]he 2011 BIR Ruling is aninterpretative rule which merely interprets the
meaning of deposit substitutes [and upheld] the earlier construction given to the termby the 2004 and 2005 BIR
Rulings."135 Hence, respondents argue that "there was no need to observe the requirements of notice, hearing, and
publication[.]"136

Nonetheless, respondents add that "there is every reason to believe that Petitioners — all major financial institutions equipped
with both internal and external accounting and compliance departments as wellas access to both internal and external legal
counsel; actively involved in industry organizations such as the Bankers Association of the Philippines and the Capital Market
Development Council; all actively taking part in the regular and special debt issuances of the BTr and indeed regularly proposing
products for issue by BTr — had actual notice of the 2004 and 2005 BIR Rulings."137 Allegedly, "the sudden and drastic drop —
including virtually zero trading for extended periods of six months to almost a year — in the trading volume of the PEACe Bonds
after the release of BIR Ruling No. 007-04 on July 16, 2004 tend to indicate that market participants, including the Petitioners
herein, were aware of the ruling and its consequences for the PEACe Bonds."138

Moreover, they contend that the assailed 2011 BIR Ruling is a valid exercise of the Commissioner of Internal Revenue’s rule-
making power;139 that it and the 2004 and 2005 BIR Rulings did not unduly expand the definition of deposit substitutes by
creating an unwarranted exception to the requirement of having 20 or more lenders/purchasers; 140 and the word "any" in Section
22(Y) of the National Internal Revenue Code plainly indicates that the period contemplated is the entire term of the bond and not
merely the point of origination or issuance.141

Respondents further argue that a retroactive application of the 2011 BIR Ruling will not unjustifiably prejudice
petitioners.142 "[W]ith or without the 2011 BIR Ruling, Petitioners would be liable topay a 20% final withholding tax just the same
because the PEACe Bonds in their possession are legally in the nature of deposit substitutes subject to a 20% final withholding
tax under the NIRC."143 Section 7 of DOF Department Order No. 141-95 also provides that incomederived from Treasury bonds is
subject to the 20% final withholding tax.144 "[W]hile revenue regulations as a general rule have no retroactive effect, if the
revocation is due to the fact that the regulation is erroneous or contrary to law, such revocation shall have retroactive operation
as to affect past transactions, because a wrong construction of the law cannot give rise to a vested right that can be invoked by
a taxpayer."145

Finally, respondents submit that "there are a number of variables and factors affecting a capital market." 146 "[C]apital market itself
is inherently unstable."147 Thus, "[p]etitioners’ argument that the 20% final withholding tax . . . will wreak havoc on the financial
stability of the country is a mere supposition that is not a justiciable issue."148
On the prayer for the temporary restraining order, respondents argue that this order "could no longer be implemented [because]
the acts sought to be enjoined are already fait accompli."149 They add that "to disburse the funds withheld to the Petitioners at this
time would violate Section 29[,] Article VI of the Constitution prohibiting ‘money being paid out of the Treasury except in
pursuance of an appropriation made by law[.]’"150 "The remedy of petitioners is to claim a tax refund under Section 204(c) of the
Tax Code should their position be upheld by the Honorable Court."151

Respondents also argue that "the implementation of the TRO would violate Section 218 of the Tax Code in relation to Section 11
of Republic Act No. 1125 (as amended by Section 9 of Republic Act No. 9282) which prohibits courts, except the Court of Tax
Appeals, from issuing injunctions to restrain the collection of any national internal revenue tax imposed by the Tax Code." 152

Summary of arguments

In sum, petitioners and petitioners-intervenors, namely, RCBC, RCBC Capital, and CODE-NGO argue that:

1. The 2011 BIR Ruling is ultra vires because it is contrary to the 1997 National Internal Revenue Code when it
declared that all government debt instruments are deposit substitutes regardless of the 20-lender rule; and

2. The 2011 BIR Ruling cannot be applied retroactively because:

a) It will violate the contract clause;

● It constitutes a unilateral amendment of a material term (tax exempt status) in the Bonds, represented by the
government as an inducement and important consideration for the purchase of the Bonds;

b) It constitutes deprivation ofproperty without due process because there was no prior notice to bondholders
and hearing and publication;

c) It violates the rule on non-retroactivity under the 1997 National Internal Revenue Code;

d) It violates the constitutional provision on supporting activities of non-government organizations and


development of the capital market; and

e) The assessment had already prescribed.

Respondents counter that:

1) Respondent Commissioner of Internal Revenue did not act with grave abuse of discretion in issuing the challenged 2011 BIR
Ruling:

a. The 2011 BIR Ruling, being an interpretative rule, was issued by virtue of the Commissioner of Internal Revenue’s
power to interpret the provisions of the 1997 National Internal Revenue Code and other tax laws;

b. Commissioner of Internal Revenue merely restates and confirms the interpretations contained in previously issued
BIR Ruling Nos. 007-2004, DA-491-04,and 008-05, which have already effectively abandoned or revoked the 2001 BIR
Rulings;

c. Commissioner of Internal Revenue is not bound by his or her predecessor’s rulings especially when the latter’s
rulings are not in harmony with the law; and

d. The wrong construction of the law that the 2001 BIR Rulings have perpetrated cannot give rise to a vested right.
Therefore, the 2011 BIR Ruling can be given retroactive effect.

2) Rule 65 can be resorted to only if there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law:

a. Petitioners had the basic remedy offiling a claim for refund of the 20% final withholding tax they allege to have been
wrongfully collected; and

b. Non-observance of the doctrine of exhaustion of administrative remedies and of hierarchy of courts.


Court’s ruling

Procedural Issues
Non-exhaustion of
administrative remedies proper

Under Section 4 of the 1997 National Internal Revenue Code, interpretative rulings are reviewable by the Secretary of Finance.

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. -The power to interpret the provisions of
this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance. (Emphasis supplied)

Thus, it was held that "[i]f superior administrative officers [can] grant the relief prayed for, [then] special civil actions are generally
not entertained."153 The remedy within the administrative machinery must be resorted to first and pursued to its appropriate
conclusion before the court’s judicial power can be sought.154

Nonetheless, jurisprudence allows certain exceptions to the rule on exhaustion of administrative remedies:

[The doctrine of exhaustion of administrative remedies] is a relative one and its flexibility is called upon by the peculiarity and
uniqueness of the factual and circumstantial settings of a case. Hence, it is disregarded (1) when there is a violation of due
process, (2) when the issue involved is purely a legal question, 155 (3) when the administrative action is patently illegal amounting
to lack or excess of jurisdiction,(4) when there is estoppel on the part of the administrative agency concerned,(5) when there is
irreparable injury, (6) when the respondent is a department secretary whose acts as an alter ego of the President bears the
implied and assumed approval of the latter, (7) when to require exhaustion of administrative remedies would be unreasonable,
(8) when it would amount to a nullification of a claim, (9) when the subject matter is a private land in land case proceedings, (10)
when the rule does not provide a plain, speedy and adequate remedy, (11) when there are circumstances indicating the urgency
of judicial intervention.156 (Emphasis supplied, citations omitted)

The exceptions under (2) and (11)are present in this case. The question involved is purely legal, namely: (a) the interpretation of
the 20-lender rule in the definition of the terms public and deposit substitutes under the 1997 National Internal Revenue Code;
and (b) whether the imposition of the 20% final withholding tax on the PEACe Bonds upon maturity violates the constitutional
provisions on non-impairment of contracts and due process. Judicial intervention is likewise urgent with the impending maturity
of the PEACe Bonds on October 18, 2011.

The rule on exhaustion of administrative remedies also finds no application when the exhaustion will result in an exercise in
futility.157

In this case, an appeal to the Secretary of Finance from the questioned 2011 BIR Ruling would be a futile exercise because it
was upon the request of the Secretary of Finance that the 2011 BIR Ruling was issued by the Bureau of Internal Revenue. It
appears that the Secretary of Finance adopted the Commissioner of Internal Revenue’s opinions as his own. 158 This position was
in fact confirmed in the letter159 dated October 10, 2011 where he ordered the Bureau of Treasury to withhold the amount
corresponding to the 20% final withholding tax on the interest or discounts allegedly due from the bondholders on the strength of
the 2011 BIR Ruling. Doctrine on hierarchy of courts

We agree with respondents that the jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the
Court of Tax Appeals. The questioned BIR Ruling Nos. 370-2011 and DA 378-2011 were issued in connection with the
implementation of the 1997 National Internal Revenue Code on the taxability of the interest income from zero-coupon bonds
issued by the government.

Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals), as amended by Republic Act No. 9282,160such rulings
of the Commissioner of Internal Revenue are appealable to that court, thus:

SEC. 7.Jurisdiction.- The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue;

....
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction of
the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and
Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an
appeal with the CTA within thirty (30) days after the receipt of such decision or rulingor after the expiration of the period fixed by
law for action as referred toin Section 7(a)(2) herein.

....

SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding involving matters arising under the National Internal
Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided,
until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the provisions of this Act.

In Commissioner of Internal Revenue v. Leal,161 citing Rodriguez v. Blaquera,162 this court emphasized the jurisdiction of the Court
of Tax Appeals over rulings of the Bureau of Internal Revenue, thus:

While the Court of Appeals correctly took cognizance of the petition for certiorari, however, let it be stressed that the jurisdiction
to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not to the RTC.

The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner implementing the Tax
Code on the taxability of pawnshops.. . .

....

Such revenue orders were issued pursuant to petitioner's powers under Section 245 of the Tax Code, which states:

"SEC. 245. Authority of the Secretary of Finance to promulgate rules and regulations. — The Secretary of Finance, upon
recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code.

The authority of the Secretary of Finance to determine articles similar or analogous to those subject to a rate of sales tax under
certain category enumerated in Section 163 and 165 of this Code shall be without prejudice to the power of the Commissioner of
Internal Revenue to make rulings or opinions in connection with the implementation of the provisionsof internal revenue laws,
including ruling on the classification of articles of sales and similar purposes." (Emphasis in the original)

....

The Court, in Rodriguez, etc. vs. Blaquera, etc., ruled:

"Plaintiff maintains that this is not an appeal from a ruling of the Collector of Internal Revenue, but merely an attempt to nullify
General Circular No. V-148, which does not adjudicate or settle any controversy, and that, accordingly, this case is not within the
jurisdiction of the Court of Tax Appeals.

We find no merit in this pretense. General Circular No. V-148 directs the officers charged with the collection of taxes and license
fees to adhere strictly to the interpretation given by the defendant tothe statutory provisions abovementioned, as set forth in the
Circular. The same incorporates, therefore, a decision of the Collector of Internal Revenue (now Commissioner of Internal
Revenue) on the manner of enforcement of the said statute, the administration of which is entrusted by law to the Bureau of
Internal Revenue. As such, it comes within the purview of Republic Act No. 1125, Section 7 of which provides that the Court of
Tax Appeals ‘shall exercise exclusive appellate jurisdiction to review by appeal . . . decisions of the Collector of Internal
Revenue in . . . matters arising under the National Internal Revenue Code or other law or part of the law administered by the
Bureau of Internal Revenue.’"163

In exceptional cases, however, this court entertained direct recourse to it when "dictated by public welfare and the advancement
of public policy, or demanded by the broader interest of justice, or the orders complained of were found to be patent nullities, or
the appeal was considered as clearly an inappropriate remedy."164

In Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of Interior and Local
Government,165 this court noted that the petition for prohibition was filed directly before it "in disregard of the rule on hierarchy of
courts. However, [this court] opt[ed] to take primary jurisdiction over the . . . petition and decide the same on its merits in viewof
the significant constitutional issues raised by the parties dealing with the tax treatment of cooperatives under existing laws and in
the interest of speedy justice and prompt disposition of the matter."166
Here, the nature and importance of the issues raised167 to the investment and banking industry with regard to a definitive
declaration of whether government debt instruments are deposit substitutes under existing laws, and the novelty thereof,
constitute exceptional and compelling circumstances to justify resort to this court in the first instance.

The tax provision on deposit substitutes affects not only the PEACe Bonds but also any other financial instrument or product that
may be issued and traded in the market. Due to the changing positions of the Bureau of Internal Revenue on this issue, there isa
need for a final ruling from this court to stabilize the expectations in the financial market.

Finally, non-compliance with the rules on exhaustion of administrative remedies and hierarchy of courts had been rendered moot
by this court’s issuance of the temporary restraining order enjoining the implementation of the 2011 BIR Ruling. The temporary
restraining order effectively recognized the urgency and necessity of direct resort to this court.

Substantive issues

Tax treatment of deposit


substitutes

Under Sections 24(B)(1), 27(D)(1),and 28(A)(7) of the 1997 National Internal Revenue Code, a final withholdingtax at the rate of
20% is imposed on interest on any currency bank deposit and yield or any other monetary benefit from deposit substitutes and
from trust funds and similar arrangements. These provisions read:

SEC. 24. Income Tax Rates.

....

(B) Rate of Tax on Certain Passive Income.

(1) Interests, Royalties, Prizes, and Other Winnings. - A final tax at the rate of twenty percent (20%) is hereby imposed upon the
amount of interest fromany currency bank deposit and yield or any other monetary benefit from deposit substitutes and from
trust funds and similar arrangements; . . . Provided, further, That interest income from long-term deposit or investment in the
form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments
evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax
imposed under this Subsection: Provided, finally, That should the holder of the certificate pre-terminate the deposit or investment
before the fifth (5th) year, a final tax shall be imposed on the entire income and shall be deducted and withheld by the depository
bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof:

Four (4) years to less than five (5) years - 5%;

Three (3) years to less than four (4) years - 12%; and

Less than three (3) years - 20%. (Emphasis supplied)

SEC. 27. Rates of Income Tax on Domestic Corporations. -

....

(D) Rates of Tax on Certain Passive Incomes. -

(1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes and from Trust Funds and Similar
Arrangements, and Royalties. - A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest on
currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar
arrangements received by domestic corporations, and royalties, derived from sources within the Philippines: Provided, however,
That interest income derived by a domestic corporation from a depository bank under the expanded foreign currency deposit
system shall be subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest income.
(Emphasis supplied)

SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -


....

(7) Tax on Certain Incomes Received by a Resident Foreign Corporation. -

(a) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes, Trust Funds and Similar
Arrangements and Royalties. - Interest from any currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements and royalties derived from sources within the Philippines shall be
subject to a final income tax at the rate of twenty percent (20%) of such interest: Provided, however, That interest income
derived by a resident foreign corporation from a depository bank under the expanded foreign currency deposit system shall be
subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest income. (Emphasis supplied)

This tax treatment of interest from bank deposits and yield from deposit substitutes was first introduced in the 1977 National
Internal Revenue Code through Presidential Decree No. 1739168 issued in 1980. Later, Presidential Decree No. 1959, effective
on October 15, 1984, formally added the definition of deposit substitutes, viz:

(y) ‘Deposit substitutes’ shall mean an alternative form of obtaining funds from the public, other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or
purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer.These
promissory notes, repurchase agreements, certificates of assignment or participation and similar instrument with recourse as
may be authorized by the Central Bank of the Philippines, for banks and non-bank financial intermediaries or by the Securities
and Exchange Commission of the Philippines for commercial, industrial, finance companies and either non-financial companies:
Provided, however, that only debt instruments issued for inter-bank call loans to cover deficiency in reserves against deposit
liabilities including those between or among banks and quasi-banks shall not be considered as deposit substitute debt
instruments. (Emphasis supplied)

Revenue Regulations No. 17-84, issued to implement Presidential Decree No. 1959, adopted verbatim the same definition and
specifically identified the following borrowings as "deposit substitutes":

SECTION 2. Definitions of Terms. . . .

(h) "Deposit substitutes" shall mean –

....

(a) All interbank borrowings by or among banks and non-bank financial institutions authorized to engage in quasi-
banking functions evidenced by deposit substitutes instruments, except interbank call loans to cover deficiency in
reserves against deposit liabilities as evidenced by interbank loan advice or repayment transfer tickets.

(b) All borrowings of the national and local government and its instrumentalities including the Central Bank of the
Philippines, evidenced by debt instruments denoted as treasury bonds, bills, notes, certificates of indebtedness and
similar instruments.

(c) All borrowings of banks, non-bank financial intermediaries, finance companies, investment companies, trust
companies, including the trust department of banks and investment houses, evidenced by deposit substitutes
instruments. (Emphasis supplied)

The definition of deposit substitutes was amended under the 1997 National Internal Revenue Code with the addition of the
qualifying phrase for public – borrowing from 20 or more individual or corporate lenders at any one time. Under Section 22(Y),
deposit substitute is defined thus: SEC. 22. Definitions- When used in this Title:

....

(Y) The term ‘deposit substitutes’ shall mean an alternative form of obtaining funds from the public(the term 'public' means
borrowing from twenty (20) or more individual or corporate lenders at any one time) other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower’s own account, for the purpose of relending or purchasing of
receivables and other obligations, or financing their own needs or the needs of their agent or dealer. These instruments may
include, but need not be limited to, bankers’ acceptances, promissory notes, repurchase agreements, including reverse
repurchase agreements entered into by and between the Bangko Sentral ng Pilipinas (BSP) and any authorized agent bank,
certificates of assignment or participation and similar instruments with recourse: Provided, however, That debt instruments
issued for interbank call loans with maturity of not more than five (5) days to cover deficiency in reserves against deposit
liabilities, including those between or among banks and quasi-banks, shall not be considered as deposit substitute debt
instruments. (Emphasis supplied)

Under the 1997 National Internal Revenue Code, Congress specifically defined "public" to mean "twenty (20) or more individual
or corporate lenders at any one time." Hence, the number of lenders is determinative of whether a debt instrument should be
considered a deposit substitute and consequently subject to the 20% final withholding tax.

20-lender rule

Petitioners contend that "there [is]only one (1) lender (i.e. RCBC) to whom the BTr issued the Government Bonds." 169 On the
other hand, respondents theorize that the word "any" "indicates that the period contemplated is the entire term of the bond and
not merely the point of origination or issuance[,]"170 such that if the debt instruments "were subsequently sold in secondary
markets and so on, insuch a way that twenty (20) or more buyers eventually own the instruments, then it becomes indubitable
that funds would be obtained from the "public" as defined in Section 22(Y) of the NIRC." 171 Indeed, in the context of the financial
market, the words "at any one time" create an ambiguity.

Financial markets

Financial markets provide the channel through which funds from the surplus units (households and business firms that have
savings or excess funds) flow to the deficit units (mainly business firms and government that need funds to finance their
operations or growth). They bring suppliers and users of funds together and provide the means by which the lenders transform
their funds into financial assets, and the borrowers receive these funds now considered as their financial liabilities. The transfer
of funds is represented by a security, such as stocks and bonds. Fund suppliers earn a return on their investment; the return is
necessary to ensure that funds are supplied to the financial markets.172

"The financial markets that facilitate the transfer of debt securities are commonly classified by the maturity of the
securities[,]"173 namely: (1) the money market, which facilitates the flow of short-term funds (with maturities of one year or less);
and (2) the capital market, which facilitates the flow of long-term funds (with maturities of more than one year).174

Whether referring to money marketsecurities or capital market securities, transactions occur either in the primary market or in
the secondary market.175 "Primary markets facilitate the issuance of new securities. Secondary markets facilitate the trading of
existing securities, which allows for a change in the ownership of the securities."176 The transactions in primary markets exist
between issuers and investors, while secondary market transactions exist among investors.177

"Over time, the system of financial markets has evolved from simple to more complex ways of carrying out financial
transactions."178 Still, all systems perform one basic function: the quick mobilization of money from the lenders/investors to the
borrowers.179

Fund transfers are accomplished in three ways: (1) direct finance; (2) semidirect finance; and (3) indirect finance. 180

With direct financing, the "borrower and lender meet each other and exchange funds in returnfor financial assets" 181(e.g.,
purchasing bonds directly from the company issuing them). This method provides certain limitations such as: (a) "both borrower
and lender must desire to exchange the same amount of funds at the same time"[;] 182 and (b) "both lender and borrower must
frequently incur substantial information costs simply to find each other."183

In semidirect financing, a securities broker or dealer brings surplus and deficit units together, thereby reducing information
costs.184 A Broker185 is "an individual or financial institution who provides information concerning possible purchases and sales of
securities. Either a buyer or a seller of securities may contact a broker, whose job is simply to bring buyers and sellers
together."186 A dealer187 "also serves as a middleman between buyers and sellers, but the dealer actually acquires the seller’s
securities in the hope of selling them at a later time at a more favorable price." 188 Frequently, "a dealer will split up a large issue
of primary securities into smaller units affordable by . . . buyers . . . and thereby expand the flow of savings into investment."189 In
semi direct financing, "[t]he ultimate lender still winds up holding the borrower’s securities, and therefore the lender must be
willing to accept the risk, liquidity, and maturity characteristics of the borrower’s [debt security]. There still must be a fundamental
coincidence of wants and needs between [lenders and borrowers] for semidirect financial transactions to take place." 190

"The limitations of both direct and semidirect finance stimulated the development of indirect financial transactions, carried out
with the help of financial intermediaries"191 or financial institutions, like banks, investment banks, finance companies, insurance
companies, and mutual funds.192 Financial intermediaries accept funds from surplus units and channel the funds to deficit
units.193 "Depository institutions [such as banks] accept deposits from surplus units and provide credit to deficit units through
loans and purchase of [debt] securities."194 Nondepository institutions, like mutual funds, issue securities of their own (usually in
smaller and affordable denominations) to surplus units and at the same time purchase debt securities of deficit units. 195 "By
pooling the resources of[small savers, a financial intermediary] can service the credit needs of large firms simultaneously." 196
The financial market, therefore, is an agglomeration of financial transactions in securities performed by market participants that
works to transfer the funds from the surplus units (or investors/lenders) to those who need them (deficit units or borrowers).

Meaning of "at any one time"

Thus, from the point of view of the financial market, the phrase "at any one time" for purposes of determining the "20 or more
lenders" would mean every transaction executed in the primary or secondary market in connection with the purchase or sale of
securities.

For example, where the financial assets involved are government securities like bonds, the reckoning of "20 or more
lenders/investors" is made at any transaction in connection with the purchase or sale of the Government Bonds, such as:

1. Issuance by the Bureau of Treasury of the bonds to GSEDs in the primary market;

2. Sale and distribution by GSEDs to various lenders/investors in the secondary market;

3. Subsequent sale or trading by a bondholder to another lender/investor in the secondary market usually through a
broker or dealer; or

4. Sale by a financial intermediary-bondholder of its participation interests in the bonds to individual or corporate lenders
in the secondary market.

When, through any of the foregoing transactions, funds are simultaneously obtained from 20 or morelenders/investors, there is
deemed to be a public borrowing and the bonds at that point intime are deemed deposit substitutes. Consequently, the seller is
required to withhold the 20% final withholding tax on the imputed interest income from the bonds.

For debt instruments that are


not deposit substitutes, regular
income tax applies

It must be emphasized, however, that debt instruments that do not qualify as deposit substitutes under the 1997 National
Internal Revenue Code are subject to the regular income tax.

The phrase "all income derived from whatever source" in Chapter VI, Computation of Gross Income, Section 32(A) of the 1997
National Internal Revenue Code discloses a legislative policy to include all income not expressly exempted as within the class of
taxable income under our laws.

"The definition of gross income isbroad enough to include all passive incomes subject to specific tax rates or final
taxes."197 Hence, interest income from deposit substitutes are necessarily part of taxable income. "However, since these passive
incomes are already subject to different rates and taxed finally at source, they are no longer included in the computation of gross
income, which determines taxable income."198 "Stated otherwise . . . if there were no withholding tax system in place in this
country, this 20 percent portion of the ‘passive’ income of [creditors/lenders] would actually be paid to the [creditors/lenders] and
then remitted by them to the government in payment of their income tax."199

This court, in Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo,200 explained the rationale behind the
withholding tax system:

The withholding [of tax at source] was devised for three primary reasons: first, to provide the taxpayer a convenient manner to
meet his probable income tax liability; second, to ensure the collection of income tax which can otherwise be lost or substantially
reduced through failure to file the corresponding returns[;] and third, to improve the government’s cash flow. This results in
administrative savings, prompt and efficient collection of taxes, prevention of delinquencies and reduction of governmental effort
to collect taxes through more complicated means and remedies.201 (Citations omitted)

"The application of the withholdings system to interest on bank deposits or yield from deposit substitutes is essentially to
maximize and expedite the collection of income taxes by requiring its payment at the source."202

Hence, when there are 20 or more lenders/investors in a transaction for a specific bond issue, the seller isrequired to withhold
the 20% final income tax on the imputed interest income from the bonds.

Interest income v. gains from sale or redemption


The interest income earned from bonds is not synonymous with the "gains" contemplated under Section 32(B)(7)(g)203 of the
1997 National Internal Revenue Code, which exempts gains derived from trading, redemption, or retirement of long-term
securities from ordinary income tax.

The term "gain" as used in Section 32(B)(7)(g) does not include interest, which represents forbearance for the use of money.
Gains from sale or exchange or retirement of bonds orother certificate of indebtedness fall within the general category of
"gainsderived from dealings in property" under Section 32(A)(3), while interest from bonds or other certificate of indebtedness
falls within the category of "interests" under Section 32(A)(4).204 The use of the term "gains from sale" in Section 32(B)(7)(g)
shows the intent of Congress not toinclude interest as referred under Sections 24, 25, 27, and 28 in the exemption. 205

Hence, the "gains" contemplated in Section 32(B)(7)(g) refers to: (1) gain realized from the trading of the bonds before their
maturity date, which is the difference between the selling price of the bonds in the secondary market and the price at which the
bonds were purchased by the seller; and (2) gain realized by the last holder of the bonds when the bonds are redeemed at
maturity, which is the difference between the proceeds from the retirement of the bonds and the price atwhich such last holder
acquired the bonds. For discounted instruments,like the zero-coupon bonds, the trading gain shall be the excess of the selling
price over the book value or accreted value (original issue price plus accumulated discount from the time of purchase up to the
time of sale) of the instruments.206

The Bureau of Internal


Revenue rulings

The Bureau of Internal Revenue’s interpretation as expressed in the three 2001 BIR Rulings is not consistent with law. 207 Its
interpretation of "at any one time" to mean at the point of origination alone is unduly restrictive.

BIR Ruling No. 370-2011 is likewise erroneous insofar as it stated (relying on the 2004 and 2005 BIR Rulings) that "all treasury
bonds . . . regardlessof the number of purchasers/lenders at the time of origination/issuance are considered deposit
substitutes."208 Being the subject of this petition, it is, thus, declared void because it completely disregarded the 20 or more lender
rule added by Congress in the 1997 National Internal Revenue Code. It also created a distinction for government debt
instruments as against those issued by private corporations when there was none in the law.

Tax statutes must be reasonably construed as to give effect to the whole act. Their constituent provisions must be read together,
endeavoring to make every part effective, harmonious, and sensible. 209 That construction which will leave every word operative
will be favored over one that leaves some word, clause, or sentence meaningless and insignificant. 210

It may be granted that the interpretation of the Commissioner of Internal Revenue in charge of executing the 1997 National
Internal Revenue Code is an authoritative construction ofgreat weight, but the principle is not absolute and may be overcome by
strong reasons to the contrary. If through a misapprehension of law an officer has issued an erroneous interpretation, the error
must be corrected when the true construction is ascertained.

In Philippine Bank of Communications v. Commissioner of Internal Revenue,211 this court upheld the nullification of Revenue
Memorandum Circular (RMC) No. 7-85 issued by the Acting Commissioner of Internal Revenue because it was contrary to the
express provision of Section 230 of the 1977 National Internal Revenue Codeand, hence, "[cannot] be given weight for to do so
would, in effect, amend the statute."212 Thus:

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten
years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec.
230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute
passed by Congress.

It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and
less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely
accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great
respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous.
Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with,
the law they seek to apply and implement.213(Citations omitted)

This court further held that "[a] memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against
judicial action [because] there are no vested rights to speak of respecting a wrong construction of the law by the administrative
officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same." 214 In
Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,215 this court nullified Revenue Memorandum Order
(RMO) No. 15-91 and RMC No. 43-91, which imposed a 5% lending investor's tax on pawnshops. 216 It was held that "the
[Commissioner] cannot, in the exercise of [its interpretative] power, issue administrative rulings or circulars not consistent with
the law sought to be applied. Indeed, administrative issuances must not override, supplant or modify the law, but must remain
consistent with the law they intend to carry out. Only Congress can repeal or amend the law." 217

In Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary, 218 this court stated that the
Commissioner of Internal Revenue is not bound by the ruling of his predecessors, 219 but, to the contrary, the overruling of
decisions is inherent in the interpretation of laws:

[I]n considering a legislative rule a court is free to make three inquiries: (i) whether the rule is within the delegated authority of
the administrative agency; (ii) whether itis reasonable; and (iii) whether it was issued pursuant to proper procedure. But the court
is not free to substitute its judgment as to the desirability or wisdom of the rule for the legislative body, by its delegation of
administrative judgment, has committed those questions to administrative judgments and not to judicial judgments. In the case
of an interpretative rule, the inquiry is not into the validity but into the correctness or propriety of the rule. As a matter of power a
court, when confronted with an interpretative rule, is free to (i) give the force of law to the rule; (ii) go to the opposite extreme and
substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative rule.

In the case at bar, we find no reason for holding that respondent Commissioner erred in not considering copra as an "agricultural
food product" within the meaning of § 103(b) of the NIRC. As the Solicitor General contends, "copra per se is not food, that is, it
is not intended for human consumption. Simply stated, nobody eats copra for food." That previous Commissioners considered it
so, is not reason for holding that the present interpretation is wrong. The Commissioner of Internal Revenue is not bound by the
ruling of his predecessors. To the contrary, the overruling of decisions is inherent in the interpretation of laws.220 (Emphasis
supplied, citations omitted)

Tax treatment of income


derived from the PEACe Bonds

The transactions executed for the sale of the PEACe Bonds are:

1. The issuance of the 35 billion Bonds by the Bureau of Treasury to RCBC/CODE-NGO at 10.2 billion; and

2. The sale and distribution by RCBC Capital (underwriter) on behalf of CODE-NGO of the PEACe Bonds to
undisclosed investors at ₱11.996 billion.

It may seem that there was only one lender — RCBC on behalf of CODE-NGO — to whom the PEACe Bonds were issued at
the time of origination. However, a reading of the underwriting agreement 221 and RCBC term sheet222reveals that the settlement
dates for the sale and distribution by RCBC Capital (as underwriter for CODE-NGO) of the PEACe Bonds to various undisclosed
investors at a purchase price of approximately ₱11.996 would fall on the same day, October 18, 2001, when the PEACe Bonds
were supposedly issued to CODE-NGO/RCBC. In reality, therefore, the entire ₱10.2 billion borrowing received by the Bureau of
Treasury in exchange for the ₱35 billion worth of PEACe Bonds was sourced directly from the undisclosed number of investors
to whom RCBC Capital/CODE-NGO distributed the PEACe Bonds — all at the time of origination or issuance. At this point,
however, we do not know as to how many investors the PEACe Bonds were sold to by RCBC Capital.

Should there have been a simultaneous sale to 20 or more lenders/investors, the PEACe Bonds are deemed deposit substitutes
within the meaning of Section 22(Y) of the 1997 National Internal Revenue Code and RCBC Capital/CODE-NGO would have
been obliged to pay the 20% final withholding tax on the interest or discount from the PEACe Bonds. Further, the obligation to
withhold the 20% final tax on the corresponding interest from the PEACe Bonds would likewise be required of any
lender/investor had the latter turnedaround and sold said PEACe Bonds, whether in whole or part, simultaneously to 20 or more
lenders or investors.

We note, however, that under Section 24223 of the 1997 National Internal Revenue Code, interest income received by individuals
from longterm deposits or investments with a holding period of not less than five (5) years is exempt from the final tax.

Thus, should the PEACe Bonds be found to be within the coverage of deposit substitutes, the proper procedure was for the
Bureau of Treasury to pay the face value of the PEACe Bonds to the bondholders and for the Bureau of Internal Revenue to
collect the unpaid final withholding tax directly from RCBC Capital/CODE-NGO, orany lender or investor if such be the case, as
the withholding agents.

The collection of tax is not


barred by prescription

The three (3)-year prescriptive period under Section 203 of the 1997 National Internal Revenue Code to assess and collect
internal revenue taxes is extended to 10 years in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and
(3) failureto file a return, to be computed from the time of discovery of the falsity, fraud, or omission. Section 203 states:
SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes
shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day. (Emphasis supplied)

....

SEC. 222. Exceptions as to 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 failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be filed 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.

Thus, should it be found that RCBC Capital/CODE-NGO sold the PEACe Bonds to 20 or more lenders/investors, the Bureau of
Internal Revenue may still collect the unpaid tax from RCBC Capital/CODE-NGO within 10 years after the discovery of the
omission.

In view of the foregoing, there is no need to pass upon the other issues raised by petitioners and petitioners-intervenors.

Reiterative motion on the temporary restraining order

Respondents’ withholding of the


20% final withholding tax on
October 18, 2011 was justified

Under the Rules of Court, court orders are required to be "served upon the parties affected."224 Moreover, service may be made
personally or by mail.225 And, "[p]ersonal service is complete upon actual delivery [of the order.]" 226This court’s temporary
restraining order was received only on October 19, 2011, or a day after the PEACe Bonds had matured and the 20% final
withholding tax on the interest income from the same was withheld.

Publication of news reports in the print and broadcast media, as well as on the internet, is not a recognized mode of service of
pleadings, court orders, or processes. Moreover, the news reports 227 cited by petitioners were posted minutes before the close of
office hours or late in the evening of October 18, 2011, and they did not givethe exact contents of the temporary restraining
order.

"[O]ne cannot be punished for violating an injunction or an order for an injunction unless it is shown that suchinjunction or order
was served on him personally or that he had notice of the issuance or making of such injunction or order." 228

At any rate, "[i]n case of doubt, a withholding agent may always protect himself or herself by withholding the tax due" 229 and
return the amount of the tax withheld should it be finally determined that the income paid is not subject to withholding.230 Hence,
respondent Bureau of Treasury was justified in withholding the amount corresponding to the 20% final withholding tax from the
proceeds of the PEACe Bonds, as it received this court’s temporary restraining order only on October 19, 2011, or the day after
this tax had been withheld.

Respondents’ retention of the


amounts withheld is a defiance
of the temporary restraining
order

Nonetheless, respondents’ continued failure to release to petitioners the amount corresponding to the 20% final withholding tax
in order that it may be placed in escrow as directed by this court constitutes a defiance of this court’s temporary restraining
order.231

The temporary restraining order is not moot. The acts sought to be enjoined are not fait accompli. For an act to be considered
fait accompli, the act must have already been fully accomplished and consummated. 232 It must be irreversible, e.g., demolition of
properties,233 service of the penalty of imprisonment,234 and hearings on cases.235When the act sought to be enjoined has not yet
been fully satisfied, and/or is still continuing in nature,236 the defense of fait accomplicannot prosper.
The temporary restraining order enjoins the entire implementation of the 2011 BIR Ruling that constitutes both the withholding
and remittance of the 20% final withholding tax to the Bureau of Internal Revenue. Even though the Bureau of Treasury had
already withheld the 20% final withholding tax 237 when it received the temporary restraining order, it had yet to remit the monies it
withheld to the Bureau of Internal Revenue, a remittance which was due only on November 10, 2011. 238 The act enjoined by the
temporary restraining order had not yet been fully satisfied and was still continuing.

Under DOF-DBM Joint Circular No. 1-2000A239 dated July 31, 2001 which prescribes to national government agencies such as
the Bureau of Treasury the procedure for the remittance of all taxes it withheld to the Bureau of Internal Revenue, a national
agency shall file before the Bureau of Internal Revenue a Tax Remittance Advice (TRA) supported by withholding tax returns on
or before the 10th day of the following month after the said taxes had been withheld. 240 The Bureau of Internal Revenue shall
transmit an original copy of the TRA to the Bureau of Treasury, 241which shall be the basis for recording the remittance of the tax
collection.242 The Bureau of Internal Revenue will then record the amount of taxes reflected in the TRA as tax collection in the
Journal ofTax Remittance by government agencies based on its copies of the TRA. 243 Respondents did not submit any
withholding tax return or TRA to provethat the 20% final withholding tax was indeed remitted by the Bureau of Treasury to the
Bureau of Internal Revenue on October 18, 2011.

Respondent Bureau of Treasury’s Journal Entry Voucher No. 11-10-10395244 dated October 18, 2011 submitted to this court
shows:

Account Code Debit Amount Credit Amount

Bonds Payable-L/T, Dom-Zero 442-360 35,000,000,000.00


Coupon T/Bonds

(Peace Bonds) – 10 yr

Sinking Fund-Cash (BSF) 198-001 30,033,792,203.59

Due to BIR 412-002 4,966,207,796.41

To record redemption of 10yr Zero


coupon (Peace Bond) net of the 20% final
withholding tax pursuant to BIR Ruling No.
378-2011, value date, October 18, 2011 per
BTr letter authority and BSP Bank
Statements.

The foregoing journal entry, however, does not prove that the amount of ₱4,966,207,796.41, representing the 20% final
withholding tax on the PEACe Bonds, was disbursed by it and remitted to the Bureau of Internal Revenue on October 18, 2011.
The entries merely show that the monies corresponding to 20% final withholding tax was set aside for remittance to the Bureau
of Internal Revenue.

We recall the November 15, 2011 resolution issued by this court directing respondents to "show cause why they failed to comply
with the [TRO]; and [to] comply with the [TRO] in order that petitioners may place the corresponding funds in escrow pending
resolution of the petition."245 The 20% final withholding tax was effectively placed in custodia legiswhen this court ordered the
deposit of the amount in escrow. The Bureau of Treasury could still release the money withheld to petitioners for the latter to
place in escrow pursuant to this court’s directive. There was no legal obstacle to the release of the 20% final withholding tax to
petitioners. Congressional appropriation is not required for the servicing of public debts in view of the automatic appropriations
clause embodied in Presidential Decree Nos. 1177 and 1967.

Section 31 of Presidential Decree No. 1177 provides:

Section 31. Automatic Appropriations. All expenditures for (a) personnel retirement premiums, government service insurance,
and other similar fixed expenditures, (b) principal and interest on public debt, (c) national government guarantees of obligations
which are drawn upon, are automatically appropriated: provided, that no obligations shall be incurred or payments made from
funds thus automatically appropriated except as issued in the form of regular budgetary allotments.

Section 1 of Presidential Decree No. 1967 states:

Section 1. There is hereby appropriated, out of any funds in the National Treasury not otherwise appropriated, such amounts as
may be necessary to effect payments on foreign or domestic loans, or foreign or domestic loans whereon creditors make a call
on the direct and indirect guarantee of the Republic of the Philippines, obtained by:
a. the Republic of the Philippines the proceeds of which were relent to government-owned or controlled corporations
and/or government financial institutions;

b. government-owned or controlled corporations and/or government financial institutions the proceeds of which were
relent to public or private institutions;

c. government-owned or controlled corporations and/or financial institutions and guaranteed by the Republic of the
Philippines;

d. other public or private institutions and guaranteed by government owned or controlled corporations and/or
government financial institutions.

The amount of ₱35 billion that includes the monies corresponding to 20% final withholding tax is a lawfuland valid obligation of
the Republic under the Government Bonds. Since said obligation represents a public debt, the release of the monies requires no
legislative appropriation.

Section 2 of Republic Act No. 245 likewise provides that the money to be used for the payment of Government Bonds may be
lawfully taken from the continuing appropriation out of any monies in the National Treasury and is not required to be the subject
of another appropriation legislation: SEC. 2. The Secretary of Finance shall cause to be paid out of any moneys in the National
Treasury not otherwise appropriated, or from any sinking funds provided for the purpose by law, any interest falling due, or
accruing, on any portion of the public debt authorized by law. He shall also cause to be paid out of any such money, or from any
such sinking funds the principal amount of any obligations which have matured, or which have been called for redemption or for
which redemption has been demanded in accordance with terms prescribed by him prior to date of issue. . . In the case of
interest-bearing obligations, he shall pay not less than their face value; in the case of obligations issued at a discount he shall
pay the face value at maturity; or if redeemed prior to maturity, such portion of the face value as is prescribed by the terms and
conditions under which such obligations were originally issued. There are hereby appropriated as a continuing appropriation out
of any moneys in the National Treasury not otherwise appropriated, such sums as may be necessary from time to time to carry
out the provisions of this section. The Secretary of Finance shall transmit to Congress during the first month of each regular
session a detailed statement of all expenditures made under this section during the calendar year immediately preceding.

Thus, DOF Department Order No. 141-95, as amended, states that payment for Treasury bills and bonds shall be made through
the National Treasury’s account with the Bangko Sentral ng Pilipinas, to wit:

Section 38. Demand Deposit Account.– The Treasurer of the Philippines maintains a Demand Deposit Account with the Bangko
Sentral ng Pilipinas to which all proceeds from the sale of Treasury Bills and Bonds under R.A. No. 245, as amended, shall be
credited and all payments for redemption of Treasury Bills and Bonds shall be charged. 1âw phi1

Regarding these legislative enactments ordaining an automatic appropriations provision for debt servicing, this court has held:

Congress . . . deliberates or acts on the budget proposals of the President, and Congress in the exercise of its own judgment
and wisdom formulates an appropriation act precisely following the process established by the Constitution, which specifies that
no money may be paid from the Treasury except in accordance with an appropriation made by law.

Debt service is not included inthe General Appropriation Act, since authorization therefor already exists under RA Nos. 4860 and
245, as amended, and PD 1967. Precisely in the light of this subsisting authorization as embodied in said Republic Acts and PD
for debt service, Congress does not concern itself with details for implementation by the Executive, butlargely with annual levels
and approval thereof upon due deliberations as part of the whole obligation program for the year. Upon such approval, Congress
has spoken and cannot be said to havedelegated its wisdom to the Executive, on whose part lies the implementation or
execution of the legislative wisdom.246 (Citation omitted)

Respondent Bureau of Treasury had the duty to obey the temporary restraining order issued by this court, which remained in full
force and effect, until set aside, vacated, or modified. Its conduct finds no justification and is reprehensible. 247

WHEREFORE, the petition for review and petitions-in-intervention are GRANTED. BIR Ruling Nos. 370-2011 and DA 378-2011
are NULLIFIED.

Furthermore, respondent Bureau of Treasury is REPRIMANDED for its continued retention of the amount corresponding to the
20% final withholding tax despite this court's directive in the temporary restraining order and in the resolution dated November
15, 2011 to deliver the amounts to the banks to be placed in escrow pending resolution of this case.
Respondent Bureau of Treasury is hereby ORDERED to immediately ·release and pay to the bondholders the amount
corresponding-to the 20% final withholding tax that it withheld on October 18, 2011.

FACTS: By letter4 dated March 23, 2001, the Caucus of Development NGO Networks (CODE-NGO) "with the assistance of
its financial advisors, Rizal Commercial Banking Corp. ("RCBC"), RCBC Capital Corp. ("RCBC Capital"), CAPEX Finance and
Investment Corp. ("CAPEX") and SEED Capital Ventures, Inc. (SEED),"5 requested an approval from the Department of
Finance for the issuance by the Bureau of Treasury of 10-year zerocoupon Treasury Certificates (T-notes).6 The T-notes
would initially be purchased by a special purpose vehicle on behalf of CODE-NGO, repackaged and sold at a premium to
investors as the PEACe Bonds.7 The net proceeds from the sale of the Bonds"will be used to endow a permanent fund
(Hanapbuhay® Fund) to finance meritorious activities and projects of accredited non-government organizations (NGOs)
throughout the country."

Also on October 16, 2001, RCBC Capital entered into an underwriting Agreement44 with CODE-NGO, whereby RCBC
Capital was appointed as the Issue Manager and Lead Underwriter for the offering of the PEACe Bonds.45 RCBC Capital
agreed to underwrite46 on a firm basis the offering, distribution and sale of the 35 billion Bonds at the price of
₱11,995,513,716.51.47 In Section 7(r) of the underwriting agreement, CODE-NGO represented that "[a]ll income derived
from the Bonds, inclusive of premium on redemption and gains on the trading of the same, are exempt from all forms of
taxation as confirmed by Bureau of Internal Revenue (BIR) letter rulings dated 31 May 2001 and 16 August 2001,
respectively."48

RCBC Capital sold the Government Bonds in the secondary market for an issue price of ₱11,995,513,716.51. Petitioners
purchased the PEACe Bonds on different dates.49

ISSUE: W/O the assessment and collection had already prescribed

HELD: The collection of tax is not barred by prescription

The three (3)-year prescriptive period under Section 203 of the 1997 National Internal Revenue Code to assess and
collect internal revenue taxes is extended to 10 years in cases of (1) fraudulent returns; (2) false returns with intent to
evade tax; and (3) failureto file a return, to be computed from the time of discovery of the falsity, fraud, or omission.
Section 203 states:

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue
taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such
period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period
shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last day. (Emphasis supplied)

....

SEC. 222. Exceptions as to 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 failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be filed 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.

Thus, should it be found that RCBC Capital/CODE-NGO sold the PEACe Bonds to 20 or more lenders/investors, the
Bureau of Internal Revenue may still collect the unpaid tax from RCBC Capital/CODE-NGO within 10 years after the
discovery of the omission.

In view of the foregoing, there is no need to pass upon the other issues raised by petitioners and petitioners-
intervenors.
Reiterative motion on the temporary restraining order

----------------------------------------------

Republic v. GMCC United Development Corp., G.R. No. 191856, December 7, 2016

Before this Court is a Petition for Review on Certiorari


1 assailing the Court of Appeals' Decision2 dated September 8, 2009 and
3 4
Resolution dated March 30, 2010 in CA-G.R. SP No. 100380. The Court of Appeals affirmed the May 26, 2006 Resolution of the Department
of Justice, which dismissed the criminal complaint for tax evasion filed by the Bureau of Internal Revenue against GMCC United Development
Corporation's corporate officers on the ground that the period to assess the tax had already prescribed.
5

On March 28, 2003, the Bureau of Internal Revenue National Investigation Division issued a Letter of Authority, authorizing its revenue
officers to examine the books of accounts and other accounting records of GMCC United Development Corporation (GMCC) covering taxable
years 1998 and 1999.6 On April 3, 2003 GMCC was served a copy of said Letter of Authority and was requested to present its books of
accounts and other accounting records.7 GMCC failed to respond to the Letter of Authority as well as the subsequent letters requesting that its
records and documents be produced.8

Due to GMCC's failure to act on the requests, the Assistant Commissioner of the Enforcement Service of the Bureau of Internal Revenue
issued a Subpoena Duces Tecum on GMCC president, Jose C. Go (Go).9When GMCC still failed to comply with the Subpoena Duces Tecum, the
revenue officers were constrained to investigate GMCC through Third Party Information.10

The investigation revealed that in 1998, GMCC, through Go, executed two dacion en pago agreements to pay for the obligations of GMCC's
sister companies, Ever Emporium, Inc., Gotesco Properties, Inc. and Ever Price Club, Inc., to Rizal Commercial Banking Corporation.11 GMCC
allegedly failed to declare the income it earned from these agreements for taxation purposes in 1998. 12 Moreover, these transactions
constituted a donation in favor of GMCC's sister companies for which GMCC failed to pay the corresponding donor's tax.13 The BIR also
assessed the value added tax over the said transactions.14

It was also discovered that in 1999, GMCC sold condominium units and parking slots for a total amount of P5,350,000.00 to a Valencia K.
Wong.15 However, GMCC did not declare the income it earned from these transactions in its 1999 Audited Financial Statements.16

Thus, on November 17, 2003, the Bureau of Internal Revenue issued a Notice to Taxpayer to GMCC, which GMCC ignored.17 On December 8,
2003, the Bureau of Internal Revenue issued a Preliminary Assessment Notice. 18 It was only when the Bureau of Internal Revenue issued the
Final Assessment Notice that GMCC responded.19 In a Letter dated November 23, 2004, GMCC protested the issuance of the Final Assessment
Notice citing that the period to assess and collect the tax had already prescribed. The Bureau of Internal Revenue denied the protest in a Final
Decision dated February 10, 2005.20 .

In light of the discovered tax deficiencies, the Bureau of Internal Revenue, on October 7, 2005, filed with the Department of Justice a criminal
complaint for violation of Sections 254,21 255,22 and 267,23 of the National Internal Revenue Code against GMCC, its president, Jose C. Go,
and its treasurer, Xu Xian Chun.24

In his Counter-Affidavit, Go prayed that the complaint be dismissed, arguing, among others, that the action had already prescribed and that
GMCC did not defraud the government.25 Assuming that the period to assess had not yet prescribed, GMCC argued that there was nothing to
cralawred

declare since it earned no income from the dacion en pago transactions.26 Furthermore, even though the dacion en pagotransactions were not
included in the GMCC 1998 Financial Statement, they had been duly reflected in the GMCC 2000 Financial Statement.

On May 26, 2006, the Department of Justice, through the Chief State Prosecutor, issued a Resolution 27dismissing the criminal complaint
against the GMCC officers. The State Prosecutor ruled that there was no proof that GMCC defrauded the government. The Bureau went
beyond its authority when it assessed and issued the Letter of Authority knowing that the period to assess had already lapsed. Moreover, the
prosecutor ruled that since GMCC did not gain from the assailed transactions, the imposition of income, VAT, and donor's taxes were
improper.28 The dispositive portion of the Resolution reads: ChanRoblesVi rtua lawlib rary

All told, we find no probable cause to warrant indictment of respondents for violation of Sections 254, 255 and 267 of the National Internal
Revenue Code of 1997.

WHEREFORE, it is respectfully recommended that the instant complaint be DISMISSED.29

The Bureau of Internal Revenue filed a Motion for Reconsideration,30 which the Department of Justice denied in the Resolution dated August
31, 2006.31

Aggrieved, the Bureau of Internal Revenue filed before the Court of Appeals a Petition for Certiorari.32The Bureau argued that the Department
of Justice gravely abused its discretion in dismissing the criminal complaint against GMCC's officers. On September 8, 2009, the Court of
Appeals denied the Petition and affirmed in toto the Department of Justice's Resolution. The dispositive portion of the Decision33 reads:ChanRoblesVirtualawl ibra ry

WHEREFORE, the foregoing considered, the instant petition is hereby DISMISSED and the assailed resolutions AFFIRMED in toto. No costs.

SO ORDERED. cralawlawlibra ry
34
The Bureau of Internal Revenue moved for reconsideration, but it was denied in the Resolution35 dated March 30, 2010.

Petitioner Bureau of Internal Revenue is now before this Court, insisting that the Court of Appeals erred in finding that the applicable period of
prescription in its case is the three-year period under Section 203 of the NIRC and not the ten-year prescriptive period under Section 222.36

The issues before us are as follows: chanRoblesvirtual Lawlib ra ry

First, whether the Court of Appeals erred in declaring that the Secretary of Justice did not commit grave abuse of discretion when he found no
probable cause and dismissed the tax evasion case against the respondent officers of GMCC.

Second, whether the applicable prescriptive period for the tax assessment is the ten-year period or the three-year period.

The Petition must be denied.

We are convinced that the Court of Appeals committed no reversible error in affirming the ruling of the Secretary of Justice that there was no
probable cause to file a tax evasion case against the respondent officers. Since the assessment for the tax had already prescribed, no
proceeding in court on the basis of such return can be filed.

The petitioner filed a criminal complaint against respondents for violating Articles 254, 255, and 267 of the National Internal Revenue Code.
The Articles provide:ChanRoblesVi rtua lawlib rary

SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully attempts in any manner to evade or defeat any tax imposed under this
Code or the payment thereof shall, in addition to the other penalties provided by law, upon conviction thereof, be punished by a fine of not
less than Thirty thousand pesos (P30,000.00) but not more than One hundred thousand pesos (P100,000.00) and suffer imprisonment of not
less than two (2) years but not more than four (4) years: Provided, That the conviction or acquittal obtained under this Section shall not be a
bar to the filing of a civil suit for the collection of taxes.

SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes
Withheld on Compensation. - Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make
a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record,
or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the
time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be
punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than
ten (10) years.

Any person who attempts to make it appear for any reason that he or another has in fact filed a return or statement, or actually files a return
or statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp of receipt of an
internal revenue office wherein the same was actually filed shall, upon conviction therefore, be punished by a fine of not less than Ten
thousand pesos (P10,000) but not more than Twenty thousand pesos (P20,000) and suffer imprisonment of not less than one (1) year but not
more than three (3) years.

SEC. 267. Declaration under Penalties of Perjury. - Any declaration, return and other statements required under this Code, shall, in lieu of an
oath, contain a written statement that they are made under the penalties of perjury. Any person who willfully files a declaration, return or
statement containing information which is not true and correct as to every material matter shall, upon conviction, be subject to the penalties
prescribed for perjury under the Revised Penal Code. chanroblesv irtuallawl ib rary

In ruling that there was no probable cause to indict the respondent officers for the acts charged, the Court of Appeals said there was no clear
showing that there was deliberate intent on the part of the respondents to evade payment of the taxes. Both the State Prosecutor37 and the
Court of Appeals38emphasized that if respondents really intended to evade payment, they would have omitted the assailed transactions
completely in all their financial statements. We agree.

As it stands, while the dacion en pago transactions were missing in the GMCC 1998 Financial Statement, they had been listed in the GMCC
2000 Financial Statement.39 Respondents' act of filing and recording said transactions in their 2000 Financial Statement belie the allegation
that they intended to evade paying their tax liability. Petitioner's contention that the belated filing is a mere afterthought designed to make it
appear that the non-reporting was not deliberate, does not persuade considering that the filing of the 2000 Financial Statement was done
prior to the issuance of the March 2003 Letter of Authority, which authorized the investigation of GMCC's books.40

In any case, this Court has a policy of non-interference in the conduct of preliminary investigations. In First Women's Credit Corporation v.
Baybay41 the Court said: ChanRoblesVi rtualaw lib rary

It is settled that the determination of whether probable cause exists to warrant the prosecution in court of an accused should be consigned
and entrusted to the Department of Justice, as reviewer of the findings of public prosecutors. The court's duty in an appropriate case is
confined to a determination of whether the assailed executive or judicial determination of probable cause was done without or in excess of
jurisdiction or with grave abuse of discretion amounting to want of jurisdiction. This is consistent with the general rule that criminal
prosecutions may not be restrained or stayed by injunction, preliminary or final, albeit in extreme cases, exceptional circumstances have been
recognized. The rule is also consistent with this Court's policy of non-interference in the conduct of preliminary investigations, and of leaving
to the investigating prosecutor sufficient latitude of discretion in the exercise of determination of what constitutes sufficient evidence as will
establish probable cause for the filing of an information against a supposed offender. While prosecutors are given sufficient latitude of
discretion in the determination of probable cause, their findings are subject to review by the Secretary of Justice.

Once a complaint or information is filed in court, however, any disposition of the case, e.g., its dismissal or the conviction or acquittal of the
accused rests on the sound discretion of the Court.42

Moreover, a prosecutor's grave abuse of discretion in dismissing a case must be clearly shown before the Courts can intervene. Elma v
Jacobi,43 explained: ChanRoblesVi rtua lawlib rary

The necessary component of the Executive's power to faithfully execute the laws of the land is the State's self-preserving power to prosecute
violators of its penal laws. This responsibility is primarily lodged with the DOJ, as the principal law agency of the government. The prosecutor
has the discretionary authority to determine whether facts and circumstances exist meriting reasonable belief that a person has committed a
crime. The question of whether or not to dismiss a criminal complaint is necessarily dependent on the sound discretion of the investigating
prosecutor and, ultimately, of the Secretary (or Undersecretary acting for the Secretary) of Justice. Who to charge with what crime or none at
all is basically the prosecutor's call.

Accordingly, the Court has consistently adopted the policy of non interference in the conduct of preliminary investigations, and to leave the
investigating prosecutor sufficient latitude of discretion in the determination of what constitutes sufficient evidence to establish probable
cause. Courts cannot order the prosecution of one against whom the prosecutor has not found a prima facie case; as a rule, courts, too,
cannot substitute their own judgment for that of the Executive.

In fact, the prosecutor may err or may even abuse the discretion lodged in him by law. This error or abuse alone, however, does not render
his act amenable to correction and annulment by the extraordinary remedy of certiorari. To justify judicial intrusion into what is
fundamentally the domain of the Executive, the petitioner must clearly show that the prosecutor gravely abused his discretion amounting to
lack or excess of jurisdiction in making his determination and in arriving at the conclusion he reached. This requires the petitioner to establish
that the prosecutor exercised his power in an arbitrary and despotic manner by reason of passion or personal hostility; and it must be so
patent and gross as to amount to an evasion or to a unilateral refusal to perform the duty enjoined or to act in contemplation of law, before
judicial relief from a discretionary prosecutorial action may be obtained.44

Based on the foregoing, absent any indication that the Secretary of Justice gravely abused his discretion in not finding probable cause for the
complaint against respondent officers to prosper, the dismissal stands.

II

As to the issue on the applicable prescriptive period, it is the three-year prescriptive period that applies in this case.

The power of the Commissioner of Internal Revenue to assess and collect taxes is provided under Section 2 of the National Internal Revenue
Code: ChanRoblesVi rtua lawlib rary

SEC. 2. Powers and Duties of the Bureau of Internal Revenue - The Bureau of Internal Revenue shall be under the supervision and control of
the Department of Finance and its powers and duties 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.

The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws. chanroble svirtuallaw lib rary

However, this power to assess and collect taxes is limited by Section 203 of the National Internal Revenue Code: ChanRoblesVi rtualaw lib rary

SEC. 203. Period of Limitation Upon Assessment and Collection.- Except as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period
prescribed by law, the three (3)-year period shall be counted from the day the return was filed.

For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last
day. chanroble svirtuallaw lib rary

The Court, in Republic v. Ablaza,45 explained the purpose behind this limitation: ChanRoblesVirtualawl ibra ry

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the
Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the
period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the
books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest peaceful, law-abiding
citizens. Without such a legal defense[,] taxpayers would furthermore be under obligation to always keep their books and keep them open for
inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a
way conducive to bringing about the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission
which recommend the approval of the law.46

Petitioner contends that Section 203 finds no application in this case and insists that it is Section 222 of the same Code, which should be
applied. Section 222 in part states: ChanRoblesVi rtua lawlib rary
SEC. 222. Exceptions as to 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 failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be filed 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.

In arguing for the application of the 10-year prescriptive period, petitioner claims that the tax return in this case is fraudulent and thus, the
three-year prescriptive period is not applicable.47

Petitioner fails to convince that respondents filed a fraudulent tax return. The respondents may have erred in reporting their tax liability when
they recorded the assailed transactions in the wrong year, but such error stemmed from the wrong application of the law and is not an
indication of their intent to evade payment. If there were really an intent to evade payment, respondents would not have reported and
subsequently paid the income tax, albeit in the wrong year.

In Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc.,48 the Court emphasized that the Bureau of Internal Revenue must show
that the return was filed fraudulently with intent to evade payment. The Court ruled: ChanRoblesVirtualawl ibra ry

Ineludibly, the BIR failed to show that private respondent's 1974 return was filed fraudulently with intent to evade the payment of the correct
amount of tax. Moreover, even though a donor's tax, which is defined as "a tax on the privilege of transmitting one's property or property
rights to another or others without adequate and full valuable consideration," is different from capital gains tax, a tax on the gain from the
sale of the taxpayer's property forming part of capital assets, the tax return filed by private respondent to report its income for the year 1974
was sufficient compliance with the legal requirement to file a return. In other words, the fact that the sale transaction may have partly
resulted in a donation does not change the fact that private respondent already reported its income for 1974 by filing an income tax return.

Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent return with the intent to evade tax, or that it had
failed to file a return at all, the period for assessments has obviously prescribed. Such instances of negligence or oversight on the part of the
BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely intended to give them peace of mind.49

As found by the Court of Appeals, there is no clear and deliberate intent to evade payment of taxes in relation to the dacion en
pago transactions50 or on the sale transaction with Valencia Wong.51 The dacion en pago transactions, though not included in the 1998
Financial Statement, were properly listed in GMCC's Financial Statement for the year 2000.52 Regarding the sale transaction with Valencia
Wong, the respondents said that it was not reflected in the year 1999 because it was an installment sale. Units sold on installment, they
explained, are recognized not in the year they are fully paid, but in the year when at least 25% of the selling price is paid.53 In this instance,
the unit and the parking lot were sold prior to 1996, thus, in the Schedule of Unsold Units filed by GMCC as of December 31, 1996, the said
properties were no longer included.54

For the ten-year period under Section 222(a) to apply, it is not enough that fraud is alleged in the complaint, it must be established by clear
and convincing evidence.55 The petitioner, having failed to discharge the burden of proving fraud, cannot invoke Section 222(a).

Having settled that the case falls under Section 203 of the Tax Code, the three-year prescriptive period should be applied. In GMCC's case,
the last day prescribed by law for filing its 1998 tax return was April 15, 1999.56 The petitioner had three years or until 2002 to make an
assessment. Since the Preliminary Assessment was made only on December 8, 2003, the period to assess the tax had already prescribed.

A reading of Section 203 will show that it prohibits two acts after the expiration of the three-year period. First, an assessment for the
collection of the taxes in the return, and second, initiating a court proceeding on the basis of such return. The State Prosecutor was correct in
dismissing the complaint for tax evasion since it was clear that the prescribed return cannot be used as basis for the case.

All told, the dismissal of the tax evasion case against respondent officers was proper. The Court of Appeals did not err in affirming the
dismissal. Petitioner failed to prove that respondent officers wilfully intended to evade paying tax. Moreover, having found no basis to
disregard the three-year period of prescription, it is clear that the assessments were issued beyond the statute of limitations.

WHEREFORE, the Petition is DENIED. The Decision dated September 8, 2009 and the Resolution dated March 30, 2010 of the Court of
Appeals in CA-GR. SP No. 100380 are AFFIRMED.

SO ORDERED. cralawlawlibra ry

FACTS: On March 28, 2003, the Bureau of Internal Revenue National Investigation Division issued a Letter of Authority,
authorizing its revenue officers to examine the books of accounts and other accounting records of GMCC United
Development Corporation (GMCC) covering taxable years 1998 and 1999.6 On April 3, 2003 GMCC was served a copy of
said Letter of Authority and was requested to present its books of accounts and other accounting records.7 GMCC failed
to respond to the Letter of Authority as well as the subsequent letters requesting that its records and documents be
produced.

Due to GMCC's failure to act on the requests, the Assistant Commissioner of the Enforcement Service of the Bureau of
Internal Revenue issued a Subpoena Duces Tecum on GMCC president, Jose C. Go (Go).9When GMCC still failed to
comply with the Subpoena Duces Tecum, the revenue officers were constrained to investigate GMCC through Third
Party Information.

The investigation revealed that in 1998, GMCC, through Go, executed two dacion en pago agreements to pay for the
obligations of GMCC's sister companies, Ever Emporium, Inc., Gotesco Properties, Inc. and Ever Price Club, Inc., to Rizal
Commercial Banking Corporation.11 GMCC allegedly failed to declare the income it earned from these agreements for
taxation purposes in 1998.12 Moreover, these transactions constituted a donation in favor of GMCC's sister companies
for which GMCC failed to pay the corresponding donor's tax.13 The BIR also assessed the value added tax over the said
transactions.14

It was also discovered that in 1999, GMCC sold condominium units and parking slots for a total amount of P5,350,000.00
to a Valencia K. Wong.15 However, GMCC did not declare the income it earned from these transactions in its 1999
Audited Financial Statements.16

Thus, on November 17, 2003, the Bureau of Internal Revenue issued a Notice to Taxpayer to GMCC, which GMCC
ignored.17 On December 8, 2003, the Bureau of Internal Revenue issued a Preliminary Assessment Notice.18 It was only
when the Bureau of Internal Revenue issued the Final Assessment Notice that GMCC responded.19 In a Letter dated
November 23, 2004, GMCC protested the issuance of the Final Assessment Notice citing that the period to assess and
collect the tax had already prescribed. The Bureau of Internal Revenue denied the protest in a Final Decision dated
February 10, 2005.2

Thus, on November 17, 2003, the Bureau of Internal Revenue issued a Notice to Taxpayer to GMCC, which GMCC
ignored.17 On December 8, 2003, the Bureau of Internal Revenue issued a Preliminary Assessment Notice.18 It was only
when the Bureau of Internal Revenue issued the Final Assessment Notice that GMCC responded.19 In a Letter dated
November 23, 2004, GMCC protested the issuance of the Final Assessment Notice citing that the period to assess and
collect the tax had already prescribed. The Bureau of Internal Revenue denied the protest in a Final Decision dated
February 10, 2005.2Thus, on November 17, 2003, the Bureau of Internal Revenue issued a Notice to Taxpayer to GMCC,
which GMCC ignored.17 On December 8, 2003, the Bureau of Internal Revenue issued a Preliminary Assessment
Notice.18 It was only when the Bureau of Internal Revenue issued the Final Assessment Notice that GMCC
responded.19 In a Letter dated November 23, 2004, GMCC protested the issuance of the Final Assessment Notice citing
that the period to assess and collect the tax had already prescribed. The Bureau of Internal Revenue denied the protest
in a Final Decision dated February 10, 2005.2

ISSUE: WO the period to assess and collect the tax had already prescribed

HELD: In arguing for the application of the 10-year prescriptive period, petitioner claims that the tax return in this case is
fraudulent and thus, the three-year prescriptive period is not applicable.47

Petitioner fails to convince that respondents filed a fraudulent tax return. The respondents may have erred in reporting
their tax liability when they recorded the assailed transactions in the wrong year, but such error stemmed from the
wrong application of the law and is not an indication of their intent to evade payment. If there were really an intent to
evade payment, respondents would not have reported and subsequently paid the income tax, albeit in the wrong year.

As found by the Court of Appeals, there is no clear and deliberate intent to evade payment of taxes in relation to
the dacion en pago transactions50 or on the sale transaction with Valencia Wong.51 The dacion en pago transactions,
though not included in the 1998 Financial Statement, were properly listed in GMCC's Financial Statement for the year
2000.52 Regarding the sale transaction with Valencia Wong, the respondents said that it was not reflected in the year
1999 because it was an installment sale. Units sold on installment, they explained, are recognized not in the year they
are fully paid, but in the year when at least 25% of the selling price is paid.53 In this instance, the unit and the parking lot
were sold prior to 1996, thus, in the Schedule of Unsold Units filed by GMCC as of December 31, 1996, the said
properties were no longer included.54
or the ten-year period under Section 222(a) to apply, it is not enough that fraud is alleged in the complaint, it must be
established by clear and convincing evidence.55 The petitioner, having failed to discharge the burden of proving fraud,
cannot invoke Section 222(a).

Having settled that the case falls under Section 203 of the Tax Code, the three-year prescriptive period should be
applied. In GMCC's case, the last day prescribed by law for filing its 1998 tax return was April 15, 1999.56 The petitioner
had three years or until 2002 to make an assessment. Since the Preliminary Assessment was made only on December 8,
2003, the period to assess the tax had already prescribed.

----------------------------------------------

Commissioner of Internal Revenue v. Standard Chartered Bank, G.R. No. 192173, July 29, 2015

PEREZ, J.:

For the Court's consideration is a Petition for Review on Certiorari which seeks to reverse and set aside the 1 March 2010
Decision1 and the 30 April 2010 Resolution2 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 522, affirming in
toto the Decision3 and Resolution4 dated 27 February 2009 and 29 July 2009, respectively, of the Second Division of the CTA
(CTA in Division) in CTA Case No. 7165. The court a quo cancelled and set aside the Formal Letter of Demand and Assessment
Notices dated 24 June 2004 issued by petitioner against respondent for deficiency income tax, final income tax – Foreign
Currency Deposit Unit (FCDU), and expanded withholding tax (EWT) in the aggregate amount of ₱33,076,944.18, including
increments covering taxable year 1998, for having been issued beyond the reglementary period.

The Facts

As found by the CT A in Division and affirmed by the CT A En Banc, the factual antecedents of the case and the proceedings
conducted thereon were as follows:

On July 14, 2004, [respondent] received [petitioner's] Formal Letter of Demand dated June 24, 2004, for alleged deficiency
income tax, final income tax - FCDU, [withholding tax - compensation (WTC)], EWT, [final withholding tax (FWT)], and
increments for taxable year 1998 in the aggregate amount of ₱33,326,211.37, broken down as follows:

Compromise
Tax Basic Tax Interest Total
Penalty
Income Tax 3,594,272.00 3,803,936.67 25,000.00 7,423,208.67
Final Income Tax – 11,748,483.99 12,433,808.31 25,000.00 24,207,292.30
FCDU
Withholding Tax – 50,282.59 55,450.48 12,000.00 117,733.07
Compensation
Expanded 678,361.62 748,081.59 20,000.00 1,446,443.21
Withholding Tax
Final Withholding 56,845.84 62,688.28 12,000.00 131,534.12
Tax
TOTAL 16,128,246.04 17,103,965.33 94,000.00 33,326,211.37

On August 12, 2004, [respondent] protested the said assessment by filing a letter-protest dated August 9, 2004 addressed to the
BIR Deputy Commissioner for Large Taxpayers' Service stating the factual and legal bases of the assessment, and requested
that it be withdrawn and cancelled. As of the date of filing of this Petition for Review, [petitioner] has not rendered a decision on
[respondent's] protest.

In view of [petitioner's] inaction on [respondent's] protest, on March 9, 2005, [respondent] filed the present Petition for Review.

xxxx
On October 14, 2005, [respondent] filed a Motion for Leave of Court to Serve Supplemental Petition, with attached Supplemental
Petition for Review, pursuant to Rule 10 of the 1997 Rules of Civil Procedure, as amended, in view of the alleged payments
made by [respondent] through the BIR's Electronic Filing and Payment System (eFPS) as regards its deficiency [WTC] and
[FWT] assessments in the amounts of ₱124,967.73 and ₱139,713.l l, respectively. In its Supplemental Petition for Review,
(respondent) seeks to be fully credited of the payments it made to cover the deficiency [WTC] and [FWT]. Thus, the remaining
assessments cover only the deficiency income tax, final income tax – FCDU, and [EWT] in the modified total amount of
₱33,076,944.18, computed as follows:

Compromise
Basic Tax Interest Total
Tax Penalty
Income Tax 3,594,272.00 3,803,936.67 25,000.00 7,423,208.67
Final Income Tax – 11,748,483.99 12,433,808.31 25,000.00 24,207,292.30

FCDU
Expanded 678,361.62 748,081.59 20,000.00 1,446,443.21

Withholding Tax
TOTAL 16,021,117.61 16,985,826.57 70,000.00 33,076,944.18

Finding merit in [respondent's] motion, the same was granted and the Supplemental Petition for Review was admitted in a
Resolution dated December 12, 2005.

[Respondent] presented Chona G. Reyes, its Vice-President, as witness, and documentary exhibits which were admitted by the
Court in its Resolutions dated October 1, 2007, and January 31, 2008.

On the other hand, [petitioner] presented Juan M. Luna, Jr., Revenue Officer II of the BIR LTAID I, as witness, and documentary
evidence marked as Exhibits "1 " to "4 ".

Thereafter, the parties were ordered to file their simultaneous memoranda, within thirty (30) days from notice, after which the
case shall be deemed submitted for decision.

[Petitioner;s] "Memorandum" was filed on August 4, 2008, while [respondent's] Memorandum was filed on October 24, 2008
after a series of motions for extension of time to file memorandum were granted by the [c]ourt. The case was deemed submitted
for decision on November 12, 2008.5

The Ruling of the CTA in Division

In a Decision dated 27 February 2009,6 the CTA in Division granted respondent's petition for the cancellation and setting aside of
the subject Formal Letter of Demand and Assessment Notices dated 24 June 2004 on the ground that petitioner's right to assess
respondent for the deficiency income tax, final income tax - FCDU, and EWT covering taxable year 1998 was already barred by
prescription. The court a quo explained that although petitioner offered in evidence copies of the Waivers of Statute of
Limitations executed by the parties, for the purpose of justifying the extension of period to assess respondent, the subject
waivers, particularly the First and Second Waivers dated 20 July 2001 and 4 April 2002, respectively, failed to strictly comply
and conform with the provisions of Revenue Memorandum Order (RMO) No. 20-90, citing the case of Philippine Journalists, Inc.
v. CIR.7 It therefore concluded that since the aforesaid waivers were invalid, it necessarily follows that the subsequent waivers
did not in any way cure these defects. Neither did it extend the prescriptive period to assess. Accordingly, it ruled that the
assailed Formal Letter of Demand and Assessment Notices are void for having been issued beyond the reglementary
period.8 Having rendered such ruling, the CT A in Division decided not to pass upon other incidental issues raised before it for
being moot.

On 29 July 2009, the CTA in Division denied petitioner's Motion for Reconsideration thereof for lack of merit. 9

Aggrieved, petitioner appealed to the CT A En Banc by filing a Petition for Review under Section 18 of Republic Act (R.A.) No.
1125, as amended by R.A. No. 9282,10 on 3 September 2009, docketed as CTA EB No. 522.

The Ruling of the CTA En Banc


The CT A En Banc affirmed in toto both the aforesaid Decision and Resolution rendered by the CTA in Division in CTA Case No.
7165, pronouncing that there was no cogent justification to disturb the findings and conclusion spelled out therein, since what
petitioner merely prayed was for the appellate court to view and appreciate the arguments/discussions raised by petitioner in her
own perspective of things, which unfortunately had already been considered and passed upon.

In other words, the CT A En Banc simply concurred with the ruling that petitioner's subject Formal Letter of Demand and
Assessment Notices (insofar as to the deficiency income tax, final income tax - FCDU, and EWT) shall be cancelled considering
that the same was already barred by prescription for having been issued beyond the three-year prescriptive period provided for
in Section 203 of the National Internal Revenue Code (NIRC) of 1997, as amended. The waivers of the statute of limitations
executed by the parties did not extend the aforesaid prescriptive period because they were invalid for failure to comply with and
conform to the requirements set forth in RMO No. 20-90.

Upon denial of petitioner's Motion for Reconsideration thereof, it filed the instant Petition for Review on Certiorari before this
Court seeking the reversal of the 1 March 2010 Decision 11 and the 30 April 2010 Resolution12 rendered in CTA EB No. 522,
based on the sole ground, to wit: The CT A En Banc committed reversible error in not holding that respondent is estopped from
questioning the validity of the waivers of the Statute of Limitations executed by its representatives in view of the partial payments
it made on the deficiency taxes sought to be collected in petitioner's Formal Letter of Demand and Assessment Notices dated 24
June 2004. The Issues

The primary issue presented before this Court is whether or not petitioner's right to assess respondent for deficiency income tax,
final income tax - FCDU, and EWT covering taxable year 1998 has already prescribed under Section 203 of the NIRC of 1997,
as amended, for failure to comply with the requirements set forth in RMO No. 20-90 dated 4 April 1990, pertaining to the proper
and valid execution of a waiver of the Statute of Limitations, and in accordance with existing jurisprudential pronouncements.

Subsequently, even assuming that petitioner's right to assess had indeed prescribed, another issue was submitted for our
consideration, to wit: whether or not respondent is estopped from questioning the validity of the waivers of the Statute of
Limitations executed by its representatives in view of the partial payments it made on the deficiency taxes (i.e. WTC and FWT)
sought to be collected in petitioner's Formal Letter of Demand and Assessment Notices dated 24 June 2004.

Our Ruling

We find no merit in the petition.

At the outset, the period for petitioner to assess and collect an internal revenue tax is limited only to three years by Section 203
of the NIRC of 1997., as amended, quoted hereunder as follows: SEC. 203. Period of Limitation Upon Assessment and
Collection. – Except as provided in Section 222, internal revenue taxes shall be assessed within three years after the last day
prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall
be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by
law, the three (3)-year period shall be counted from the day the return was filed.

For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed
on such last day. (Emphasis supplied)

This mandate governs the question of prescription of the government's right to assess internal revenue taxes primarily to
safeguard the interests of taxpayers from unreasonable investigation by not indefinitely extending the period of assessment and
depriving the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of
reasonable period of time.13

Thus, in the present case, petitioner only had three years, counted from the date of actual filing of the return or from the last date
prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a
court proceeding for the collection thereof without an assessment. However, one of the exceptions to the three-year prescriptive
period on the assessment of taxes is that provided for under Section 222(b) of the NIRC of 1997, as amended, which states:

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. –

xxxx

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the
taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period
previously agreed upon. (Emphasis supplied)

From the foregoing, the above provision authorizes the extension of the original three-year prescriptive period by the execution
of a valid waiver, where the taxpayer and the Commissioner of Internal Revenue (CIR) may stipulate to extend the period of
assessment by a written 1 agreement executed prior to the lapse of the period prescribed by law, and by subsequent written
agreements before the expiration of the period previously agreed upon. It must be kept in mind that the very reason why the law
provided for prescription is to give taxpayers peace of mind, that is, to safeguard them from unreasonable examination,
investigation, or assessment. The law on prescription, being a remedial measure, should be liberally construed in order to afford
such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. 14

In the landmark case of Philippine Journalists, Inc. v. CIR (PJI case), 15 we pronounced that a waiver is not automatically a
renunciation of the right to invoke the defense of prescription. A waiver of the Statute of Limitations is nothing more than "an
agreement between the taxpayer and the Bureau of Internal Revenue (BIR) that the period to issue an assessment and collect
the taxes due is extended to a date certain." It is a bilateral agreement, thus necessitating the very signatures of both the CIR
and the taxpayer to give birth to a valid agreement. Furthermore, indicating in the waiver the date of acceptance by the BIR is
necessary in order to determine whether the parties (the taxpayer and the government) had entered into a waiver "before the
expiration of the time prescribed in Section 203 (the three-year prescriptive period) for the assessment of the tax." When the
period of prescription has expired, there will be no more need to execute a waiver as there will be nothing more to extend.
Hence, no implied consent . can be presumed, nor can it be contended that the concurrence to such waiver is a mere formality.

In delineation of the same sense about the waiver of the Statute of Limitations, RMO No. 20-90 and Revenue Delegation
Authority Order (RDAO) No. 05-01 were issued on 4 April 1990 and 2 August 2001, respectively. The said revenue orders
outline the procedure for the proper execution of a waiver, viz.:16

1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after __ 19 _", which indicates
the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription,
should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation,
the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and
agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver,
the CIR. or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly
notarized, and executed by the taxpayer or his duly authorized representative.

5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of
the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.

6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second
copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her
file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and
the perfection of the agreement. (Emphases supplied)

The provisions of the RMO and RDAO explicitly show their mandatory nature, requiring strict compliance. Hence, failure to
comply with any of the requisites renders a waiver defective and ineffectual. It is worth mentioning that strict compliance with the
requirements set forth in RMO No. 20-90 has been upheld in the PJI case.17 In reversing the decision of the Court of Appeals
promulgated on 5 August 2003, this Court ruled that:

The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and collection of internal
revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation. Unreasonable investigation
contemplates cases where the period of assessment extends indefinitely because this deprives the taxpayer of the assurance
that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time x x x

xxxx
RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment and collection
of taxes. A cursory reading of the Order supports petitioner's argument that the RMO must be strictly followed, x x x" 18 (Emphasis
supplied)

Applying the rules and rulings, the waivers in question were defective and did not validly extend the original three-year
prescriptive period. As correctly found by the CT A in Division, and affirmed in toto by the CT A En Banc, the subject waivers of
the Statute of Limitations were in clear violation of RMO No. 20-90:

1) This case involves assessment amounting to more than ₱1,000,000.00. For this, RMO No. 20-90 requires the
Commissioner of Internal Revenue to sign for the BIR. A perusal of the First and Second Waivers of the Statute of
1avvphi1

Limitations shows that they were signed by Assistant Commissioner-Large Taxpayers Service Virginia L. Trinidad and
Assistant Commissioner-Large Taxpayers Service Edwin R. Abella respectively, and not by the Commissioner of
Internal Revenue;

2) The date of acceptance by the Assistant Commissioner-Large Taxpayers Service Virginia L. Trinidad of the First
Waiver was not indicated therein;

3) The date of acceptance by the Assistant Commissioner-Large Taxpayers Service Edwin R. Abella of the Second
Waiver was not indicated therein;

4) The First and Second Waivers of Statute of Limitations did not specify the kind and amount of the tax due; and

5) The tenor of the Waiver of the Statute of Limitations signed by petitioner's authorized representative failed to comply
with the prescribed requirements of RMO No. 20-90. The subject waiver speaks of a request for extension of time within
which to present additional documents, whereas the waiver provided under RMO No. 20-90 pertains to the approval by
the Commissioner of Internal Revenue of the taxpayer's request for re-investigation and/or

reconsideration of his/its pending internal revenue case.19

Taking into consideration the foregoing defects in the First and Second Waivers presented and admitted in evidence before the
court a quo, the period to assess the tax liabilities of respondent for taxable year 1998 was never extended. Consequently, when
the succeeding waivers of Statute of Limitations were subsequently executed covering the same tax liabilities of respondent, and
there being no assessment having been issued as of that time, prescription has already set in. We therefore hold that the
subject waivers did not extend the period to assess the subject deficiency tax liabilities of respondent for taxable year 1998. The
aforesaid waivers cannot be considered as "subsequent written agreement(s) made before the expiration of the period
previously agreed upon" referred to in the second sentence of the earlier quoted Section 222(b) of the NIRC of 1997, as
amended, since there is no "period previously agreed upon" to speak of.

As regards petitioner's insistence that respondent is already estopped from impugning the validity of the subject waivers
considering that it made partial payments on the deficiency taxes being collected, particularly as to the payment of its deficiency
WTC and FWT assessments in the amounts of ₱124,967.73 and ₱139,713.11, respectively, we find this argument bereft of
merit.

As aptly found in the 29 July 2009 Resolution of the CTA in Division, although respondent paid the deficiency WTC and FWT
assessments, it did not waive the defense of prescription as regards the remaining tax deficiencies, it being on record that
respondent continued to raise the issue of prescription in its Pre-Trial Brief filed on 15 August 2005, Joint Stipulations of Facts
and Issues filed on 1 September 2005, direct testimonies of its witness, and Memorandum filed on 24 October 2008. More so,
even petitioner did not consider such payment of respondent as a waiver of the defense of prescription, but merely raised the
issue of estoppel in her Motion for Reconsideration of the aforesaid decision. From the conduct of both parties, there can be no
estoppel in this case.20

Upon payment of the assessed deficiency in the WTC in the amount of ₱124,967.73 and in the FWT in the amount of
µ139,713.11, respondent filed a Motion for Leave of Court to Serve Supplemental Petition, with attached Supplemental Petition
for Review. As stated in the CTA En Banc affirmed decision of the CTA in Division, "[i]n its Supplemental Petition for Review,
respondent seeks to be fully credited of the payments it made to cover the deficiency WTC and FWT. Thus, the remaining
assessments cover only the deficiency income tax, final income tax – FCDU, and (EWT) in the modified total amount of
₱33,076,944.18, x x x".21 The aforesaid motion was granted and the supplemental petition was admitted by the CT A in Division.
Undeniably, the acceptance of said payments was never questioned by petitioner. Indeed, the decision of the CTA in Division,
which decision was affirmed by the CTA En Banc, covered only the remaining questioned assessment, namely: income tax, final
income tax -FCDU, and EWT. Clearly, the payment of the deficiency WTC and FWT was made together with the reiteration in
the petition for the cancellation of the assessment notices on the alleged deficiency income tax, final income tax - FCDU, and
EWT.
When respondent paid the deficiency WTC and FWT assessments, petitioner accepted said payment without any opposition.
This effectively extinguished respondent's obligation to pay the subject taxes. It bears emphasis that, obligations are
extinguished, among others, by payment or performance.22 Under Article 1232 of the Civil Code, payment means not only the
delivery of money but also the performance, in any other manner, of an obligation. As intended, which intention was recognized
by the CT A in · Division and CT A En Banc, the question regarding the income tax, final income tax - FCDU, and EWT, was
kept unaffected by the payment of the deficiency WTC and FWT assessments.

By way of reiteration, taking into consideration the foregoing flaws found in the subject waivers, the same are void, and the
supposed suspensions of the prescriptive periods within which to issue the subject assessments were not legally effected. And
the facts of this case do not call for the application of the doctrine of estoppel.

It must be remembered that the execution of a Waiver of Statute of Limitations may be beneficial to the taxpayer or to the BIR,
or to both. Considering however, that it results to a derogation of some of the rights of the taxpayer, the same must be executed
in accordance with pre-set guidelines and procedural requirements. Otherwise, it does not serve its purpose, and the taxpayer
has all the right to invoke its nullity. For that reason, this Court cannot turn blind on the importance of the Statute of Limitations
upon the assessment and collection of internal revenue taxes provided for under the NIRC. The law prescribing a limitation of
actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because
tax officers would be obliged to act properly in the making of the assessment, and to citizens because after the lapse of the
period of prescription, citizens would have a feeling of security against unscrupulous tax agents who may find an excuse to
inspect the books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest
peaceful, law-abiding citizens. Without such a legal defense, taxpayers would furthermore be under obligation to always keep
their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being
a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to
the taxpayer within the contemplation of the Commission which recommends the approval of the law. 23

In fine, considering the defects in the First and Second Waivers, the period to assess or collect deficiency taxes for the taxable
year 1998 was never extended. Consequently, the Formal Letter of Demand and Assessment Notices dated 24 June 2004 for
deficiency income tax, FCDU, and EWT in the aggregate amount of 1!33,076,944.18, including increments, were issued by the
BIR beyond the three-year prescriptive period and are therefore void.24WHEREFORE, the petition is DENIED for lack of merit.
No costs.

SO ORDERED.

FACTS:

Respondent received CIR's Formal Letter of Demand for alleged deficiency income tax, final income tax, withholding tax
- final and compensation, and increments for the taxable year worth P 33,326,211.37.

Respondent protested the said assessment by filing a letter-protest with the CIR requesting the assessment to be
withdrawn.

In the middle of things, respondent paid the BIR the assessed deficiency for both the withholding taxes.

Respondent then filed for a petition for the cancellation and setting aside of the assessments which the CTA granted.
The CTA held that it has already prescribed as it covered the taxable year of 1998.

The NIRC provides that the assessments should have been issued within the three-year prescriptive period. The CIR also
presented the Waivers of Statute of Limitations executed by the parties which extended the period to assess
respondent. The CTA held that the CIR failed to strictly comply and conform with the provisions of Revenue
Memorandum Order No. 20-90. The CTA held that the waivers were invalid.

ISSUE: Whether the assessments were already prescribed. Whether the waiver was invalid.

RULING:

Yes and yes.

The NIRC is clear that in a case where a return is filed beyond the period prescribed by law, the three-year period shall
be counted from the day the return was filed.
The waiver, as also provided by the NIRC, is an exception to the three-day prescription. But, as the CTA first held, the
provisions of the RMO should have been strictly complied with. Failing to comply renders a waiver defective and
ineffectual.

----------------------------------------------

Commissioner of Internal Revenue v. Bank of the Philippine Islands, G.R. No. 135446, September 23, 2003

Respondent Bank of the Philippine Islands (BPI) is the liquidator of Paramount Acceptance Corporation (PAC), a financing
corporation which was dissolved on July 17, 1989 pursuant to the January 30, 1986 resolution of its Board of Directors
and stockholders, shortening its corporate life to March 31, 1987.

After the dissolution of the PAC, respondent BPI learned from the newspapers that petitioner Commissioner of Internal
Revenue (CIR) filed certain criminal cases against Horacio V. Poblador and Ramon A. Albert, former president and
treasurer of PAC, respectively, for willful failure to pay the corporations final deficiency tax assessments for the years
1981 and 1982. According to the petitioner, PAC was liable for a total amount of P411,382.11 in deficiency taxes,
computed as follows:

1981

Deficiency Income Tax P166,923.00

Deficiency Expanded

Withholding Tax 3,727.01

Deficiency Documentary

Stamp Tax 44,300.00

__________

TOTAL P214,950.01

1982

Deficiency Income Tax P150,707.20

Deficiency Percentage Tax 35,887.91

Deficiency Expanded

Withholding Tax 9,836.99

___________

TOTAL P196,432.10[1]

Respondent wrote to the petitioner, claiming that it was not aware of any assessment regarding any tax deficiency owed
by PAC, but that it was willing to compromise and pay the deficiency tax. At the same time, respondent asked for the
withdrawal of the criminal cases against Poblador and Albert. The parties agreed to settle for not less than 30% of the
basic income and documentary stamps taxes and 100% of the basic expanded withholding tax due. Respondent paid to
the petitioner a total amount of P119,815.13, broken down as follows:

1981

Deficiency Income Tax P 31,298.10

Deficiency Expanded
Withholding Tax 1,625.01

Deficiency Documentary

Stamp Tax 44,000.00

__________

TOTAL P 76,923.11

1982

Deficiency Income Tax P 28,257.60

Deficiency Percentage Tax 4,797.43

Deficiency Expanded

Withholding Tax 9,836.99

___________

TOTAL P 42,892.02[2]

However, in spite of the payment, petitioner continued to prosecute the criminal cases against Poblador and Albert:
Criminal Cases Nos. 91-5800, 91-5801 and 91-5802, involving the 1981 assessments, before the Regional Trial Court of
Makati, Branch 150; and, Criminal Case No. 91-4007 involving the 1982 percentage tax deficiency, pending in the
Regional Trial Court of Makati, Branch 143.

Respondent, in its August 18, 1992 letter to petitioner, pointed out that the assessments were not sent to the proper
address and asked for the refund of the P119,815.13 it paid under the compromise agreement since the criminal cases
against Poblador and Albert were not dropped as agreed upon. Petitioner did not answer the letter and continued to
prosecute the said cases.

At the trial of Criminal Case Nos. 91-5800, 5801 and 5802, the following facts were established:

(a) that Paramount filed its Annual Income Tax Return for 1985 on April 2, 1986, in which it disclosed in the space
provided for in the Return, that its current address was 8th Floor, FCC Bldg., Paseo de Roxas, Makati, Metro Manila, while
its Previous Address (if different from current year) was Ground Flr., DCG Building cor. De la Rosa and Legaspi Sts.
Makati, Metro Manila;

(b) that Paramount filed its Annual Income Tax Return for the three months of 1986, i.e., up to March 31, 1986, on April
30, 1986 and indicated in the proper space provided for in the return that its current address was BPI Building, Ayala
Avenue, Makati, Metro Manila while its Previous address (if different from current year) was 8 th Floor, FCC Building,
Paseo de Roxas, Makati, M.M.

xxx xxx xxx

(e) that on July 17, 1987 the SEC issued to Paramount the Certificate of Filing of Amended Articles of Incorporation
shortening the term of existence and thereby dissolving the corporation;

(f) that after issuing such Certificate, the SEC sent a letter dated July 14, 1987 to the respondent, informing him that
pursuant to Executive Order No. 1026 which requires a tax clearance before a corporation may be dissolved, the SEC had
dissolved Paramount as of March 31, 1986 in view of the tax clearance certificate which the respondent had issued on
November 11, 1986. The same letter further informed respondent that [t]he principal office of the corporation was
located at 8th Flr., BPI-FB Bldg., 8753 Paseo de Roxas, Makati, MM;
(g) that contrary to the testimony of prosecution witness Rolando Bumbay of the respondents Collection Enforcement
Division that he just could not locate Paramount, he looked everywhere except the Makati BIR Office, where Paramount
had been filing its income tax returns, and the Litigation Division of the BIR which would have informed him that instead
of disappearing and hiding from the BIR, Paramount even sued the respondent in the Court of Tax Appeals for the
refund of excess creditable income taxes paid in 1986, docketed as CTA Case No. 4257. (Citations omitted)[3]

In an order dated June 22, 1993, Criminal Case Nos. 91-5800 to 5802 were dismissed by the trial court, on motion of the
BIR Special Prosecutor. The motion to dismiss was anchored on the fact that the assessments made by the BIR on the tax
deficiencies of PAC/accused Poblador and Albert for the year 1981 have already been paid and amicably settled,
evidenced by the Letter of Deputy Commissioner Eufracio D. Santos to Atty. Sabino Padilla, Jr. dated June 6,
1991.[4] Strangely, however, petitioner did not move for the dismissal of Criminal Case No. 91-4007 involving the 1982
corporate percentage tax deficiency.

On November 15, 1993, petitioner finally replied to respondents August 18, 1992 letter, refusing to grant a refund and
denying that a compromise settlement was reached by them. Petitioner reasoned that it could not have entered into a
compromise agreement with respondent since the criminal cases had already been filed in court, and to enter into a
compromise after the filing of the cases would have violated Section 204 of the Tax Code. Thus, the payment
of P119,815.13 could not have been accepted by the CIR in the concept of a compromise settlement.

On December 12, 1993, respondent filed a case with the Court of Tax Appeals (CTA) for the refund of the money it paid
petitioner. The CTA, however, dismissed it on the ground of litis pendencia. Respondent appealed to the Court of
Appeals, which ruled that litis pendencia was not present and ordered the CTA to commence trial on the refund case.
Thus, petitioner elevated the case to this Court via a petition for review.

The petition is denied for being moot.

On January 28, 2000, the Regional Trial Court of Makati City, Branch 143, rendered a decision[5] in Criminal Case No. 91-
4007 acquitting Poblador and Albert of willful failure to pay the corporate percentage tax deficiency for 1982.
Furthermore, a copy of the said decision was served on petitioner by registered mail,[6] prior to the submission of its
memorandum in this case.[7] Despite being furnished a copy of the RTC decision, petitioner merely adopted its comment
as its memorandum and did not discuss the effect of Poblador and Alberts acquittal on the present petition. Petitioner
even stated that respondent BPI may recover the amount it paid once Poblador and Albert were acquitted in the
criminal case.[8]

In its decision in Criminal Case No. 91-4007, the trial court ruled that the prosecution failed to establish that PAC was in
fact liable for deficiency taxes prior to its liquidation. Assuming arguendo that there was a deficiency tax for which PAC
was liable, petitioners failed to make a valid assessment on it since the notice of assessment was sent to the PACs old
(and therefore improper) office address. PAC already indicated its new address in its 1986 tax return filed with the BIRs
Makati office. This notwithstanding, petitioner CIR sent the notice of assessment to PACs old business address instead of
its new address, which was also BPIs (PACs liquidator) office address.

Since there was a failure to effect a timely valid assessment, the period for filing a criminal case for PACs tax liabilities
had prescribed by the time petitioner instituted the criminal cases against its former officers. Thus, Poblador and Albert
were correctly acquitted by the trial court.

WHEREFORE, the petition is hereby DENIED.

SO ORDERED.

FACTS:

Respondent Bank of the Philippine Islands (BPI) is the liquidator of Paramount AcceptanceCorporation (PAC), a financing
corporation which was dissolved on July 17, 1989. After thedissolution of the PAC, respondent BPI learned that
petitioner CIR filed certain criminal casesagainst Horacio V. Poblador and Ramon A. Albert, former president and
treasurer of PAC,respectively, for willful failure to pay the corporation's final deficiency tax assessments for theyears
1981 and 1982.Respondent informed petitioner that it was willing to compromise and pay the deficiencytax. At the
same time, respondent asked for the withdrawal of the criminal cases against Pobladorand Albert. The parties agreed to
settle. Respondent paid to the petitioner a total amount of P119,815.13.

However, in spite of the payment, petitioner continued to prosecute the criminal casesagainst Poblador and Albert:
Criminal Cases Nos. 91-5800, 91-5801 and 91-5802, involving the 1981assessments, before the Regional Trial Court of
Makati, Branch 150; and, Criminal Case No. 91-4007involving the 1982 percentage tax deficiency, pending in the
Regional Trial Court of Makati, Branch143.Respondent, in a letter to petitioner, pointed out that the assessments were
not sent to theproper address and asked for the refund of the P119,815.13 it paid under the compromiseagreement
since the criminal cases against Poblador and Albert were not dropped as agreed upon.

ISSUE:

Is PAC liable to pay the tax assessments?

HELD:

NO.

PAC is not liable. The RTC of Makati City, Branch 143, rendered a decision in CriminalCase No. 91-4007 acquitting
Poblador and Albert of willful failure to pay the corporate percentagetax deficiency for 1982. Furthermore, a copy of the
said decision was served on petitioner byregistered mail, prior to the submission of its memorandum in this case.In its
decision in Criminal Case No. 91-4007, the trial court ruled that the prosecution failedto establish that PAC was in fact
liable for deficiency taxes prior to its liquidation. Assumingarguendo that there was a deficiency tax for which PAC was
liable, petitioners failed to make avalid assessment on it since the notice of assessment was sent to the PAC's old (and
thereforeimproper) office address. PAC already indicated its new address in its 1986 tax return filed with theBIR's Makati
office. This notwithstanding, petitioner CIR sent the notice of assessment to PAC's oldbusiness address instead of its new
address, which was also BPI's (PAC's liquidator) office address.Since there was a failure to effect a timely valid
assessment, the period for filing a criminalcase for PAC's tax liabilities had prescribed by the time petitioner instituted
the criminal casesagainst PAC’s former officers.

----------------------------------------------

Commissioner of Internal Revenue v. Pascor Realty and Devt. Corp., G.R. No. 128315, June 29, 1999

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. 1âw phi 1.nêt

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.

Facts:

In this case, then BIR Commissioner Jose U. Ong authorized revenue officers to examine the books of accounts and other
accounting records of Pascor Realty and Development Corporation (PRDC) for 1986, 1987 and 1988. This 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 filed a criminal complaint before the DOJ against 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 filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability.

The Commissioner denied the urgent request for reconsideration/reinvestigation because she had not yet issued a
formal assessment.

Private respondents then elevated the Decision of the Commissioner to the CTA on a petition for review. The
Commissioner 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 yet no formal assessment issued against the petitioners. The CTA denied the said
motion to dismiss and ordered the Commissioner to file an answer within thirty (30) days. The Commissioner did not file
an answer nor did she move to reconsider the resolution. Instead, the Commissioner filed a petition for review of the
CTA decision with the Court of Appeals. The Court of Appeals upheld the CTA order. However, this Court reversed the
Court of Appeals decision and the CTA order, and ordered the dismissal of the petition.

Issue:

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

Held:

The Court ruled in the negative. 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 interests 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.

Neither the NIRC nor the revenue regulations governing the protest of assessments[12] 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 the 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 rate as may be prescribed by rules and
regulations, is to be collected from the date prescribed for its payment until the full payment.[13]

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[14] 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,[15] 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[16] 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.[17]

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.”[18]

“Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax
rolls.”[19]

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.
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 NIRC,[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.

----------------------------------------------

Commissioner of Internal Revenue v. GJM Philippines Manufacturing, Inc., G.R. No. 202695, February 29, 2016

For resolution is a Petition for Review under Rule 45 of the Rules of Court which petitioner Commissioner of Internal
Revenue (CIR) filed, praying for the reversal of the Decision1 of the Court of Tax Appeals (CTA) En Banc dated March 6, 2012
and its Resolution2 dated July 12, 2012 in CTA EB CASE No. 637. The CTA En Banc affirmed the Decision3 of the CTA First
Division dated January 26, 2010 and its Resolution4 dated May 4, 2010 in favor of respondent GJM Philippines Manufacturing,
Inc. (GJM).

The facts, as culled from the records, are as follows:

On April 12, 2000, GJM filed its Annual Income Tax Return for the year 1999. Thereatler, its parent company, Warnaco (HK)
Ltd., underwent bankruptcy proceedings, resulting in the transfer of ownership over GJM and its global affiliates to Luen Thai
Overseas Limited in December 2001. On August 26, 2002, GJM informed the Revenue District Officer of Trece Martirez, through
a letter, that on April 29, 2002, it would be canceling its registered address in Makati and transferring to Rosario, Cavite, which is
under Revenue District Office (RDO) No. 54. On August 26, 2002, GJM's request for transfer of its tax registration from RDO No.
48 to RDO No. 54 was confirmed through Transfer Confirmation Notice No. OCN ITR 000018688.

On October 18, 2002, the Bureau of Internal Revenue (BIR) sent a letter of informal conference informing GJM that the report of
investigation on its income and business tax liabilities for 1999 had been submitted. The report disclosed that GJM was still
liable for an income tax deficiency and the corresponding 20% interest, as well as for the compromise penalty in the total
amount of P1,192,541.51. Said tax deficiency allegedly resulted from certain disallowances/understatements, to wit: (a) Loading
and Shipment/Freight Out in the amount of P2,354,426.00; (b) Packing expense, P8,859,975.00; (c) Salaries and Wages,
P2,717,910.32; (d) Staff Employee Benefits, P1,191,965.87; and (e) Fringe Benefits Tax, in the amount of P337,814.57. On
October 24, 2002, GJM refuted said findings through its Financial Controller.

On February l 2, 2003, the Bureau of Internal Revenue (BIR) issued a Pre-Assessment Notice and Details of Discrepancies
against GJM. On April 14, 2003, it issued an undated Assessment Notice, indicating a deficiency income tax assessment in the
amount of P1,480,099.29. On July 25, 2003, the BIR issued a Preliminary Collection Letter requesting GJM to pay said income
tax deficiency for the taxable year 1999. Said letter was addressed to GJM's former address in Pio del Pilar, Makati. On August
18, 2003, although the BIR sent a Final Notice Before Seizure to GJM's address in Cavite, the latter claimed that it did not
receive the same.

On December 8, 2003, GJM received a Warrant of Distraint and/or Levy from the BIR RDO No. 48-West Makati. The company
then filed its Letter Protest on January 7, 2004, which the BIR denied on January 15, 2004. Hence, G.JM filed a Petition for
Review before the CTA.

On January 26, 20 l 0, the CTA First Division rendered a Decision in favor of GJM, the dispositive portion of which reads:

WHEREFORE, the deficiency income tax assessment in the amount of P1,480,099.29, inclusive of interest, for taxable year
1999, covered by Formal Assessment Notice No. IT-17316-99-03-282 and the Warrant of Distraint and/or Levy dated November
27, 2003, both issued against petitioner by respondent, are hereby CANCELLED and WITHDRAWN.

Accordingly, respondent is hereby ORDERED to cease and desist from implementing the said assessment and Warrant.

SO ORDERED.5

When its Motion for Reconsideration was denied, the CIR brought the case to the CT A En Banc.

On March 6, 2012, the CTA En Banc denied the CIR's petition, thus:

WHEREFORE, the Petition for Review is hereby DENIED. Accordingly, the impugned Decision dated January 26, 2010 and
Resolution dated May 4, 2010 are hereby AFFIRMED in toto.

SO ORDERED.6

The CIR filed a Motion for Reconsideration but the same was denied for Jack of merit. Thus, the instant petition.

The CIR raised the following issues:

I.

WHETHER OR NOT THE FORMAL ASSESSMENT NOTICE (FAN) FOR DEFICIENCY INCOME TAX ISSUED TO GJM FOR
TAXABLE YEAR 1999 WAS RELEASED, MAILED, AND SENT WITHIN THE THREE (3)-YEAR PRESCRIPTIVE PERIOD
UNDER SECTION 203 OF THE NIRC OF 1997.

II.

WHETHER OR NOT THE BIR'S RIGHT TO ASSESS GJM FOR DEFICIENCY INCOME TAX FOR TAXABLE YEAR 1999 HAS
ALREADY PRESCRIBED.

The petition lacks merit.

Section 203 of the 1997 National Internal Revenue Code (NIRC), as amended, specifically provides for the period within which
the CIR must make an assessment. It provides:
1âw phi 1

SEC. 203. Period of Limitation Upon Assessmentand Collection. - Except as provide0 in Section 222, internal revenue taxes
shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day. (Emphasis supplied)

Thus, the CIR has three (3) years from the date of the actual filing of the return or from the last day prescribed by law for the
filing of the return, whichever is later, to assess internal revenue taxes. Here, GJM filed its Annual Income Tax Return for the
taxable year 1999 on April 12, 2000. The three (3)-year prescriptive period, therefore, was only until April 15, 2003. The records
reveal that the BIR sent the FAN through registered mail on April 14, 2003, well-within the required period. The Court has held
that when an assessment is made within the prescriptive period, as in the case at bar, receipt by the taxpayer may or may not
be within said period. But it must be clarified that the rule does not dispense with the requirement that the taxpayer should
actually receive the assessment notice, even beyond the prescriptive period. 7 GJM, however, denies ever having received any
FAN.

If the taxpayer denies having received an assessment from the BIR, it then becomes incumbent upon the latter to prove by
competent evidence that such notice was indeed received by the addressee.8 Here, the onus probandi has shifted to the BIR to
show by contrary evidence that GJM indeed received the assessment in the clue course of mail. It has been settled that while a
mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to
controversion, the direct denial of which shifts the burden to the sender to prove that the mailed letter was, in fact, received by
the addressee. 9

To prove the fact of mailing, it is essential to present the registry receipt issued by the Bureau of Posts or the Registry return
card which would have been signed by the taxpayer or its authorized representative. And if said documents could not be
located, the CIR should have, at the very least, submitted to the Court a certification issued by the Bureau of Posts and any
other pertinent document executed with its intervention. The Court does not put much credence to the self-serving
documentations made by the BIR personnel, especially if they are unsupported by substantial evidence establishing the fact of
mailing. While it is true that an assessment is made when the notice is sent within the prescribed period, the release, mailing, or
sending of the same must still be clearly and satisfactorily proved. Mere notations made without the taxpayer's intervention,
notice or control, and without adequate supporting evidence cannot suffice. Otherwise, the defenseless taxpayer would be
unreasonably placed at the mercy of the revenue offices. 10

The BIR's failure to prove GJM's receipt of the assessment leads to no other conclusion but that no assessment was issued.
Consequently, the government's right to issue an assessment for the said period has already prescribed. The CIR offered in
evidence Transmittal Letter No. 282 dated April 14, 2003 prepared and signed by one Ma. Nieva A. Guerrero, as Chief of the
Assessment Division of BIR Revenue Region No. 8-Makati, to show that the FAN was actually served upon GJM. However, it
never presented Guerrero to testify on said letter, considering that GJM vehemently denied receiving the subject FAN and the
Details of Discrepancies. Also, the CIR presented the Certification signed by the Postmaster of Rosario, Cavite, Ni carter Looc,
which supposedly proves the fact of mailing of the FAN and Details of Discrepancy. It also adduced evidence of mail envelopes
stamped February 17, 2003 and April 14, 2003, which were meant to prove that, on said dates, the Preliminary Assessment
Notice (PAN) and the FAN were delivered, respectively. Said envelopes also indicate that they were posted from the Makati
Central Post Office. However, according to the Postmaster's Certification, of all the mail matters addressed to GJM which were
received by the Cavite Post Office from February 12, 2003 to September 9, 2003, only two (2) came from the Makati Central
Post Office. These two (2) were received by the Cavite Post Office on February 12, 2003 and May 13, 2003. But the registered
mail could not have been the PAN since the latter was mailed only on February 17, 2003, and the FAN, although mailed on April
14, 2003, was not proven to be the mail received on May 13, 2003. The CIR likewise failed to show that said mail matters
received indeed came from it. It could have simply presented the registry receipt or the registry return card accompanying the
envelope purportedly containing the assessment notice, but it offered no explanation why it failed to do so. Hence, the CT A
aptly ruled that the CIR failed to discharge its duty to present any evidence to show that GJM indeed received the FAN sent
through registered mail on April 14, 2003.

The Court wishes to note and reiterate that it is not a trier of facts. The CIR mainly raised issues on factual findings which have
already been thoroughly discussed below by both the CTA First Division and the CTA En Banc. Oft-repeated is the rule that the
Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its function of being dedicated
exclusively to the resolution of tax problems, has accordingly developed an expertise on the subject, unless there has been an
abuse or improvident exercise of authority. This Court recognizes that the CTA's findings can only be disturbed on appeal if they
are not supported by substantial evidence, or there is a showing of gross error or abuse on the part of the Tax Court. In the
absence of any clear and convincing proof to the contrary, the Court must presume that the CTA rendered a decision which is
valid in every respect. It has been the Court's long-standing policy and practice to respect the conclusions of quasi-judicial
agencies such as the CTA, a highly specialized body specifically created for the purpose of reviewing tax cases. 11

The Court hereby sustains the order of cancellation and withdrawal of the Formal Assessment Notice No. IT-17316-99-03-282,
and the Warrant of Distraint and/or Levy dated November 27, 2003.

WHEREFORE, PREMISES CONSIDERED, the petition is DENIED. The Decision of the Court of Tax Appeals En Banc dated
March 6, 2012 and its Resolution dated July 12, 2012 in CTA EB CASE No. 637 are hereby AFFIRMED.

SO ORDERED.

Facts: On April 12, 2000, GJM filed its Annual Income Tax Return for the year 1999. CIR found out that GJM had tax
deficiencies due to disallowances/understatements, therefore, CIR had the right to assess GJM within the 3 year
prescriptive period under Sec. 203 of the NIRC or until April 15, 2003. On February 17, 2003, CIR delivered the
Preliminary Assessment Notice (PAN) to GJM. Subsequently, on April 14, 2003, the Formal Assessment Notice (FAN)
were delivered by the CIR. GJM denied having received any assessment from the BIR, thus, such right of assessment by
the latter has prescribed.

Issue: Whether or not the denial of GJM having received the Formal Assessment Notice (FAN) made such right of
assessment by the CIR prescribe;

Held: Yes, it has been settled that while a mailed letter is deemed received by the addressee in the course of mail, this is
merely a disputable presumption subject to controversion, the direct denial of which shifts the burden to the sender to
prove that the mailed letter was, in fact, received by the addressee. In the case at bar, CIR was not able to prove that
GJM has received the FAN sent by them ergo their right to assess has prescribed.

----------------------------------------------

Commissioner of Internal Revenue v. Asalus Corp., G.R. No. 221590, February 22, 2017

This petition for review on certiorari seeks to reverse and set aside the July 30, 2015 Decision1 and the November 6, 2015
Resolution2 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 1191, which affirmed the April 2, 2014 Decision 3 of the
CTA Third Division (CTA Division).

The Antecedents

On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal Conference from Revenue
District Office (RDO) No. 47 of the Bureau of Internal Revenue (BIR). It was in connection with the investigation conducted by
Revenue Officer Fidel M. Bañares II (Bañares) on the Value-Added Tax (VAT) transactions of Asalus for the taxable year
2007.4 Asalus filed its Letter-Reply,5 dated December 29, 2010, questioning the basis of Bañares' computation for its VAT
liability.

On January 10, 2011, petitioner Commissioner of Internal Revenue (CIR) issued the Preliminary Assessment
Notice (PAN) finding Asalus liable for deficiency VAT for 2007 in the aggregate amount of ₱413, 378, 058.11, inclusive of
surcharge and interest. Asalus filed its protest against the PAN but it was denied by the CIR. 6

On August 26, 2011, Asalus received the Formal Assessment Notice (FAN) stating that it was liable for deficiency VAT for 2007
in the total amount of ₱95,681,988.64, inclusive of surcharge and interest. Consequently, it filed its protest against the FAN,
dated September 6, 2011. Thereafter, Asal us filed a supplemental protest stating that the deficiency VAT assessment had
prescribed pursuant to Section 203 of the National Internal Revenue Code (NIRC).7

On October 16, 2012, Asal us received the Final Decision on Disputed Assessment8 (FDDA) showing VAT deficiency for 2007 in
the aggregate amount of ₱106,761,025.17, inclusive of surcharge and interest and ₱25,000.00 as compromise penalty. As a
result, it filed a petition for review before the CTA Division.

The CTA Division Ruling

In its April 2, 2014 Decision, the CT A Division ruled that the VAT assessment issued on August 26, 2011 had prescribed and
consequently deemed invalid. It opined that the ten (10)-year prescriptive period under Section 222 of the NIRC was
inapplicable as neither the FAN nor the FDDA indicated that Asalus had filed a false VAT return warranting the application of the
ten (10)-year prescriptive period. It explained that it was only in the PAN where an allegation of false or fraudulent return was
made. The CTA stressed that after Asalus had protested the PAN, the CIR never mentioned in both the FAN and the FDDA that
the prescriptive period would be ten (10) years. It further pointed out that the CIR failed to present evidence regarding its
allegation of fraud or falsity in the returns.

The CTA wrote that "the three instances where the three-year prescriptive period will not apply must always be alleged and
established by clear and convincing evidence and should not be anchored on mere conjectures and speculations, 9 before the ten
(10) year prescriptive period could be considered. Thus, it disposed:

WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, the deficiency VAT assessment for taxable
year 2007 and the compromise penalty are hereby CANCELLED and WITHDRAWN, on ground of prescription.

SO ORDERED.10
The CIR moved for reconsideration but its motion was denied.

The CTA En Banc Ruling

In its July 30, 2015 Decision, the CTA En Banc sustained the assailed decision of the CT A Division and dismissed the petition
for review filed by the CIR. It explained that there was nothing in the FAN and the FDDA that would indicate, the non-application
of the three (3) year prescriptive period under Section 203 of the NIRC. It found that the CIR did not present any evidence during
the trial to substantiate its claim of falsity in the returns and again missed its chance to do so when it failed to file its
memorandum before the CTA Division.

The CTA En Banc further explained that the PAN alone could not be used as a basis because it was not the assessment
contemplated by law. Consequently, the allegation of falsity in Asalus' tax returns could not be considered as it was not
reiterated in the FAN. The dispositive portion thus reads:

WHEREFORE, premises considered, the present Petition for Review is hereby DENIED, and accordingly, DISMISSED for lack
of merit.

SO ORDERED.11

The CIR sought the reconsideration of the decision of the CTA En Banc, but the latter upheld its decision in its November 6,
2015 resolution.

Hence, this petition.

ISSUES

WHETHER PETITIONER HAD SUFFICIENTLY APPRISED RESPONDENT THAT THE FAN AND FDDA ISSUED AGAINST
THE LATTER FALLS UNDER SECTION 222(A) OF THE 1997 NIRC, AS AMENDED;

II

WHETHER RESPONDENT'S FAILURE TO REPORT IN ITS VAT RETURNS ALL THE FEES IT COLLECTED FROM ITS
MEMBERS APPLYING FOR HEALTHCARE SERVICES CONSTITUTES "FALSE" RETURN UNDER SECTION 222(A) OF
THE 1997 NIRC, AS AMENDED; AND

II

WHETHER PETITIONER'S RIGHT TO ASSESS RESPONDENT FOR ITS DEFICIENCY VAT FOR TAXABLE YEAR 2007
HAD ALREADY PRESCRIBED.12

The CIR, through the Office of the Solicitor General (OSG), argues that the VAT assessment had yet to prescribe as the
applicable prescriptive period is the ten (10)-year prescriptive period under Section 222 of the NIRC, and not the three (3) year
prescriptive period under Section 203 thereof. It claims that Asalus was informed in the PAN of the ten (10)-year prescriptive
period and that the FAN made specific reference to the PAN. In turn, the FDDA made reference to the FAN. Asalus, on the other
hand, only raised prescription in its supplemental protest to the FAN. The CIR insists that Asalus was made fully aware that the
prescriptive period under Section 222 would apply.

Moreover, the CIR asserts that there was substantial understatement in Asalus' income, which exceeded 30% of what was
declared in its VAT returns as appearing in its quarterly VAT returns; and the underdeclaration was supported by the judicial
admission of its lone witness that not all the membership fees collected from members applying for healthcare services were
reported in its VAT returns. Thus, the CIR concludes that there was prima facie evidence of a false return.

The Position of Asalus

In its Comment/Opposition,13 dated April 22, 2016, Asalus countered that the present petition involved a question of fact, which
was beyond the ambit of a petition for review under Rule 45. Moreover, it asserted that the findings of fact of the CT A Division,
which were affirmed by the CTA En Banc, were conclusive and binding upon the Court. It posited that the CIR could not raise for
the first time on appeal a new argument that "the FDDA and the FAN need not explicitly state the applicability of the ten-year
prescriptive period and the bases thereof as long as the totality of the circumstances show that the taxpayer was 'sufficiently
informed' of the facts in support of the assessment. Based on the totality of the circumstances, it was informed of the facts in
support of the assessment." 14

Asalus reiterated that the CIR, either in the FAN or the FDDA, failed to show that it had filed false returns warranting the
application of the extraordinary prescriptive period under Section 222 of the NIRC. It insisted that it was not informed of the facts
and law on which the assessment was based because the FAN did not state that it filed false or fraudulent returns. For this
reason, Asalus averred that the assessment had prescribed because it was made beyond the three (3)-year period as provided
in Section 203 of the NIRC.

The Reply of the CIR

In its Reply, 15 dated August 15, 2016, the CIR argued that the findings of the CT A might be set aside on appeal if they were not
supported with substantial evidence or if there was a showing of gross error or abuse. It repeated that there was presumption of
falsity in light of the 30% underdeclaration of sales. The CIR emphasized that even Asalus' own witness testified that not all the
membership fees collected were reported in its VAT returns. It insisted that Asalus was sufficiently informed of its assessment
based on the prescriptive period under Section 222 of the NIRC as early as when the PAN was issued.

On another note, the CIR manifested that Asalus' counsels made use of insulting words in its Comment, which could have been
dispensed with. Particularly, it highlighted the use of the following phrases as insulting: "even to the uninitiated," "petitioner's
habit of disregarding firmly established rules of procedure," "twist establish facts to suit her ends," "just to indulge petitioner," and
"she then tried to calculate, on her own but without factual basis." It asserted that "[w]hile a lawyer has a complete discretion on
what legal strategy to employ in a case, the overzealousness in protecting his client's interest does not warrant the use of
insulting and profane language in his pleadings xxx." 16

The Court's Ruling

There is merit in the petition.

It is true that the findings of fact of the CT A are, as a rule, respected by the Court, but they can be set aside in exceptional
cases. In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, this Court
in Toshiba Information Equipment (Phils.), Inc. v. Commissioner of Internal Revenue, 17explicitly pronounced-

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-
Land Service, Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the
Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has
necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or
improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial
evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and
convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every
respect.18 [Emphasis supplied]

After a review of the records and applicable laws and jurisprudence, the Court finds that the CTA erred in concluding that the
assessment against Asalus had prescribed.

Generally, internal revenue taxes shall be assessed within three (3) years after the ,last day prescribed by law for the filing of the
return, or where the return is filed beyond the period, from the day the return was actually filed. 19Section 222 of the NIRC,
however, provides for exceptions to the general rule. It states that in the case of a false or fraudulent return with intent to evade
tax or of failure to file a return, the assessment may be made within ten (10) years from the discovery of the falsity, fraud or
omission.

In the oft-cited Aznar v. CTA,20the Court compared a false return to a fraudulent return in relation to the applicable prescriptive
periods for assessments, to wit:

Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false and fraudulent returns with
intent to' evade tax, while respondent Commissioner of Internal Revenue insists contrariwise, with respondent Court of Tax
Appeals concluding that the very "substantial under declarations of income for six consecutive years eloquently demonstrate the
falsity or fraudulence of the income tax returns with an intent to evade the payment of tax."

xxxx
xxx We believe that the proper and reasonable interpretation of said provision should be that in the three different cases of (1)
false return, (2) fraudulent return with intent to evade tax, (3) 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 assessmeμt, at any time within ten years after the discovery of the (1)
falsity, (2) fraud, (3) omission. Our stand that the law should be interpreted to mean a separation of the three different
situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened
immeasurably by the last portion of the provision which seggregates the situations into three different classes, namely
"falsity", "fraud" and "omission." That there is a difference between "false return" and "fraudulent return" cannot be
denied. While the first merely implies deviation from the truth, whether intentional or not, the second implies intentional
or deceitful entry with intent to evade the taxes due.

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be
applicable to normal circumstances, but whenever the government is placed, at a disadvantage so as to prevent its lawful
agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax or failure
to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or
omission even seems to be inadequate and should be the one enforced.

There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent Court of Tax Appeals that
Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioner's tax liability had not
expired at the time said assessment was made. (Emphasis supplied)

Thus, a mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of intent to defraud, is
sufficient to warrant the application of the ten (10) year prescriptive period under Section 222 of the NIRC.

Presumption of Falsity of Returns

In the present case, the CTA opined that the CIR failed to substantiate with clear and convincing evidence its claim that Asalus
filed a false return. As it noted that the CIR never presented any evidence to prove the falsity in the returns that Asalus filed, the
CTA ruled that the assessment was subject to the three (3) year ordinary prescriptive period.

The Court is of a different view.

Under Section 248(B) of the NIRC,21 there is a prima facie evidence of a false return if there is a substantial underdeclaration of
taxable sales, receipt or income. The failure to report sales, receipts or income in an amount exceeding 30% what is declared in
the returns constitute substantial underdeclaration. A prima facie evidence is one which that will establish a fact or sustain a
judgment unless contradictory evidence is produced. 22

In other words, when there is a showing that a taxpayer has substantially underdeclared its sales, receipt or income, there is a
presumption that it has filed a false return. As such, the CIR need not immediately present evidence to support the falsity of the
return, unless the taxpayer fails to overcome the presumption against it.

Applied in this case, the audit investigation revealed that there were undeclared VA Table sales more than 30% of that declared
in Asalus' VAT returns. Moreover, Asalus' lone witness testified that not all membership fees, particularly those pertaining to
medical practitioners and hospitals, were reported in Asalus' VAT returns. The testimony of its witness, in trying to justify why not
all of its sales were included in the gross receipts reflected in the VAT returns, supported the presumption that the return filed
was indeed false precisely because not all the sales of Asalus were included in the VAT returns.

Hence, the CIR need not present further evidence as the presumption of falsity of the returns was not overcome. Asalus was
bound to refute the presumption of the falsity of the return and to prove that it had filed accurate returns. Its failure to overcome
the same warranted the application of the ten (10)-year prescriptive period for assessment under Section 222 of the NIRC. To
require the CIR to present additional evidence in spite of the presumption provided in Section 248(B) of the NIRC would render
the said provision inutile.

Substantial Compliance of Notice Requirement

The CTA also posited that the ordinary prescriptive period of three (3) years applied in this case because there was no mention
in the FAN or the FDDA that what would apply was the extraordinary prescriptive period and that the CIR did not present any
evidence to support its claim of false returns.

Again, the Court disagrees.


It is true that neither the FAN nor the FDDA explicitly stated that the applicable prescriptive period was the ten (10)-year period
set in Section 222 of the NIRC. They, however, made reference to the PAN, which categorically stated that "[t]he running of the
three-year statute of limitation I as provided un4er Section 203 of the 1997 National Internal Revenue Code (NIRC) is not i
applicable xxx but rather to the ten (10) year prescriptive period pursua11t to Section 222(A) of the tax code xxx." 23 In Samar-I
Electric Cooperative v. COMELEC,24the Court ruled that it sufficed that the taxpayer was substantially informed of the legal and
factual bases of the assessment enabling him to file an effective protest, to wit:

Although, the FAN and demand letter issued to petitioner were not accompanied by a written explanation of the legal and factual
bases of the deficiency taxes assessed against the petitioner, the records showed that respondent in its letter dated April 10,
2003 responded to petitioner's October 14, 2002 letter-protest, explaining at length the factual and legal bases of the deficiency
tax assessments and denying the protest.

Considerirg the foregoing exchange of correspondence and Document between the parties, we find that the
requirement of Section 228 was substantially complied with. Respondent had fully informed I petitioner in writing of the
factual and legal bases of the deficiency taxes assessment, which enabled the latter to file an "effective" protest, much unlike the
taxpayer's situation in Enron. Petitioner's right to due process was thus not violated. [Emphasis supplied]

Thus, substantial compliance with the requirement as laid down under Section 228 of the NIRC suffices, for what is important is
that the taxpayer has been sufficiently informed of the factual and legal bases of the assessment so that it may file an effective
protest against the assessment. In the case at bench, Asalus was sufficiently informed that with respect to its tax liability, the
extraordinary period laid down in Section 222 of the NIRC would apply. This was categorically stated in the PAN and all
subsequent communications from the CIR made reference to the PAN. Asalus was eventually able to file a protest addressing
the issue on prescription, although it was done only in its supplemental protest to the FAN.

Considering the existing circumstances, the assessment was timely made because the applicable prescriptive period was the
ten (10)-year prescriptive period under Section 222 of the NIRC. To reiterate, there was a prima facie showing that the returns
filed by Asalus were false, which it failed to controvert. Also, it was adequately informed that it was being assessed within the
extraordinary prescriptive period.

A Reminder

A lawyer is indeed expected to champion the cause of his client with utmost zeal and competence. Such exuberance, however,
must be tempered to meet the standards of civility and decorum. Rule 8.01 of the Code of Professional Responsibility mandates
that "[a] lawyer shall not, in his professional dealings, use language which is abusive, offensive or otherwise improper." In Noble
v. Atty. Ailes, 25 the Court cautioned lawyers to be careful in their: choice of words as not to unduly malign the other party, to wit:

Though a lawyer's language may be forceful and emphatic, it should always be dignified and respectful, befitting the dignity of
the legal profession. The use of intemperate language and unkind ascriptions has no place in the dignity of the judicial forum.
1âwphi1

In Buatis Jr. v. People, the Court treated a lawyer's use of the words "lousy," "inutile," "carabao English," "stupidity," and "satan"
in a letter addressed to another colleague as defamatory and injurious which effectively maligned his integrity. Similarly, the
hurling of insulting language to describe the opposing counsel is considered conduct unbecoming of the legal profession.

xxx

On this score, it must be emphasized that membership in the bar is a privilege burdened with conditions such that a
lawyer's words and actions directly affect the public's opinion of the legal profession. Lawyers are expected to observe
such conduct of nobility and uprightness which should remain with them, whether in their public or private lives, and may
be disciplined in the event their conduct falls short of the standards imposed upon them. Thus, in this case, it is inconsequential
that the statements were merely relayed to Orlando's brother in private. As a member of the bar, Orlando should have been
more circumspect in his words, being fully aware that they pertain to another lawyer to whom fairness as well as
candor is owed. It was highly improper for Orlando to interfere and insult Maximino to his client.

Indulging in offensive personalities in the course of judicial proceedings, as in this case, constitutes unprofessional conduct
which subjects a lawyer to disciplinary action. While a lawyer is entitled to. present his case with vigor and courage, such
enthusiasm does not justify the use of offensive and abusive language. The Court has consistently reminded the members
of the bar to abstain from all offensive personality and to advance no fact prejudicial to the honor and reputation of a party.
xxx26[Emphases supplied]

While the Court recognizes and appreciates the passion of Asalus' counsels in promoting and protecting its interest, they must
still be reminded that they should be more circumspect in their choice of words to argue their client's position. As much as
possible, words which undermine the integrity, competence and ability of the opposing party, or are otherwise offensive, must be
avoided especially if the message may be delivered in a respectful, yet equally emphatic manner. A counsel's mettle will not be
viewed any less should he choose to pursue his cause without denigrating the other party.

WHEREFORE, petition is GRANTED. The July 30, 2015 Decision and the November 6, 2015 Resolution of the Court of Tax
Appeals En Banc are REVERSED and SET ASIDE. The case is ordered REMANDED to the Court of Tax Appeals for the
determination of the Value Added Tax liabilities of the Asalus Corporation.

SO ORDERED.

FACTS:

On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal Conference from Revenue
District Office No. 47 of the Bureau of Internal Revenue (BIR). It was in connection with the investigation conducted by
Revenue Officer Fidel M. Bañares II on the Value-Added Tax transactions of Asalus for the taxable year 2007. Asalus filed
its Letter-Reply, dated December 29, 2010, questioning the basis of Bañares' computation for its VAT liability.

On January 10, 2011, petitioner Commissioner of Internal Revenue issued the Preliminary Assessment Notice finding
Asalus liable for deficiency VAT for 2007 in the aggregate amount of P413,378,058.11.

On August 26, 2011, Asalus received the Formal Assessment Notice stating that it was liable for deficiency VAT for 2007
in the total amount of P95,681,988.64, inclusive of surcharge and interest. Consequently, it filed its protest against the
FAN, dated September 6, 2011.

On October 16, 2012, Asalus received the Final Decision on Disputed Assessment showing VAT deficiency for 2007 in the
aggregate amount of P106,761,025.17, inclusive of surcharge and interest and P25,000.00 as compromise penalty. As a
result, it filed a petition for review before the CTA Division.

In its April 2, 2014 Decision, the CTA Division ruled that the VAT assessment issued on August 26, 2011 had prescribed
and consequently deemed invalid.

ISSUE:

WHETHER OR NOT the CTA erred in the decision and that the petition be granted in favor of the petitioner.

HELD:

The statement given by the CTA were correct in a way, and it was given due respect for they found it partly correct but,
after a review of the records and applicable laws and jurisprudence, the Court finds that the CTA erred in concluding
that the assessment against Asalus had prescribed. Internal revenue taxes shall be assessed within three years after the
last day prescribed by law for the filing of the return, or where the return is filed beyond the period, from the day the
return was actually filed. Section 222 of the NIRC, however, provides for exceptions to the general rule. It states that in
the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the assessment may be
made within ten years from the discovery of the falsity, fraud or omission.

In the oft-cited Aznar v. CTA, the Court compared a false return to a fraudulent return in relation to the applicable
prescriptive periods for assessments, to wit:

Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false and fraudulent returns
with intent to evade tax, while respondent Commissioner of Internal Revenue insists contrariwise, with respondent
Court of Tax Appeals concluding that the very "substantial under declarations of income for six consecutive years
eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the payment of
tax."

WHEREFORE, petition is GRANTED. The July 30, 2015 Decision and the November 6, 2015 Resolution of the Court of Tax
Appeals En Banc are REVERSED and SET ASIDE. The case is ordered REMANDED to the Court of Tax Appeals for the
determination of the Value Added Tax liabilities of the Asalus Corporation.
Sec. 204- Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes
G.R. No. 115103 April 11, 2002
BUREAU OF INTERNAL REVENUE, represented by the COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
OFFICE OF THE OMBUDSMAN, respondent.
DE LEON, JR., J.:
Graft Investigation Officer II Christopher S. Soquilon of the Office of the Ombudsman (OMBUDSMAN, for brevity)
received information from an "informer-for-reward" regarding allegedly anomalous grant of tax refunds to Distillera
Limtuaco & Co., Inc. (Limtuaco, for brevity) and La Tondeña Distilleries, Inc. Upon receipt of the information, Soquilon
recommended1 to then Ombudsman Conrado M. Vasquez that the "case" be docketed and subsequently assigned to him
for investigation.2
On November 29, 1993, the Ombudsman issued a subpoena duces tecum3 addressed to Atty. Millard Mansequiao of the
Legal Department of the Bureau of Internal Revenue (BIR) ordering him to appear before the Ombudsman and to bring
the complete original case dockets of the refunds granted to Limtuaco and La Tondeña.
The BIR, through Assistant Commissioner for Legal Service Jaime M. Maza, asked that it be excused from complying with
the subpoena duces tecum because (a) the Limtuaco case was pending investigation by Graft Investigation Officer II
Napoleon S. Baldrias; and (b) the investigation thereof and that of La Tondeña was mooted when the Sandiganbayan
ruled in People v. Larin4 that "the legal issue was no longer in question since the BIR had ruled that the ad valorem taxes
were erroneously paid and could therefore be the proper subject of a claim for tax credit."5
Without resolving the issues raised by the BIR, the Ombudsman issued another subpoena duces tecum, dated December
9, 1993, addressed to BIR Commissioner Liwayway Vinzons-Chato ordering her to appear before the Ombudsman and to
bring the complete original case dockets of the refunds granted to Limtuaco and La Tondeña.6
The BIR moved to vacate the subpoena duces tecum arguing that (a) the second subpoena duces tecum was issued
without first resolving the issues raised in its Manifestation and Motion dated December 8, 1993; (b) the documents
required to be produced were already submitted to Graft Investigation Officer II Baldrias; (c) the issue of the tax credit
of ad valorem taxes has already been resolved as proper by the Sandiganbayan; (d) the subpoena duces tecum partook
of the nature of an omnibus subpoena because it did not specifically described the particular documents to be
produced; (e) there was no clear showing that the tax case dockets sought to be produced contained evidence material
to the inquiry; (f) compliance with the subpoena duces tecum would violate Sec. 2697 of the National Internal Revenue
Code (NLRC) on unlawful divulgence of trade secrets and Sec. 2778 on procuring unlawful divulgence of trade secrets;
and (g) Limtuaco and La Tondeña had the right to rely on the correctness and conclusiveness of the decisions of the
Commissioner of Internal Revenue.9
The Ombudsman denied10 the Motion to Vacate the Subpoena Duces Tecum, pointing out that the Limtuaco tax refund
case then assigned to Baldrias was already referred to the Fact-Finding and Investigation Bureau of the Ombudsman for
consolidation with Case No. OMB-0-93-3248. The Ombudsman also claimed that the documents submitted by the BIR to
Baldrias were incomplete and not certified. It insisted that the issuance of the subpoena duces tecum was not a "fishing
expedition" considering that the documents required for production were clearly and particularly specified.1âwphi1.nêt
The BIR moved to reconsider11 the respondent's Order dated February 15, 1994 alleging that (a) the matter subject of
the investigation was beyond the scope of the jurisdiction of the Ombudsman; (b) the subpoena duces tecum was not
properly issued in accordance with law; and (c) non-compliance thereto was justifiable. The BIR averred it had the
exclusive authority whether to grant a tax credit and that the jurisdiction to review the same was lodged with the Court
of Tax Appeals and not with the Ombudsman.
According to the BIR, for a subpoena duces tecum to be properly issued in accordance with law, there must first be a
pending action because the power to issue a subpoena duces tecum is not an independent proceeding. The BIR noted
that the Ombudsman issued the assailed subpoena duces tecum based only on the information obtained from an
"informer-for-reward" and the report of Asst. Comm. Imelda L. Reyes. The BIR added that the subpoena duces
tecum suffered from a legal infirmity for not specifically describing the documents sought to be produced.
Finding no valid reason to reverse its Order dated February 15, 1994, the Ombudsman denied the motion for
reconsideration and reiterated its directive to the BIR to produce the documents.12 Instead of complying, the BIR
manifested its intention to elevate the case on certiorari to this Court.13 The Ombudsman thus ordered Asst. Comm.
Maza to show cause why he should not be cited for contempt for contumacious refusal to comply with the
subpoena duces tecum.14
However, before the expiration of the period within which Asst. Comm. Maza was required to file a reply to the show
cause order of the Ombudsman, the BIR filed before this Court the instant Petition for Certiorari, Prohibition and
Preliminary Injunction and Temporary Restraining Order.15
Petitioner BIR insists that the investigative power of the Ombudsman is not unbridled. Particularly on the issue of tax
refunds, the BIR maintains that the Ombudsman could validly exercise its power to investigate only when there exists an
appropriate case and subject to the limitations provided by law.16 Petitioner opines that the fact-finding investigation by
the Ombudsman is not the proper case as it is only a step preliminary to the filing of recovery actions on the tax refunds
granted to Limtuaco and La Tondeña.
This Court is not persuaded. No less than the 1987 Constitution enjoins that the "Ombudsman and his Deputies, as
protectors of the people, shall act promptly on complaints filed in any form or manner against public officials or
employees of the government, or any subdivision, agency or instrumentality thereof, including government-owned or
controlled corporations, and shall, in appropriate case, notify the complainants of the action taken and the result
thereof."17
Clearly, there is no requirement of a pending action before the Ombudsman could wield its investigative power. The
Ombudsman could resort to its investigative prerogative on its own18 or upon a complaint filed in any form or manner.
Even when the complaint is verbal or written, unsigned or unverified, the Ombudsman could, on its own, initiate the
investigation.19 Thus –
There can be no objection to this procedure in the Office of the Ombudsman where anonymous letters suffice to start
an investigation because it is provided in the Constitution itself. In the second place, it is apparent that in permitting the
filing of complaints "in any form and manner," the framers of the Constitution took into account the well-known
reticence of the people which keep them from complaining against official wrongdoings. As this Court had occasion to
point out, the Office of the Ombudsman is different from other investigatory and prosecutory agencies of the
government because those subject to its jurisdiction are public officials who, through official pressure and influence, can
quash, delay or dismiss investigations held against them. On the other hand complainants are more often than not poor
and simple folk who cannot afford to hire lawyers.20
The term "in an appropriate case" has already been clarified by this Court in Almonte v. Vasquez,21 thus –
Rather than referring to the form of complaints, therefore, the phrase "in an appropriate case" in Art. XI, §12 means any
case concerning official act or omission which is alleged to be "illegal, unjust, improper, or inefficient," The phrase
"subject to such limitations as may be provided by law" refers to such limitations as may be provided by Congress or, in
the absence thereof, to such limitations as may be imposed by courts.
Plainly, the pendency of an action is not a prerequisite before the Ombudsman can start its own investigation.
Petitioner next avers that the determination of granting tax refunds falls within its exclusive expertise and jurisdiction
and that its findings could no longer be disturbed by the Ombudsman purportedly through its investigative power as it
was a valid exercise of discretion. Petitioner suggests that what respondent should have done was to appeal its decision
of granting tax credits to Limtuaco and La Tondeña to the Court of Tax Appeals since it is the proper forum to review the
decisions of the Commissioner of Internal Revenue.
This contention of the BIR is baseless. The power to investigate and to prosecute which was granted by law to the
Ombudsman is plenary and unqualified.22 The Ombudsman Act makes it perfectly clear that the jurisdiction of the
Ombudsman encompasses "all kinds of malfeasance, misfeasance and nonfeasance that have been committed by any
officer or employee xxx during his tenure of office.23
Concededly, the determination of whether to grant a tax refund falls within the exclusive expertise of the BIR.
Nonetheless, when there is a suspicion of even just a tinge of impropriety in the grant of the same, the Ombudsman
could rightfully ascertain whether the determination was done in accordance with law and identify the persons who may
be held responsible thereto. In that sense, the Ombudsman could not be accused of unlawfully intruding into and
intervening with the BIR's exercise of discretion.
As correctly posited by the Office of the Solicitor General –
xxx (T)he Ombudsman undertook the investigation "not as an appellate body exercising the power to review decisions or
rulings rendered by a subordinate body, with the end view of affirming or reversing the same, but as an investigative
agency tasked to discharge the role as 'protector of the people'24 pursuant to his authority 'to investigate xxx any act or
omission of any public official, employee, office or agency, when such act or omission appears to be illegal, unjust,
improper or inefficient."25 The OSG insists that the "mere finality of petitioner's ruling on the subject of tax refund cases
is not a legal impediment to the exercise of respondent's investigative authority under the Constitution and its Charter
(RA 6770) which xxx is so encompassing as to include 'all kinds of malfeasance, misfeasance and nonfeasance that have
been committed by any officer or employee during his tenure of office.'"26
Indeed, the clause "any [illegal] act or omission of any public official" is broad enough to embrace any crime committed
by a public official. The law does not qualify the nature of the illegal act or omission of the public official or employee
that the Ombudsman may investigate. It does not require that the act or omission be related to or be connected with or
arise from the performance of official duty.27
Petitioner fears that the fact-finding investigation being conducted by respondent would only amount to "a general
inquisitorial examination on the 'case dockets' with a view to search through them to gather evidence" 28 considering
that the subpoena duces tecum did not describe with particularity the documents sought to be produced.
This Court is unimpressed. We agree with the view taken by the Solicitor General that the assailed subpoena duces
tecum indeed particularly and sufficiently described the records to be produced. There is every indication that petitioner
knew precisely what records were being referred to as it even suggested that the tax dockets sought to be produced
may not contain evidence material to the inquiry and that it has already submitted the same to Baldrias.
The records do not show how the production of the subpoenaed documents would necessarily contravene Sec. 269 29 of
the National Internal Revenue Code (NIRC) on unlawful divulgence of trade secrets and Sec. 27730 of the same Code on
procuring unlawful divulgence of trade secrets. The documents sought to be produced were only the case dockets of
the tax refunds granted to Limtuaco and La Tondeña which are public records, and the subpoena duces tecum were
directed to the public officials who have the official custody of the said records. We find no valid reason why the trade
secrets of Limtuaco and La Tondeña would be unnecessarily disclosed if such official records, subject of the
subpoena duces tecum, were to be produced by the petitioner BIR to respondent Office of the Ombudsman.
Assuming, for the sake of argument, that the case dockets of the tax refunds which were granted to Limtuaco and La
Tondeña contain trade secrets, that fact, however, would not justify their non-production before the Ombudsman. As
this Court has underscored in Almote v. Vasquez31 -
At common law a governmental privilege against disclosure is recognized with respect to state secrets bearing on
military, diplomatic and similar matters. This privilege is based upon public interest of such paramount importance as in
and of itself transcending the individual interests of a private citizen, even though, as a consequence thereof, the
plaintiff cannot enforce his legal rights xxx
In the case at bar, there is no claim that military or diplomatic secrets will be disclosed by the production of records
pertaining to the personnel of EIB. Indeed, EIIB's function is the gathering and evaluation of intelligence reports and
information regarding "illegal activities affecting the national economy, such as, but not limited to economic sabotage,
smuggling, tax evasion, dollar salting. Consequently, while in cases which involve state secrets it may be sufficient to
determine from the circumstances of the case that there is reasonable danger that compulsion of the evidence will
expose military maters without compelling production, no similar excuse can be made for a privilege resting on other
consideration.1âwphi1.nêt
Above all, even if the subpoenaed documents are treated as presumptively privileged, this decision would only justify
ordering their inspection in camera but not their nonproduction xxx
Besides, under the facts of this case, petitioner should not have concerned itself with possibly violating the pertinent
provisions of the NLRC on unlawful divulgence or unlawful procurement of trade secrets considering Rule V of the Rules
of Procedure of the Office of the Ombudsman32 which provides that –
(a) Any person whose testimony or production of documents or other evidence is necessary to determine the truth in
any inquiry, hearing, or proceeding being conducted by the Office of the Ombudsman or under its authority in the
performance or furtherance or its constitutional functions and statutory objectives, including preliminary investigation,
may be granted immunity from criminal prosecution by the Ombudsman, upon such terms and conditions as the
Ombudsman may determine, taking into account the pertinent provisions of the Rules of Court xxx
With regard to the manner in which the investigation was conducted, petitioner asserts that the investigation conducted
by the Office of the Ombudsman violated due process, inasmuch as it commenced its investigation by issuing the
subpoena duces tecum without first furnishing petitioner with a summary of the complaint and requiring it to submit a
written answer.33 The Ombudsman labels this assertion of the BIR as premature maintaining that it is only when the
Ombudsman finds reasonable ground to investigate further that it is required to furnish respondent with the summary
of the complaint. The Ombudsman insists that in the instant case, it has yet to make that determination.
On this score, we rule in favor of petitioner BIR. Records show that immediately upon receipt of the information from an
"informer-for-reward", Graft Investigator Soquilon, in a Memorandum dated November 26, 1993 addressed to then
Ombudsman Conrado M. Vasquez, requested that the "case" be docketed and assigned to him for a "full-blown fact-
finding investigation."34 In his Memorandum, Soquilon averred that he is "certain that these refunds can be recovered by
reason of the Tanduay precedent xxx and using the power of this Office, we will not only bring back to the government
multi-million illegal refunds but, like the Tanduay case, we will be establishing graft and corruption against key BIR
officials."35 In a marginal note dated November 26, 1993,36 Ombudsman Vasquez approved the docketing of the case and
its assignment to Soquilon. Likewise, in the Preliminary Evaluation Sheet37 of the Office of the Ombudsman, the Fact
Finding Investigation Bureau of the Ombudsman was named as complainant against Concerned High Ranking and Key
Officials of the Bureau of Internal Revenue who granted multi-million tax refunds to Limtuaco and La Tondeña
Distilleries for alleged violation of RA 3019. On November 29, 1993 and December 9, 1993 Soquilon issued the assailed
subpoena duces tecum requiring the concerned BIR officials to appear before the Ombudsman and to bring with them
the complete case dockets of the tax refunds granted to Limtuaco and La Tondeña.
It is our view and we hold that the procedure taken by the respondent did not comply with the safeguards enumerated
in Sec. 26, §(2) of RA 6770 or the Ombudsman Act of 1989, which clearly provides that –
(2) The Office of the Ombudsman shall receive complaints from any source in whatever form concerning an official act
or omission. It shall act on the complaint immediately and if it finds the same entirely baseless, it shall dismiss the same
and inform the complainant of such dismissal citing the reasons therefore. If it finds a reasonable, ground to investigate
further, it shall first furnish the respondent public officer or employee with a summary of the complaint and require him
to submit a written answer within seventy-two hours from receipt hereof. If the answer is found satisfactory, it shall
dismiss the case.
The procedure which was followed by the respondent likewise contravened the Rules of Procedure of the Office of the
Ombudsman,38 Sec. 4, Rule 11 of which provides that –
(a) If the complaint is not under oath or is based only on official reports, the investigating officer shall require the
complaint or supporting witnesses to execute affidavits to substantiate the complaints.
(b) After such affidavits have been secured, the investigating officer shall issue an order, attaching thereto a copy of the
affidavits and other supporting documents, directing the respondent to submit, within ten (10) days from receipt
thereof, his counter-affidavits and controverting evidence with proof of service thereof on the complainant. The
complainant may file reply affidavits within ten (10) days after service of the counter-affidavits xxx
It is clear from the initial comments of Soquilon in his Memorandum to Ombudsman Vasquez that he undoubtedly found
reasonable grounds to investigate further. In fact, he recommended that the "case" be docketed immediately and
assigned to him for a "full-blown fact-finding investigation." Even during that initial stage, Soquilon was convinced that
the granting of the tax refunds was so anomalous that he assured Ombudsman Vasquez of the eventual recovery of the
tax refunds and the prosecution and conviction of key BIR officials for graft and corruption.
We commend the graft investigators of the Office of the Ombudsman in their efforts to cleanse our bureaucracy of
scalawags. Sometimes, however, in their zeal and haste to pin down the culprits they tend to circumvent some
procedures. In this case, Graft Investigation Officer Soquilon forgot that there are always two (2) sides to an issue and
that each party must be given every opportunity to air his grievance or explain his side as the case may be. This is the
essence of due process.
The law clearly provides that if there is a reasonable ground to investigate further, the investigator of the Office of the
Ombudsman shall first furnish the respondent public officer or employee with a summary of the complaint and require
him to submit a written answer within seventy-two (72) hours from receipt thereof. In the instant case, the BIR officials
concerned were never furnished by the respondent with a summary of the complaint and were not given the
opportunity to submit their counter-affidavits and controverting evidence. Instead, they were summarily ordered to
appear before the Ombudsman and to produce the case dockets of the tax refunds granted to Limtuaco and La
Tondeña. They are aggrieved in that, from the point of view of the respondent, they were already deemed probably
guilty of granting anomalous tax refunds. Plainly, respondent Office of the Ombudsman failed to afford petitioner with
the basics of due process in conducting its investigation.
WHEREFORE, the petition is GRANTED. The respondent Office of the Ombudsman is prohibited and ordered to desist
from proceeding with Case No. OMB-0-93-3248; and its Orders dated November 29, 1993, December 9, 1993 and
February 15, 1994 are hereby ANNULLED and SET ASIDE.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 130716 December 9, 1998


FRANCISCO I. CHAVEZ, petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL GUNIGUNDO (in his capacity as
chairman of the PCGG), respondents, GLORIA A. JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON, and TERESA A.
JOPSON, petitioners-in-intervention.

PANGANIBAN, J.:
Petitioner asks this Court to define the nature and the extent of the people's constitutional right to information on
matters of public concern. Does this right include access to the terms of government negotiations prior to their
consummation or conclusion? May the government, through the Presidential Commission on Good Government (PCGG),
be required to reveal the proposed terms of a compromise agreement with the Marcos heirs as regards their alleged ill-
gotten wealth? More specifically, are the "General Agreement" and "Supplemental Agreement," both dated December
28, 1993 and executed between the PCGG and the Marcos heirs, valid and binding?
The Case
These are the main questions raised in this original action seeking (1) to prohibit and "[e]njoin respondents [PCGG and
its chairman] from privately entering into, perfecting and/or executing any greement with the heirs of the late President
Ferdinand E. Marcos . . . relating to and concerning the properties and assets of Ferdinand Marcos located in the
Philippines and/or abroad — including the so-called Marcos gold hoard"; and (2) to "[c]ompel respondent[s] to make
public all negotiations and agreement, be they ongoing or perfected, and all documents related to or relating to such
negotiations and agreement between the PCGG and the Marcos heirs."1
The Facts
Petitioner Francisco I. Chavez, as "taxpayer, citizen and former government official who initiated the prosecution of the
Marcoses and their cronies who committed unmitigated plunder of the public treasury and the systematic subjugation
of the country's economy," alleges that what impelled him to bring this action were several news reports 2 bannered in a
number of broadsheets sometime in September 1997. These news items referred to (1) the alleged discovery of billions
of dollars of Marcos assets deposited in various coded accounts in Swiss banks; and (2) the reported execution of a
compromise, between the government (through PCGG) and the Marcos heirs, on how to split or share these assets.
Petitioner, invoking his constitutional right to information 3 and the correlative duty of the state to disclose publicly all
its transactions involving the national interest,4 demands that respondents make public any and all negotiations and
agreements pertaining to PCGG's task of recovering the Marcoses' ill-gotten wealth. He claims that any compromise on
the alleged billions of ill-gotten wealth involves an issue of "paramount public interest," since it has a "debilitating effect
on the country's economy" that would be greatly prejudicial to the national interest of the Filipino people. Hence, the
people in general have a right to know the transactions or deals being contrived and effected by the government.
Respondents, on the other hand, do not deny forging a compromise agreement with the Marcos heirs. They claim,
though, that petitioner's action is premature, because there is no showing that he has asked the PCGG to disclose the
negotiations and the Agreements. And even if he has, PCGG may not yet be compelled to make any disclosure, since the
proposed terms and conditions of the Agreements have not become effective and binding.
Respondents further aver that the Marcos heirs have submitted the subject Agreements to the Sandiganbayan for its
approval in Civil Case No. 141, entitled Republic v. Heirs of Ferdinand E. Marcos, and that the Republic opposed such
move on the principal grounds that (1) said Agreements have not been ratified by or even submitted to the President for
approval, pursuant to Item No. 8 of the General Agreement; and (2) the Marcos heirs have failed to comply with their
undertakings therein, particularly the collation and submission of an inventory of their assets. The Republic also cited an
April 11, 1995 Resolution in Civil Case No. 0165, in which the Sandiganbayan dismissed a similar petition filed by the
Marcoses' attorney-in-fact.
Furthermore, then President Fidel V. Ramos, in his May 4, 1998 Memorandum 5 to then PCGG Chairman Magtanggol
Gunigundo, categorically stated:
This is to reiterate my previous position embodied in the Palace Press Release of 6 April 1995 that I have not authorized
you to approve the Compromise Agreements of December 28, 1993 or any agreement at all with the Marcoses, and
would have disapproved them had they been submitted to me.
The Full Powers of Attorney of March 1994 and July 4, 1994, did not authorize you to approve said Agreements, which I
reserve for myself as President of the Republic of the Philippines.
The assailed principal Agreement 6 reads:
GENERAL AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement entered into this 28th day of December, 1993, by and between —
The Republic of the Philippines, through the Presidential Commission on Good Government (PCGG), a governmental
agency vested with authority defined under Executive Orders Nos. 1, 2 and 14, with offices at the philcomcen Building,
Pasig, Metro Manila, represented by its Chairman referred to as FIRST PARTY,
— and —
Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and Ferdinand R. Marcos, Jr., all of legal age,
and with address at c/o No. 154 Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda Romualdez Marcos, Imee
Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos Araneta, hereinafter collectively referred to as the PRIVATE
PARTY.
W I T N E S S E T H:
WHEREAS, the PRIVATE PARTY has been impelled by their sense of nationalism and love of country and of the entire
Filipino people, and their desire to set up a foundation and finance impact projects like installation of power plants in
selected rural areas and initiation of other community projects for the empowerment of the people;
WHEREAS, the FIRST PARTY has obtained a judgment from the Swiss Federal Tribunal of December 21, 1990, that the
$356 million belongs in principle to the Republic of the Philippines provided certain conditionalities are met, but even
after 7 years, the FIRST PARTY has not been able to procure a final judgment of conviction against the PRIVATE PARTY;
WHEREAS, the FIRST PARTY is desirous of avoiding a long-drawn out litigation which, as proven by the past 7 years, is
consuming money, time and effort, and is counter-productive and ties up assets which the FIRST PARTY could otherwise
utilize for its Comprehensive Agrarian Reform Program, and other urgent needs;
WHEREAS, His Excellency, President Fidel V. Ramos, has adopted a policy of unity and reconciliation in order to bind the
nation's wounds and start the process of rebuilding this nation as it goes on to the twenty-first century;
WHEREAS, this Agreement settles all claims and counterclaims which the parties may have against one another, whether
past, present, or future, matured or inchoate.
NOW, THEREFORE, for and in consideration of the mutual covenants set forth herein, the parties agree as follows:
1. The parties will collate all assets presumed to be owned by, or held by other parties for the benefit of, the PRIVATE
PARTY for purposes of determining the totality of the assets covered by the settlement. The subject assets shall be
classified by the nature thereof, namely: (a) real estate; (b) jewelry; (c) paintings and other works of art; (d) securities;
(e) funds on deposit; (f) precious metals, if any, and (g) miscellaneous assets or assets which could not appropriately fall
under any of the preceding classification. The list shall be based on the full disclosure of the PRIVATE PARTY to insure its
accuracy.
2. Based on the inventory, the FIRST PARTY shall determine which shall be ceded to the FIRST PARTY, and which shall be
assigned to/retained by the PRIVATE PARTY. The assets of the PRIVATE PARTY shall be net of and exempt from, any form
of taxes due the Republic of the Philippines. However, considering the unavailability of all pertinent and relevant
documents and information as to balances and ownership, the actual specification of assets to be retained by the
PRIVATE PARTY shall be covered by supplemental agreements which shall form part of this Agreement.
3. Foreign assets which the PRIVATE PARTY shall fully disclose but which are held by trustees, nominees, agents or
foundations are hereby waived over by the PRIVATE PARTY in favor of the FIRST PARTY. For this purpose, the parties
shall cooperate in taking the appropriate action, judicial and/or extrajudicial, to recover the same for the FIRST PARTY.
4. All disclosures of assets made by the PRIVATE PARTY shall not be used as evidence by the FIRST PARTY in any criminal,
civil, tax or administrative case, but shall be valid and binding against said PARTY for use by the FIRST PARTY in
withdrawing any account and/or recovering any asset. The PRIVATE PARTY withdraws any objection to the withdrawal
by and/or release to the FIRST PARTY by the Swiss banks and/or Swiss authorities of the $356 million, its accrued
interests, and/or any other account; over which the PRIVATE PARTY waives any right, interest or participation in favor of
the FIRST PARTY. However, any withdrawal or release of any account aforementioned by the FIRST PARTY shall be made
in the presence of any authorized representative of the PRIVATE PARTY.
5. The trustees, custodians, safekeepers, depositaries, agents, nominees, administrators, lawyers, or any other party
acting in similar capacity in behalf of the PRIVATE PARTY are hereby informed through this General Agreement to insure
that it is fully implemented and this shall serve as absolute authority from both parties for full disclosure to the FIRST
PARTY of said assets and for the FIRST PARTY to withdraw said account and/or assets and any other assets which the
FIRST PARTY on its own or through the help of the PRIVATE PARTY/their trustees, etc., may discover.
6. Any asset which may be discovered in the future as belonging to the PRIVATE PARTY or is being held by another for
the benefit of the PRIVATE PARTY and which is not included in the list per No. 1 for whatever reason shall automatically
belong to the FIRST PARTY, and the PRIVATE PARTY in accordance with No. 4 above, waives any right thereto.
7. This Agreement shall be binding on and inure to the benefit of, the parties and their respective legal representatives,
successors and assigns and shall supersede any other prior agreement.
8. The PARTIES shall submit this and any other implementing Agreements to the President of the Philippines for
approval. In the same manner, the PRIVATE PARTY shall provide the FIRST PARTY assistance by way of testimony or
deposition on any information it may have that could shed light on the cases being pursued by the FIRST PARTY against
other parties. The FIRST PARTY shall desist from instituting new suits already subject of this Agreement against the
PRIVATE PARTY and cause the dismissal of all other cases pending in the Sandiganbayan and in other courts.
9. In case of violation by the PRIVATE PARTY of any of the conditions herein contained, the PARTIES shall be restored
automatically to the status quo ante the signing of this Agreement.
For purposes of this Agreement, the PRIVATE PARTY shall be represented by Atty. Simeon M. Mesina, Jr., as their only
Attorney-in-Fact.
IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of December, 1993, in Makati, Metro
Manila.
PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT
By:
[Sgd.] MAGTANGGOL C. GUNIGUNDO
Chairman
ESTATE OF FERDINAND E. MARCOS,
IMELDA R. MARCOS, MA. IMELDA
MARCOS-MANOTOC, FERDINAND R.
MARCOS, JR., & IRENE MARCOS-
ARANETA
By:
[Sgd.] IMELDA ROMUALDEZ-MARCOS
[Sgd.] MA. IMELDA MARCOS-MANOTOC
FERDINAND R. MARCOS, JR.7
[Sgd.] IRENE MARCOS-ARANETA
Assisted by:
[Sgd.] ATTY. SIMEON M. MESINA, JR.
Counsel & Attorney-in-Fact
Petitioner also denounces this supplement to the above Agreement:8
SUPPLEMENTAL AGREEMENT
This Agreement entered into this 28th day of December, 1993, by and between —
The Republic of the Philippines, through the Presidential Commission on Good Government (PCGG), a governmental
agency vested with authority defined under Executive Orders Nos. 1, 2 and 14, with offices at the Philcomcen Building,
Pasig, Metro Manila, represented by its Chairman Magtanggol C. Gunigundo, hereinafter referred to as the FIRST PARTY,
— and —
Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and Ferdinand R. Marcos, Jr., all of legal age,
and with address at c/o No. 154 Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda Romualdez Marcos, Imee
Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos Araneta, hereinafter collectively referred to as the PRIVATE
PARTY.
W I T N E S S E T H:
The parties in this case entered into a General Agreement dated Dec. 28, 1993;
The PRIVATE PARTY expressly reserve their right to pursue their interest and/or sue over local assets located in the
Philippines against parties other than the FIRST PARTY.
The parties hereby agree that all expenses related to the recovery and/or withdrawal of all assets including lawyers'
fees, agents' fees, nominees' service fees, bank charges, traveling expenses and all other expenses related thereto shall
be for the account of the PRIVATE PARTY.
In consideration of the foregoing, the parties hereby agree that the PRIVATE PARTY shall be entitled to the equivalent of
25% of the amount that may be eventually withdrawn from said $356 million Swiss deposits.
IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of December, 1993, in Makati, Metro
Manila.
PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT
By:
[Sgd.] MAGTANGGOL C. GUNIGUNDO
Chairman
ESTATE OF FERDINAND E. MARCOS,
IMELDA R. MARCOS, MA. IMELDA
MARCOS-MANOTOC, FERDINAND R.
MARCOS, JR., & IRENE MARCOS-
ARANETA
By:
[Sgd.] IMELDA ROMUALDEZ-MARCOS
[Sgd.] MA. IMELDA MARCOS-MANOTOC
FERDINAND R. MARCOS, JR.9
[Sgd.] IRENE MARCOS-ARANETA
Assisted by:
[Sgd.] ATTY. SIMEON M. MESINA, JR.
Counsel & Attorney-in-Fact
Acting on a motion of petitioner, the Court issued a Temporary Restraining Order 10 dated March 23, enjoining
respondents, their agents and/or representatives from "entering into, or perfecting and/or executing any agreement
with the heirs of the late President Ferdinand E. Marcos relating to and concerning their ill-gotten wealth."
Issues
The Oral Argument, held on March 16, 1998, focused on the following issues:
(a) Procedural:
(1) Whether or not the petitioner has the personality or legal standing to file the instant petition; and
(2) Whether or not this Court is the proper court before which this action may be filed.
(b) Substantive:
(1) Whether or not this Court could require the PCGG to disclose to the public the details of any agreement, perfected or
not, with the Marcoses; and
(2) Whether or not there exist any legal restraints against a compromise agreement between the Marcoses and the
PCGG relative to the Marcoses' ill-gotten wealth. 11
After their oral presentations, the parties filed their respective memoranda.
On August 19, 1998, Gloria, Celnan, Scarlet and Teresa, all surnamed Jopson, filed before the Court a Motion for
Intervention, attaching thereto their Petition in Intervention. They aver that they are "among the 10,000 claimants
whose right to claim from the Marcos Family and/or the Marcos Estate is recognized by the decision in In re Estate of
Ferdinand Marcos, Human Rights Litigation, Maximo Hilao, et al., Class Plaintiffs No. 92-15526, U.S. Court of Appeals for
the 9th Circuit US App. Lexis 14796, June 16, 1994 and the Decision of the Swiss Supreme Court of December 10, 1997."
As such, they claim to have personal and direct interest in the subject matter of the instant case, since a distribution or
disposition of the Marcos properties may adversely affect their legitimate claims. In a minute Resolution issued on
August 24, 1998, the Court granted their motion to intervene and required the respondents to comment thereon. The
September 25, 1998 Comment 12 of the solicitor general on said motion merely reiterated his aforecited arguments
against the main petition. 13
The Court's Ruling
The petition id imbued with merit.
First Procedural Issue:
Petitioner's Standing
Petitioner, on the one hand, explains that as a taxpayer and citizen, he has the legal personality to file the instant
petition. He submits that since ill-gotten wealth "belongs to the Filipino people and [is], in truth hand in fact, part of the
public treasury," any compromise in relation to it would constitute a diminution of the public funds, which can be
enjoined by a taxpayer whose interest is for a full, if not substantial, recovery of such assets.
Besides, petitioner emphasize, the matter of recovering the ill-gotten wealth of the Marcoses is an issue "of
transcendental importance the public." He asserts that ordinary taxpayers have a right to initiate and prosecute actions
questioning the validity of acts or orders of government agencies or instrumentalities, if the issues raised are "of
paramount public interest;" and if they "immeasurably affect the social, economic, and moral well-being of the people."
Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest, when the proceeding involves
the assertion of a public right, 14 such as in this case. He invokes several decisions 15 of this Court which have set aside
the procedural matter of locus standi, when the subject of the case involved public interest.
On the other hand, the solicitor general, on behalf of respondents, contends that petitioner has no standing to institute
the present action, because no expenditure of public funds is involved and said petitioner has no actual interest in the
alleged agreement. Respondents further insist that the instant petition is premature, since there is no showing that
petitioner has requested PCGG to disclose any such negotiations and agreements; or that, if he has, the Commission has
refused to do so.
Indeed, the arguments cited by petitioner constitute the controlling decisional rule as regards his legal standing to
institute the instant petition. Access to public documents and records is a public right, and the real parties in interest are
the people themselves. 16
In Tañada v. Tuvera, 17 the Court asserted that when the issue concerns a public a right and the object of mandamus is
to obtain the enforcement of a public duty, the people are regarded as the real parties in interest; and because it is
sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need not show that he has
any legal or special interest in the result of the action. 18 In the aforesaid case, the petitioners sought to enforce their
right to be informed on matters of public concern, a right then recognized in Section 6, Article IV of the 1973
Constitution, 19 in connection with the rule that laws in order to be valid and enforceable must be published in the
Official Gazette or otherwise effectively promulgated. In ruling for the petitioners' legal standing, the Court declared
that the right they sought to be enforced "is a public right recognized by no less than the fundamental law of the land."
Legaspi v. Civil Service Commission, 20 while reiterating Tañada, further declared that "when a mandamus proceeding
involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that petitioner
is a citizen and, therefore, part of the general 'public' which possesses the right." 21
Further, in Albano v. Reyes, 22 we said that while expenditure of public funds may not have been involved under the
questioned contract for the development, the management and the operation of the Manila International Container
Terminal, "public interest [was] definitely involved considering the important role [of the subject contract] . . . in the
economic development of the country and the magnitude of the financial consideration involved." We concluded that,
as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for upholding the
petitioner's standing.
Similarly, the instant petition is anchored on the right of the people to information and access to official records,
documents and papers — a right guaranteed under Section 7, Article III of the 1987 Constitution. Petitioner, a former
solicitor general, is a Filipino citizen. Because of the satisfaction of the two basic requisites laid down by decisional law to
sustain petitioner's legal standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino citizen, we rule
that the petition at bar should be allowed.
In any event, the question on the standing of Petitioner Chavez is rendered moot by the intervention of the Jopsons,
who are among the legitimate claimants to the Marcos wealth. The standing of the Jopsons is not seriously contested by
the solicitor general. Indeed, said petitioners-intervenors have a legal interest in the subject matter of the instant case,
since a distribution or disposition of the Marcoses' ill-gotten properties may adversely affect the satisfaction of their
claims.
Second Procedural Issue:
The Court's Jurisdiction
Petitioner asserts that because this petition is an original action for mandamus and one that is not intended to delay any
proceeding in the Sandiganbayan, its having been filed before this Court was proper. He invokes Section 5, Article VIII of
the Constitution, which confers upon the Supreme Court original jurisdiction over petitions for prohibition
and mandamus.
The solicitor general, on the other hand, argues that the petition has been erroneously brought before this Court, since
there is neither a justiciable controversy nor a violation of petitioner's rights by the PCGG. He alleges that the assailed
agreements are already the very lis mota in Sandiganbayan Civil Case No. 0141, which has yet to dispose of the issue;
thus, this petition is premature. Furthermore, respondents themselves have opposed the Marcos heirs' motion, filed in
the graft court, for the approval of the subject Agreements. Such opposition belies petitioner's claim that the
government, through respondents, has concluded a settlement with the Marcoses as regards their alleged ill-gotten
assets.
In Tañada and Legaspi, we upheld therein petitioners' resort to a mandamus proceeding, seeking to enforce a public
right as well as to compel performance of a public duty mandated by no less than the fundamental law. 23 Further,
Section 5, Article VIII of the Constitution, expressly confers upon the Supreme Court original jurisdiction over petitions
for certiorari, prohibition, mandamus, quo warranto and habeas corpus.
Respondents argue that petitioner should have properly sought relief before the Sandiganbayan, particularly in Civil
Case No. 0141, in which the enforcement of the compromise Agreements is pending resolution. There may seem to be
some merit in such argument, if petitioner is merely seeking to enjoin the enforcement of the compromise and/or to
compel the PCGG to disclose to the public the terms contained in said Agreements. However, petitioner is here seeking
the public disclose of "all negotiations and agreement, be they ongoing or perfected, and documents related to or
relating to such negotiations and agreement between the PCGG and the Marcos heirs."
In other words, this petition is not confined to the Agreements that have already been drawn, but likewise to any other
ongoing or future undertaking towards any settlement on the alleged Marcos loot. Ineluctably, the core issue boils down
to the precise interpretation, in terms of scope, of the twin constitutional provisions on "public transactions." This broad
and prospective relief sought by the instant petition brings it out of the realm of Civil Case No. 0141.
First Substantive Issue:
Public Disclosure of Terms of
Any Agreement, Perfected or Not
In seeking the public disclosure of negotiations and agreements pertaining to a compromise settlement with the
Marcoses as regards their alleged ill-gotten wealth, petitioner invokes the following provisions of the Constitution:
Sec. 7 [Article III]. The right of the people to information on matters of public concern shall be recognized. Access to
official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as well as to
government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations
as may be provided by law.
Sec. 28 [Article II]. Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full
public disclosure of all its transactions involving public interest.
Respondents' opposite view is that the above constitutional provisions refer to completed and operative official acts,
not to those still being considered. As regards the assailed Agreements entered into by the PCGG with the Marcoses,
there is yet no right of action that has accrued, because said Agreements have not been approved by the President, and
the Marcos heirs have failed to fulfill their express undertaking therein. Thus, the Agreements have not become
effective. Respondents add that they are not aware of any ongoing negotiation for another compromise with the
Marcoses regarding their alleged ill-gotten assets.
The "information" and the "transactions" referred to in the subject provisions of the Constitution have as yet no defined
scope and extent. There are no specific laws prescribing the exact limitations within which the right may be exercised or
the correlative state duty may be obliged. However, the following are some of the recognized restrictions: (1) national
security matters and intelligence information, (2) trade secrets and banking transactions, (3) criminal matters, and (4)
other confidential information.
Limitations to the Right:
(1) National Security Matters
At the very least, this jurisdiction recognizes the common law holding that there is a governmental privilege against
public disclosure with respect to state secrets regarding military, diplomatic and other national security matters. 24But
where there is no need to protect such state secrets, the privilege may not be invoked to withhold documents and other
information, 25 provided that they are examined "in strict confidence" and given "scrupulous protection."
Likewise, information on inter-government exchanges prior to the conclusion of treaties and executive agreements may
be subject to reasonable safeguards for the sake of national interest. 26
(2) Trade Secrets and
Banking Transactions
The drafters of the Constitution also unequivocally affirmed that, aside from national security matters and intelligence
information, trade or industrial secrets (pursuant to the Intellectual Property Code 27 and other related laws) as well as
banking transactions (pursuant to the Secrecy of Bank Deposits Act 28) are also exempted from compulsory disclosure. 29
(3) Criminal Matters
Also excluded are classified law enforcement matters, such as those relating to the apprehension, the prosecution and
the detention of criminals, 30 which courts may nor inquire into prior to such arrest, detention and prosecution. Efforts
at effective law enforcement would be seriously jeopardized by free public access to, for example, police information
regarding rescue operations, the whereabouts of fugitives, or leads on covert criminal activities.
(4) Other Confidential
Information
The Ethical Standards Act 31 further prohibits public officials and employees from using or divulging "confidential or
classified information officially known to them by reason of their office and not made available to the public." 32
Other acknowledged limitations to information access include diplomatic correspondence, closed door Cabinet meetings
and executive sessions of either house of Congress, as well as the internal deliberations of the Supreme Court. 33
Scope: Matters of Public Concern and
Transactions Involving Public Interest
In Valmonte v. Belmonte Jr., 34 the Court emphasized that the information sought must be "matters of public concern,"
access to which may be limited by law. Similarly, the state policy of full public disclosure extends only to "transactions
involving public interest" and may also be "subject to reasonable conditions prescribed by law." As to the meanings of
the terms "public interest" and "public concern," the Court, in Legaspi v. Civil Service Commission, 35 elucidated:
In determining whether or not a particular information is of public concern there is no rigid test which can be applied.
"Public concern" like "public interest" is a term that eludes exact definition. Both terms embrace a broad spectrum of
subjects which the public may want to know, either because these directly affect their lives, or simply because such
matters naturally arouse the interest of an ordinary citizen. In the final analysis, it is for the courts to determine on a
case by case basis whether the matter at issue is of interest or importance, as it relates to or affects the public.
Considered a public concern in the above-mentioned case was the "legitimate concern of citizens to ensure that
government positions requiring civil service eligibility are occupied only by persons who are eligibles." So was the need
to give the general public adequate notification of various laws that regulate and affect the actions and conduct of
citizens, as held in Tañada. Likewise did the "public nature of the loanable funds of the GSIS and the public office held by
the alleged borrowers (members of the defunct Batasang Pambansa)" qualify the information sought inValmonte as
matters of public interest and concern. In Aquino-Sarmiento v. Morato, 36 the Court also held that official acts of public
officers done in pursuit if their official functions are public in character; hence, the records pertaining to such official acts
and decisions are within the ambit of the constitutional right of access to public records.
Under Republic Act No. 6713, public officials and employees are mandated to "provide information on their policies and
procedures in clear and understandable language, [and] ensure openness of information, public consultations and
hearings whenever appropriate . . .," except when "otherwise provided by law or when required by the public interest."
In particular, the law mandates free public access, at reasonable hours, to the annual performance reports of offices and
agencies of government and government-owned or controlled corporations; and the statements of assets, liabilities and
financial disclosures of all public officials and employees. 37
In general, writings coming into the hands of public officers in connection with their official functions must be accessible
to the public, consistent with the policy of transparency of governmental affairs. This principle is aimed at affording the
people an opportunity to determine whether those to whom they have entrusted the affairs of the government are
honesty, faithfully and competently performing their functions as public servants. 38 Undeniably, the essence of
democracy lies in the free flow of thought; 39 but thoughts and ideas must be well-informed so that the public would
gain a better perspective of vital issues confronting them and, thus, be able to criticize as well as participate in the affairs
of the government in a responsible, reasonable and effective manner. Certainly, it is by ensuring an unfettered and
uninhibited exchange of ideas among a well-informed public that a government remains responsive to the changes
desired by the people. 40
The Nature of the Marcoses'
Alleged Ill-Gotten Wealth
We now come to the immediate matter under consideration.
Upon the departure from the country of the Marcos family and their cronies in February 1986, the new government
headed by President Corazon C. Aquino was specifically mandated to "[r]ecover ill-gotten properties amassed by the
leaders and supporters of the previous regime and [to] protect the interest of the people through orders of
sequestration or freezing of assets or
41
accounts." Thus, President Aquino's very first executive orders (which partook of the nature of legislative enactments)
dealt with the recovery of these alleged ill-gotten properties.
Executive Order No. 1, promulgated on February 28, 1986, only two (2) days after the Marcoses fled the country,
created the PCGG which was primarily tasked to assist the President in the recovery of vast government resources
allegedly amassed by former President Marcos, his immediate family, relatives and close associates both here and
abroad.
Under Executive Order No. 2, issued twelve (12) days later, all persons and entities who had knowledge or possession of
ill-gotten assets and properties were warned and, under pain of penalties prescribed by law, prohibited from concealing,
transferring or dissipating them or from otherwise frustrating or obstructing the recovery efforts of the government.
On May 7, 1986, another directive (EO No. 14) was issued giving additional powers to the PCGG which, taking into
account the overriding considerations of national interest and national survival, required it to achieve expeditiously and
effectively its vital task of recovering ill-gotten wealth.
With such pronouncements of our government, whose authority emanates from the people, there is no doubt that the
recovery of the Marcoses' alleged ill-gotten wealth is a matter of public concern and imbued with public interest. 42 We
may also add that "ill-gotten wealth," by its very nature, assumes a public character. Based on the aforementioned
Executive Orders, "ill-gotten wealth" refers to assets and properties purportedly acquired, directly or indirectly, by
former President Marcos, his immediate family, relatives and close associates through or as a result of their improper or
illegal use of government funds or properties; or their having taken undue advantage of their public office; or their use
of powers, influences or relationships, "resulting in their unjust enrichment and causing grave damage and prejudice to
the Filipino people and the Republic of the Philippines." Clearly, the assets and properties referred to supposedly
originated from the government itself. To all intents and purposes, therefore, they belong to the people. As such, upon
reconveyance they will be returned to the public treasury, subject only to the satisfaction of positive claims of certain
persons as may be adjudged by competent courts. Another declared overriding consideration for the expeditious
recovery of ill-gotten wealth is that it may be used for national economic recovery.
We believe the foregoing disquisition settles the question of whether petitioner has a right to respondents' disclosure of
any agreement that may be arrived at concerning the Marcoses' purported ill-gotten wealth.
Access to Information
on Negotiating Terms
But does the constitutional provision likewise guarantee access to information regarding ongoing negotiations or
proposals prior to the final agreement? This same clarification was sought and clearly addressed by the constitutional
commissioners during their deliberations, which we quote hereunder: 43
MR. SUAREZ. And when we say "transactions" which should be distinguished from contracts, agreements, or treaties or
whatever, does the Gentleman refer to the steps leading to the consummation of the contract, or does he refer to the
contract itself?
MR. OPLE. The "transactions" used here, I suppose, is generic and, therefore, it can cover both steps leading to a
contract, and already a consummated contract, Mr. Presiding Officer.
MR. SUAREZ. This contemplates inclusion of negotiations leading to the consummation of the transaction?
MR. OPLE. Yes, subject to reasonable safeguards on the national interest.
Considering the intent of the Constitution, we believe that it is incumbent upon the PCGG and its officers, as well as
other government representatives, to disclose sufficient public information on any proposed settlement they have
decided to take up with the ostensible owners and holders of ill-gotten wealth. Such information, though, must pertain
to definite propositions of the government, not necessarily to intra-agency or inter-agency recommendations or
communications 44 during the stage when common assertions are still in the process of being formulated or are in the
"exploratory" stage. There is a need, of course, to observe the same restrictions on disclosure of information in general,
as discussed earlier — such as on matters involving national security, diplomatic or foreign relations, intelligence and
other classified information.
Second Substantive Issue:
Legal Restraints on a Marcos-PCGG Compromise
Petitioner lastly contends that any compromise agreement between the government and the Marcoses will be a virtual
condonation of all the alleged wrongs done by them, as well as an unwarranted permission to commit graft and
corruption.
Respondents, for their part, assert that there is no legal restraint on entering into a compromise with the Marcos heirs,
provided the agreement does not violate any law.
Prohibited Compromises
In general, the law encourages compromises in civil cases, except with regard to the following matters: (1) the civil
status of persons, (2) the validity of a marriage or a legal separation, (3) any ground for legal separation, (4) future
support, (5) the jurisdiction of courts, and (6) future legitimate. 45 And like any other contract, the terms and conditions
of a compromise must not be contrary to law, morals, good customs, public policy or public order. 46 A compromise is
binding and has the force of law between the parties, 47 unless the consent of a party is vitiated — such as by mistake,
fraud, violence, intimidation or undue influence — or when there is forgery, or if the terms of the settlment are so
palpably unconscionable. In the latter instances, the agreement may be invalidated by the courts. 48
Effect of Compromise
on Civil Actions
One of the consequences of a compromise, and usually its primary object, is to avoid or to end a litigation. 49 In fact, the
law urges courts to persuade the parties in a civil case to agree to a fair settlement. 50 As an incentive, a court may
mitigate damages to be paid by a losing party who shows a sincere desire to compromise. 51
In Republic & Campos Jr. v. Sandiganbayan, 52 which affirmed the grant by the PCGG of civil and criminal immunity to
Jose Y. Campos and the family, the Court held that in the absence an express prohibition, the rule on compromises in
civil actions under the Civil Code is applicable to PCGG cases. Such principle is pursuant to the objectives of EO No. 14
particularly the just and expeditious recovery of ill-gotten wealth, so that it may be used to hasten economic recovery.
The same principle was upheld in Benedicto v. Board of Administrators of Television Stations RPN, BBC and
IBC 53 and Republic v. Benedicto, 54 which ruled in favor of the validity of the PCGG compromise agreement with Roberto
S. Benedicto.
Immunity from
Criminal Prosecution
However, any compromise relating to the civil liability arising from an offense does not automatically terminate the
criminal proceeding against or extinguish the criminal liability of the malefactor. 55 While a compromise in civil suits is
expressly authorized by law, there is no similar general sanction as regards criminal liability. The authority must be
specifically conferred. In the present case, the power to grant criminal immunity was confered on PCGG by Section 5 of
EO No. 14, as amended by EO No. 14-A, whci provides:
Sec. 5. The President Commission on Good Government is authorized to grant immunity from criminal prosecution to
any person who provides information or testifies in any investigation conducted by such Commission to establish the
unlawful manner in which any respondent, defendant or accused has acquired or accumulated the property or
properties in question in any case where such information or testimony is necessary to ascertain or prove the latter's
guilt or his civil liability. The immunity thereby granted shall be continued to protect the witness who repeats such
testimony before the Sandiganbayan when required to do so by the latter or by the Commission.
The above provision specifies that the PCGG may exercise such authority under these conditions: (1) the person to
whom criminal immunity is granted provides information or testifies in an investigation conducted by the Commission;
(2) the information or testimony pertains to the unlawful manner in which the respondent, defendant or accused
acquired or accumulated ill-gotten property; and (3) such information or testimony is necessary to ascertain or prove
guilt or civil liability of such individual. From the wording of the law, it can be easily deducted that theperson referred to
is a witness in the proceeding, not the principal respondent, defendant or accused.
Thus, in the case of Jose Y. Campos, the grant of both civil and criminal immunity to him and his family was "[i]n
consideration of the full cooperation of Mr. Jose Y. Campos [with] this Commission, his voluntary surrender of the
properties and assets [—] disclosed and declared by him to belong to deposed President Ferdinand E. Marcos [—] to the
Government of the Republic of the Philippines[;] his full, complete and truthful disclosures[;] and his commitment to pay
a sum of money as determined by the Philippine Government." 56 Moreover, the grant of criminal immunity to the
Camposes and the Benedictos was limited to acts and omissions prior to February 25, 1996. At the time such immunity
was granted, no criminal cases have yet been filed against them before the competent court.
Validity of the PCGG-Marcos
Compromise Agreements
Going now to the subject General and Supplemental Agreements between the PCGG and the Marcos heirs, a cursory
perusal thereof reveals serious legal flaws. First, the Agreements do not conform to the above requirements of EO Nos.
14 and 14-A. We believe that criminal immunity under Section 5 cannot be granted to the Marcoses, who are the
principal defendants in the spate of ill-gotten wealth cases now pending before the Sandiganbayan. As stated earlier,
the provision is applicable mainly to witnesses who provide information or testify against a respondent, defendant or
accused in an ill-gotten wealth case.
While the General Agreement states that the Marcoses "shall provide the [government] assistance by way of testimony
or deposition on any information [they] may have that could shed light on the cases being pursued by the [government]
against other parties," 57 the clause does not fully comply with the law. Its inclusion in the Agreement may have been
only an afterthought, conceived in pro forma compliance with Section 5 of EO No. 14, as amended. There is no indication
whatsoever that any of the Marcos heirs has indeed provided vital information against any respondent or defendant as
to the manner in which the latter may have unlawfully acquired public property.
Second, under Item No. 2 of the General Agreement, the PCGG commits to exempt from all forms of taxes the
properties to be retained by the Marcos heirs. This is a clear violation of the Construction. The power to tax and to grant
tax exemptions is vested in the Congress and, to a certain extent, in the local legislative bodies. 58 Section 28 (4), Article
VI of the Constitution, specifically provides: "No law granting any tax exemption shall be passed without the concurrence
of a majority of all the Member of the Congress." The PCGG has absolutely no power to grant tax exemptions, even
under the cover of its authority to compromise ill-gotten wealth cases.
Even granting that Congress enacts a law exempting the Marcoses form paying taxes on their properties, such law will
definitely not pass the test of the equal protection clause under the Bill of Rights. Any special grant of tax exemption in
favor only of the Marcos heirs will constitute class legislation. It will also violate the constitutional rule that "taxation
shall be uniform and equitable." 59
Neither can the stipulation be construed to fall within the power of the commissioner of internal revenue to
compromise taxes. Such authority may be exercised only when (1) there is reasonable doubt as to the validity of the
claim against the taxpayer, and (2) the taxpayer's financial position demonstrates a clear inability to pay. 60Definitely,
neither requisite is present in the case of the Marcoses, because under the Agreement they are effectively conceding
the validity of the claims against their properties, part of which they will be allowed to retain. Nor can the PCGG grant of
tax exemption fall within the power of the commissioner to abate or cancel a tax liability. This power can be exercised
only when (1) the tax appears to be unjustly or excessively assessed, or (2) the administration and collection costs
involved do not justify the collection of the tax due. 61 In this instance, the cancellation of tax liability is done even before
the determination of the amount due. In any event, criminal violations of the Tax Code, for which legal actions have
been filed in court or in which fraud is involved, cannot be compromised. 62
Third, the government binds itself to cause the dismissal of all cases against the Marcos heirs, pending before the
Sandiganbayan and other court. 63 This is a direct encroachment on judicial powers, particularly in regard to criminal
jurisdiction. Well-settled is the doctrine that once a case has been filed before a court of competent jurisdiction, the
matter of its dismissal or pursuance lies within the full discretion and control of the judge. In a criminal case, the manner
in which the prosecution is handled, including the matter of whom to present as witnesses, may lie within the sound
discretion of the government prosecution; 64 but the court decides, based on the evidence proffered, in what manner it
will dispose of the case. Jurisdiction, once acquired by the trial court, is not lost despite a resolution, even by the justice
secretary, to withdraw the information or to dismiss the complaint. 65 The prosecution's motion to withdraw or to
dismiss is not the least binding upon the court. On the contrary, decisional rules require the trial court to make its own
evaluation of the merit of the case, because granting such motion is equivalent to effecting a disposition of the case
itself. 66
Thus, the PCGG, as the government prosecutor of ill-gotten wealth cases, cannot guarantee the dismissal of all such
criminal cases against the Marcoses pending in the courts, for said dismissal is not within its sole power and discretion.
Fourth, the government also waives all claims and counterclaims, "whether past, present, or future, matured or
inchoate," against the Marcoses. 67 Again, this ill-encompassing stipulation is contrary to law. Under the Civil Code, an
action for future fraud may not be waived. 68 The stipulation in the Agreement does not specify the exact scope of future
claims against the Marcoses that the government thereby relinquishes. Such vague and broad statement may well be
interpreted to include all future illegal acts of any of the Marcos heirs, practically giving them a license to perpetrate
fraud against the government without any liability at all. This is a palpable violation of the due process and equal
protection guarantees of the Constitution. It effectively ensconces the Marcoses beyond the reach of the law. It also sets
a dangerous precedent for public accountability. It is a virtual warrant for public officials to amass public funds illegally,
since there is an open option to compromise their liability in exchange for only a portion of their ill-gotten wealth.
Fifth, the Agreements do not provide for a definite or determinable period within which the parties shall fulfill their
respective prestations. It may take a lifetime before the Marcoses submit an inventory of their total assets.
Sixth, the Agreements do not state with specificity the standards for determining which assets shall be forfeited by the
government and which shall be retained by the Marcoses. While the Supplemental Agreement provides that the
Marcoses shall be entitled to 25 per cent of the $356 million Swiss deposits (less government recovery expenses), such
sharing arrangement pertains only to the said deposits. No similar splitting scheme is defined with respect to the other
properties. Neither is there, anywhere in the Agreements, a statement of the basis for the 25-75 percent sharing ratio.
Public officers entering into an arrangement appearing to be manifestly and grossly disadvantageous to the government,
in violation of the Ati-Graft and Corruption Practice Act, 69 invite their indictment for corruption under the said law.
Finally, the absence of then President Ramos' approval of the principal Agreement, an express condition therein, renders
the compromise incomplete and unenforceable. Nevertheless, as detailed above, even if such approval were obtained,
the Agreements would still not be valid.
From the foregoing disquisition, it is crystal clear to the Court that the General and Supplemental Agreements, both
dated December 28, 1993, which the PCGG entered into with the Marcos heirs, are violative of the Constitution and the
laws aforementioned.
WHEREFORE, the petition is GRANTED. The General and Supplemental Agreement dated December 28, 1993, which
PCGG and the Marcos heirs entered into are hereby declared NULL AND VOID for being contrary to law and the
Constitution. Respondent PCGG, its officers and all government functionaries and officials who are or may be directly ot
indirectly involved in the recovery of the alleged ill-gotten wealth of the Marcoses and their associates are DIRECTED to
disclose to the public the terms of any proposed compromise settlment, as well as the final agreement, relating to such
alleged ill-gotten wealth, in accordance with the discussions embodied in this Decision. No pronouncement as to cost.
SO ORDERED.
Davide, Jr., C.J., Melo and Quisumbing, JJ., concur.
Vitug, J., Please see separate opinion.

Separate Opinions

VITUG, J., separate opinion;


In concur in the results, pro hac vice, for it is paramount that matters of national interest deserve a proper place in any
forum. The procedural rules in the courts of law, like the locus standi of petitioner Francisco I. Chavez, the propriety of
the special legal action of mandamus used as a vehicle to reach this Court on the issues involved and considered by the
Court, as well as kindred legal technicalities and nicety raised by respondents to thwart the petition are no trickle
matters, to be sure, but I do not see them to be cogent reasons to deny to the Court its taking cognizance of the case.
It is a cardinal principle in constitutional adjudication that anyone who invokes it has a personal and substantial interest
on the dispute. 1 Jurisprudentially there is either the lenient or the strict approach in the appreciation of legal standing
of legal standing. The liberal approach recognizes legal standing to raise constitutional issues of nontraditional plaintiffs,
such as taxpayers and citizens, directly affecting them. 2 A developing trend appears to be towards a narrow and
exacting approach, requiring that a logical nexus must be shown between the status asserted and the claim sought to be
adjudicated in order to ensure that one is the proper and appropriate party to invoke judicial power. 3
With respect to the right to information, it being a public right where the real parties in interest are the people
themselves in general 4 and where the only recognized limitations is "public concern," it would seem that the framers of
the Constitution have favored the liberal approach. Rev. Fr. Joaquin Bernas, S.J., a member of the Constitutional
Commission, observe:
The real problem, however, lies in determining what matters are of public concern and what are not. Unwitingly
perhaps, by this provision the Constitution might have opened a Pandora's box. For certainly every act of a public officer
in the conduct of the governmental process is a matter of public concern. Jurisprudence in fact has said that "public
concern," like "public interest," eludes exact definition and embraces a broad spectrum of subjects which the public may
want to kno, either because these directly affect their lives or simply because such matters arouse the interest of an
ordinary sitizen. 5
Corrolarily, there is need of preserving a certain degree of confidentiality in matters involving national security and
public relations, to cite a few, 6 and until a balance is struck, the Court may be constrained on occasions to accept an
electric notion that frees itself from the shackles of the trenchant requisites of locus standi.
The Presidential Commission on Good Government (PCGG) has a limited life in carying out its tasks and time is running
short. It is thus imperative that the Court must hold even now, and remind PCGG, that it has indeed exceeded its bounds
in entering into the General and Supplemental Agreements. The agreements clearly suffer from Constitutional and
statutory infirmities, 7 to wit: (1) The agreements contravene the statute in granting criminal immunity to the Marcos
heirs; 8 (2) PCGG's commitment to exempt from all form of taxes the property to be retained the Marcos' heirs
controverts the Constitution; 9 and (3) the government's underatking to cause the dismissal of all cases filed against the
Marcoses pending before the Sandiganbayan and other courts encroaches upon judicial powers. I also see, like my other
colleagues, too much vagueness on such items as the period within which the parties shall fulfill their respective
prestations and the lack of appropriate standards for determining the assets to be forfeited by the government and
those to be retained by the Marcoses.
In this respect, while there is legal posibility when the terms of a contract are not totally invalidated and only those
opposed to law, morals, good customs, public order and public policy are rendered inefficacious, when however, the
assailed provisions can be seen to be of essence, like here, the agreement in its entirety can be adversely affected. True,
the validity or invalidity of a contract is a matter that generally may not be passed upon in a mandamuspetitonn, for it is
as if petitioner were seeking declaratory relief or an advisory opinion from this Court over which it has no original
jurisdiction, 10 the immediacy and significance of the issues, neverthless, has impelled the Court to rightly assume
jurisdiction and to resolve the incidental, albeit major, issues that evidently and continually vex the parties.
WHEREFORE, I vote to grant the petition.

Section 204 (B)- Abate or Cancel a Tax Liability

FIRST DIVISION
April 19, 2017
G.R. No. 201530
ASIATRUST DEVELOPMENT BANK, INC., Petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondents
DECISION
DEL CASTILLO, J.:
An application for tax abatement is deemed approved only upon the issuance of a termination letter by the Bureau of
Internal Revenue (BIR).
These consolidated Petitions for Review on Certiorari1 under Rule 45 of the Rules of Court assail the November 16, 2011
Decision2 and the April 16, 2016 Resolution3 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case Nos. 614 and 677.
Factual Antecedents
On separate dates in February 2000, Asiatrust Development Bank, Inc. (Asiatrust) received from the Commissioner of
Internal Revenue (CIR) three Formal Letters of Demand (FLD) with Assessment Notices 4 for deficiency internal revenue
taxes in the amounts of P131,909,161.85, P83,012,265.78, and
₱l44,012,918.42 for fiscal years ending June 30, 1996, 1997, and 1998, respectively.5
On March 17, 2000, Asiatrust timely protested the assessment notices.6
Due to the inaction of the CIR on the protest, Asiatrust filed before the CTA a Petition for Review 7 docketed as CTA Case
No. 6209 praying for the cancellation of the tax assessments for deficiency income tax, documentary stamp tax (DST) -
regular, DST - industry issue, final withholding tax, expanded withholding tax, and fringe benefits tax issued against it by
the CIR.
On December 28, 2001, the CIR issued against Asiatrust new Assessment Notices for deficiency taxes in the amounts of
₱l 12,816,258.73, ₱53,314,512.72, and ₱133,013,458.73, covering the fiscal years ending June 30, 1996, 1997, and 1998,
respectively.8
On the same day, Asiatrust partially paid said deficiency tax assessments thus leaving the following balances:
1awp++i1
Fiscal Year 1996 ₱13,497,227.80
Documentary Stamp Tax

Final Withholding Tax – Trust 8,770,265.07

Documentary Stamp Tax - Industry Issue 88,584,931.39

₱110,852,424.2
TOTAL
6

Fiscal Year 1997


Documentary Stamp Tax ₱10,156,408.63

39,163,539.57
Documentary Stamp Tax - Industry Issue

TOTAL 49,319,948.20

Fiscal year 1998


Documentary Stamp Tax ₱20,425,770.07

Final Withholding Tax – Trust ₱10,183,367.80

Documentary Stamp Tax - Industry Issue 93,430,878.54

9
TOTAL ₱124,040,016.41

On April 19, 2005, the CIR approved Asiatrust's Offer of Compromise of DST - regular assessments for the fiscal years
ending June 30, 1996, 1997, and 1998. 10
During the trial, Asiatrust manifested that it availed of the Tax Abatement Program for its deficiency final withholding
tax - trust assessments for fiscal years ending June 30, 1996 and 1998; and that on June 29, 2007, it paid the basic taxes
in the amounts of P4,187,683.27 and P6,097,825.03 for the said fiscal years, respectively. 11 Asiatrust also claimed that
on March 6, 2008, it availed of the provisions of Republic Act (RA) No. 9480, otherwise known as the Tax Amnesty Law of
2007. 12
Ruling of the Court of Tax Appeals Division
On January 20, 2009, the CTA Division rendered a Decision13 partially granting the Petition. The CTA Division declared
void the tax assessments for fiscal year ending June 30, 1996 for having been issued beyond the three-year prescriptive
period. 14 However, due to the failure of Asiatrust to present
documentary and testimonial evidence to prove its availment of the Tax Abatement Program and the Tax Amnesty Law,
the CTA Division affirmed the deficiency DST- Special Savings Account (SSA) assessments for the fiscal years ending June
30, 1997 and 1998 and the deficiency DST - Interbank Call Loans (IBCL) and deficiency final withholding tax - trust
assessments for fiscal year ending June 30, 1998, in the total amount of ₱142,777,785.91.15Thus:
WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
Assessment Notices issued against [ Asiatrust] for deficiency documentary stamp, final withholding, expanded
withholding, and fringe benefits tax assessments for the fiscal year ended June 30, 1996 are VOID for being [issued]
beyond the prescriptive period allowed by law.
The Assessment Notices issued by [CIR] against [Asiatrust] for deficiency income, documentary stamp - regular,
documentary stamp - trust, and fringe benefits tax assessments for the fiscal years ended June 30, 1997 & 1998 are
hereby ordered CANCELLED and WITHDRAWN. Moreover, [Asiatrust's] deficiency documentary stamp tax - IBCL
assessment for the fiscal year ended June 30, 1997 is ordered CANCELLED and WITHDRAWN.
However, [Asiatrust's] deficiency documentary stamp tax - Special Savings Account assessments for the fiscal years
ended June 30, 1997 & 1998, and deficiency documentary sta..111p tax - IBCL and deficiency final withholding tax - trust
assessments for the fiscal year ended June 30, 1998, in the aggregate amount of ?142,777,785.91 are hereby i\FFIRMED.
The said an1ount is broken down as follows:
Fiscal Year 1997

Documentary Stamp Tax - Industry Issue ₱39,163,539.57

Fiscal Year 1998

Final Withholding Tax – Trust 10,183,367.80

Documentary Stamp Tax - Industry Issue 93,430,878.54

Total Deficiency Tax ₱142,777,785.91


===============
SO ORDERED. 16
Asiatrust filed a Motion for Reconsideration 17 attaching photocopies of its Application for Abatement Program, BIR
Payment Form, BIR Tax Payment Deposit Slip, Improved Voluntary Assessment Program Application Forms, Tax Amnesty
Return, Tax Amnesty Payment Form, Notice of Availment of Tax Amnesty and Statement of Assets and Liabilities and
Networth (SALN) as of June 30, 2005.
The CIR, on the other hand, filed a Motion for Partial Reconsideration of the assessments assailing the CTA Division's
finding of prescription and cancellation of assessment notices for deficiency income, DST - regular, DST - trust, and fringe
benefit tax for fiscal years ending June 30, 1997 and 1998. 18
On July 6, 2009, the CTA Division issued a Resolution 19 denying the motion of the CIR while partially granting the motion
of Asiatrust. The CTA Division refused to consider Asiatrust's availment of the Tax Abatement Program due to its failure
to submit a termination letter from the BIR. 20 However, as to Asiatrust's availment of the Tax Amnesty Law, the CTA
Division resolved to set the case for hearing for the presentation of the originals of the documents attached to Asiatrust'
s motion for reconsideration. 21
Meanwhile, the CIR appealed the January 20, 2009 Decision and the July 6, 2009 Resolution before the CTA En Banc via a
Petition for Review22 docketed as CTA EB No. 508. The CTA En Banc however dismissed the Petition for being premature
considering that the proceedings before the CT A Division was still pending.23
On December 7, 2009, Asiatrust filed a Manifestation24 informing the CTA Division that the BIR issued a
Certification25 dated August 20, 2009 certifying that Asiatrust paid the amounts of ₱4,187,683.27 and ₱6,097,825.03 at
the Development Bank of the Philippines in connection with the One-Time Administrative Abatement under Revenue
Regulations (RR) No. 15-2006. 26
On March 16, 20l0, the CTA Division rendered an Amended Decision 27 finding that Asiatrust is entitled to the immunities
and privileges granted in the Tax Amnesty Law. 28 However, it reiterated its ruling that in the absence of a termination
letter from the BIR, it cannot consider Asiatrust's availment of the Tax Abatement Program. 29 Thus, the CTA Division
disposed of the case in this wise:
WHEREFORE, premises considered, [Asiatrust's] Motion for Reconsideration is hereby PARTIALLY GRANTED and this
Court's Decision dated January 20, 2009 is hereby MODIFIED. Accordingly, the above-captioned case as regards
[Asiatrust's] liability for deficiency documentaly stamp tax is CLOSED and TERMINATED, subject to the provisions of R.A.
No. 9480. However, (Asiatmst's] liability for deficiency final withholding tax assessment for fiscal year ended June 30,
1998, subject of this litigation, in the amount of ₱l0,183,367.80, is hereby REAFFIRMED.
SO ORDERED.30
Still unsatisfied, Asiatrust moved for partial reconsideration31 insisting that the Certification issued by the BIR is sufficient
proof of its availment of the Tax Abatement Program considering that the CIR, despite Asiatrust's request, has not yet
issued a termination letter. Asiatrust attached to the motion photocopies of its letter'' dated March 17, 2009 requesting
the BIR to issue a termination letter, Payment Form 33 BIR Tax Payment Deposit Slips, 34 Improved Voluntary Assessment
Program (IV AP) Payment Fonn,35 and a letter36 dated October 17, 2007 issued by Revenue District Officer (RDO) Ms.
Clavelina S. Nacar.
On July 28, 2010, the CTA Division issued a Resolution 37 denying Asiatrust's motion. The CTA Division maintained that it
cannot consider Asiatrust's availment of the Tax Abatement Program in the absence of a termination letter from the
BIR. 38 As to the Certification issued by BIR, the CTA Division noted that it pertains to fiscal period July 1, 1995 to June 30,
1996. 39
Both parties appealed to CTA En Banc.
Ruling of the Court of Tax Appeals En Banc
On November 16, 2011, the CTA En Banc denied both appeals. It denied the CIR' s appeal for failure to file a prior motion
for reconsideration of the Amended Decision,40 while it denied Asiatrust's appeal for lack of merit.41 The CTA En
Banc sustained the ruling of the CT A Division that in the absence of a termination letter, it cannot be established that
Asiatrust validly availed of the Tax Abatement Program. 42 As to the Certification issued by the BIR, the CTA En
Banc noted that it only covers the fiscal year ending June 30, 1996.43 As to the letter issued by RDO Nacar and the
various BIR Tax Payment Deposit Slips, the CTA En Banc pointed out that these have no probative value because these
were not authenticated nor formally offered in evidence and are mere photocopies of the purported documents. 44
On April 16, 2012, the CTA En Banc denied the motions for partial reconsideration of the CIR and Asiatrust.45
Issues Hence, the instant consolidated Petitions under Rule 45 of the Rules of Court, with the following issues.
G.R. No. 201530
WHETHER XX X THE [CTA] EN BANC ERRED IN FINDING THAT [ASIATRUST] IS LIABLE FOR DEFICIENCY FINAL
WITHHOLDING TAX FOR FISCAL YEAR ENDING JUNE 30, 1998.
II.
WHETHER X X X THE ORDER OF THE [CTA] EN BANC FOR PETITIONER TO PAY AGAIN THE FINAL WITIIBOLDING TAX FOR
FISCAL YEAR ENDING JUNE 30, 1998 WOULD AMOUNT TO DOUBLE TAXATION.
III.
WHETHER XX X THE [CTA] EN BANC ERRED IN RESOLVING THE ISSUE OF ALLEGED DEFICIENCY FINAL WrI1ffiOLDING TAX
FOR FISCAL YEAR ENDING JUNE 30, 1998 BASED ON MERE TECHNICALITIES.46
G.R. Nos. 201680-81
I.
WHETHER XX X THE [CTA] EN BANC COMMITTED REVERSIBLE ERROR WHEN IT DISMISSED [THE CIR'S] PETITION FOR
REVIEW ON THE GROUND THAT THE LATTER ALLEGEDLY FAILED TO COMPLY WITH SECTION 1, RULE 8 OF THE REVISED
RULES OF THE [CTA].
II.
WHETHER X X X THE [CTA] EN BANC COMMITTED REVERSIBLE ERROR WHEN IT SUSTAINED THE AMENDED DECISION
DATED 16 MARCH 2010 OF THE FIRST DIVISION DECLARING CLOSED AND TERMINATED RESPONDENT'S LIABILITY FOR
DEFICIENCY DOCUMENTARY STAMP TAX FOR TAXABLE YEARS 1997 AND 1998.47
G.R. No. 201530
Asiatrust's Arguments
Asiatrust contends that the CTA En Banc erred in affirming the assessment for deficiency final withholding tax for fiscal
year ending June 30, 1998 considering that it already availed of the Tax Abatement Program as evidenced by the
Ce1tification issued by the BIR, the letter issued by RDO Nacar, and the BIR Tax Payment Deposit Slips.48Asiatrust
maintains that the BIR Certification is sufficient proof of its availment of the Tax Abatement Program considering the
CIR's unjustifiable refusal to issue a termination letter.49 And although the letter and the BIR Tax Payment Deposit Slips
were not formally offered in evidence, Asiatrust insists that the CTA En Banc should have relaxed the rules as the
Supreme Court in several cases has relaxed procedural rules in the interest of substantial justice.50 Moreover, Asiatrust
posits that since it already paid the basic taxes, the affirmance of the deficiency final withholding tax assessment for
fiscal year ending June 30, 1998 would constitute double taxation as Asiatrust would be made to pay the basic tax
twice.51
The CIR’s Arguments
The CIR, however, points out that the BIR Certification relied upon by Asiatrust does not cover fiscal year ending June 30,
1998.52 And even if the letter issued by RDO Nacar and the BIR Tax Payment Deposit Slips were admitted in evidence,
the result would still be the same as these are not sufficient to prove that Asiatrust validly availed of the Tax Abatement
Program. 53
G.R. Nos. 201680-81
The CIR's Arguments
The CIR contends that the CT A En Banc erred in dismissing his appeal for failing to file a motion for reconsideration on
the Amended Decision as a perusal of the Amended Decision shows that it is a mere resolution, modifying the original
Decision. 54
Furthermore, the CIR claims that Asiatrust is not entitled to a tax amnesty because it failed to submit its income tax
returns (ITR’s). 55 The CIR likewise imputes bad faith on the part of Asiatrust in belatedly submitting the documents
before the CTA Division. 56
Asiatrust's Arguments
Asiatrust on the other hand argues that the CTA En Banc correctly dismissed the CIR's appeal for failure to file a motion
for reconsideration on the Amended Decision.57 It asserts that an amended decision is not a mere resolution but a new
decision.58
Asiatrust insists that the CIR can no longer assail the Amended Decision of the CTA Division before the Court 9onsidering
the dismissal of his appeal for failing to file a motion for reconsideration on the Amended Decision 59 . In any case,
Asiatrust claims that the submission of its IIRs is not required as the Tax Amnesty Law only requires the submission of a
SALN- as of December 31, 2005.60 As to its belated submission of the documents, Asiatrust contends that recent
jurisprudence aJl9ws the presentation of evidence before the (.TA En Banc even after trial. 61Thus, it follows that the
presentation of evidence before the CTA Division should likewise be allowed. 62
Our Ruling
The Petitions lack merit.
G.R. No. 201530
An application for tax abatement is
considered approved only upon the
issuance of a termination letter.
Section 204(B) 63 of the 1997 National lnten1al Revenue Code (NIRC) empowers the CIR to abate or cancel a tax liability.
On September 27, 2006, the BIR issued .RR No. 15-06 prescribing the guidelines on the implementation of the one-time
administrative abatement of all penalties/surcharges and interest on delinquent accounts and assessments (preliminary
or final, disputed or not) as of .June 30, 2006. Section 4 of RR No. 15-06 provides:
SECTION 4. Who May Avail, - Any person/ taxpayer, natural or juridical, may settle thru this abatement program any
delinquent account or assessment which has been released as of June 30, 2006, by paying an
Amount equal to One Hundred Percent (100%) of the Basic Tax assessed with the Accredited Agent Bank (AAB) of the
Revenue District Office (RDO)/Large Taxpayers Service (LTS)/Large Taxpayers District Office (LTDO) that has jurisdiction
over the taxpayer. In the absence of an AAB, payment may be made with the Revenue Collection Officer/Deputized
Treasurer of the RDO that has jurisdiction over the taxpayer. After payment of the basic tax, the assessment for
penalties/surcharge and interest shall be cancelled by the concerned BIR Office following existing rules and procedures.
Thereafter, the docket of the case shall be forwarded to the Office of the Commissioner, thru the Deputy Commissioner
for Operations Group, for issuance of Termination Letter.1âwphi1
Based on the guidelines, the last step in the tax abatement process is the issuance of the termination letter. The
presentation of the termination letter is essential as it proves that the taxpayer's application for tax abatement has been
approved. Thus, without a termination letter, a tax assessment cannot be considered closed and terminated.
In this case, Asiatrust failed to present a termination letter from the BIR. Instead, it presented a Certification issued by
the BIR to prove that it availed of the Tax Abatement Program and paid the basic tax. It also attached copies of its BIR
Tax Payment Deposit Slips and a Jetter issued by RDO Nacar. These documents, however, do not prove that Asiatrust's
application for tax abatement has been approved. If at all, these documents only prove Asiatrust's payment of basic
taxes, which is not a ground to consider its deficiency tax assessment closed and terminated.
Since no tennination letter has been issued by the BIR, there is no reason for the Court to consider as closed and
terminated the tax assessment on Asiatrust's final withholding tax for fiscal year ending June 30, 1998. Asiatrust's
application for tax abatement will be deemed approved only upon the issuance of a tem1ination letter, and only then
will the deficiency tax assessment be considered closed and terminated. However, in case Asiatrust's application for tax
abatement is denied, any payment made by it would be applied to its outstanding tax liability. For this reason,
Asiatrust's allegation of double taxation must also fail.
Thus, the Court finds no error on the part of the CTA En Banc in affirming the said tax assessment.
G.R. Nos. 201680-81
An appeal to the CTA En Banc
must be preceded by the filing of a
timely motion for reconsideration or
new trial with the CTA Division.
Section 1, Rule 8 of the Revised Rules of the CTA states:
SECTION 1. Review of cases in the Court en bane. - In cases falling under the exclusive appellate jurisdiction of the
Court en bane, the petition for review of a decision or resolution of the Court in Division must be preceded by the filing
of a timely motion for reconsideration or new trial with the Division.
Thus, in order for the CTA En Banc to take cognizance of an appeal via a petition for review, a timely motion for
reconsideration or new trial must first be filed with the CTA Division that issued the assailed decision or resolution.
Failure to do so is a ground for the dismissal of the appeal as the word "must" indicates that the filing of a prior motion
is mandatory, and not merely directory. 64
The same is true in the case of an amended decision. Section 3, Rule 14 of the same rules defines an amended decision
as "[a]ny action modifying or reversing a decision of the Court en bane or in Division." As explained in CE Luzon
Geothermal Power Company, Inc. v. Commissioner of Internal Revenue, 65 an amended decision is a different decision,
and thus, is a· proper subject of a motion for reconsideration.
In this case, the CIR's failure to move for a reconsideration of the Amended Decision of the CTA Division is a ground for
the dismissal of its Petition for Review before the CTA En Banc. Thus, the CTA En .Banc did not err in denying the CIR's
appeal on procedural grounds.
Due to this procedural lapse, the Amended Decision has attained finality insofar as the CIR is concerned. The CIR,
therefore, may no longer question the merits of the case before this Court. Accordingly, there is no reason for the Court
to discuss the other issues raised by the CIR.
As the Court has often held, procedural rules exist to be followed, not to be trifled with, and thus, may be relaxed only
for the most persuasive reasons. 66
WHEREFORE, the Petitions are hereby DENIED. The assailed November 16, 2011 Decision and the April 16, 2012
Resolution of the Court of Tax Appeals En .Banc in CTA EB Case Nos. 614 and 677 are hereby AFFIRMED, without
prejudice to the action of the Bureau of Internal Revenue on Asiatrust Development Bank, Inc.'s application for
abatement. The Bureau of Internal Revenue is DIRECTED to act on Asiatrust Development Bank, Inc.'s application for
abatement in view of Section 5, Revenue Regulations No. 13-2001.
SO ORDERED.
MARIANO C. DEL CASTILLO,
Associate Justice

Sec. 204 (C )- Credit or Refund taxes erroneously or illegally received or penalties imposed without authority
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 184398 February 25, 2010
SILKAIR (SINGAPORE) PTE. LTD., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the May 27, 2008 Decision1 and the subsequent
September 5, 2008 Resolution2 of the Court of Tax Appeals (CTA) En Banc in C.T.A. E.B. No. 267. The decision dated May
27, 2008 denied the petition for review filed by petitioner Silkair (Singapore) Pte. Ltd., on the ground, among others, of
failure to prove that it was authorized to operate in the Philippines for the period June to December 2000, while the
Resolution dated September 5, 2008 denied petitioner’s motion for reconsideration for lack of merit.
The antecedent facts are as follows:
Petitioner, a foreign corporation organized under the laws of Singapore with a Philippine representative office in Cebu
City, is an online international carrier plying the Singapore-Cebu-Singapore and Singapore-Cebu-Davao-Singapore routes.
Respondent Commissioner of Internal Revenue is impleaded herein in his official capacity as head of the Bureau of
Internal Revenue (BIR), an attached agency of the Department of Finance which is duly authorized to decide, approve,
and grant refunds and/or tax credits of erroneously paid or illegally collected internal revenue taxes.3
On June 24, 2002, petitioner filed with the BIR an administrative claim for the refund of Three Million Nine Hundred
Eighty-Three Thousand Five Hundred Ninety Pesos and Forty-Nine Centavos (₱3,983,590.49) in excise taxes which it
allegedly erroneously paid on its purchases of aviation jet fuel from Petron Corporation (Petron) from June to December
2000. Petitioner used as basis therefor BIR Ruling No. 339-92 dated December 1, 1992, which declared that the
petitioner’s Singapore-Cebu-Singapore route is an international flight by an international carrier and that the petroleum
products purchased by the petitioner should not be subject to excise taxes under Section 135 of Republic Act No. 8424
or the 1997 National Internal Revenue Code (NIRC).
Since the BIR took no action on petitioner’s claim for refund, petitioner sought judicial recourse and filed on June 27,
2002, a petition for review with the CTA (docketed as CTA Case No. 6491), to prevent the lapse of the two-year
prescriptive period within which to judicially claim a refund under Section 2294 of the NIRC. Petitioner invoked its
exemption from payment of excise taxes in accordance with the provisions of Section 135(b) of the NIRC, which exempts
from excise taxes the entities covered by tax treaties, conventions and other international agreements; provided that
the country of said carrier or exempt entity likewise exempts from similar taxes the petroleum products sold to
Philippine carriers or entities. In this regard, petitioner relied on the reciprocity clause under Article 4(2) of the Air
Transport Agreement entered between the Republic of the Philippines and the Republic of Singapore.
Section 135(b) of the NIRC provides:
SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. – Petroleum products sold
to the following are exempt from excise tax:
xxxx
(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or
consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies
exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; x x x.
Article 4(2) of the Air Transport Agreement between the Philippines and Singapore, in turn, provides:
ART. 4. x x x.
xxxx
(2) Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on board aircraft in the
territory of one Contracting Party by, or on behalf of, a designated airline of the other Contracting Party and intended
solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the service
performed, be exempt from the same customs duties, inspection fees and other duties or taxes imposed in the territory
of the first Contracting Party, even when these supplies are to be used on the parts of the journey performed over the
territory of the Contracting Party in which they are introduced into or taken on board. The materials referred to above
may be required to be kept under customs supervision and control.
In a Decision5 dated July 27, 2006, the CTA First Division found that petitioner was qualified for tax exemption under
Section 135(b) of the NIRC, as long as the Republic of Singapore exempts from similar taxes petroleum products sold to
Philippine carriers, entities or agencies under Article 4(2) of the Air Transport Agreement quoted above. However, it
ruled that petitioner was not entitled to the excise tax exemption for failure to present proof that it was authorized to
operate in the Philippines during the period material to the case due to the non-admission of some of its exhibits, which
were merely photocopies, including Exhibit "A" which was petitioner’s Certificate of Registration with the Securities and
Exchange Commission (SEC) and Exhibits "P," "Q" and "R" which were its operating permits issued by the Civil
Aeronautics Board (CAB) to fly the Singapore-Cebu-Singapore and Singapore-Cebu-Davao-Singapore routes for the
period October 1999 to October 2000.
Petitioner filed a motion for reconsideration but the CTA First Division denied the same in a Resolution 6 dated January
17, 2007.
Thereafter, petitioner elevated the case before the CTA En Banc via a petition for review, which was initially denied in a
Resolution7 dated May 17, 2007 for failure of petitioner to establish its legal authority to appeal the Decision dated July
27, 2006 and the Resolution dated January 17, 2007 of the CTA First Division.
Undaunted, petitioner moved for reconsideration. In the Resolution8 dated September 19, 2007, the CTA En Bancset
aside its earlier resolution dismissing the petition for review and reinstated the same. It also required respondent to file
his comment thereon.
On May 27, 2008, the CTA En Banc promulgated the assailed Decision and denied the petition for review, thus:
WHEREFORE, premises considered, the instant petition is hereby DENIED for lack of merit. The assailed Decision dated
July 27, 2006 dismissing the instant petition on ground of failure of petitioner to prove that it was authorized to operate
in the Philippines for the period from June to December 2000, is hereby AFFIRMED WITH MODIFICATION that petitioner
is further not found to be the proper party to file the instant claim for refund.9
In a separate Concurring and Dissenting Opinion,10 CTA Presiding Justice Ernesto D. Acosta opined that petitioner was
exempt from the payment of excise taxes based on Section 135 of the NIRC and Article 4 of the Air Transport Agreement
between the Philippines and Singapore. However, despite said exemption, petitioner’s claim for refund cannot be
granted since it failed to establish its authority to operate in the Philippines during the period subject of the claim. In
other words, Presiding Justice Acosta voted to uphold in toto the Decision of the CTA First Division.
Petitioner again filed a motion for reconsideration which was denied in the Resolution dated September 5, 2008. Hence,
the instant petition for review on certiorari, which raises the following issues:
I
Whether or not petitioner has substantially proven its authority to operate in the Philippines.
II
Whether or not petitioner is the proper party to claim for the refund/tax credit of excise taxes paid on aviation fuel.
Petitioner maintains that it has proven its authority to operate in the Philippines with the admission of its Foreign Air
Carrier’s Permit (FACP) as Exhibit "B" before the CTA, which, in part, reads:
[T]his Board RESOLVED, as it hereby resolves to APPROVE the petition of SILKAIR (SINGAPORE) PTE LTD., for issuance of a
regular operating permit (Foreign Air Carrier’s Permit), subject to the approval of the President, pursuant to Sec. 10 of
R.A. 776, as amended by P.D. 1462.11
Moreover, petitioner argues that Exhibits "P," "Q" and "R," which it previously filed with the CTA, were merely flight
schedules submitted to the CAB, and were not its operating permits. Petitioner adds that it was through inadvertence
that only photocopies of these exhibits were introduced during the hearing.
Petitioner also asserts that despite its failure to present the original copy of its SEC Registration during the hearings, the
CTA should take judicial notice of its SEC Registration since the same was already offered and admitted in evidence in
similar cases pending before the CTA.
Petitioner further claims that the instant case involves a clear grant of tax exemption to it by law and by virtue of an
international agreement between two governments. Consequently, being the entity which was granted the tax
exemption and which made the erroneous tax payment of the excise tax, it is the proper party to file the claim for
refund.
In his Comment12 dated March 26, 2009, respondent states that the admission in evidence of petitioner’s FACP does not
change the fact that petitioner failed to formally offer in evidence the original copies or certified true copies of Exhibit
"A," its SEC Registration; and Exhibits "P," "Q" and "R," its operating permits issued by the CAB to fly its Singapore-Cebu-
Singapore and Singapore-Cebu-Davao-Singapore routes for the period October 1999 to October 2000. Respondent
emphasizes that petitioner’s failure to present these pieces of evidence amounts to its failure to prove its authority to
operate in the Philippines.
Likewise, respondent maintains that an excise tax, being an indirect tax, is the direct liability of the manufacturer or
producer. Respondent reiterates that when an excise tax on petroleum products is added to the cost of goods sold to
the buyer, it is no longer a tax but becomes part of the price which the buyer has to pay to obtain the article. According
to respondent, petitioner cannot seek reimbursement for its alleged erroneous payment of the excise tax since it is
neither the entity required by law nor the entity statutorily liable to pay the said tax.
After careful examination of the records, we resolve to deny the petition.
Petitioner’s assertion that the CTA may take judicial notice of its SEC Registration, previously offered and admitted in
evidence in similar cases before the CTA, is untenable.
We quote with approval the disquisition of the CTA En Banc in its Decision dated May 27, 2008 on the non-admission of
petitioner’s Exhibits "A," "P," "Q" and "R," to wit:
Anent petitioner’s argument that the Court in Division should have taken judicial notice of the existence of Exhibit "A"
(petitioner’s SEC Certificate of Registration), although not properly identified during trial as this has previously been
offered and admitted in evidence in similar cases involving the subject matter between the same parties before this
Court, We are in agreement with the ruling of the Court in Division, as discussed in its Resolution dated April 12, 2005
resolving petitioner’s Motion for Reconsideration on the court’s non-admission of Exhibits "A", "P", "Q" and "R", wherein
it said that:
"Each and every case is distinct and separate in character and matter although similar parties may have been involved.
Thus, in a pending case, it is not mandatory upon the courts to take judicial notice of pieces of evidence which have
been offered in other cases even when such cases have been tried or pending in the same court. Evidence already
presented and admitted by the court in a previous case cannot be adopted in a separate case pending before the same
court without the same being offered and identified anew.
The cases cited by petitioner concerned similar parties before the same court but do not cover the same claim. A court is
not compelled to take judicial notice of pieces of evidence offered and admitted in a previous case unless the same are
properly offered or have accordingly complied with the requirements on the rules of evidence. In other words, the
evidence presented in the previous cases cannot be considered in this instant case without being offered in evidence.
Moreover, Section 3 of Rule 129 of the Revised Rules of Court provides that hearing is necessary before judicial notice
may be taken by the courts. To quote said section:
Sec. 3. Judicial notice, when hearing necessary. – During the trial, the court, on its own initiative, or on request of a
party, may announce its intention to take judicial notice of any matter and allow the parties to be heard thereon.
After the trial, and before judgment or on appeal, the proper court, on its own initiative or on request of a party, may
take judicial notice of any matter and allow the parties to be heard thereon if such matter is decisive of a material issue
in the case.
Furthermore, petitioner admitted that Exhibit ‘A’ have (sic) been offered and admitted in evidence in similar cases
involving the same subject matter filed before this Court. Thus, petitioner is and should have been aware of the rules
regarding the offering of any documentary evidence before the same can be admitted in court.
As regards Exhibit[s] ‘P’, ‘Q’ and ‘R’, the original copies of these documents were not presented for comparison and
verification in violation of Section 3 of Rule 130 of the 1997 Revised Rules of Court. The said section specifically provides
that ‘when the subject of inquiry is the contents of a document, no evidence shall be admissible other than the original
document itself x x x’. It is an elementary rule in law that documents shall not be admissible in evidence unless and until
the original copies itself are offered or presented for verification in cases where mere copies are offered, save for the
exceptions provided for by law. Petitioner thus cannot hide behind the veil of judicial notice so as to evade its
responsibility of properly complying with the rules of evidence. For failure of herein petitioner to compare the subject
documents with its originals, the same may not be admitted." (Emphasis Ours)
Likewise, in the Resolution dated July 15, 2005 of the Court in Division denying petitioner’s Omnibus Motion seeking
allowance to compare the denied exhibits with their certified true copies, the court a quo explained that:
"Petitioner was already given enough time and opportunity to present the originals or certified true copies of the denied
documents for comparison. When petitioner received the resolution denying admission of the provisionally marked
exhibits, it should have submitted the originals or certified true copies for comparison, considering that these
documents were accordingly available. But instead of presenting these documents, petitioner, in its Motion for
Reconsideration, tried to hide behind the veil of judicial notice so as to evade its responsibility of properly applying the
rules on evidence. It was even submitted by petitioner that these documents should be admitted for they were
previously offered and admitted in similar cases involving the same subject matter and parties. If this was the case, then,
there should have been no reason for petitioner to seasonably present the originals or certified true copies for
comparison, or even, marking. x x x."
In view of the foregoing discussion, the Court en banc finds that indeed, petitioner indubitably failed to establish its
authority to operate in the Philippines for the period beginning June to December 2000.13
This Court finds no reason to depart from the foregoing findings of the CTA En Banc as petitioner itself admitted on page
914 of its petition for review that "[i]t was through inadvertence that only photocopies of Exhibits ‘P’, ‘Q’ and ‘R’ were
introduced during the hearing" and that it was "rather unfortunate that petitioner failed to produce the original copy of
its SEC Registration (Exhibit ‘A’) for purposes of comparison with the photocopy that was originally presented."
Evidently, said documents cannot be admitted in evidence by the court as the original copies were neither offered nor
presented for comparison and verification during the trial. Mere identification of the documents and the markings
thereof as exhibits do not confer any evidentiary weight on them as said documents have not been formally offered by
petitioner and have been denied admission in evidence by the CTA.
Furthermore, the documents are not among the matters which the law mandatorily requires the Court to take judicial
notice of, without any introduction of evidence, as petitioner would have the CTA do. Section 1, Rule 129 of the Rules of
Court reads:
SECTION 1. Judicial notice, when mandatory. – A court shall take judicial notice, without the introduction of evidence, of
the existence and territorial extent of states, their political history, forms of government and symbols of nationality, the
law of nations, the admiralty and maritime courts of the world and their seals, the political constitution and history of
the Philippines, the official acts of the legislative, executive and judicial departments of the Philippines, the laws of
nature, the measure of time, and the geographical divisions.
Neither could it be said that petitioner’s SEC Registration and operating permits from the CAB are documents which are
of public knowledge, capable of unquestionable demonstration, or ought to be known to the judges because of their
judicial functions, in order to allow the CTA to take discretionary judicial notice of the said documents.15
Moreover, Section 3 of the same Rule16 provides that a hearing is necessary before judicial notice of any matter may be
taken by the court. This requirement of a hearing is needed so that the parties can be heard thereon if such matter is
decisive of a material issue in the case.
Given the above rules, it is clear that the CTA En Banc correctly did not admit petitioner’s SEC Registration and operating
permits from the CAB which were merely photocopies, without the presentation of the original copies for comparison
and verification. As aptly held by the CTA En Banc, petitioner cannot rely on the principle of judicial notice so as to evade
its responsibility of properly complying with the rules of evidence. Indeed, petitioner’s contention that the said
documents were previously marked in other cases before the CTA tended to confirm that the originals of these
documents were readily available and their non-presentation in these proceedings was unjustified. Consequently,
petitioner’s failure to compare the photocopied documents with their original renders the subject exhibits inadmissible
in evidence.
Going to the second issue, petitioner maintains that it is the proper party to claim for refund or tax credit of excise taxes
since it is the entity which was granted the tax exemption and which made the erroneous tax payment. Petitioner
anchors its claim on Section 135(b) of the NIRC and Article 4(2) of the Air Transport Agreement between the Philippines
and Singapore. Petitioner also asserts that the tax exemption, granted to it as a buyer of a certain product, is a personal
privilege which may not be claimed or availed of by the seller. Petitioner submits that since it is the entity which actually
paid the excise taxes, then it should be allowed to claim for refund or tax credit.
At the outset, it is important to note that on two separate occasions, this Court has already put to rest the issue of
whether or not petitioner is the proper party to claim for the refund or tax credit of excise taxes it allegedly paid on its
aviation fuel purchases.17 In the earlier case of Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal
Revenue,18involving the same parties and the same cause of action but pertaining to different periods of taxation, we
have categorically held that Petron, not petitioner, is the proper party to question, or seek a refund of, an indirect tax, to
wit:
The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax
is imposed by law and who paid the same even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC
provides that "[u]nless otherwise specifically allowed, the return shall be filed and the excise tax paid by the
manufacturer or producer before removal of domestic products from place of production." Thus, Petron Corporation,
not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and
Article 4(2) of the Air Transport Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is
not a tax but part of the price which Silkair had to pay as a purchaser.
In the second Silkair19 case, the Court explained that an excise tax is an indirect tax where the burden can be shifted or
passed on to the consumer but the tax liability remains with the manufacturer or seller. Thus, the manufacturer or seller
has the option of shifting or passing on the burden of the tax to the buyer. However, where the burden of the tax is
shifted, the amount passed on to the buyer is no longer a tax but a part of the purchase price of the goods sold.
Petitioner contends that the clear intent of the provisions of the NIRC and the Air Transport Agreement is to exempt
aviation fuel purchased by petitioner as an exempt entity from the payment of excise tax, whether such is a direct or an
indirect tax. According to petitioner, the excise tax on aviation fuel, though initially payable by the manufacturer or
producer, attaches to the goods and becomes the liability of the person having possession thereof.
We do not agree. The distinction between a direct tax and an indirect tax is relevant to this issue. In Commissioner of
Internal Revenue v. Philippine Long Distance Telephone Company,20 this Court explained:
Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden of taxation, taxes may
be classified into either direct tax or indirect tax.
In context, direct taxes are those that are exacted from the very person who, it is intended or desired, should pay them;
they are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in.
On the other hand, indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in
the expectation and intention that he can shift the burden to someone else. Stated elsewise, indirect taxes are taxes
wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to
another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it.
When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the
purchaser as part of the purchase price of goods sold or services rendered.
Title VI of the NIRC deals with excise taxes on certain goods. Section 129 reads as follows:
SEC. 129. Goods Subject to Excise Taxes. – Excise taxes apply to goods manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition and to things imported. x x x.
As used in the NIRC, therefore, excise taxes refer to taxes applicable to certain specified or selected goods or articles
manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things
imported into the Philippines. These excise taxes may be considered taxes on production as they are collected only from
manufacturers and producers. Basically an indirect tax, excise taxes are directly levied upon the manufacturer or
importer upon removal of the taxable goods from its place of production or from the customs custody. These taxes,
however, may be actually passed on to the end consumer as part of the transfer value or selling price of the goods sold,
bartered or exchanged.21
In Maceda v. Macaraig, Jr.,22 this Court declared:
"[I]ndirect taxes are taxes primarily paid by persons who can shift the burden upon someone else." For example, the
excise and ad valorem taxes that oil companies pay to the Bureau of Internal Revenue upon removal of petroleum
products from its refinery can be shifted to its buyer, like the NPC, by adding them to the "cash" and/or "selling price."
And as noted by us in the second Silkair23 case mentioned above:
When Petron removes its petroleum products from its refinery in Limay, Bataan, it pays the excise tax due on the
petroleum products thus removed. Petron, as manufacturer or producer, is the person liable for the payment of the
excise tax as shown in the Excise Tax Returns filed with the BIR. Stated otherwise, Petron is the taxpayer that is
primarily, directly and legally liable for the payment of the excise taxes. However, since an excise tax is an indirect tax,
Petron can transfer to its customers the amount of the excise tax paid by treating it as part of the cost of the goods and
tacking it on the selling price.
As correctly observed by the CTA, this Court held in Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue:
"It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes part
of the price which the purchaser must pay."
Even if the consumers or purchasers ultimately pay for the tax, they are not considered the taxpayers. The fact that
Petron, on whom the excise tax is imposed, can shift the tax burden to its purchasers does not make the latter the
taxpayers and the former the withholding agent.
Petitioner, as the purchaser and end-consumer, ultimately bears the tax burden, but this does not transform petitioner’s
status into a statutory taxpayer.
Thus, under Section 130(A)(2) of the NIRC, it is Petron, the taxpayer, which has the legal personality to claim the refund
or tax credit of any erroneous payment of excise taxes. Section 130(A)(2) states:
SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. –
(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. –
(1) Persons Liable to File a Return. – x x x
(2) Time for Filing of Return and Payment of the Tax. – Unless otherwise specifically allowed, the return shall be filed and
the excise tax paid by the manufacturer or producer before removal of domestic products from place of production: x x
x. (Emphasis supplied.)
Furthermore, Section 204(C) of the NIRC provides a two-year prescriptive period within which a taxpayer may file an
administrative claim for refund or tax credit, to wit:
SEC. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The Commissioner may –
xxxx
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit
or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed
showing an overpayment shall be considered as a written claim for credit or refund. (Emphasis supplied.)
From the foregoing discussion, it is clear that the proper party to question, or claim a refund or tax credit of an indirect
tax is the statutory taxpayer, which is Petron in this case, as it is the company on which the tax is imposed by law and
which paid the same even if the burden thereof was shifted or passed on to another. It bears stressing that even if
Petron shifted or passed on to petitioner the burden of the tax, the additional amount which petitioner paid is not a tax
but a part of the purchase price which it had to pay to obtain the goods.
Time and again, we have held that tax refunds are in the nature of tax exemptions which represent a loss of revenue to
the government. These exemptions, therefore, must not rest on vague, uncertain or indefinite inference, but should be
granted only by a clear and unequivocal provision of law on the basis of language too plain to be mistaken. 24 Such
exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood of the government.
In fine, we quote from our ruling in the earlier Silkair25 case:
The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement
between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect taxes.
Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority, and if an exemption is found to exist, it must not be enlarged by construction.
This calls for the application of the doctrine, stare decisis et non quieta movere.1avvphi1 Follow past precedents and do
not disturb what has been settled. Once a case has been decided one way, any other case involving exactly the same
point at issue, as in the case at bar, should be decided in the same manner.26
WHEREFORE, the instant petition for review is DENIED. We affirm the assailed Decision dated May 27, 2008 and the
Resolution dated September 5, 2008 of the Court of Tax Appeals En Banc in C.T.A. E.B. No. 267. No pronouncement as to
costs.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 185568 March 21, 2012
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
PETRON CORPORATION, Respondent.
DECISION
SERENO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure filed by the Commissioner of
Internal Revenue (CIR) assailing the Decision1 dated 03 December 2008 of the Court of Tax Appeals En Banc (CTA En
Banc) in CTA EB No. 311. The assailed Decision reversed and set aside the Decision2dated 04 May 2007 of the Court of
Tax Appeals Second Division (CTA Second Division) in CTA Case No. 6423, which ordered respondent Petron Corporation
(Petron) to pay deficiency excise taxes for the taxable years 1995 to 1998, together with surcharges and delinquency
interests imposed thereon.
Respondent Petron is a corporation engaged in the production of petroleum products and is a Board of Investment (BOI)
– registered enterprise in accordance with the provisions of the Omnibus Investments Code of 1987 (E.O. 226) under
Certificate of Registration Nos. 89-1037 and D95-136.3
The Facts
The CTA En Banc in CTA EB Case No. 311 adopted the findings of fact by the CTA Second Division in CTA Case No. 6423.
Considering that there are no factual issues in this case, we likewise adopt the findings of fact by the CTA En Banc, as
follows:
As culled from the records and as agreed upon by the parties in their Joint Stipulation of Facts and Issues, these are the
facts of the case.
During the period covering the taxable years 1995 to 1998, petitioner (herein respondent Petron) had been an assignee
of several Tax Credit Certificates (TCCs) from various BOI-registered entities for which petitioner utilized in the payment
of its excise tax liabilities for the taxable years 1995 to 1998. The transfers and assignments of the said TCCs were
approved by the Department of Finance’s One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF
Center), composed of representatives from the appropriate government agencies, namely, the Department of Finance
(DOF), the Board of Investments (BOI), the Bureau of Customs (BOC) and the Bureau of Internal Revenue (BIR).
Taking ground on a BOI letter issued on 15 May 1998 which states that ‘hydraulic oil, penetrating oil, diesel fuels and
industrial gases are classified as supplies and considered the suppliers thereof as qualified transferees of tax credit,’
petitioner acknowledged and accepted the transfers of the TCCs from the various BOI-registered entities.
Petitioner’s acceptance and use of the TCCs as payment of its excise tax liabilities for the taxable years 1995 to 1998,
had been continuously approved by the DOF as well as the BIR’s Collection Program Division through its surrender and
subsequent issuance by the Assistant Commissioner of the Collection Service of the BIR of the Tax Debit Memos (TDMs).
On January 30, 2002, respondent [herein petitioner CIR] issued the assailed Assessment against petitioner for deficiency
excise taxes for the taxable years 1995 to 1998, in the total amount of ₱ 739,003,036.32, inclusive of surcharges and
interests, based on the ground that the TCCs utilized by petitioner in its payment of excise taxes have been cancelled by
the DOF for having been fraudulently issued and transferred, pursuant to its EXCOM Resolution No. 03-05-99. Thus,
petitioner, through letters dated August 31, 1999 and September 1, 1999, was required by the DOF Center to submit
copies of its sales invoices and delivery receipts showing the consummation of the sale transaction to certain TCC
transferors.
Instead of submitting the documents required by the respondent, on February 27, 2002, petitioner filed its protest letter
to the ‘Assessment’ on the grounds, among others, that:
a. The BIR did not comply with the requirements of Revenue Regulations 12-99 in issuing the "assessment" letter dated
January 30, 2002, hence, the assessment made against it is void;
b. The assignment/transfer of the TCCs to petitioner by the TCC holders was submitted to, examined and approved by
the concerned government agencies which processed the assignment in accordance with law and revenue regulations;
c. There is no basis for the imposition of the 50% surcharge in the amount of ₱ 159,460,900.00 and interest penalties in
the amount of ₱ 260,620,335.32 against it;
d. Some of the items included in the ‘assessment’ are already pending litigation and are subject of the case entitled
‘Commissioner of Internal Revenue vs. Petron Corporation,’ C.A. GR SP No. 55330 (CTA Case No. 5657) and hence,
should no longer be included in the ‘assessment’; and
e. The assessment and collection of alleged excise tax deficiencies sought to be collected by the BIR against petitioner
through the January 30, 2002 letter are already barred by prescription under Section 203 of the National Internal
Revenue Code.
On 27 March 2002, respondent, through Assistant Commissioner Edwin R. Abella served a Warrant of Distraint and/or
Levy on petitioner to enforce payment of the ₱ 739,003,036.32 tax deficiencies.
Respondent allegedly served the Warrant of Distraint and/or Levy against petitioner without first acting on its letter-
protest. Thus, construing the Warrant of Distraint and/or Levy as the final adverse decision of the BIR on its protest of
the assessment, petitioner filed the instant petition before this Honorable Court [referring to the CTA Second Division]
on April 2, 2002.
On April 30, 2002, respondent filed his Answer, raising the following as his Special Affirmative Defenses:
6. In a post-audit conducted by the One-Stop Inter-Agency Tax Credit and Duty Drawback Center (Center) of the
Department of Finance (DOF), pursuant to the Center’s Excom Resolution No. 03-05-99, it was found that TCCs issued to
Alliance Thread Co., Inc., Allstar Spinning, Inc., Diamond Knitting Corp., Fiber Technology Corp., Filstar Textile Industrial
Corp., FLB International Fiber Corp., Jantex Philippines, Inc., Jibtex Industrial Corp., Master Colour System Corp. and
Spintex International, Inc. were fraudulently obtained and were fraudulently transferred to petitioner. As a result of said
findings, the TCCs and the Tax Debit Memos (TDMs) issued by the Center to petitioner against said TCCs were cancelled
by the DOF;
7. Prior to the cancellation of the aforesaid TCCs and TDMs, petitioner had utilized the same in the payment of its excise
tax liabilities. With such cancellation, the TCCs and TDMs have no value in money or money’s worth and, therefore, the
excise taxes for which they were used as payment are now deemed unpaid;
8. The cancellation by the DOF of the aforesaid TCCs and TDMs has the presumption of regularity upon which
respondent may validly rely;
9. Petitioner was informed by the DOF of the post-audit conducted on the TCCs and was given the opportunity to submit
documents showing that the TCCs were transferred to it in payment of petroleum products allegedly delivered by it to
the TCC transferors upon which the TCC transfers were approved, with the admonition that failure to submit the
required documents would result in the cancellation of the transfers. Petitioner was also informed of the cancellation of
the TCCs and TDMs and the reason for their cancellation;
10. Since petitioner is deemed not to have paid its excise tax liabilities, a pre-assessment notice is not required under
Section 228 of the Tax Code;
11. The letter dated January 20, 2002 (should be January 30, 2002), demanding payment of petitioner’s excise tax
liabilities explicitly states the basis for said demand, i.e., the cancellation of the TCCs and TDMs;
12. The government is never estopped from collecting legitimate taxes due to the error committed by its agents (Visayas
Cebu Terminal Inc., vs. Commissioner of Internal Revenue, 13 SCRA 257; Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue, 102 SCRA 246). The acceptance by the Bureau of Internal Revenue of
the TCCs fraudulently obtained and fraudulently transferred to petitioner as payment of its excise tax liabilities turned
out to be a mistake after the post-audit was conducted. Hence, said payments were void and the excise taxes may be
validly collected from petitioner.
13. As found in the post-audit, petitioner and the TCC transferors committed fraud in the transfer of the TCCs when they
made appear (sic) that the transfers were in consideration for the delivery of petroleum products by petitioner to the
TCCs transferors, for which reason said transfers were approved by the Center, when in fact there were no such
deliveries;
14. Petitioner used the TCCs fraudulently obtained and fraudulently transferred in the payment of excise taxes declared
in its excise tax returns with intent to evade tax to the extent of the value represented by the TCCs, thereby rendering
the returns fraudulent;
15. Since petitioner wilfully filed fraudulent returns, it is liable for the 50% surcharge and 20% annual interest imposed
under Sections 248 and 249 of the Tax Code;
16. Since petitioner wilfully filed fraudulent returns with intent to evade tax, the prescriptive period to collect the tax is
ten (10) years from the discovery of the fraud pursuant to Section 222 of the Tax Code; and
17. The case pending in the Court of Appeals (CA-G.R. Sp. No. 55330 [CTA Case No. 5657]), and the case at bar have
distinct causes of action. The former involves the invalid transfers of the TCCs to petitioner on the theory that it is not a
qualified transferee thereof, while the latter involves the fraudulent procurement of said TCCs and the fraudulent
transfers thereof to petitioner.
However, on November 12, 2002, respondent filed a Manifestation informing this Court that on May 29, 2002, it had
reduced the amount of deficiency excise taxes to ₱ 720,923,224.74 as a result of its verification that some of the TCCs
which formed part of the original "Assessment" were already included in a case previously filed with this Court. In effect,
the amount of deficiency excise taxes is recomputed as follows:
Transferor Basic Tax Surcharge Interest Total
Alliance Thread Co. Inc. ₱ 12,078,823.00 ₱ 6,039,411.50 ₱ 16,147,293.21 ₱ 34,265,527.21
Allstar Spinning, Inc. 37,265,310.00 18,632,655.00 49,781,486.95 105,679,451.95
Diamond Knitting Corporation 36,764,587.00 18,382,293.50 49,264,758.35 104,411,638.85
Fiber Technology Corp. 25,300,911.00 12,650,455.50 34,295,655.90 72,247,022.40
Filstar Textile Corp. 40,767,783.00 20,383,891.50 54,802,550.16 115,954,224.66
FLB International Fiber Corp. 25,934,695.00 12,967,347.50 34,977,257.14 73,879,299.64
Jantex Philippines, Inc. 12,036,192.00 6,018,096.00 15,812,547.24 33,866,835.24
Jibtex Industrial Corp. 15,506,302.00 7,753,151.00 20,610,319.52 43,869,772.52
Master Colour system Corp. 33,333,536.00 16,666,768.00 44,822,167.06 94,822,471.06
Spintex International Inc. 14,912,408.00 7,456,204.00 19,558,368.71 41,926,980.71
Total ₱ 253,900,547.00 ₱ 126,950,273.50 ₱ 340,072,404.24 ₱ 720,923,224.74
During the pendency of the case, but after respondent had already submitted his Formal Offer of Evidence for this
Court’s consideration, he filed an ‘Urgent Motion to Reopen Case’ on August 24, 2004 on the ground that additional
evidence consisting of documents presented to the Center in support of the TCC transferor’s claims for tax credit as well
as document supporting the applications for approval of the transfer of the TCCs to petitioner, must be presented to
prove the fraudulent issuance and transfer of the subject TCCs. Respondent submits that it is imperative on his part to
do so considering that, without necessarily admitting that the evidence presented in the case of Pilipinas Shell
Petroleum Corporation vs. Commissioner of Internal Revenue, to prove fraud is not clear and convincing, he may suffer
the same fate that had befallen upon therein respondent when this Court held, among others, that ‘there is no clear and
convincing evidence that the Tax Credit Certificates (TCCs) transferred to Shell (for brevity) and used by it in the
payment of excise taxes, were fraudulently issued to the TCC transferors and were fraudulently transferred to Shell.’
An ‘Opposition to Urgent Motion to Reopen Case’ was filed by petitioner on September 3, 2004 contending that to
sustain respondent’s motion would ‘smack of procedural disorder and spawn a reversion of the proceedings. While
litigation is not a game of technicalities, it is a truism that every case must be presented in accordance with the
prescribed procedure to insure an orderly administration of justice.’
On October 4, 2004, this Court resolved to grant respondent’s Motion and allowed respondent to present additional
evidence in support of his arguments, but deferred the resolution of respondent’s original Formal Offer of Evidence until
after the respondent has terminated his presentation of evidence. Subsequent to this Court’s Resolution, respondent
then filed on October 20, 2004, a Request for the Issuance of Subpoena Duces Tecum to the Executive Director of the
Center or his duly authorized representative, and on October 21, 2004, a Subpoena Ad Testificandum to Ms. Elizabeth R.
Cruz, also of the Center.
Petitioner filed a ‘Motion for Reconsideration (Re: Resolution dated October 4, 2004)’ on October 27, 2004, with
respondent filing his ‘Opposition’ on November 4, 2004, and petitioner subsequently filing its ‘Reply to Opposition’ on
December 20, 2004. Petitioner’s motion was denied by this Court in a Resolution dated February 28, 2005 for lack of
merit.
On March 18, 2005, petitioner filed an ‘Urgent Motion to Revert Case to the First Division’ with respondent’s
‘Manifestation’ filed on April 6, 2005 stating that ‘the question of which Division of this Honorable Court shall hear the
instant case is an internal matter which is better left to the sound discretion of this Honorable Court without
interference by a party litigant’. On April 28, 2005, this Court denied the Motion of petitioner for lack of merit.
On November 7, 2005, the Court finally resolved respondent’s ‘Formal Offer of Evidence’ filed on May 7, 2004 and
‘Supplemental Formal Offer of Evidence’ filed on August 25, 2005. On November 22, 2005, respondent filed a ‘Motion
for Partial Reconsideration’ of the Court’s Resolution to admit Exhibits 31 and 31-A on the ground that he already
submitted and offered certified true copies of said exhibits, which the Court granted in its Resolution on January 19,
2006.
However, on February 10, 2006, respondent filed a ‘Motion to Amend Formal Offer of Evidence’ praying that he be
allowed to amend his formal offer since some exhibits although attached thereto were inadvertently not mentioned in
the Formal Offer of Evidence. Petitioner’s ‘Opposition’ was filed on March 14, 2006. This Court granted respondent’s
motion in the Resolution dated April 24, 2006 and considering that the parties already filed their respective Memoranda,
this case was then considered submitted for decision.
On May 16, 2006, however, respondent filed an ‘Omnibus Motion’ praying that this Court take judicial notice of the fact
that the TCCs issued by the Center, including the TCCs in this instant case, contained the standard ‘Liability Clause’ and
that the case be consolidated with CTA Case No. 6136, on the ground that both cases involve the same parties and
common questions of law or fact. An ‘Opposition/Comment on Omnibus Motion’ was filed by petitioner on June 26,
2006, and ‘Reply to Opposition/Comment’ was filed by respondent on July 17, 2006.
In a Resolution promulgated on September 1, 2006, this Court granted respondent’s motion only insofar as taking
judicial notice of the fact that each of the dorsal side of the TCCs contains the subject ‘liability clause’, but denied
respondent’s motion to consolidate considering that C.T.A. Case No. 6136 was already submitted for decision on April
24, 2006.4
The Ruling of the Court of Tax Appeals–Second Division
(CTA Case No. 6423)
On 04 May 2007, the CTA Second Division promulgated a Decision in CTA Case No. 6423, the dispositive portion of which
reads:
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED for lack of merit. Accordingly,
petitioner is ORDERED TO PAY the respondent the reduced amount of SIX HUNDRED MILLION SEVEN HUNDRED SIXTY
NINE THOUSAND THREE HUNDRED FIFTY THREE AND 95/100 PESOS (P600,769,353.95), representing petitioner’s
deficiency excise taxes for the taxable years 1995 to 1998, recomputed as follows:
Transferor Basic Tax 25% Surcharge 20% Interest Total
Alliance Thread Co. Inc. ₱ 12,078,823.00 ₱ 3,019,705.75 ₱ 13,456,077.68 ₱ 28,554,606.43
Allstar Spinning, Inc. 37,265,310.00 9,316,327.50 41,484,572.46 88,066,209.96
Diamond Knitting Corporation 36,764,587.00 9,191,146.75 41,053,965.29 87,009,699.04
Fiber Technology Corp. 25,300,911.00 6,325,227.75 28,579,713.25 60,205,852.00
Filstar Textile Corp. 40,767,783.00 10,191,945.75 45,668,791.80 96,628,520.55
FLB International Fiber Corp. 25,934,695.00 6,483,673.75 29,147,714.28 61,566,083.03
Jantex Philippines, Inc. 12,036,192.00 3,009,048.00 13,177,122.70 28,222,362.70
Jibtex Industrial Corp. 15,506,302.00 3,876,575.50 17,175,266.27 36,558,143.77
Master Colour system Corp. 33,333,536.00 8,333,384.00 37,351,805.88 79,018,725.88
Spintex International Inc. 14,912,408.00 3,728,102.00 16,298,640.59 34,939,150.59
Total ₱ 253,900,547.00 ₱ 63,475,136.75 ₱ 283,393,670.20 ₱ 600,769,353.95
In addition, petitioner is ORDERED TO PAY the respondent TWENTY FIVE PERCENT (25%) LATE PAYMENT SURCHARGE
AND TWENTY PERCENT (20%) DELIQUENCY INTEREST per annum on the amount of SIX HUNDRED MILLION SEVEN
HUNDRED SIXTY NINE THOUSAND THREE HUNDRED FIFTY THREE & 95/100 PESOS (₱ 600,769,353.95), computed from
June 27, 2002 until the amount is fully paid.
SO ORDERED.5
The CTA Second Division held Petron liable for deficiency excise taxes on the ground that the cancellation by the DOF of
the TCCs previously issued to and utilized by respondent to settle its tax liabilities had the effect of nonpayment of the
latter’s excise taxes. These taxes corresponded to the value of the TCCs Petron used for payment. The CTA Second
Division ruled that payment can only occur if the instrument used to discharge an obligation represents its stated
value.6 It further ruled that Petron’s acceptance of the TCCs was considered a contract entered into by respondent with
the CIR and subject to post-audit,7 which was considered a suspensive condition governed by Article 1181 of the Civil
Code.8
Further, the CTA Second Division found that the circumstances pertaining to the issuance of the subject TCCs and their
transfer to Petron "brim with fraud."9 Hence, the said court concluded that since the TCCs used by Petron were found to
be spurious, respondent was deemed to have not paid its excise taxes and ought to be liable to the CIR in the amount of
₱ 600,769,353.95 plus 25% interests and 20% surcharges.10
Petron filed a Motion for Reconsideration11 of the Decision of the CTA Second Division, which denied the motion in a
Resolution dated 14 August 2007.12 The court reiterated its conclusion that the TCCs utilized by Petron to pay the latter’s
excise tax liabilities did not result in payment after these TCCs were found to be fraudulent in the post-audit by the DOF.
The CTA Second Division also affirmed its ruling that Petron was liable for a 25% late payment surcharge and 20%
surcharges under Section 24813 of the National Internal Revenue Code (NIRC) of 1997.14
Aggrieved, Petron appealed the Decision to the CTA En Banc through a Petition for Review, which was docketed as CTA
EB No. 311. In its Petition, Petron alleged that the Second Division erred in holding respondent liable to pay the amount
of ₱ 600,769,353.95 in deficiency excise taxes with penalties and interests covering the taxable years 1995-1998. Petron
prayed that the said Decision be reversed and set aside, and that CIR be enjoined from collecting the contested excise
tax deficiency assessment.15
The CTA En Banc summed up into one issue the grounds relied upon by Petron in its Petition for Review, as follows:
Whether or not the Second Division erred in holding petitioner liable for the amount of ₱ 600,769,353.95 as deficiency
excise taxes for the years 1995-1998, including surcharges and interest, plus 25% surcharge and 20% delinquency
interest per annum from June 27, 2002 until the amount is fully paid.16
The Ruling of the Court of Tax Appeals En Banc
(CTA EB Case No. 311)
On 03 December 2008, the CTA En Banc promulgated a Decision, which reversed and set aside the CTA Second Division
on 04 May 2007. The former absolved Petron from any deficiency excise tax liability for taxable years 1995 to 1998. Its
ruling in favor of Petron was anchored on this Court’s pronouncements in Pilipinas Shell Petroleum Corp. v.
Commissioner of Internal Revenue (Shell),17 which found that the factual background and legal issues therein were
similar to those in the present case.
In resolving the issues, the CTA En Banc adopted the main points in Shell, which it quoted at length as basis for deciding
the appeal in favor of Petron. The gist of the main points of Shell cited by the said court is as follows:
a) The issued TCCs are immediately valid and effective and are not subject to a post-audit as a suspensive condition18
b) A TCC is subject only to the following conditions:
i) Post-audit in the event of a computational discrepancy
ii) A reduction for any outstanding account with the BIR and/or BOC
iii) A revalidation of the TCC if not utilized within one year from issuance or date of utilization19
c) A transferee of a TCC should only be a BOI-registered firm under the Implementing Rules and Regulations of Executive
Order (E.O.) No. 226.20
d) The liability clause in the TCCs provides only for the solidary liability of the transferee relative to its transfer in the
event it is a party to the fraud.21
e) A transferee can rely on the Center’s approval of the TCCs’ transfer and subsequent acceptance as payment of the
transferee’s excise tax liability.22
f) A TCC cannot be cancelled by the Center, as it was already cancelled after the transferee had applied it as payment for
the latter’s excise tax liabilities.23
The CTA En Banc also found that Petron had no participation in or knowledge of the fraudulent issuance and transfer of
the subject TCCs. In fact, the parties made a joint stipulation on this matter in CTA Case No. 6423 before the CTA Second
Division.24
In resolving the issue of whether the government is estopped from collecting taxes due to the fault of its agents, the CTA
En Banc quoted Shell as follows:
While we agree with respondent that the State in the performance of government function is not estopped by the
neglect or omission of its agents, and nowhere is this truer than in the field of taxation, yet this principle cannot be
applied to work injustice against an innocent party.25 (Emphasis supplied.)
Finally, the CTA En Banc ruled that Petron was considered an innocent transferee of the subject TCCs and may not be
prejudiced by a re-assessment of excise tax liabilities that respondent has already settled, when due, with the use of the
TCCs.26 Petron is thus considered to have not fraudulently filed its excise tax returns. Consequently, the assessment
issued by the CIR against it had no legal basis.27 The dispositive portion of the assailed 03 December 2008 Decision of the
CTA En Banc reads:
WHEREFORE, the instant petition for Review is hereby GRANTED. Accordingly, the May 4, 2007 Decision and August 14,
2007 Resolution of the CTA Second Division in CTA Case No. 6423 entitled, "Petron Corporation, petitioner vs.
Commissioner of Internal Revenue, respondent", are hereby REVERSED and SET ASIDE. In addition, the demand and
collection of the deficiency excise taxes of PETRON in the amount of ₱ 600,769,353.95 excluding penalties and interest
covering the taxable years 1995 to 1998 are hereby CANCELLED and SET ASIDE, and respondent-Commissioner of
Internal Revenue is hereby ENJOINED from collecting the said amount from PETRON.
SO ORDERED.28
The CIR moved for the reconsideration of the CTA En Banc Decision, but the motion was denied in a Resolution dated 14
August 2007.29
The Issues
The CIR appealed the Decision of the CTA En Banc by filing a Petition for Review on Certiorari under Rule 45 of the Rules
of Court.30 Petitioner assails the Decision by raising the following issues:
The court of tax appeals committed reversible error in holding that respondent petron is not liable for its excise tax
liabilities from 1995 to 1998.
Arguments
I
The cta en banc erred in finding that respondent petron was not shown to have participated in the fraudulent acts. The
finding of the cta second division that the tax credit certificates were fraudulently transferred by the transferor-
companies to respondent is supported by substantial evidence. Respondent was involved in the perpetration of fraud in
the tccs’ transfer and utilization.
II
Respondent cannot validly claim the right of innocent transferee for value. As assignee/transferee of the tccs,
respondent merely succeeded to the rights of the tcc assignors/transferors. Accordingly, if the tccs assigned to
respondent were void, it did not acquire any valid title over the tccs.
III
The government is not Estopped from collecting taxes due to the mistakes of its agents.
IV
Respondent is liable for 25% surcharge and 20% interest per annum pursuant to the provisions of sections 248 and 249
of the NIRC. Moreover, since respondent’s returns were false, the assessment prescribes in ten (10) years from the
discovery of the falsity thereof pursuant to section 22 of the same code.31
The Court’s Ruling
We DENY the CIR’s Petition for lack of merit.
Article 21 of E.O. 226 defines a tax credit as follows:
ARTICLE 21. "Tax credit" shall mean any of the credits against taxes and/or duties equal to those actually paid or would
have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his
representative, or the Board, if so delegated by the Secretary of Finance. The tax credit certificates including those
issued by the Board pursuant to laws repealed by this Code but without in any way diminishing the scope of negotiability
under their laws of issue are transferable under such conditions as may be determined by the Board after consultation
with the Department of Finance. The tax credit certificate shall be used to pay taxes, duties, charges and fees due to the
National Government; Provided, That the tax credits issued under this Code shall not form part of the gross income of
the grantee/transferee for income tax purposes under Section 29 of the National Internal Revenue Code and are
therefore not taxable: Provided, further, That such tax credits shall be valid only for a period of ten (10) years from date
of issuance.
Under Article 39 (j) of the Omnibus Investment Code of 1987,32 tax credits are granted to entities registered with the
Bureau of Investment (BOI) and are given for taxes and duties paid on raw materials used for the manufacture of their
export products.
A TCC is defined under Section 1 of Revenue Regulation (RR) No. 5-2000, issued by the BIR on 15 August 2000, as
follows:
B. Tax Credit Certificate — means a certification, duly issued to the taxpayer named therein, by the Commissioner or his
duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities,
acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be
used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be
converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if
any, as may be prescribed by the provisions of these Regulations.
RR 5-2000 prescribes the regulations governing the manner of issuance of TCCs and the conditions for their use,
revalidation and transfer. Under the said regulation, a TCC may be used by the grantee or its assignee in the payment of
its direct internal revenue tax liability.33 It may be transferred in favor of an assignee subject to the following conditions:
1) the TCC transfer must be with prior approval of the Commissioner or the duly authorized representative; 2) the
transfer of a TCC should be limited to one transfer only; and 3) the transferee shall strictly use the TCC for the payment
of the assignee’s direct internal revenue tax liability and shall not be convertible to cash.34A TCC is valid only for 10 years
subject to the following rules: (1) it must be utilized within five (5) years from the date of issue; and (2) it must be
revalidated thereafter or be otherwise considered invalid.35
The processing of a TCC is entrusted to a specialized agency called the "One-Stop-Shop Inter-Agency Tax Credit and Duty
Drawback Center" ("Center"), created on 07 February 1992 under Administrative Order (A.O.) No. 226. Its purpose is to
expedite the processing and approval of tax credits and duty drawbacks.36 The Center is composed of a representative
from the DOF as its chairperson; and the members thereof are representatives of the Bureau of Investment (BOI),
Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR), who are tasked to process the TCC and approve its
application as payment of an assignee’s tax liability.37
A TCC may be assigned through a Deed of Assignment, which the assignee submits to the Center for its approval. Upon
approval of the deed, the Center will issue a DOF Tax Debit Memo (DOF-TDM),38 which will be utilized by the assignee to
pay the latter’s tax liabilities for a specified period. Upon surrender of the TCC and the DOF-TDM, the corresponding
Authority to Accept Payment of Excise Taxes (ATAPET) will be issued by the BIR Collection Program Division and will be
submitted to the issuing office of the BIR for acceptance by the Assistant Commissioner of Collection Service. This act of
the BIR signifies its acceptance of the TCC as payment of the assignee’s excise taxes.
Thus, it is apparent that a TCC undergoes a stringent process of verification by various specialized government agencies
before it is accepted as payment of an assignee’s tax liability.
In the case at bar, the CIR disputes the ruling of the CTA En Banc, which found Petron to have had no participation in the
fraudulent procurement and transfer of the TCCs. Petitioner believes that there was substantial evidence to support its
allegation of a fraudulent transfer of the TCCs to Petron.39 The CIR further contends that respondent was not a qualified
transferee of the TCCs, because the latter did not supply petroleum products to the companies that were the assignors
of the subject TCCs.40
The CIR bases its contentions on the DOF’s post-audit findings stating that, for the periods covering 1995 to 1998, Petron
did not deliver fuel and other petroleum products to the companies (the transferor companies) that had assigned the
subject TCCs to respondent. Petitioner further alleges that the findings indicate that the transferor companies could not
have had such a high volume of export sales declared to the Center and made the basis for the issuance of the TCCs
assigned to Petron.41 Thus, the CIR impugns the CTA En Banc ruling that respondent was a transferee in good faith and
for value of the subject TCCs.42
Not finding merit in the CIR’s contention, we affirm the ruling of the CTA En Banc finding that Petron is a transferee in
good faith and for value of the subject TCCs.
From the records, we observe that the CIR had no allegation that there was a deviation from the process for the
approval of the TCCs, which Petron used as payment to settle its excise tax liabilities for the years 1995 to 1998.
The CIR quotes the CTA Second Division and urges us to affirm the latter’s Decision, which found Petron to have
participated in the fraudulent issuance and transfer of the TCCs. However, any merit in the position of petitioner on this
issue is negated by the Joint Stipulation it entered into with Petron in the proceedings before the said Division. As
correctly noted by the CTA En Banc, herein parties jointly stipulated before the Second Division in CTA Case No. 6423 as
follows:
13. That petitioner (Petron) did not participate in the procurement and issuance of the TCCs, which TCCs were
transferred to Petron and later utilized by Petron in payment of its excise taxes.43
This stipulation of fact by the CIR amounts to an admission and, having been made by the parties in a stipulation of facts
at pretrial, is treated as a judicial admission. Under Section 4, Rule 129 of the Rules of Court, a judicial admission
requires no proof.44 The Court cannot lightly set it aside, especially when the opposing party relies upon it and
accordingly dispenses with further proof of the fact already admitted. The exception provided in Rule 129, Section 4 is
that an admission may be contradicted only by a showing that it was made through a palpable mistake, or that no such
admission was made. In this case, however, exception to the rule does not exist.
We agree with the pronouncement of the CTA En Banc that Petron has not been shown or proven to have participated
in the alleged fraudulent acts involved in the transfer and utilization of the subject TCCs. Petron had the right to rely on
the joint stipulation that absolved it from any participation in the alleged fraud pertaining to the issuance and
procurement of the subject TCCs. The joint stipulation made by the parties consequently obviated the opportunity of
the CIR to present evidence on this matter, as no proof is required for an admission made by a party in the course of the
proceedings.45 Thus, the CIR cannot now be allowed to change its stand and renege on that admission.
Moreover, a close examination of the arguments proffered by the CIR in their Petition calls for a reevaluation of the
sufficiency of evidence in the case. The CIR seeks to persuade this Court to believe that there is substantial evidence to
prove that Petron committed a misrepresentation, because the petroleum products were delivered not to the transferor
but to other companies.46 Thus, the TCCs assigned by the transferor companies to Petron were fraudulent. Clearly, a
recalibration of the sufficiency of evidence presented by the CIR is needed for a different conclusion to be reached.
The fundamental rule is that the scope of our judicial review under Rule 45 of the Rules of Court is confined only to
errors of law and does not extend to questions of fact.47 It is basic that where it is the sufficiency of evidence that is
being questioned, there is a question of fact.48 Evidently, the CIR does not point out any specific provision of law that
was wrongly interpreted by the CTA En Banc in the latter’s assailed Decision. Petitioner anchors it contention on the
alleged existence of the sufficiency of evidence it had proffered to prove that Petron was involved in the perpetration of
fraud in the transfer and utilization of the subject TCCs, an allegation that the CTA En Banc failed to consider. We have
consistently held that it is not the function of this Court to analyze or weigh the evidence all over again, unless there is a
showing that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute
palpable error or grave abuse of discretion.49 Such an exception does not obtain in the circumstances of this case.
The CIR claims that Petron was not an innocent transferee for value, because the TCCs assigned to respondent were
void. Petitioner based its allegations on the post-audit report of the DOF, which declared that the subject TCCs were
obtained through fraud and, thus, had no monetary value.50 The CIR adds that the TCCs were subject to a post-audit by
the Center to complete the payment of the excise tax liability to which they were applied. Petitioner further contends
that the Liability Clause of the TCCs makes the transferee or assignee solidarily liable with the original grantee for any
fraudulent act pertinent to their procurement and transfer. The CIR assails the contrary ruling of the CTA En Banc, which
confined the solidary liability only to the original grantee of the TCCs. Thus, petitioner believes that the correct
interpretation of the Liability Clause in the TCCs makes Petron and the transferor companies or the original grantee
solidarily liable for any fraudulent act or violation of the pertinent laws relating to the transfers of the TCCs. 51
We are not persuaded by the CIR’s position on this matter.
The Liability Clause of the TCCs reads:
Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any fraudulent act or violation of the
pertinent laws, rules and regulations relating to the transfer of this TAX CREDIT CERTIFICATE.
The scope of this solidary liability, as stated in the TCCs, was clarified by this Court in Shell, as follows:
The above clause to our mind clearly provides only for the solidary liability relative to the transfer of the TCCs from the
original grantee to a transferee. There is nothing in the above clause that provides for the liability of the transferee in
the event that the validity of the TCC issued to the original grantee by the Center is impugned or where the TCC is
declared to have been fraudulently procured by the said original grantee. Thus, the solidary liability, if any, applies only
to the sale of the TCC to the transferee by the original grantee. Any fraud or breach of law or rule relating to the
issuance of the TCC by the Center to the transferor or the original grantee is the latter's responsibility and liability. The
transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or
transferor in the procurement or issuance of the TCC from the Center. It is not only unjust but well-nigh violative of the
constitutional right not to be deprived of one's property without due process of law. Thus, a re-assessment of tax
liabilities previously paid through TCCs by a transferee in good faith and for value is utterly confiscatory, more so when
surcharges and interests are likewise assessed.
A transferee in good faith and for value of a TCC who has relied on the Center's representation of the genuineness and
validity of the TCC transferred to it may not be legally required to pay again the tax covered by the TCC which has been
belatedly declared null and void, that is, after the TCCs have been fully utilized through settlement of internal revenue
tax liabilities. Conversely, when the transferee is party to the fraud as when it did not obtain the TCC for value or was a
party to or has knowledge of its fraudulent issuance, said transferee is liable for the taxes and for the fraud committed
as provided for by law.52 (Emphasis supplied.)
We also find that the post-audit report, on which the CIR based its allegations, does not have the effect of a suspensive
condition that would determine the validity of the TCCs.
We held in Petron v. CIR (Petron),53 which is on all fours with the instant case, that TCCs are valid and effective from their
issuance and are not subject to a post-audit as a suspensive condition for their validity. Our ruling in Petron finds
guidance from our earlier ruling in Shell, which categorically states that a TCC is valid and effective upon its issuance and
is not subject to a post-audit. The implication on the instant case of the said earlier ruling is that Petron has the right to
rely on the validity and effectivity of the TCCs that were assigned to it. In finally determining their effectivity in the
settlement of respondent’s excise tax liabilities, the validity of those TCCs should not depend on the results of the DOF’s
post-audit findings. We held thus in Petron:
As correctly pointed out by Petron, however, the issue about the immediate validity of TCCs and the use thereof in
payment of tax liabilities and duties are not matters of first impression for this Court. Taking into consideration the
definition and nature of tax credits and TCCs, this Court's Second Division definitively ruled in the aforesaid Pilipinas
Shell case that the post audit is not a suspensive condition for the validity of TCCs, thus:
Art. 1181 tells us that the condition is suspensive when the acquisition of rights or demandability of the obligation must
await the occurrence of the condition. However, Art. 1181 does not apply to the present case since the parties did NOT
agree to a suspensive condition. Rather, specific laws, rules, and regulations govern the subject TCCs, not the general
provisions of the Civil Code. Among the applicable laws that cover the TCCs are EO 226 or the Omnibus Investments
Code, Letter of Instructions No. 1355, EO 765, RP-US Military Agreement, Sec. 106 (c) of the Tariff and Customs Code,
Sec. 106 of the NIRC, BIR Revenue Regulations (RRs), and others. Nowhere in the aforementioned laws does the post-
audit become necessary for the validity or effectivity of the TCCs. Nowhere in the aforementioned laws is it provided
that a TCC is issued subject to a suspensive condition.
xxx xxx xxx
. . . (T)he TCCs are immediately valid and effective after their issuance. As aptly pointed out in the dissent of Justice
Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and instructions found at the back of each TCC, which
provide:
1. This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes and duties until the
amount is fully utilized, in accordance with the pertinent tax and customs laws, rules and regulations.
xxx xxx xxx
4. To acknowledge application of payment, the One-Stop-Shop Tax Credit Center shall issue the corresponding Tax Debit
Memo (TDM) to the grantee.
The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall accomplish the
Application of Tax Credit at the back of the certificate and affix his signature on the column provided."
The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle tax liabilities of the
grantee or transferee, as they do not make the effectivity and validity of the TCC dependent on the outcome of a post-
audit. In fact, if we are to sustain the appellate tax court, it would be absurd to make the effectivity of the payment of a
TCC dependent on a post-audit since there is no contemplation of the situation wherein there is no post-audit. Does the
payment made become effective if no post-audit is conducted? Or does the so-called suspensive condition still apply as
no law, rule, or regulation specifies a period when a post-audit should or could be conducted with a prescriptive period?
Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a future event for its
effectivity. Our system of laws and procedures abhors ambiguity.
Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC
would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for
taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them,
without prescribed grounds or limits as to the exercise of said post-audit.
The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition, and are thus valid
and effective from their issuance.54
In addition, Shell and Petron recognized an exception that holds the transferee/assignee liable if proven to have been a
party to the fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. As earlier mentioned, the
parties entered into a joint stipulation of facts stating that Petron did not participate in the procurement or issuance of
those TCCs. Thus, we affirm the CTA En Banc’s ruling that respondent was an innocent transferee for value thereof.
On the issue of estoppel, petitioner contends that the TCCs, which the Center had continually approved as payment for
respondent’s excise tax liabilities, were subsequently found to be void. Thus, the CIR insists that the government is not
estopped from collecting from Petron the excise tax liabilities that had accrued to the latter as a result of the voidance of
these TCCs. Petitioner argues that the State should not be prejudiced by the neglect or omission of government
employees entrusted with the collection of taxes.55
We are not persuaded by the CIR’s argument.
We recognize the well-entrenched principle that estoppel does not apply to the government, especially on matters of
taxation.1âwphi1 Taxes are the nation’s lifeblood through which government agencies continue to operate and with
which the State discharges its functions for the welfare of its constituents.56 As an exception, however, this general rule
cannot be applied if it would work injustice against an innocent party.57
Petron, in this case, was not proven to have had any participation in or knowledge of the CIR’s allegation of the
fraudulent transfer and utilization of the subject TCCs. Respondent’s status as a transferee in good faith and for value of
these TCCs has been established and even stipulated upon by petitioner.58 Respondent was thereby provided ample
protection from the adverse findings subsequently made by the Center.59 Given the circumstances, the CIR’s invocation
of the non-applicability of estoppel in this case is misplaced.
On the final issue it raised, the CIR contends that a 25% surcharge and a 20% interest per annum must be imposed upon
Petron for respondent’s excise tax liabilities as mandated under Sections 248 and 249 of the National Internal Revenue
Code (NIRC).60 Petitioner considers the tax returns filed by respondent for the years 1995 to 1998 as fraudulent on the
basis of the post-audit finding that the TCCs were void. It argues that the prescriptive period within which to lawfully
assess Petron for its tax liabilities has not prescribed under Section 222 (a)61 of the Tax Code. The CIR explains that
respondent’s assessment on 30 January 2002 of respondent’s deficiency excise tax for the years 1995 to 1998 was well
within the ten-year prescription period.62
In the light of the main ruling in this case, we affirm the CTA En Banc Decision finding Petron to be an innocent
transferee for value of the subject TCCs. Consequently, the Tax Returns it filed for the years 1995 to 1998 are not
considered fraudulent. Hence, the CIR had no legal basis to assess the excise taxes or any penalty surcharge or interest
thereon, as respondent had already paid the appropriate excise taxes using the subject TCCs.
WHEREFORE, the CIR’s Petition is DENIED for lack of merit. The CTA En Banc Decision dated 03 December 2008 in CTA EB
No. 311 is hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
MARIA LOURDES P. A. SERENO
Associate Justice
Sec. 204- Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes
G.R. No. 115103 April 11, 2002
BUREAU OF INTERNAL REVENUE, represented by the COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
OFFICE OF THE OMBUDSMAN, respondent.
DE LEON, JR., J.:
FACTS:
The Office of the Ombudsman received information from an "informer-for-reward" regarding allegedly anomalous grant
of tax refunds by BIR to Limtuaco and La Tondeña. Upon receipt of the information, Graft Investigation Officer Soquilon
of the Ombudsman recommended1 to then Ombudsman Conrado M. Vasquez that the "case" be docketed and
subsequently assigned to him for investigation.2The Ombudsman issued a subpoena duces tecum3 addressed to the Legal
Department of the BIR ordering them to appear before the Ombudsman and to bring the complete original case dockets
of the refunds granted to Limtuaco and La Tondeña. The BIR asked that it be excused from complying with the
subpoena duces tecum because…
(a) the Limtuaco case was pending investigation by Graft Investigation Officer Baldrias; and
(b) the investigation thereof and that of La Tondeña was mooted when the Sandiganbayan ruled in People v. Larin4 that
"the legal issue was no longer in question since the BIR had ruled that the ad valorem taxes were erroneously paid
and could therefore be the proper subject of a claim for tax credit."5
Without resolving the issues raised by the BIR, the Ombudsman issued another subpoena duces tecum, addressed to
BIR Commissioner Vinzons-Chato ordering her to appear before the Ombudsman and to bring the complete original case
dockets of the refunds granted to Limtuaco and La Tondeña. The BIR moved to vacate the subpoena duces
tecum arguing, among others, that:
(a) the documents required to be produced were already submitted to Graft Investigation Officer Baldrias of the
Ombudsman;
(b) the issue of the tax credit of ad valorem taxes has already been resolved as proper by the Sandiganbayan, thus,
already moot.;
(c) the subpoena duces tecum partook of the nature of an omnibus subpoena because it did not specifically
described the particular documents to be produced;
(d) compliance with the subpoena duces tecum would violate Sec. 2697 of the National Internal Revenue Code
(NLRC) on unlawful divulgence of trade secrets and Sec. 2778 on procuring unlawful divulgence of trade secrets;
and
The Ombudsman denied10 the Motion to Vacate the Subpoena Duces Tecum, pointing out that:
(a) the Limtuaco tax refund case then assigned to Baldrias was already referred to the Fact-Finding and
Investigation Bureau of the Ombudsman for consolidation;
(b) the documents submitted by the BIR to Baldrias were incomplete and not certified.
(c) the issuance of the subpoena duces tecum was not a "fishing expedition" considering that the documents
required for production were clearly and particularly specified.1âwphi1.nêt
The BIR moved to reconsider11 the respondent's Order alleging that:
(a) the matter subject of the investigation was beyond the scope of the jurisdiction of the Ombudsman;
(b) the subpoena duces tecum was not properly issued in accordance with law; and
The BIR averred it had the exclusive authority whether to grant a tax credit and that the jurisdiction to review the same
was lodged with the Court of Tax Appeals and not with the Ombudsman.
The Ombudsman denied the motion for reconsideration and reiterated its directive to the BIR to produce the
documents.12 Instead of complying, the BIR manifested its intention to elevate the case on certiorari to this Court.13 The
Ombudsman thus ordered Asst. Comm. Maza to show cause why he should not be cited for contempt for contumacious
refusal to comply with the subpoena duces tecum.14
However, before the expiration of the period within which Asst. Comm. Maza was required to file a reply to the show
cause order of the Ombudsman, the BIR filed before SC the instant Petition for Certiorari, Prohibition and Preliminary
Injunction and Temporary Restraining Order.15
ISSUE:
Are the findings of the BIR (to grant tax refund) not susceptible of being disturbed by the Ombudsman? In other
words, if the Ombudsman investigate as to the act of BIR to grant tax refund is it tantamount to unlawful intrusion
into or intervention with the BIR’s exercise of discretion?
HELD:
No. The power to investigate and to prosecute which was granted by law to the Ombudsman is plenary and
unqualified.22 The Ombudsman Act makes it perfectly clear that the jurisdiction of the Ombudsman encompasses "all
kinds of malfeasance, misfeasance and nonfeasance that have been committed by any officer or employee xxx during his
tenure of office.23
Concededly, the determination of whether to grant a tax refund falls within the exclusive expertise of the BIR.
Nonetheless, when there is a suspicion of even just a tinge of impropriety in the grant of the same, the Ombudsman
could rightfully ascertain whether the determination was done in accordance with law and identify the persons who may
be held responsible thereto. In that sense, the Ombudsman could not be accused of unlawfully intruding into and
intervening with the BIR's exercise of discretion.
As correctly posited by the Office of the Solicitor General –
xxx (T)he Ombudsman undertook the investigation "not as an appellate body exercising the power to review decisions or
rulings rendered by a subordinate body, with the end view of affirming or reversing the same, but as an investigative
agency tasked to discharge the role as 'protector of the people'24 pursuant to his authority 'to investigate xxx any act or
omission of any public official, employee, office or agency, when such act or omission appears to be illegal, unjust,
improper or inefficient."25 The OSG insists that the "mere finality of petitioner's ruling on the subject of tax refund cases
is not a legal impediment to the exercise of respondent's investigative authority under the Constitution and its Charter
(RA 6770) which xxx is so encompassing as to include 'all kinds of malfeasance, misfeasance and nonfeasance that have
been committed by any officer or employee during his tenure of office.'"26

G.R. No. 130716 December 9, 1998


FRANCISCO I. CHAVEZ, petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL GUNIGUNDO (in his capacity as
chairman of the PCGG), respondents, GLORIA A. JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON, and TERESA A.
JOPSON, petitioners-in-intervention.
PANGANIBAN, J.:
FACTS:
Petitioner Francisco I. Chavez, in his capacity, as taxpayer, citizen and former government official who initiated the
prosecution of the Marcoses and their cronies, filed an action against herein respondent PCGG seeking to enjoin the
latter from privately entering into, perfecting and/or executing any agreement with the heirs of the late Pres. Marcos
relating to the properties and assets of Ferdinand Marcos. He institute such action because he was impelled to by
several news reports bannered in number of broadsheets which referred to (1) the alleged discovery of billions of dollars
of Marcos assets deposited in various coded accounts in Swiss banks; and (2) the reported execution of a compromise,
between the government (through PCGG) and the Marcos heirs, on how to split or share these assets.
Chavez invokes his constitutional right to information and the correlative duty of the state to disclose publicly all its
transactions, negotiations and agreements pertaining to PCGG’s task of Marcoses’ ill-gotten wealth. He claims that PCGG
is about to execute a compromise agreement with Marcoses on the alleged billions of ill-gotten wealth, an issue which
involves “paramount public interest” that would be greatly prejudicial to the national interest of the Filipino.
PCGG did not deny forging a compromise agreement with the Marcos heirs. But claiming that Chavez’s action is
premature because he did not asked first the PCGG to disclose the negotiations and the agreements. And even if he has,
PCGG may not be compelled to make any disclosure since the said Agreements have not yet become effective and
binding.
In the Compromise Agreement which is being denounced by Chavez, (particularly the General Agreement) executed
between PCGG and the Marcoses, (although not yet effective at the time of Chavez institute the action), it stipulates
that:
“The assets of the PRIVATE PARTY (the Marcoses) shall be net of and exempt from, any form of taxes due the Republic of
the Philippines”

ISSUE:
W/N the PCGG has the power to provide tax exemption to the properties retained by the Marcos heirs in their
compromise agreement?
HELD:
No. This is a clear violation of the Constitution. The power to tax and to grant tax exemptions is vested in the Congress
and, to a certain extent, in the local legislative bodies. 58 Section 28 (4), Article VI of the Constitution, specifically
provides: "No law granting any tax exemption shall be passed without the concurrence of a majority of all the Member
of the Congress." The PCGG has absolutely no power to grant tax exemptions, even under the cover of its authority to
compromise ill-gotten wealth cases.
Even granting that Congress enacts a law exempting the Marcoses from paying taxes on their properties, such law will
definitely not pass the test of the equal protection clause under the Bill of Rights. Any special grant of tax exemption in
favor only of the Marcos heirs will constitute class legislation. It will also violate the constitutional rule that "taxation
shall be uniform and equitable." 59
Q: Did the said stipulation fall within the power of the CIR to compromise taxes?
No. Such authority of the CIR may be exercised only when (1) there is reasonable doubt as to the validity of the claim
against the taxpayer, and (2) the taxpayer's financial position demonstrates a clear inability to pay. 60Definitely, neither
requisite is present in the case of the Marcoses, because under the Agreement they are effectively conceding the
validity of the claims against their properties, part of which they will be allowed to retain.
Q: Did the grant of tax exemption by PCGG fall within the power othe CIR to abate or cancel a tax liability?
Nor can the PCGG grant of tax exemption fall within the power of the commissioner to abate or cancel a tax liability. This
power can be exercised only when (1) the tax appears to be unjustly or excessively assessed, or (2) the administration
and collection costs involved do not justify the collection of the tax due. 61 In this instance, the cancellation of tax liability
is done even before the determination of the amount due. In any event, criminal violations of the Tax Code, for which
legal actions have been filed in court or in which fraud is involved, cannot be compromised. 62

Section 204 (B)- Abate or Cancel a Tax Liability

April 19, 2017


G.R. No. 201530

ASIATRUST DEVELOPMENT BANK, INC., Petitioners,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondents

DECISION

DEL CASTILLO, J.:


Doctrine:
An application for tax abatement is deemed approved only upon the issuance of a termination letter by the Bureau of
Internal Revenue (BIR).
FACTS:
Asiatrust Development Bank, Inc. (Asiatrust) received from BIR three (3) Formal Letters of Demand (FLD) with
Assessment Notices 4 for deficiency internal revenue taxes for fiscal years ending June 30, 1996, 1997, and 1998.
Asiatrust’s protest was not acted upon by CIR, prompting Asiatrust to file before the CTA a Petition for Review7 praying
for the cancellation of the tax assessments for deficiency income tax, documentary stamp tax, final withholding tax,
among others.
CIR, thereafter, issued against Asiatrust new Assessment Notices for deficiency taxes covering the same period. It was
partially paid by Asiatrust thus leaving certain balances.
1awp++i1
The CIR approved Asiatrust's Offer of Compromise of DST - regular assessments.
During the trial before CTA, Asiatrust manifested that:
 it availed of the Tax Abatement Program for its deficiency final withholding tax - trust assessments (for fiscal
years ending June 30, 1996 and 1998);
 it paid the basic taxes ( P4,187,683.27 and P6,097,825.03) for the said fiscal years, respectively. 11
 it availed of the provisions of Republic Act (RA) No. 9480, otherwise known as the Tax Amnesty Law of 2007. 12
CTA Division rendered a decision (i) partially granting the Petition of Asiatrust; (ii) declaring void the tax assessments for
fiscal year ending June 30, 1996 for having been issued beyond the three-year prescriptive period. ; and (iii) affirming
the deficiency assessments for the fiscal years ending June 30, 1997 and 1998 due to the failure of Asiatrust to present
documentary and testimonial evidence to prove its availment of the Tax Abatement Program and the Tax Amnesty Law.
Asiatrust filed a Motion for Reconsideration 17 attaching photocopies of its Application for Abatement Program, BIR
Payment Form, BIR Tax Payment Deposit Slip, Tax Amnesty, etc. to prove that it is qualified to avail the Tax Availment
Program and Tax Amnesty.
The CTA Division refused to consider Asiatrust's availment of the Tax Abatement Program due to its failure to submit a
termination letter from the BIR.
Asiatrust filed a Manifestation24 informing the CTA Division that the BIR issued a Certification certifying that Asiatrust
that it paid the certain amount in connection with the One-Time Administrative Abatement under Revenue Regulations
(RR) No. 15-2006. 26
CTA Division is not satisfied with Asiatrust's proof as to its availment of the Tax Abatement Program.
Asiatrust insist that the Certification issued by the BIR is sufficient proof of its availment of the Tax Abatement Program
considering that the CIR, despite Asiatrust's request, has not yet issued a termination letter.
CTA En Banc denied Asiatrust's appeal for lack of merit.41 The CTA En Banc sustained the ruling of the CTA Division that
in the absence of a termination letter, it cannot be established that Asiatrust validly availed of the Tax Abatement
Program.
In effect, Asiatrust was adjudged to have still a deficiency in the tax being assessed.
ISSUE:
May Asiatrust availed of the Tax Abatement Program by merely presenting a Certification issued by the BIR
considering that the CIR, despite Asiatrust’s request, has not yet issued a termination letter?
HELD:
No.
An application for tax abatement is considered approved only upon the issuance of a termination letter.
Section 204(B) 63 of the 1997 National lntenal Revenue Code (NIRC) empowers the CIR to abate or cancel a tax liability.
The BIR issued RR No. 15-06 prescribing the guidelines on the implementation of the one-time administrative abatement
of all penalties/surcharges and interest on delinquent accounts and assessments (preliminary or final, disputed or not) .
Section 4 of RR No. 15-06 provides:
SECTION 4. Who May Avail, - Any person/ taxpayer, natural or juridical, may settle thru this abatement
program any delinquent account or assessment which has been released as of June 30, 2006, by paying
an amount equal to One Hundred Percent (100%) of the Basic Tax assessed with the Accredited Agent
Bank (AAB) of the Revenue District Office (RDO)/Large Taxpayers Service (LTS)/Large Taxpayers District
Office (LTDO) that has jurisdiction over the taxpayer. In the absence of an AAB, payment may be made
with the Revenue Collection Officer/Deputized Treasurer of the RDO that has jurisdiction over the
taxpayer. After payment of the basic tax, the assessment for penalties/surcharge and interest shall be
cancelled by the concerned BIR Office following existing rules and procedures. Thereafter, the docket of
the case shall be forwarded to the Office of the Commissioner, thru the Deputy Commissioner for
Operations Group, for issuance of Termination Letter.1âwphi1
Based on the guidelines, the last step in the tax abatement process is the issuance of the termination letter. The
presentation of the termination letter is essential as it proves that the taxpayer's application for tax abatement has been
approved. Thus, without a termination letter, a tax assessment cannot be considered closed and terminated.
In this case, Asiatrust failed to present a termination letter from the BIR. Instead, it presented a Certification issued by
the BIR to prove that it availed of the Tax Abatement Program and paid the basic tax. It also attached copies of its BIR
Tax Payment Deposit Slips and a letter issued by RDO Nacar. These documents, however, do not prove that Asiatrust's
application for tax abatement has been approved. If at all, these documents only prove Asiatrust's payment of basic
taxes, which is not a ground to consider its deficiency tax assessment closed and terminated.
Since no termination letter has been issued by the BIR, there is no reason for the Court to consider as closed and
terminated the tax assessment on Asiatrust's final withholding tax for fiscal year ending June 30, 1998. Asiatrust's
application for tax abatement will be deemed approved only upon the issuance of a temination letter, and only then will
the deficiency tax assessment be considered closed and terminated. However, in case Asiatrust's application for tax
abatement is denied, any payment made by it would be applied to its outstanding tax liability. For this reason,
Asiatrust's allegation of double taxation must also fail.
Thus, the Court finds no error on the part of the CTA En Banc in affirming the said tax assessment.

Sec. 204 (C )- Credit or Refund taxes erroneously or illegally received or penalties imposed without authority
G.R. No. 184398 February 25, 2010
SILKAIR (SINGAPORE) PTE. LTD., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
FACTS:
Petitioner Silkair, a foreign corporation organized under the laws of Singapore with a Philippine representative office in
Cebu City, is an online international carrier plying the Singapore-Cebu-Singapore and Singapore-Cebu-Davao-Singapore
routes.
Silkair filed with the BIR an administrative claim for the refund (amounting to ₱3,983,590.49) in excise taxes which it
allegedly erroneously paid on its purchases of aviation jet fuel from Petron Corporation from June to December 2000. It
used as basis the BIR Ruling which declared that the petitioner’s Singapore-Cebu-Singapore route is an international
flight by an international carrier and that the petroleum products purchased by the petitioner should not be subject to
excise taxes under Section 135 (b) of NIRC
Section 135(b) of the NIRC provides:
SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. – Petroleum products sold
to the following are exempt from excise tax:
xxxx
(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or
consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies
exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; x x x.
In this regard, Silkair relied on the reciprocity clause under the Air Transport Agreement entered between the Republic
of the Philippines and the Republic of Singapore.
The BIR took no action on petitioner’s claim for refund, thus it sought judicial recourse with the CTA to prevent the lapse
of the two-year prescriptive period within which to judicially claim a refund under Section 2294 of the NIRC. CTA First
Division found that petitioner was qualified for tax exemption under Section 135(b) of the NIRC, as long as the Republic
of Singapore exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies under the
Air Transport Agreement. However, it ruled that petitioner was not entitled to the excise tax exemption for failure to
present proof that it was authorized to operate in the Philippines during the period material to the case due to the non-
admission of some of its exhibits, which were merely photocopies. CTA En Banc also denied the petition for review of
Silkair.
ISSUE:
W/N Petitioner Silkair has the legal personality to claim the refund or tax credit of any erroneous payment of excise
tax on its aviation fuel purchases from Petron.

HELD:
Excise taxes are basically an indirect tax. These are directly levied upon the manufacturer or importer upon removal of
the taxable goods from its place of production or from the customs custody. These taxes, however, may be actually
passed on to the end consumer as part of the transfer value or selling price of the goods sold, bartered or exchanged.
Under Section 130(A)(2) of the NIRC, it is Petron, the taxpayer, which has the legal personality to claim the refund or tax
credit of any erroneous payment of excise taxes, and not Silkair as a mere purchaser.
SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. –
(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. –
(1) Persons Liable to File a Return. – x x x
(2) Time for Filing of Return and Payment of the Tax. – Unless otherwise specifically allowed, the return shall be filed and
the excise tax paid by the manufacturer or producer before removal of domestic products from place of production: x x x.
(Emphasis supplied.)
Furthermore, Section 204(C) of the NIRC provides a two-year prescriptive period within which a taxpayer may file an
administrative claim for refund or tax credit, to wit:
SEC. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The Commissioner may –
xxxx
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit
or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed
showing an overpayment shall be considered as a written claim for credit or refund. (Emphasis supplied.)

It is clear that the proper party to question, or claim a refund or tax credit of an indirect tax is the statutory taxpayer,
which is Petron in this case, as it is the company on which the tax is imposed by law and which paid the same even if the
burden thereof was shifted or passed on to another. It bears stressing that even if Petron shifted or passed on to
petitioner the burden of the tax, the additional amount which petitioner paid is not a tax but a part of the purchase
price which it had to pay to obtain the goods.

G.R. No. 185568 March 21, 2012


COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
PETRON CORPORATION, Respondent.
DECISION
SERENO, J.:
FACTS:
Respondent Petron is a corporation engaged in the production of petroleum products and is a Board of Investment (BOI)
– registered enterprise in accordance with the provisions of the Omnibus Investments Code of 1987 (E.O. 226).
For taxable years 1995 to 1998, Petron paid its tax liabilities with the Tax Credit Certificate (TCC) it received from
different BOI-registered enterprises as consideration for the delivery of petroleum products to these companies.
Petron’s acceptance and use of the TCCs has been continuously approved by the Dept. of Finance as well as the BIR
Collection Program Division through its surrender and subsequent issuance of Tax Debit Memos (TDMs).
In a post-audit conducted by the DOF, it was found out that the TCCs issued to the TCC transferor were fraudulently
obtained and fraudulently transferred to Petron. Thus, the TCCs and TDMs issued to Petron were cancelled by the DOF.
Now, the CIR issued an assessment against Petron for deficiency excise taxes for the taxable years 1995-1998, inclusive
of surcharges and interests, on the ground that the TCCs which Petron used to pay its taxes were cancelled and
therefore has the effect of non-payment of taxes. The CIR also alleged that Petron has the intent to evade its taxes, thus
making the returns it filed fraudulent.
In the stipulation of facts between the parties, one of the judicial admissions was that Petron never participated in the
procurement and issuance of the TCCs to its transferors. Also, before the CTA En Banc, it was held that Petron was an
innocent purchaser in good faith and for value.
ISSUE:
Will Petron be held liable for deficiency taxes on the ground that the TCCs transferred to it were found to be void?
RULING:
No. Petron according to SC is an innocent purchaser in good faith and for value.
From the records, SC observed that the CIR had no allegation that there was a deviation from the process for the
approval of the TCCs, which Petron used as payment to settle its excise tax liabilities for the years 1995 to 1998.
Herein parties jointly stipulated before the Second Division in CTA Case No. 6423 as follows:
13. That petitioner (Petron) did not participate in the procurement and issuance of the TCCs, which TCCs were transferred
to Petron and later utilized by Petron in payment of its excise taxes.43
This stipulation of fact by the CIR amounts to an admission and, having been made by the parties in a stipulation of facts
at pretrial, is treated as a judicial admission which requires no proof, which may be contradicted only by a showing that
it was made through a palpable mistake, or that no such admission was made. In this case, however, exception to the
rule does not exist.
Petron has not been shown or proven to have participated in the alleged fraudulent acts involved in the transfer and
utilization of the subject TCCs. Petron had the right to rely on the joint stipulation that absolved it from any participation
in the alleged fraud pertaining to the issuance and procurement of the subject TCCs.
A transferee in good faith and for value of a TCC who has relied on the Center's representation of the genuineness and
validity of the TCC transferred to it may not be legally required to pay again the tax covered by the TCC which has been
belatedly declared null and void, that is, after the TCCs have been fully utilized through settlement of internal revenue tax
liabilities.
Q: Is post-audit as a suspensive condition for TCC’s validity?
No.SC find that the post-audit report does not have the effect of a suspensive condition that would determine the
validity of the TCCs. TCCs are valid and effective from their issuance and are not subject to a post-audit as a suspensive
condition for their validity. The ruling in Petron finds guidance from earlier ruling in Shell, which categorically states that
a TCC is valid and effective upon its issuance and is not subject to a post-audit. The implication on the instant case of the
said earlier ruling is that Petron has the right to rely on the validity and effectivity of the TCCs that were assigned to it. In
finally determining their effectivity in the settlement of respondent’s excise tax liabilities, the validity of those TCCs
should not depend on the results of the DOF’s post-audit findings.
Q: Is the government still allowed to collect from Petron the excise tax liabilities that had accrued to the latter as a
result of the voidance of TCCs, based on the ground that Principle of Estoppel does not apply to government on
matters of taxation?
No.
Although SC recognize the well-entrenched principle that estoppel does not apply to the government, especially on
matters of taxation because taxes are the nation’s lifeblood through which government agencies continue to operate
and with which the State discharges its functions for the welfare of its constituents, it admits of exception, that is, it
cannot be applied if it would work injustice against an innocent party.57
Petron, in this case, was not proven to have had any participation in or knowledge of the CIR’s allegation of the
fraudulent transfer and utilization of the subject TCCs. Petron’s status as a transferee in good faith and for value of these
TCCs has been established and even stipulated upon by CIR.58 Petron was thereby provided ample protection from the
adverse findings subsequently made by the Center.59 Given the circumstances, the CIR’s invocation of the non-
applicability of estoppel in this case is misplaced.

Sec. 205 - Remedies for the Collection of Delinquent Taxes

G.R. No. L-41919-24 May 30, 1980

QUIRICO P. UNGAB, petitioner,


vs.
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First Instance, Branch 1, 16TH Judicial District, Davao City, THE
COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in his capacity as State Prosecutor, respondents.

CONCEPCION JR., J:

Petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the informations filed
in Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of the
Philippines, plaintiff, versus Quirico Ungab, accused;" and to restrain the respondent Judge from further proceeding with the hearing
and trial of the said cases.

It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia examined the income tax returns filed by the herein
petitioner, Quirico P. Ungab, for the calendar year ending December 31, 1973. In the course of his examination, he discovered that
the petitioner failed to report his income derived from sales of banana saplings. As a result, the BIR District Revenue Officer at Davao
City sent a "Notice of Taxpayer" to the petitioner informing him that there is due from him (petitioner) the amount of P104,980.81,
representing income, business tax and forest charges for the year 1973 and inviting petitioner to an informal conference where the
petitioner, duly assisted by counsel, may present his objections to the findings of the BIR Examiner. 1 Upon receipt of the notice, the
petitioner wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent on
commission basis in the banana sapling business and that his income, as reported in his income tax returns for the said year, was
accurately stated. BIR Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a fraudulent income tax
return so that he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the Bureau of Internal Revenue. After examining the
records of the case, the Special Investigation Division of the Bureau of Internal Revenue found sufficient proof that the herein
petitioner is guilty of tax evasion for the taxable year 1973 and recommended his prosecution: têñ.£îhqwâ£

(1) For having filed a false or fraudulent income tax return for 1973 with intent to evade his just taxes due the government under
Section 45 in relation to Section 72 of the National Internal Revenue Code;

(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total of unpaid fixed taxes of P100.00 plus penalties
of 175.00 or a total of P175.00, in accordance with Section 183 of the National Internal Revenue Code;

(3) For failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on the total sales of P129,580.35 to the
Davao Fruit Corporation, depriving thereby the government of its due revenue in the amount of P15,872.59, inclusive of surcharge. 2

In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the Commissioner of Internal Revenue
approved the prosecution of the petitioner. 3

Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all Provincial and City Fiscals throughout the
Philippines in the investigation and prosecution, if the evidence warrants, of all violations of the National Internal Revenue Code, as
amended, and other related laws, in Administrative Order No. 116 dated December 5, 1974, and to whom the case was assigned,
conducted a preliminary investigation of the case, and finding probable cause, filed six (6) informations against the petitioner with
the Court of First Instance of Davao City, to wit: têñ.£îhqwâ£

(1) Criminal Case No. 1960 — Violation of Sec. 45, in relation to Sec. 72 of the National Internal-Revenue Code, for filing a fraudulent
income tax return for the calendar year ending December 31, 1973; 4

(2) Criminal Case No. 1961 — Violation of Sec. 182 (a), in relation to Secs. 178, 186, and 208 of the National Internal Revenue Code,
for engaging in business as producer of saplings, from January, 1973 to December, 1973, without first paying the annual fixed or
privilege tax thereof; 5

(3) Criminal Case No. 1962 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National Internal Revenue Code, for
failure to render a true and complete return on the gross quarterly sales, receipts and earnings in his business as producer of banana
saplings and to pay the percentage tax due thereon, for the quarter ending December 31, 1973; 6

(4) Criminal Case No. 1963 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National Internal Revenue Code, for
failure to render a true and complete return on the gross quarterly sales receipts and earnings in his business as producer of
saplings, and to pay the percentage tax due thereon, for the quarter ending on March 31, 1973; 7

(5) Criminal Case No. 1964 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National Internal Revenue Code, for
failure to render a true and complete return on the gross quarterly sales, receipts and earnings in his business as producer of banana
saplings for the quarter ending on June 30, 1973, and to pay the percentage tax due thereon; 8

(6) Criminal Case No. 1965 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National Internal Revenue Code, for
failure to render a true and complete return on the gross quarterly sales, receipts and earnings as producer of banana saplings, for
the quarter ending on September 30, 1973, and to pay the percentage tax due thereon. 9

On September 16, 1975, the petitioner filed a motion to quash the informations upon the grounds that: (1) the informations are null
and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2) the trial court has
no jurisdiction to take cognizance of the above-entitled cases in view of his pending protest against the assessment made by the BIR
Examiner. 10 However, the trial court denied the motion on October 22, 1975. 11 Whereupon, the petitioner filed the instant
recourse. As prayed for, a temporary restraining order was issued by the Court, ordering the respondent Judge from further
proceeding with the trial and hearing of Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of
Davao, all entitled: "People of the Philippines, plaintiff, versus Quirico Ungab, accused."

The petitioner seeks the annulment of the informations filed against him on the ground that the respondent State Prosecutor is
allegedly without authority to do so. The petitioner argues that while the respondent State Prosecutor may initiate the investigation
of and prosecute crimes and violations of penal laws when duly authorized, certain requisites, enumerated by this Court in its
decision in the case of Estrella vs. Orendain,12 should be observed before such authority may be exercised; otherwise, the
provisions of the Charter of Davao City on the functions and powers of the City Fiscal will be meaningless because according to said
charter he has charge of the prosecution of all crimes committed within his jurisdiction; and since "appropriate circumstances are
not extant to warrant the intervention of the State Prosecution to initiate the investigation, sign the informations and prosecute
these cases, said informations are null and void." The ruling adverted to by the petitioner reads, as follows: têñ.£îhqwâ£

In view of all the foregoing considerations, it is the ruling of this Court that under Sections 1679 and 1686 of the Revised
Administrative Code, in any instance where a provincial or city fiscal fails, refuses or is unable, for any reason, to investigate or
prosecute a case and, in the opinion of the Secretary of Justice it is advisable in the public interest to take a different course of
action, the Secretary of Justice may either appoint as acting provincial or city fiscal to handle the investigation or prosecution
exclusively and only of such case, any practicing attorney or some competent officer of the Department of Justice or office of any
city or provincial fiscal, with complete authority to act therein in all respects as if he were the provincial or city fiscal himself, or
appoint any lawyer in the government service, temporarily to assist such city of provincial fiscal in the discharge of his duties, with
the same complete authority to act independently of and for such city or provincial fiscal provided that no such appointment may be
made without first hearing the fiscal concerned and never after the corresponding information has already been filed with the court
by the corresponding city or provincial fiscal without the conformity of the latter, except when it can be patently shown to the court
having cognizance of the case that said fiscal is intent on prejudicing the interests of justice. The same sphere of authority is true
with the prosecutor directed and authorized under Section 3 of Republic Act 3783, as amended and/or inserted by Republic Act
5184. The observation in Salcedo vs. Liwag, supra, regarding the nature of the power of the Secretary of Justice over fiscals as being
purely over administrative matters only was not really necessary, as indicated in the above relation of the facts and discussion of the
legal issues of said case, for the resolution thereof. In any event, to any extent that the opinion therein may be inconsistent herewith
the same is hereby modified.

The contention is without merit. Contrary to the petitioner's claim, the rule therein established had not been violated. The
respondent State Prosecutor, although believing that he can proceed independently of the City Fiscal in the investigation and
prosecution of these cases, first sought permission from the City Fiscal of Davao City before he started the preliminary investigation
of these cases, and the City Fiscal, after being shown Administrative Order No. 116, dated December 5, 1974, designating the said
State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the investigation and prosecution of all
violations of the National Internal Revenue Code, as amended, and other related laws, graciously allowed the respondent State
Prosecutor to conduct the investigation of said cases, and in fact, said investigation was conducted in the office of the City Fiscal. 13

The petitioner also claims that the filing of the informations was precipitate and premature since the Commissioner of Internal
Revenue has not yet resolved his protests against the assessment of the Revenue District Officer; and that he was denied recourse to
the Court of Tax Appeals.

The contention is without merit. What is involved here is not the collection of taxes where the assessment of the Commissioner of
Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal
Revenue Code which is within the cognizance of courts of first instance. While there can be no civil action to enforce collection
before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation
and assessment of the tax before there can be a criminal prosecution under the Code. têñ.£îhqwâ£

The contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary before the taxpayer can be
prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this case, knowingly and willfully
filed fraudulent returns with intent to evade and defeat a part or all of the tax. 14

An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A
crime is complete when the violator has knowingly and willfuly filed a fraudulent return with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the
government's failure to discover the error and promptly to assess has no connections with the commission of the crime. 15

Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the prescriptive period
for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. 16 Obviously, the protest of the
petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the National Internal
Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the motion to quash filed by the
petitioner.

WHEREFORE, the petition should be, as it is hereby dismissed. The temporary restraining order heretofore issued is hereby set aside.
With costs against the petitioner. SO ORDERED.
Quirico Ungab vs Vicente Cusi
FACTS: BIR Examiner Ben Garcia examined the income tax returns filed by Quirico P. Ungab, for the calendar year ending December
31, 1973. In the course of his examination, he discovered that the petitioner failed to report his income derived from sales of banana
saplings. As a result, the BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the petitioner informing him that
there is due from him (Ungab) the amount of P104,980.81, representing income, business tax and forest charges for the year 1973
and inviting petitioner to an informal conference where the petitioner, duly assisted by counsel, may present his objections to the
findings of the BIR Examiner. Upon receipt of the notice, the petitioner wrote the BIR District Revenue Officer protesting the
assessment, claiming that he was only a dealer or agent on commission basis in the banana sapling business and that his income. BIR
Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a fraudulent income tax return so that he submitted
a "Fraud Referral Report," to the Tax Fraud Unit of the BIR. Consequently, the Special Investigation Division of the BIR found
sufficient proof that the herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his prosecution. Ungab
filed a motion to quash the informations on the ground that his pending protest with the CIR has not yet been acted upon hence the
assessment is not yet final and executory and therefore the trial court has no jurisdiction yet over the criminal cases.

ISSUE: Whether or not the contention of Ungab is correct

RULING: The contention is without merit. What is involved here is not the collection of taxes where the assessment of the
Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the
National Internal Revenue Code which is within the cognizance of courts of first instance. While there can be no civil action to
enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the
precise computation and assessment of the tax before there can be a criminal prosecution under the Code.

Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the prescriptive period
for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. Obviously, the protest of the
petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the National Internal
Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the motion to quash filed by the
petitioner.

Sec. 206 - Constructive Distraint of the Property of a Taxpayer


G.R. No. 116033 February 26, 1997

ALFREDO L. AZARCON, petitioner,


vs.
SANDIGANBAYAN, PEOPLE OF THE PHILIPPINES and JOSE C. BATAUSA, respondents.

PANGANIBAN, J.:

Does the Sandiganbayan have jurisdiction over a private individual who is charged with malversation of public funds as a principal
after the said individual had been designated by the Bureau of Internal Revenue as a custodian of distrained property? Did such
accused become a public officer and therefore subject to the graft court's jurisdiction as a consequence of such designation by the
BIR?

These are the main questions in the instant petition for review of Respondent Sandiganbayan's Decision1 in Criminal Case No. 14260
promulgated on March 8, 1994, convicting petitioner of malversation of public funds and property, and Resolution2 dated June 20,
1994, denying his motion for new trial or reconsideration thereof.

The Facts

Petitioner Alfredo Azarcon owned and operated an earth-moving business, hauling "dirt and ore."3 His services were contracted by
the Paper Industries Corporation of the Philippines (PICOP) at its concession in Mangagoy, Surigao del Sur. Occasionally, he engaged
the services of sub-contractors like Jaime Ancla whose trucks were left at the former's premises.4 From this set of circumstances
arose the present controversy.

. . . It appears that on May 25, 1983, a Warrant of Distraint of Personal Property was issued by the Main Office of the Bureau of
Internal Revenue (BIR) addressed to the Regional Director (Jose Batausa) or his authorized representative of Revenue Region 10,
Butuan City commanding the latter to distraint the goods, chattels or effects and other personal property of Jaime Ancla, a sub-
contractor of accused Azarcon and, a delinquent taxpayer. The Warrant of Garnishment was issued to accused Alfredo Azarcon
ordering him to transfer, surrender, transmit and/or remit to BIR the property in his possession owned by taxpayer Ancla. The
Warrant of Garnishment was received by accused Azarcon on June 17, 1985.5

Petitioner Azarcon, in signing the "Receipt for Goods, Articles, and Things Seized Under Authority of the National Internal Revenue,"
assumed the undertakings specified in the receipt the contents of which are reproduced as follows:

(I), the undersigned, hereby acknowledge to have received from Amadeo V. San Diego, an Internal Revenue Officer, Bureau of
Internal Revenue of the Philippines, the following described goods, articles, and things:

Kind of property — Isuzu dump truck


Motor number — E120-229598
Chassis No. — SPZU50-1772440
Number of CXL — 6
Color — Blue
Owned By — Mr. Jaime Ancla

the same having been this day seized and left in (my) possession pending investigation by the Commissioner of Internal Revenue or
his duly authorized representative. (I) further promise that (I) will faithfully keep, preserve, and, to the best of (my) ability, protect
said goods, articles, and things seized from defacement, demarcation, leakage, loss, or destruction in any manner; that (I) will
neither alter nor remove, nor permit others to alter or remove or dispose of the same in any manner without the express authority
of the Commissioner of Internal Revenue; and that (I) will produce and deliver all of said goods, articles, and things upon the order of
any court of the Philippines, or upon demand of the Commissioner of Internal Revenue or any authorized officer or agent of the
Bureau of Internal Revenue.6

Subsequently, Alfredo Azarcon wrote a letter dated November 21, 1985 to the BIR's Regional Director for Revenue Region 10 B,
Butuan City stating that

. . . while I have made representations to retain possession of the property and signed a receipt of the same, it appears now that Mr.
Jaime Ancla intends to cease his operations with us. This is evidenced by the fact that sometime in August, 1985 he surreptitiously
withdrew his equipment from my custody. . . . In this connection, may I therefore formally inform you that it is my desire to
immediately relinquish whatever responsibilities I have over the above-mentioned property by virtue of the receipt I have signed.
This cancellation shall take effect immediately. . . .7

Incidentally, the petitioner reported the taking of the truck to the security manager of PICOP, Mr. Delfin Panelo, and requested him
to prevent this truck from being taken out of the PICOP concession. By the time the order to bar the truck's exit was given, however,
it was too late.8

Regional Director Batausa responded in a letter dated May 27, 1986, to wit:

An analysis of the documents executed by you reveals that while you are (sic) in possession of the dump truck owned by JAIME
ANCLA, you voluntarily assumed the liabilities of safekeeping and preserving the unit in behalf of the Bureau of Internal Revenue.
This is clearly indicated in the provisions of the Warrant of Garnishment which you have signed, obliged and committed to surrender
and transfer to this office. Your failure therefore, to observe said provisions does not relieve you of your responsibility.9

Thereafter, the Sandiganbayan found that

On 11 June 1986, Mrs. Marilyn T. Calo, Revenue Document Processor of Revenue Region 10 B, Butuan City, sent a progress report to
the Chief of the Collection Branch of the surreptitious taking of the dump truck and that Ancla was renting out the truck to a certain
contractor by the name of Oscar Cueva at PICOP (Paper Industries Corporation of the Philippines, the same company which engaged
petitioner's earth moving services), Mangagoy, Surigao del Sur. She also suggested that if the report were true, a warrant of
garnishment be reissued against Mr. Cueva for whatever amount of rental is due from Ancla until such time as the latter's tax
liabilities shall be deemed satisfied. . . However, instead of doing so, Director Batausa filed a letter-complaint against the (herein
Petitioner) and Ancla on 22 January 1988, or after more than one year had elapsed from the time of Mrs. Calo's report. 10

Provincial Fiscal Pretextato Montenegro "forwarded the records of the complaint . . . to the Office of the Tanodbayan" on May 18,
1988. He was deputized Tanodbayan prosecutor and granted authority to conduct preliminary investigation on August 22, 1988, in a
letter by Special Prosecutor Raul Gonzales approved by Ombudsman (Tanodbayan) Conrado Vasquez. 11

Along with his co-accused Jaime Ancla, Petitioner Azarcon was charged before the Sandiganbayan with the crime of malversation of
public funds or property under Article 217 in relation to Article 222 of the Revised Penal Code (RPC) in the following Information 12
filed on January 12, 1990, by Special Prosecution Officer Victor Pascual:
That on or about June 17, 1985, in the Municipality of Bislig, Province of Surigao del Sur, Philippines, and within the jurisdiction of
this Honorable Court, accused Alfredo L. Azarcon, a private individual but who, in his capacity as depository/administrator of
property seized or deposited by the Bureau of Internal Revenue, having voluntarily offered himself to act as custodian of one Isuzu
Dumptruck (sic) with Motor No. E120-22958, Chasis No. SPZU 50-1772440, and number CXL-6 and was authorized to be such under
the authority of the Bureau of Internal Revenue, has become a responsible and accountable officer and said motor vehicle having
been seized from Jaime C. Ancla in satisfaction of his tax liability in the total sum of EIGHTY THOUSAND EIGHT HUNDRED THIRTY
ONE PESOS and 59/100 (P80,831.59) became a public property and the value thereof as public fund, with grave abuse of confidence
and conspiring and confederating with said Jaime C. Ancla, likewise, a private individual, did then and there wilfully, (sic) unlawfully
and feloniously misappropriate, misapply and convert to his personal use and benefit the aforementioned motor vehicle or the value
thereof in the aforestated amount, by then and there allowing accused Jaime C. Ancla to remove, retrieve, withdraw and tow away
the said Isuzu Dumptruck (sic) with the authority, consent and knowledge of the Bureau of Internal Revenue, Butuan City, to the
damage and prejudice of the government in the amount of P80,831.59 in a form of unsatisfied tax liability.

CONTRARY TO LAW.

The petitioner filed a motion for reinvestigation before the Sandiganbayan on May 14, 1991, alleging that: (1) the petitioner never
appeared in the preliminary investigation; and (2) the petitioner was not a public officer, hence a doubt exists as to why he was
being charged with malversation under Article 217 of the Revised Penal Code. 13 The Sandiganbayan granted the motion for
reinvestigation on May 22, 1991. 14 After the reinvestigation, Special Prosecution Officer Roger Berbano, Sr., recommended the
"withdrawal of the information" 15 but was "overruled by the Ombudsman." 16

A motion to dismiss was filed by petitioner on March 25, 1992 on the ground that the Sandiganbayan did not have jurisdiction over
the person of the petitioner since he was not a public officer. 17 On May 18, 1992; the Sandiganbayan denied the motion. 18

When the prosecution finished presenting its evidence, the petitioner then filed a motion for leave to file demurrer to evidence
which was denied on November 16, 1992, "for being without merit." 19 The petitioner then commenced and finished presenting his
evidence on February 15, 1993.

The Respondent Court's Decision

On March 8, 1994, Respondent Sandiganbayan 20 rendered a Decision, 21 the dispositive portion of which reads:

WHEREFORE, the Court finds accused Alfredo Azarcon y Leva GUILTY beyond reasonable doubt as principal of Malversation of Public
Funds defined and penalized under Article 217 in relation to Article 222 of the Revised Penal Code and, applying the Indeterminate
Sentence Law, and in view of the mitigating circumstance of voluntary surrender, the Court hereby sentences the accused to suffer
the penalty of imprisonment ranging from TEN (10) YEARS and ONE (1) DAY of prision mayor in its maximum period to SEVENTEEN
(17) YEARS, FOUR (4) MONTHS and ONE (1) DAY of Reclusion Temporal. To indemnify the Bureau of Internal Revenue the amount of
P80,831.59; to pay a fine in the same amount without subsidiary imprisonment in case of insolvency; to suffer special perpetual
disqualification; and, to pay the costs.

Considering that accused Jaime Ancla has not yet been brought within the jurisdiction of this Court up to this date, let this case be
archived as against him without prejudice to its revival in the event of his arrest or voluntary submission to the jurisdiction of this
Court.

SO ORDERED.

Petitioner, through new counsel, 22 filed a motion for new trial or reconsideration on March 23, 1994, which was denied by the
Sandiganbayan in its Resolution 23 dated December 2, 1994.

Hence, this petition.

The Issues

The petitioner submits the following reasons for the reversal of the Sandiganbayan's assailed Decision and Resolution:

I. The Sandiganbayan does not have jurisdiction over crimes committed solely by private individuals.

II. In any event, even assuming arguendo that the appointment of a private individual as a custodian or a depositary of distrained
property is sufficient to convert such individual into a public officer, the petitioner cannot still be considered a public officer
because:

[A]
There is no provision in the National Internal Revenue Code which authorizes the Bureau of Internal Revenue to constitute private
individuals as depositaries of distrained properties.

[B]

His appointment as a depositary was not by virtue of a direct provision of law, or by election or by appointment by a competent
authority.

III. No proof was presented during trial to prove that the distrained vehicle was actually owned by the accused Jaime Ancla;
consequently, the government's right to the subject property has not been established.

IV. The procedure provided for in the National Internal Revenue Code concerning the disposition of distrained property was not
followed by the B.I.R., hence the distraint of personal property belonging to Jaime C. Ancla and found allegedly to be in the
possession of the petitioner is therefore invalid.

V. The B.I.R. has only itself to blame for not promptly selling the distrained property of accused Jaime C. Ancla in order to realize the
amount of back taxes owed by Jaime C. Ancla to the Bureau. 24

In fine, the fundamental issue is whether the Sandiganbayan had jurisdiction over the subject matter of the controversy. Corollary to
this is the question of whether petitioner can be considered a public officer by reason of his being designated by the Bureau of
Internal Revenue as a depositary of distrained property.

The Court's Ruling

The petition is meritorious.

Jurisdiction of the Sandiganbayan

It is hornbook doctrine that in order "(to) ascertain whether a court has jurisdiction or not, the provisions of the law should be
inquired into." 25 Furthermore, "the jurisdiction of the court must appear clearly from the statute law or it will not be held to exist.
It cannot be presumed or implied." 26 And for this purpose in criminal cases, "the jurisdiction of a court is determined by the law at
the time of commencement of the action." 27

In this case, the action was instituted with the filing of this information on January 12, 1990; hence, the applicable statutory
provisions are those of P.D. No. 1606, as amended by P.D. No. 1861 on March 23, 1983, but prior to their amendment by R.A. No.
7975 on May 16, 1995. At that time, Section 4 of P.D. No. 1606 provided that:

Sec. 4. Jurisdiction. — The Sandiganbayan shall exercise:

(a) Exclusive original jurisdiction in all cases involving:

(1) Violations of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act, Republic Act No.
1379, and Chapter II, Section 2, Title VII of the Revised Penal Code;

(2) Other offenses or felonies committed by public officers and employees in relation to their office, including those employed in
government-owned or controlled corporations, whether simple or complexed with other crimes, where the penalty prescribed by
law is higher than prision correccional or imprisonment for six (6) years, or a fine of P6,000.00: PROVIDED, HOWEVER, that offenses
or felonies mentioned in this paragraph where the penalty prescribed by law does not exceed prision correccional or imprisonment
for six (6) years or a fine of P6,000.00 shall be tried by the proper Regional Trial Court, Metropolitan Trial Court, Municipal Trial
Court and Municipal Circuit Trial Court.

xxx xxx xxx

In case private individuals are charged as co-principals, accomplices or accessories with the public officers or employees, including
those employed in government-owned or controlled corporations, they shall be tried jointly with said public officers and employees.

xxx xxx xxx

The foregoing provisions unequivocally specify the only instances when the Sandiganbayan will have jurisdiction over a private
individual, i.e. when the complaint charges the private individual either as a co-principal, accomplice or accessory of a public officer
or employee who has been charged with a crime within its jurisdiction.

Azarcon: A Public Officer or A Private Individual?


The Information does not charge petitioner Azarcon of being a co-principal, accomplice or accessory to a public officer committing
an offense under the Sandiganbayan's jurisdiction. Thus, unless petitioner be proven a public officer, the Sandiganbayan will have no
jurisdiction over the crime charged. Article 203 of the RPC determines who are public officers:

Who are public officers. — For the purpose of applying the provisions of this and the preceding titles of the book, any person who,
by direct provision of the law, popular election, popular election or appointment by competent authority, shall take part in the
performance of public functions in the Government of the Philippine Islands, or shall perform in said Government or in any of its
branches public duties as an employee, agent, or subordinate official, of any rank or classes, shall be deemed to be a public officer.

Thus,

(to) be a public officer, one must be —

(1) Taking part in the performance of public functions in the government, or

Performing in said Government or any of its branches public duties as an employee, agent, or subordinate official, of any rank or
class; and

(2) That his authority to take part in the performance of public functions or to perform public duties must be —

a. by direct provision of the law, or

b. by popular election, or

c. by appointment by competent authority. 28

Granting arguendo that the petitioner, in signing the receipt for the truck constructively distrained by the BIR, commenced to take
part in an activity constituting public functions, he obviously may not be deemed authorized by popular election. The next logical
query is whether petitioner's designation by the BIR as a custodian of distrained property qualifies as appointment by direct
provision of law, or by competent authority. 29 We answer in the negative.

The Solicitor General contends that the BIR, in effecting constructive distraint over the truck allegedly owned by Jaime Ancla, and in
requiring Petitioner Alfredo Azarcon who was in possession thereof to sign a pro forma receipt for it, effectively "designated"
petitioner a depositary and, hence, citing U.S. vs. Rastrollo, 30 a public officer. 31 This is based on the theory that

(t)he power to designate a private person who has actual possession of a distrained property as a depository of distrained property
is necessarily implied in the BIR's power to place the property of a delinquent tax payer (sic) in distraint as provided for under
Sections 206, 207 and 208 (formerly Sections 303, 304 and 305) of the National Internal Revenue Code, (NIRC) . . . . 32

We disagree. The case of U.S. vs. Rastrollo is not applicable to the case before us simply because the facts therein are not identical,
similar or analogous to those obtaining here. While the cited case involved a judicial deposit of the proceeds of the sale of attached
property in the hands of the debtor, the case at bench dealt with the BIR's administrative act of effecting constructive distraint over
alleged property of taxpayer Ancla in relation to his back taxes, property which was received by Petitioner Azarcon. In the cited case,
it was clearly within the scope of that court's jurisdiction and judicial power to constitute the judicial deposit and give "the
depositary a character equivalent to that of a public official." 33 However, in the instant case, while the BIR had authority to require
Petitioner Azarcon to sign a receipt for the distrained truck, the NIRC did not grant it power to appoint Azarcon a public officer.

It is axiomatic in our constitutional framework, which mandates a limited government, that its branches and administrative agencies
exercise only that power delegated to them as "defined either in the Constitution or in legislation or in both." 34 Thus, although the
"appointing power is the exclusive prerogative of the President, . . ." 35 the quantum of powers possessed by an administrative
agency forming part of the executive branch will still be limited to that "conferred expressly or by necessary or fair implication" in its
enabling act. Hence, "(a)n administrative officer, it has been held, has only such powers as are expressly granted to him and those
necessarily implied in the exercise thereof." 36 Corollarily, implied powers "are those which are necessarily included in, and are
therefore of lesser degree than the power granted. It cannot extend to other matters not embraced therein, nor are not incidental
thereto." 37 For to so extend the statutory grant of power "would be an encroachment on powers expressly lodged in Congress by
our Constitution." 38 It is true that Sec. 206 of the NIRC, as pointed out by the prosecution, authorizes the BIR to effect a
constructive distraint by requiring "any person" to preserve a distrained property, thus:

The constructive distraint of personal property shall be effected by requiring the taxpayer or any person having possession or
control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and
unaltered and not to dispose of the same in any manner whatever without the express authority of the Commissioner.

However, we find no provision in the NIRC constituting such person a public officer by reason of such requirement. The BIR's power
authorizing a private individual to act as a depositary cannot be stretched to include the power to appoint him as a public officer.
The prosecution argues that "Article 222 of the Revised Penal Code . . . defines the individuals covered by the term 'officers' under
Article 217 39 . . ." of the same Code. 40 And accordingly, since Azarcon became "a depository of the truck seized by the BIR" he also
became a public officer who can be prosecuted under Article 217 . . . ." 41

The Court is not persuaded. Article 222 of the RPC reads:

Officers included in the preceding provisions. — The provisions of this chapter shall apply to private individuals who, in any capacity
whatever, have charge of any insular, provincial or municipal funds, revenues, or property and to any administrator or depository of
funds or property attached, seized or deposited by public authority, even if such property belongs to a private individual.

"Legislative intent is determined principally from the language of a statute. Where the language of a statute is clear and
unambiguous, the law is applied according to its express terms, and interpretation would be resorted to only where a literal
interpretation would be either impossible or absurd or would lead to an injustice." 42 This is particularly observed in the
interpretation of penal statutes which "must be construed with such strictness as to carefully safeguard the rights of the defendant .
. . ." 43 The language of the foregoing provision is clear. A private individual who has in his charge any of the public funds or property
enumerated therein and commits any of the acts defined in any of the provisions of Chapter Four, Title Seven of the RPC, should
likewise be penalized with the same penalty meted to erring public officers. Nowhere in this provision is it expressed or implied that
a private individual falling under said Article 222 is to be deemed a public officer.

After a thorough review of the case at bench, the Court thus finds Petitioner Alfredo Azarcon and his co-accused Jaime Ancla to be
both private individuals erroneously charged before and convicted by Respondent Sandiganbayan which had no jurisdiction over
them. The Sandiganbayan's taking cognizance of this case is of no moment since "(j)urisdiction cannot be conferred by . . . erroneous
belief of the court that it had jurisdiction." 44 As aptly and correctly stated by the petitioner in his memorandum:

From the foregoing discussion, it is evident that the petitioner did not cease to be a private individual when he agreed to act as
depositary of the garnished dump truck. Therefore, when the information charged him and Jaime Ancla before the Sandiganbayan
for malversation of public funds or property, the prosecution was in fact charging two private individuals without any public officer
being similarly charged as a co-conspirator. Consequently, the Sandiganbayan had no jurisdiction over the controversy and therefore
all the proceedings taken below as well as the Decision rendered by Respondent Sandiganbayan, are null and void for lack of
jurisdiction. 45

WHEREFORE, the questioned Resolution and Decision of the Sandiganbayan are hereby SET ASIDE and declared NULL and VOID for
lack of jurisdiction. No costs.

SO ORDERED.

Azarcon v. Sandiganbayan

G.R. No. 116033 February 26, 1997

Panganiban, J.

FACTS:

Alfredo Azarcon owned and operated a hauling business. Occasionally, he engagedthe services of sub -contractors like Jaime
Ancla whose trucks were left at the former’s premises A Warrant of Distraint of Personal Property was issued by the Main
Office of the BIRaddressed to the Regional Director or his authorized representative of Revenue Region 10,Butuan City
commanding the latter to distraint the goods, chattels or effects and other personal property of Ancla, a sub-contractor
of accused Azarcon and, a delinquent taxpayer. The Warrant of Garnishment was issued to Azarcon ordering him to
transfer, surrender,t r a n s m i t a n d / o r r e m i t t o B I R t h e p r o p e r t y i n h i s p o s s e s s i o n o w n e d b y t a x p a y e r
A n c l a . Azarcon, in signing the “Receipt for Goods, Articles, and Things Seized Under Authority of t h e N a t i o n a l I n t e r n a l
R e v e n u e , ” a s s u m e d t h e u n d e r t a k i n g s s p e c i f i e d i n t h e r e c e i p t . Subsequently, however, Ancla took out the
distrained truck from Azarcon’s custody. For thisreason, Azarcon was charged before the Sandiganbayan with the crime of
malversation of public funds or property under Article 217 in relation to Article 222 of the Revised Penal Code.

Issue:

Can Azarcon be considered a public officer by reason of his being designated by theBIR as a depositary of distrained property?

HELD:

A r t i c l e 2 2 3 o f t h e R P C d e f i n e s a p u b l i c o f f i c e r a s “ a n y p e r s o n w h o , b y Direct p r o v i s i o n o f
t h e l a w , popular election , orappointment by competent authority ,shall take part in the performance of public functions
in the Government of the PhilippineIslands, or shall perform in said Government or in any of its branches public
duties as anemployee, agent, or subordinate official, of any rank or classes”. Azarcon obviously may notbe deemed authorized
by popular election. Neit her can his designation by the BIR as a custodian of distrained property qualifies as appointment
by direct provision of law, or byc o m p e t e n t a u t h o r i t y . W h i l e i t i s t r u e t h a t S e c . 2 0 6 o f t h e N I R C , a s
p o i n t e d o u t b y t h e prosecution, authorizes the BIR to effect a constructive distraint by requiring “any person” topreserve a
distrained property there is no provision in the NIRC constituting such person ap u b l i c o f f i c e r b y r e a s o n o f s u c h
r e q u i r e m e n t . T h e B I R ’ s p o w e r a u t h o r i z i n g a p r i v a t e individual to act as a depositary cannot be stretched to include
the power to appoint him asa public officer. The charge against Azarcon should forthwith be dismissed

Sec. 207 (A) and (B) - Distraint and Levy

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-4300 October 31, 1951

SATURNINO DAVID, in his capacity as Collector of Internal Revenue, petitioner,


vs.
THE HONORABLE SIMEON RAMOS, in his capacity as Judge of the Court of First Instance of Manila and MARIA B. CASTRO,
respondents.

Office of the Solicitor General Pompeyo Diaz and Assistant Solicitor General Francisco Carreon for petitioners.
Antonio Quirino and Rosendo Tansinsin for respondents.

JUGO, J.:

This is a petition for certiorari, prohibition, and injunction.

The facts of this case may be briefly stated as follows:

The respondent Maria B. Castro filed in the Court of First Instance of Manila, a complaint dated October 18, 1950, against Saturnino
David, petitioner herein, in his capacity as Collector of Internal Revenue, alleging among other things, that she had been acquitted in
a criminal case for non-payment of the war profit tax for insufficiency of evidence; that notwithstanding said acquittal, the Collector
of Internal Revenue announced on October 18, 1950, that the properties of Maria B. Castro would be sold at public auction on
November 22 and 27, 1950, to satisfy the war profits tax assessed against her; that this sale is an abuse of authority on the part of
the Collector and would cause irreparable injury to her; that Republic Act No. 55, known as the War Profits Tax Law is
unconstitutional. She prayed that a preliminary injunction be issued enjoining the Collector of Internal Revenue from proceeding
with the sale and that afterward the injunction be made permanent.

The Collector of Internal Revenue filed his answer in the Court of First Instance of Manila specifically admitting some of the
allegations in the complaint and denying others, and alleged as special defenses that the Court of First Instance had no jurisdiction to
entertain the complaint nor to issue a temporary or permanent writ of injunction to restrain the collection of the war profits tax;
that the plaintiff Maria B. Castro had an adequate remedy by first paying the tax and suing for its recovery; that the criminal case,
No. 4976, was dismissed with consent of the defendant; that the witness Felipe Aquino testified that a larger amount than that
stated in the information in the criminal case was due from Maria B. Castro; and that there had been res judicata.

When the trial began, the Collector of Internal Revenue through his counsel, objected to the reception of the evidence on the
ground that the court had no jurisdiction to try the case.
The lower court entered an order dated November 8, 1950, declaring that the court had authority to proceed with the case, but
denied the petition of Maria B. Castro for a preliminary injunction.

Inasmuch as no preliminary injunction was issued by the respondent court, the Collector of Internal Revenue, through his agents,
proceeded with the distraint and levy and sale at public auction of the properties of Maria B. Castro, which has not been stopped up
to the present.

Saturnino David, the Collector of Internal Revenue, now comes to this Court with the petition for certiorari, prohibition, and
injunction, alleging substantially the above facts, maintaining that the Court of First Instance has no jurisdiction to restrain the
collection of taxes, the remedy being to pay and sue for recovery. The Collector prays for a preliminary injunction, pending the
decision of this case, to restrain the respondent Judge from proceeding with the hearing of Civil Case No. L-12356 of the Court of
First Instance of Manila, above mentioned.

This Court issued the writ of preliminary injunction prayed by the petitioner, and ordered the respondents to answer.

The respondents filed their answer specifically denying some allegations of the petition and admitting others, and maintaining in
effect that the court below had jurisdiction to entertain the case. In a separate pleading, the respondent Maria B. Castro prayed that
a preliminary injunction be issued against the Collector of Internal Revenue and his agents restraining them from proceeding with
the distraint and levy and sale of her properties.

This petition was denied by this Court.

The question to be determined in this case is whether the courts can restrain the collection of taxes on the ground that their validity
is disputed by the taxpayer.

Section 9 of Republic Act No. 55, known as the War Profits Tax Law, reads as follows:

SEC. 9. Administrative Remedies.—All administrative, special and general provisions of law including the laws in relation to
the assessment, remission, collection and refund of national internal revenue taxes, not inconsistent with the provisions of
this Act, are hereby extended and made applicable to all the provisions of this law, and to the tax herein imposed.

Section 305 of the National Internal Revenue Code, is as follows:

SEC. 305. Injunction not available to restrain collection of tax.—No court shall have authority to grant an injunction to
restrain the collection of any internal-revenue tax, fee, or charge imposed by this Code.

It is clear that the word "tax", as used in said section 305, means a tax even if it is disputed by the taxpayer, for otherwise it would
be sufficient to dispute a tax in order to take it out from the provisions of said section, rendering them practically nugatory.

Section 306 of the National Internal Revenue Code provides as follows:

SEC. 306. Recovery of the tax erroneously or illegally collected.—No suit or proceeding shall be maintained in any court for
the recovery of any national internal-revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected or of any penalty claimed to have been excessive or in any manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Collector of Internal Revenue; but such suit or proceeding may be maintained, whether
or not such tax, penalty or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be
begun after the expiration of two years from the date of payment of the tax or penalty.

It has been the uniform holding of this Court that no suit for enjoining the collection of a tax, disputed or undisputed, can be
brought, the remedy being to pay the tax first, formerly under protest and now without need of protest, file the claim with the
Collector, and if he denies it, bring an action for recovery against him.

In the case of Churchill vs. Rafferty (32 Phil., 580, 583-584) it was held:

In the first place, it has been suggested that section 139 does not apply to the tax in question because the section, in
speaking of a "tax," means only legal taxes; and that an illegal tax (the one complained of) is not a tax, and, therefore, does
not fall within the inhibition of the section, and may be restrained by injunction. There is no force in this suggestion. The
inhibition applies to all internal revenue taxes imposed, or authorized to be imposed, by Act No. 2339. (Snyder vs. Marks,
109 U.S. 189.) And, furthermore, the mere fact that a tax is illegal, or that the law, by virtue of which it is imposed, is
unconstitutional, does not authorize a court of equity to restrain its collection by injunction. There must be a further
showing that there are special circumstances which bring the case under some well recognized head of equity
jurisprudence, such as that irreparable injury, multiplicity of suits, or a cloud upon title to real estate will result, and also
that there is, as we have indicated, no adequate remedy at law. This is the settled law in the United States, even in the
absence of statutory enactments such as sections 139 and 140. (Nannewinkle vs. Mayor, etc., of Georgetown, 82 U.S. 547;
Indiana Mfg. Co. vs. Koehne, 188 U.S. 681; Ohio Tax Cases, 232 U.S. 576, 587; Pittsburgh C.C. and St. L.R. Co. vs. Board of
Public Works, 172 U.S., 32; Shelton vs. Platt, 139 U.S., 591; State Railroad Tax Cases, 92 U.S. 575.) Therefore, this branch of
the case must be controlled by sections 139 and 140, unless the same be held unconstitutional, and consequently, null and
void.

In the case of Sarasola vs. Trinidad (40 Phil., 252, 256-257) this Court said:

. . . Thus, the Legislature of the State of Tennessee enacted a statute not greatly different from the Philippine statute, with
the exception that the words, "without interest," were not included, and the United States Supreme Court in discussing the
law said: "This remedy is simple and effective, . . . It is a wise and reasonable precaution for the security of the government.
No government could exist that permitted its collection to be delayed by every litigous man or every embarrassed man, to
whom delay was more important than the payment of costs." (State of Tennessee .. Sneed [1877], 6 Otto, 69. See also 37
Cyc., 1267, 1268.) Again in the case of Snyder .. Marks [1883], 109 U.S., 185) the sole object of the suit was to restrain the
collection of a tax which was assessed under the United States Internal Revenue Laws. The court said: "The remedy of a suit
to recover back the tax after it is paid, is provided by statute, and a suit to restrain its collection is forbidden. The remedy so
given is exclusive, and no other remedy can be substituted for it.

It is said that the remedy by distraint and levy will cause irreparable injury to the respondent for it may paralyze her business. The
best answer to this contention is the remark of the Supreme Court in the case of Sarasola vs. Trinidad, supra, quoting Judge Cooley,
a recognized authority on the law of taxation:

The force of the third contention must rest in the fact that enforcing the tax may in some cases compel the suspension of
business, because it is more than the person taxed can afford to pay. But if this consideration is sufficient to justify the
transfer of a controversy from a court of equity, then every controversy where money is demanded may be made the
subject of equitable cognizance. To enforce against a dealer a promissory note may in some cases as effectually break up
his business as to collect from him a tax of equal amount. This is not what is known to the law as irreparable injury. The
courts have never recognized the consequences of the more enforcement of a money demand as falling with the category."
Youngblood vs. Sexton [1975], 32 Mich., 406. (p. 258)

In the case of Lorenzo vs. Posadas (64 Phil., 353, 371) this Court said:

That taxes must be collected promptly is a policy deeply entrenched in our tax system. Thus, no court is allowed to grant
injunction to restrain the collection of any internal revenue tax (sec. 1578, Revised Administrative Code; Sarasola vs.
Trinidad, 40 Phil., 252). In the case of Lim Co Chui .. Posadas (47 Phil., 461), this court had occasion to demonstrate
trenchant adherence to this policy of the law. It held that "the fact on account of riots directed against the Chinese on
October 18, 19, and 20, 1924, they were prevented from paying their internal revenue taxes on time and by mutual
agreement closed their homes and stores and remained therein, does not authorize the Collector of Internal Revenue to
extend the time prescribed for the payment of the taxes or to accept them without the additional penalty of twenty five per
cent." (Syllabus, No. 3.) . . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the
modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of
the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and
thereby cause serious detriment to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law ed., 65, 66; Churchill and Taft vs.
Rafferty, 32 Phil., 580.)

It has been said that to prohibit the courts from issuing injunctions against the collection of taxes deprives them of part of their
organic or constitutional jurisdiction. In the case of Churchill vs. Rafferty, supra, it was held:

3. ID.; ID.; JURISDICTION OF COURTS.—Nor is such a provision of law invalid as curtailing the jurisdiction of the courts of the
Philippine Islands as fixed by section 9 of the Organic Act: (a) because jurisdiction was never conferred upon Philippine
courts to enjoin the collection of taxes imposed by the Philippine Commission; and (b) because, in the present case, another
adequate remedy has been provided by payment and protest. (Syllabus, p. 580)

All the allegations of the respondents to the effect that the dismissal of the criminal case is res judiccata or a bar to the collection by
distraint and levy; and that Republic Act No. 55, known as the War Profits Tax Law, is unconstitutional, should be set forth as part of
the cause of action in the complaint that may be filed against the Collector of Internal Revenue for recovery of the tax after its
payment, but not in action for prohibition or injunction.

The respondent cite some cases in the United States in which the principle that the collection of taxes should not be restrained by
injunction has been found subject to certain exceptions. It would be too long to analyze those cases, but as an example, we may take
the typical case found on pages 10 and 11 of the memorandum of the respondent. There it has been declared that:

It has never held the rule to be absolute, but has repeatedly indicated that extraordinary and exceptional circumstances
render its provisions inapplicable.

It has not been shown in the present case that extra-ordinary and exceptional circumstances exist so as to take this case out of the
rule. It should be borne in mind that under the New Deal established by President Franklin D. Roosevelt in the United States,
numerous cases have arisen regarding the validity of taxes in which extraordinary and exceptional circumstances have been found to
exist. In the Philippines no extraordinary and exceptional circumstances of the magnitude of those occuring in the United States
have existed. On the whole it is believed that we should not disrupt the regular procedure prescribed by our laws, as uniformly
construed by our courts.

In the view of the foregoing, the respondent Court of First Instance of Manila is declared without jurisdiction to proceed with the
trial of Civil Case No. 12356 entitled "Maria B. Castro vs. Saturnino David," and its order dated November 8, 1950, in so far as it
orders the continuation of the proceedings, is set aside. With costs against the respondents. It is so ordered.
SATURNINO DAVID, IN HIS CAPACITY AS COLLECTOR OF INTERNAL REVENUE, PETITIONER, VS. HON. SIMEON RAMOS, IN HIS
CAPACITY AS JUDGE OF THE CFI OF MANILA AND MARIA B. CASTRO, RESPONDENTS. (G.R. NO. L-4300 OCTOBER 31, 1951)

FACTS:
This is a petition for certiorari, prohibition, and injunction. The facts of this case may be briefly stated as follows: The respondent
Maria B. Castro filed in the Court of First Instance of Manila, a complaint dated October 18, 1950, against Saturnino David, petitioner
herein, in his capacity as Collector of Internal Revenue, alleging among other things, that she had been acquitted in a criminal case
for non-payment of the war profit tax for insufficiency of evidence; that notwithstanding said acquittal, the Collector of Internal
Revenue announced on October 18, 1950, that the properties of Maria B. Castro would be sold at public auction on November 22
and 27, 1950, to satisfy the war profits tax assessed against her; that this sale is an abuse of authority on the part of the Collector
and would cause irreparable injury to her; that Republic Act No. 55, known as the War Profits Tax Law is unconstitutional. She
prayed that a preliminary injunction be issued enjoining the Collector of Internal Revenue from proceeding with the sale and that
afterward the injunction be made permanent. The Collector of Internal Revenue filed his Answer with the CFI. Among those that he
challenged is the jurisdiction of the CFI to issue a temporary or permanent writ of injunction to restrain the collection of the war
profits tax.

ISSUE:
The question to be determined in this case is whether the courts can restrain the collection of taxes on the ground that their validity
is disputed by the taxpayer.

HELD:
Court of First Instance of Manila is declared without jurisdiction to proceed with the case. Section 305 of the National Internal
Revenue Code, is as follows: SEC. 305. Injunction not available to restrain collection of tax.

No court shall have authority to grant an injunction to restrain the collection of any internal-revenue tax, fee, or charge imposed by
this Code. It is clear that the word "tax", as used in said section 305, means a tax even if it is disputed by the taxpayer, for otherwise
it would be sufficient to dispute a tax in order to take it out from the provisions of said section, rendering them practically nugatory.
Section 306 of the National Internal Revenue Code provides as follows: SEC. 306. Recovery of the tax erroneously or illegally
collected.

No suit or proceeding shall be maintained in any court for the recovery of any national internal-revenue tax hereafter alleged to

have been erroneously or illegally assessed or collected or of any penalty claimed to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Collector of Internal Revenue; but such suit or
proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress. In any case, no such
suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty. It has been the
uniform holding of this Court that no suit for enjoining the collection of a tax, disputed or undisputed, can be brought, the remedy
being to pay the tax first, formerly under protest and now without need of protest, file the claim with the Collector, and if he denies
it, bring an action for recovery against him

Sec. 209 - Sale of Property Distrained and Disposition of Proceeds


Sec. 218 - Injunction not Available to Restrain Collection of Tax
Sec. 219 - Nature and Extent of Tax Lien
Sec. 220 - Form and Mode of Proceeding in Actions Arising under NIRC

DIVISION
[ GR No. 199480, Oct 12, 2016 ]
PEOPLE v. TESS S. VALERIANO +

REYES, J.:
This is a Petition for Review on Certiorari[1] filed by the People of the Philippines (petitioner) assailing the
Decision[2] dated November 18, 2011 of the Court of Tax Appeals (CTA) en banc in CTA EB Criminal Case No. 010. The
CTA en banc sustained the Resolutions dated November 23, 2009[3] and June 1, 2010[4] of the CTA Special First Division
which dismissed the criminal case against Tess S. Valeriano (Valeriano).
Antecedent Facts

On February 9, 2006, the Regional Director (RD) of the Bureau of Internal Revenue (BIR), Revenue Region No. 6, wrote a
Letter[5] to the City Prosecutor of Manila, recommending the criminal prosecution of Valeriano as president/authorized
officer of the Capital Insurance & Surety Co., Inc. (Corporation) for failure to pay the following internal revenue tax
obligations of the Corporation in violation of Section 255,[6] in relation to Section 253(d)[7] and Section 256,[8] of the 1997
National Internal Revenue Code (NIRC):

Assessment No./
Kind of Tax Year Date Amount
Demand No.
Def. Income Tax 34-2000 2000 January 14, 2004 P 12,541,339.18
Def[.] VAT 34-2000 2000 January 14, 2004 16,296,946.70
Def. EWT 34-2000 2000 January 14, 2004 4,397,619.73
Def. DST 34-2000 2000 January 14, 2004 17,513,440.24[9]

Thus, an Information[10] was filed with the CTA by Assistant City Prosecutor Suwerte L. Ofrecio-Gonzales (Assistant City
Prosecutor Ofrecio-Gonzales) on July 9, 2009 against Valeriano for violation of Section 255, in relation to Section 253(d)
and Section 256, of the 1997 NIRC.

On August 4, 2009, the CTA First Division issued a Resolution,[11] whereby Assistant City Prosecutor Orrecio-Gonzales was
ordered to submit within five days from receipt thereof proof that the filing of the criminal case was with the written
approval of the BIR Commissioner, and not by the RD, in compliance with Section 220[12] of the 1997 NIRC, as amended.

In a Resolution[13] dated September 28, 2009, the CTA First Division ordered Assistant City Prosecutor Orrecio-Gonzales
to comply with the earlier resolution, within a final and non-extendible period of five days from receipt of the
Resolution.

However, Assistant City Prosecutor Ofrecio-Gonzales failed to comply with the order to submit the approval of the
Commissioner (to file the criminal action), as required. Consequently, the CTA First Division, through a
Resolution[14] dated November 23, 2009, dismissed the case against Valeriano for failure to prosecute.

On January 29, 2010, a Special Attorney from the Legal Division of BIR Revenue Region No. 6 filed an "Entry of
Appearance with Leave to Admit Manifestation and Motion for Reconsideration."[15] Attached thereto was a
photocopy[16] of the supposed written approval of the BIR Commissioner to file the criminal case against Valeriano.

The CTA Special First Division then promulgated an Order[17] on February 9, 2010, requiring Valeriano to comment on the
Motion with Leave to Admit Manifestation and Motion for Reconsideration filed by the counsel of the BIR
Commissioner. However, the records disclose that Valeriano had already moved out of her address of record.[18]

On June 1, 2010, the CTA Special First Division issued a Resolution,[19] denying the petitioner's motion for
reconsideration for lack of merit.

On July 1, 2010, the petitioner filed a Petition for Review[20] with the CTA en banc, arguing that it was not at fault when
Assistant City Prosecutor Ofrecio-Gonzales failed to comply with the orders of the CTA Special First Division[21] and that
the government is not bound by the errors committed by its agents.[22]

The CTA en banc, in its Resolution[23] dated August 9, 2010, directed Valeriano to file her comment. But as with the other
documents sent to her, the resolution was returned unserved with the notation "RTS moved out." As Valeriano failed to
file Comment,[24] the CTA en banc, through a Resolution[25] dated October 14, 2010, directed the parties to submit their
respective memoranda. Only the petitioner filed a Memorandum,[26] after which the case was submitted for decision.[27]

The CTA en banc rendered its Decision[28] on November 18, 2011, denying the petition. The dispositive portion thereof
reads as follows:

WHEREFORE, premises considered, the petition for review is hereby DENIED. Accordingly, the assailed Resolutions dated
November 23, 2009 and June 1, 2010 are hereby AFFIRMED with MODIFICATION that the DISMISSAL is without
prejudice.

SO ORDERED.[29]

In sustaining the dismissal of the case, the CTA en banc noted that the petitioner failed to comply with the Resolutions
dated August 4, 2009 and September 28, 2009 of the CTA Special First Division. While the petitioner did attach to its
motion for reconsideration an alleged written approval of the BIR Commissioner,[30] it was merely a photocopy which
was hardly readable. Hence, there was no compliance with the resolutions even when the lawyer of the BIR, deputized
as special prosecutor, took over in the filing of the motion for reconsideration.[31]

Ergo, this petition with the lone assignment of error:

THE HONORABLE CTA EN BANC ERRED IN RENDERING ITS DECISION DATED NOVEMBER 18, 2011, DENYING THE
PETITION FOR REVIEW FOR THE PETITIONER'S SUPPOSED FAILURE TO PROSECUTE. 32 Ruling of the Court[32]

The records of the case reveal that, indeed, the petitioner had earlier submitted a letter[33] of the RD of BIR Revenue
Region No. 6, recommending the criminal prosecution of Valeriano. This letter was attached to the Information along
with other documents pertinent to the case.[34] However, this was not deemed as compliance with Section 220, as the
letter was not from the BIR Commissioner himself.

After the dismissal decreed by the CTA Special First Division, the petitioner, through a motion for reconsideration,
presented an alleged copy of the written approval[35] dated July 2006 signed by then BIR Commissioner Jose Mario C.
Buñag. Yet, as the CTA en banc found, the contents of the photocopied letter were faded and almost imperceptible.

The prerequisite approval of the BIR Commissioner in the filing of a civil or criminal action is provided under Section 220
of the 1997 NIRC, which states that:

Sec. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil and criminal actions and proceedings
instituted in behalf of the Government under the authority of this Code or other law enforced by the Bureau of Internal
Revenue shall be brought in the name of the Government of the Philippines and shall be conducted by legal officers of
the Bureau of Internal Revenue but no civil or criminal action for the recovery of taxes or the enforcement of any fine,
penalty or forfeiture under this Code shall be filed in court without the approval of the Commissioner. (Emphasis ours)

The required approval of the Commissioner provided under Section 220 of the 1997 NIRC aside, Section 7 thereof allows
the delegation of powers of the Commissioner to any subordinate official with the rank equivalent to a division chief or
higher, save for the instances specified thereunder, viz:

Section 7. Authority of the Commissioner to Delegate Power. - The Commissioner may delegate the powers vested in him
under the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division
chief or higher,subject to such limitations and restrictions as may be imposed under rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the Commissioner: Provided, however, That the
following powers of the Commissioner shall not be delegated:

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax liability: Provided,
however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand
(c)
pesos (P500,000[.00]) or less, and minor criminal violations, as may be determined by rules and regulations to be
promulgated by the Secretary of [F]inance, upon recommendation of the Commissioner, discovered by regional
and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional
Director as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection Divisions
and the Revenue District Officer having jurisdiction over the taxpayer, as members; and
The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are
(d)
produced or kept. (Emphasis and underlining ours)

In Republic v. Hizon,[36] the Court upheld the validity of a complaint for collection of tax deficiency which was signed by
the Chief of the Legal Division of BIR Region 4 and verified by the RD of Pampanga. Citing Section 7 of the 1997 NIRC, the
Court ratiocinated that "[n]one of the exceptions relates to the Commissioner's power to approve the filing of tax
collection cases."

The Court made a similar pronouncement in Oceanic Wireless Network, Inc. v. Commissioner of Internal
Revenue,[38] where the authority of the Chief of the BIR Accounts Receivable and Billing Division to issue a demand letter
was questioned. The Court ruled that "[t]he general rule is that the Commissioner of Internal Revenue may delegate any
power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four
powers granted to him under the [NIRC] enumerated in Section 7."[39] The act of issuance of the demand letter by the
Chief of the Accounts Receivable and Billing Division did not fall under any of the exceptions that have been specified as
non-delegable.[40]

In the same manner, the approval of filing of a criminal action is not one of the non-delegable functions of the
Commissioner. As previously stated, the petitioner had earlier submitted a written recommendation from the RD to file
the instant case against Valeriano. Therefore, the recommendation of the RD to file the instant case constitutes as
compliance with the requirement under Section 220 of the 1997 NIRC.

Notwithstanding the foregoing, the petitioner is cautioned to take the initiative of periodically checking on the progress
of its cases[41] to avoid a similar instance where its counsel's negligence or failure to comply with court orders would
result to delay or worse, constitute as bar in the prosecution of criminal tax cases.

WHEREFORE, the petition is hereby GRANTED. The Decision dated November 18, 2011 of the Court of Tax Appeals en
banc in CTA EB Criminal Case No. 010, as well as the Resolutions dated November 23, 2009 and June 1, 2010 of the
Court of Tax Appeals Special First Division in CTA Case No. 0-145, are REVERSED and SET ASIDE. The case
is REMANDED to the Court of Tax Appeals for further proceedings.

SO ORDERED.

People vs Valeriano
Facts: On February 9, 2006, the Regional Director (RD) of the Bureau of Internal Revenue (BIR), Revenue Region No. 6, wrote a
Letter[5] to the City Prosecutor of Manila, recommending the criminal prosecution of Valeriano as president/authorized officer of the
Capital Insurance & Surety Co., Inc. (Corporation) for failure to pay the following internal revenue tax obligations of the Corporation
in violation of Section 255,[6] in relation to Section 253(d)[7] and Section 256,[8] of the 1997 National Internal Revenue Code (NIRC).

Thus, an Information[10] was filed with the CTA by Assistant City Prosecutor Suwerte L. Ofrecio-Gonzales (Assistant City Prosecutor
Ofrecio-Gonzales) on July 9, 2009 against Valeriano for violation of Section 255, in relation to Section 253(d) and Section 256, of the
1997 NIRC. On August 4, 2009, the CTA First Division issued a Resolution, [11] whereby Assistant City Prosecutor Orrecio-Gonzales was
ordered to submit within five days from receipt thereof proof that the filing of the criminal case was with the written approval of the
BIR Commissioner, and not by the RD, in compliance with Section 220[12] of the 1997 NIRC, as amended.

However, Assistant City Prosecutor Ofrecio-Gonzales failed to comply with the order to submit the approval of the Commissioner (to
file the criminal action), as required. Consequently, the CTA First Division, through a Resolution [14] dated November 23, 2009,
dismissed the case against Valeriano for failure to prosecute.
Issue: Whether or not there was failure to prosecute on the ground that the submitted recommendation came from the RD and not
approved by the CIR.

Held: No. The prerequisite approval of the BIR Commissioner in the filing of a civil or criminal action is provided under Section 220 of
the 1997 NIRC, which states that:
Sec. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil and criminal actions and proceedings instituted in
behalf of the Government under the authority of this Code or other law enforced by the Bureau of Internal Revenue shall be brought
in the name of the Government of the Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue but no
civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in
court without the approval of the Commissioner. (Emphasis ours)

The required approval of the Commissioner provided under Section 220 of the 1997 NIRC aside, Section 7 thereof allows the
delegation of powers of the Commissioner to any subordinate official with the rank equivalent to a division chief or higher.
Accordingly, the approval of filing of a criminal action is not one of the non-delegable functions of the Commissioner. As previously
stated, the petitioner had earlier submitted a written recommendation from the RD to file the instant case against Valeriano.
Therefore, the recommendation of the RD to file the instant case constitutes as compliance with the requirement under Section 220
of the 1997 NIRC.

Notwithstanding the foregoing, the petitioner is cautioned to take the initiative of periodically checking on the progress of its
cases[41] to avoid a similar instance where its counsel's negligence or failure to comply with court orders would result to delay or
worse, constitute as bar in the prosecution of criminal tax cases.

PROTON PILIPINAS CORPORATION, G.R. No. 165027


Petitioner, Present:

PANGANIBAN, C.J.
Chairperson,
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
REPUBLIC OF THE PHILIPPINES, represented
by the BUREAU OF CUSTOMS, Promulgated:
Respondent.
October 12, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This case is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure seeking to
annul and set aside the Court of Appeals Decision[1] in CA-G.R. SP No. 77684 entitled,Proton Pilipinas Corporation v.
Hon. Juan C. Nabong, dated 29 April 2004 and its Resolution[2] dated 2 August 2004, which respectively dismissed the
Petition for Certiorari filed by petitioner and denied its Motion for Reconsideration, thereby affirming the Orders issued
by the Regional Trial Court (RTC) of Manila dated 24 January 2003[3] and 15 April 2003.[4]

The controversy arose from the following facts:

Herein petitioner Proton Pilipinas Corporation (Proton) is a corporation duly organized and existing under Philippine
laws and duly registered[5] with the Board of Investments (BOI). It is engaged in the business of importing,
manufacturing, and selling vehicles.

Sometime in 1997, Devmark Textile Industries, Inc. (Devmark), a corporation duly registered with the Securities and
Exchange Commission (SEC) and with the BOI, and engaged in the business of spinning, knitting, weaving, dyeing, and
finishing all types of textile, yarns, and fabrics, together with Texasia, Inc. (Texasia), expressed the intention to purchase
the various vehicles distributed and marketed by petitioner. In payment thereof, the above named companies offered
petitioner their Tax Credit Certificates (TCCs) worth P30,817,191.00. The companies, through their officers, guaranteed
petitioner that the TCCs were valid, genuine, and subsisting. They further assured petitioner that said TCCs were a safe
and a valid mode of payment for import duties and taxes as they were issued by the Department of Finance (DOF) and
duly honored and accepted by the Bureau of Customs (BOC).
Persuaded by the representations and assurances made by the two companies as to the legality of the
transaction, Paul Y. Rodriguez, in his capacity as Executive Vice-President of Proton, signed a Deed of Assignment[6] with
Eulogio L. Reyes, General Manager of Devmark. The terms and conditions of the Deed of Assignment are as follows:

1. That the acceptance by the ASSIGNEE of the above duty/taxes credit certificate being assigned by ASSIGNOR shall be
subject to condition that the [DOF] approves the proposed assignment.

2.For the purpose of this assignment, the above duty/taxes certificates being assigned hereby to ASSIGNEE shall not be
credited as payment of ASSIGNORs account unless and until ASSIGNEE has in turn utilized/applied the same with the
[BOC] or Bureau of Internal Revenue [BIR] for payment of each duty/tax obligations.

3.ASSIGNEE undertakes to issue to ASSIGNOR the Tax Credit corresponding credit notes, as when the above duty/taxes
credit certificates was (sic) use[d]/applied, either partially or fully by the ASSIGNEE, in payment of ASSIGNEEs duty/taxes
obligation with the [BOC] or [BIR], respectively.

4.Withstanding the above-stated arrangement, such Tax Credit assigned and transferred by the ASSIGNOR to ASSIGNEE
shall be subject to post-audit by the Government and shall be credited to the ASSIGNOR only upon actual availment
thereof by ASSIGNEE.

5 If the whole or any portion of the Tax Credit assigned and transferred by ASSIGNOR to the ASSIGNEE is disallowed by
the Government upon post-audit or cannot be utilized for any cause or reason not attributable to the fault negligence of
the ASSIGNEE, the whole amount corresponding such Tax Credit or such portion thereof as is disallowed by the
Government or cannot be utilized by ASSIGNEE shall be paid in cash to ASSIGNEE by the ASSIGNOR immediately upon
receipt of written notice of such event.[7]

Consequently, the TCCs, as well as their transfers to petitioner, were submitted to the DOF for evaluation and
approval. Thereafter, the DOF, through its Undersecretary Antonio P. Belicena, cleared said TCCs for transaction and
approved them for transfer. For that reason, petitioner delivered 13 vehicles with a total value of P10,778,500.00 and
post-dated checks worth P10,592,618.00, in exchange for the said TCCs, to Devmark and Texasia in accordance with
their agreement. In turn, petitioner used the TCCs for payment of its customs duties and taxes to the BOC.

In the interim, the Office of the Ombudsman (Ombudsman) under Hon. Aniano Desierto began conducting an
investigation on the alleged P60 Billion DOF Tax Credit Scam in July 1998. On 30 March 1999, Silverio T. Manuel, Jr., as
Graft Investigator II, was given the assignment to look into the alleged irregular issuances of four TCCs to Devmark and
its subsequent transfer to and utilization by petitioner. Based on the Fact-Finding Report[8] dated 29 October 1999 of the
Fact Finding and Investigation Bureau, Ombudsman, the TCCs were found to be irregularly and fraudulently issued by
several officers of the DOF, including its Department Undersecretary Belicena, to Devmark. As revealed in the said
Report, all the pertinent documents submitted by Devmark in support of its application for the TCCs were fake and
spurious. As a consequence thereof, the transfers of the subject TCCs to petitioner and their subsequent use of the same
was declared invalid and illegal. The Report recommended among other things, that the directors of the petitioner and
Devmark, along with several DOF officers, be criminally charged with violation of Section 3(e) and (j) of Republic Act No.
3019,[9] otherwise known as The Anti-Graft and Corrupt Practices Act.

On the weight of the Fact-Finding Report, the Ombudsman filed with the Sandiganbayan, Criminal Cases No. 26168 to
71[10] charging DOF Undersecretary Belicena together with Reyes, General Manager of Devmark, Peter
Y. Rodriguez and Paul Y. Rodriguez, in their capacity as Director and Executive Vice-President/Chief Operating Officer of
the petitioner, respectively, for violation of Section 3(e) and (j) of Republic Act No. 3019.
In turn, petitioner filed a criminal case for Estafa against the officers of Devmark with the City Prosecutor of
Mandaluyong, docketed as I.S. No. 00-42921-K, entitled, Proton Pilipinas, Inc. v. Robert Liang.The BOC on the other
hand, filed Civil Case No. 02-102650[11] against petitioner before the RTC for the collection of taxes and customs duties,
which remain unpaid because the subject TCCs had been cancelled brought about by petitioners use of fraudulent TCCs
in paying its obligations.
Petitioner then filed a Motion to Dismiss[12] the aforesaid civil case filed against it by BOC on the grounds of lack of
jurisdiction, prematurity of action, and litis pendentia. The said Motion, however, was denied by the trial court in its
Order dated 24 January 2003. Petitioner sought reconsideration of the above-mentioned Order, but the same was
likewise denied in another Order dated 15 April 2003.

Feeling aggrieved, petitioner filed before the Court of Appeals a Petition for Certiorari under Rule 65 of the Revised
Rules of Civil Procedure seeking to annul the Orders of the trial court.

On 29 April 2004, the Court of Appeals rendered a Decision dismissing the Petition for lack of merit and affirming
the RTC Orders. On 7 June 2004, petitioner moved for reconsideration but the same was denied in the Court of Appeals
Resolution dated 2 August 2004.

Hence, this Petition.

In the petitioners Memorandum,[13] it ascribes the following errors committed by the Court of Appeals:
I.
The Honorable Court of Appeals erred in affirming the RTC Orders and, consequently, in not dismissing the Civil Case
because, per Section 4, RA 8249, the Sandiganbayan has sole and exclusive jurisdiction over the subject matter thereof.

1. Per Section 4, RA 8249, the Sandiganbayan has sole and exclusive jurisdiction over the subject matter of the Civil Case
to the exclusion of the RTC.

a. The expanded jurisdiction of the Sandiganbayan under RA 8249 covers the subject matter of the Civil Case.
i. Before, the exclusive jurisdiction of the Sandiganbayan over civil actions was limited only to civil liability arising from
the offense charged per [Presidential Decree] PD 1861 and RA 7975. But now under RA 8249, Sandiganbayan has the
exclusive expanded jurisdiction over all civil actions for recovery of civil liability regardless of whether or not they arise
from the offense charged.
ii. In fact, the language of the law is clear and extant that this expanded jurisdiction of the Sandiganbayan supersedes
any provision of law or the rules of court.

iii. The subject matter of the Civil Case, being the civil aspect of the Criminal Cases, is deemed simultaneously instituted
in the latter.
II.
The Honorable Court of Appeals erred in holding that the litis pendentia rule is inapplicable and that the civil case is not
premature.

1. The requisites of litis pendentia are present in the Criminal Cases and the Civil Case.
a. There is identity of parties or at least such as representing the same interest in both actions-

b. There is identity of rights asserted and relief prayed for, the relief being founded on the same facts-
c. The identity in the two (2) cases is such that the judgment that may be rendered in the pending case would, regardless
of which party is successful, amount to res judicata in the other-

d. Even assuming that not all the requisites of litis pendentia under the Rules of Court are present, the pendency of the
Criminal Cases constitute some form of litis pendentia by express provision of Section 4, RA 8249.
2. In any event, the Civil Case is premature since the validity or invalidity of the TCCs is a prejudicial issue that has yet to
be resolved with finality by the Sandiganbayan in the Criminal Cases.

Given the foregoing, this Court restates the issues for resolution in the Petition at bar, as follows:

I. Whether or not the jurisdiction over Civil Case No. 02-102650, involving collection of unpaid customs duties
and taxes of petitioner, belongs to the Sandiganbayan and not to the RTC, as it can be considered the civil aspect of the
Criminal Cases filed before the Sandiganbayan, hence, deemed instituted in the latter.

II. Whether or not the Court of Appeals erred in holding that, the rule on litis pendentia is inapplicable in the
present case.

III. Whether or not the institution of the aforesaid Civil Case is premature as the determination of the validity or
invalidity of the TCCs is a prejudicial issue that must first be resolved with finality in the Criminal Cases filed before the
Sandiganbayan.

The Petition is bereft of merit.


In the instant case, petitioner argues that since the filing of the criminal cases was anchored on the alleged conspiracy
among accused public officials, including the corporate officers, regarding the anomalous and illegal transfer of four
TCCs from Devmark to petitioner and the latters subsequent use of three TCCs in paying their customs duties and taxes
to the detriment of the government, the civil case regarding collection of unpaid customs duties and taxes was deemed
impliedly instituted with the criminal cases before the Sandiganbayan, being the civil aspect of the criminal cases. To
buttress its assertion, petitioner quoted the last paragraph of Section 4, Republic Act No. 8249, which states that:

Any provision of law or Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil
action for the recovery of civil liability shall at all times be simultaneously instituted with, and jointly determined in, the
same proceeding by the Sandiganbayan or the appropriate courts, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the filing of suchcivil action separately from
the criminal action shall be recognized: x x x.

It is a truism beyond doubt that the jurisdiction of the court over a subject matter is conferred only by the Constitution
or by law.[14] In addition, it is settled that jurisdiction is determined by the allegations in the complaint.[15]

Accordingly, as can be gleaned from the Complaint for Collection of Money with Damages [16] filed by the Government
against petitioner, what the former seeks is the payment of customs duties and taxes due from petitioner, which remain
unpaid by reason of the cancellation of the subject TCCs for being fake and spurious. Said Complaint has nothing to do
with the criminal liability of the accused, which the Government wants to enforce in the criminal cases filed before the
Sandiganbayan. This can be clearly inferred from the fact that only petitioner was impleaded in the said Complaint.
While it is true that according to the aforesaid Section 4, of Republic Act No. 8249, the institution of the criminal action
automatically carries with it the institution of the civil action for the recovery of civil liability, however, in the case at bar,
the civil case for the collection of unpaid customs duties and taxes cannot be simultaneously instituted and determined
in the same proceedings as the criminal cases before the Sandiganbayan, as it cannot be made the civil aspect of the
criminal cases filed before it. It should be borne in mind that the tax and the obligation to pay the same are all created
by statute; so are its collection and payment governed by statute.[17] The payment of taxes is a duty which the law
requires to be paid. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is it
a mere civil liability arising from crime that could be wiped out by the judicial declaration of non-existence of the
criminal acts charged.[18] Hence, the payment and collection of customs duties and taxes in itself creates civil liability on
the part of the taxpayer. Such civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in
business, and not because of any criminal act committed by him.[19]

Undoubtedly, Republic Act No. 3019 is a special law but since it is silent as to the definition of civil liability, hence, it is
only proper to make use of the Revised Penal Code provisions relating to civil liability as a supplement. This is in
accordance with the provision of Article 10 of the Revised Penal Code, which make the said Code supplementary to
special laws unless the latter should especially provide the contrary.[20] Article 104 of the Revised Penal Code
enumerates the matters covered by the civil liability arising from crimes, to wit:

Article 104. What is included in civil liability. The civil liability established in articles 100, 101, 102 and 103 of this Code
includes:

1. Restitution;[21]

2. Reparation of the damage caused;[22]

3. Indemnification for consequential damages.[23]

With the above provision of the Revised Penal Code, it is far-fetched that the civil case for the collection of unpaid
customs duties and taxes can be simultaneously instituted with the criminal cases for violation of Section 3(e) and (j) of
Republic Act No. 3019 filed before the Sandiganbayan nor can it be made the civil aspect of such criminal cases. All the
matters covered by the civil liability in the aforesaid article have something to do with the crimes committed by the
wrongdoer. Clearly, the civil liability for violation of any criminal statute, like Republic Act No. 3019, exists because of the
criminal act done by the offender. In other words, the civil obligation flows from and is created by the criminal
liability,[24] thus, the civil liability arising from crimes is different from the civil liability contemplated in the case of
taxation.
Since the present case took place at the time when Republic Act No. 1125,[25] otherwise known as, An Act Creating the
Court of Tax Appeals, was still in effect and when the Court of Tax Appeals had no jurisdiction yet over tax collection
cases, this case therefore, still falls under the general jurisdiction of the RTC. Section 19(6) of Batas Pambansa Blg. 129,
as amended, provides that:

Section 19. Jurisdictional in civil cases. Regional Trial Courts shall exercise exclusive original jurisdiction:

xxx
(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person or body exercising jurisdiction of any
court, tribunal, person or body exercising judicial or quasi-judicial functions; x x x.

Consequently, the RTC, not the Sandiganbayan, has jurisdiction over Civil Case No. 02-102650. The jurisdiction of the
Sandiganbayan is only with respect, among other things, to the criminal cases for violation of Republic Act No. 3019,
particularly in this case, Section 3(e) and (j) thereof, but it has no authority to take cognizance of the civil case to collect
the unpaid customs duties and taxes of the petitioner.

On the second and third issues. Petitioner avers that the Court of Appeals erred in not applying the rule on litis
pendentia despite the fact that all its requisites are present in both criminal and civil cases.Petitioner also avows that the
institution of the civil case for collection of unpaid customs duties and taxes was premature since the validity or
invalidity of the TCCs was a prejudicial issue that has yet to be resolved with finality by the Sandiganbayan in the
Criminal Cases before it. Conversely, the Government claims that in Criminal Cases No. 26168 to 71 filed before the
Sandiganbayan, the petitioner was not the party accused, but its corporate officers, whereas in Civil Case No. 02-102650
the party sued is not the corporate officers, but the corporation. Accordingly, there can be no litis pendentia as the
requisite of identity of parties was absent.

Litis pendentia is a Latin term, which literally means a pending suit. Litis pendentia as a ground for the dismissal of a civil
action refers to that situation wherein another action is pending between the same parties for the same cause of action,
such that the second action becomes unnecessary and vexatious. For litis pendentia to be invoked, the concurrence of
the following requisites is necessary:

(a) identity of parties or at least such as represent the same interest in both actions;
(b) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and

(c) the identity in the two cases should be such that the judgment that may be rendered in one would, regardless of
which party is successful, amount to res judicata in the other.[26]

In the case at bar, in Criminal Cases No. 26168 to 71 only the responsible officers of the petitioner are charged in the
Information, while in Civil Case No. 02-102650, it is only the corporation that is impleaded, holding it liable for the
unpaid customs duties and taxes as a corporate taxpayer. Taxes being personal to the taxpayer, it can only be enforced
against herein petitioner because the payment of unpaid customs duties and taxes are the personal obligation of the
petitioner as a corporate taxpayer, thus, it cannot be imposed on its corporate officers, much so on its individual
stockholders, for this will violate the principle that a corporation has personality separate and distinct from the persons
constituting it.[27] Having said that, the parties in the two actions are entirely different, hence, petitioner failed to
establish the first requisite of litis pendentia as to identity of parties.
Going to the second requisite of litis pendentia, this Court finds that the causes of action, as well as the reliefs prayed for
in the criminal and civil actions are considerably different. In the criminal cases, the cause of action of the Government,
as the Court of Appeals mentioned in its Decision, was founded on the fact that it was defrauded as a result of the
alleged conspiracy among the corporate officers of the petitioner and some public officials in the procurement and use
of the spurious TCCs, amounting to violation of Section 3(e) and (j) of Republic Act No. 3019. Therefore, the primordial
relief sought by the Government is the conviction of the accused for their fraudulent acts. On the contrary, the cause of
action in the civil case was established on the basis that since the TCCs were not honored, the customs duties and taxes
remain unpaid so the civil action was filed in order to collect the unpaid taxes due to petitioner. The relief sought by the
Government in the civil case is the collection of unpaid customs duties and taxes. Thus, the conviction of the accused in
the criminal cases and the collection of unpaid taxes in the civil case are totally unrelated causes of action that will not
justify the application of the rule on litis pendentia.

As regards the third requisite of litis pendentia, again, the petitioner failed to meet the same. This Court deems it
necessary to quote the very wordings of the Court of Appeals in its Decision dated 29 April 2004, as follows:

Moreover, a judgment in the criminal cases, to our mind, will not be determinative of the civil case upon which the
principle of res judicata will operate. A judgment in the criminal cases will only lead to either conviction or acquittal of
the accused officers of the petitioner as the crime only attaches to them but will not in anyway affect the liability of the
petitioner as it is a distinct and separate juridical person. Nor do we believe that a finding on the efficacy of the TCCs will
change the dire situation in which the Government finds itself in as the tax and the customs duties remain unpaid. The
fate of the TCCs for whatever its worth is already fait accompli. It is not disputed by the parties concerned that the
subject TCCs have already been cancelled by the [DOF] for which reason the twin suits have been brought. It is on this
basis too, that petitioner filed a [C]omplaint for [E]stafa against Devmarks officers before the City Prosecutor of
Mandaluyong City. Hence, it is absurd for the petitioner to anchor its complaint on the alleged worthlessness of the TCCs
only to argue in the present action that the same must await final determination in the criminal cases before the
Sandiganbayan.[28]

Attention must be given to the fact that taxes are the lifeblood of the nation through which the government agencies
continue to operate and with which the State effects its functions for the welfare of its constituents.[29] It is also settled
that taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. [30] So then,
the determination of the validity or invalidity of the TCCs cannot be regarded as a prejudicial issue that must first be
resolved with finality in the Criminal Cases filed before the Sandiganbayan. The Government should not and must not
await the result of the criminal proceedings in the Sandiganbayan before it can collect the outstanding customs duties
and taxes of the petitioner for such will unduly restrain the Government in doing its functions. The machineries of the
Government will not be able to function well if the collection of taxes will be delayed so much so if its collection will
depend on the outcome of any criminal proceedings on the guise that the issue of collection of taxes is a prejudicial
issue that need to be first resolved before enforcing its collection.
Therefore, it is the obligation of the petitioner to make good its obligation by paying the customs duties and taxes,
which remain unpaid by reason of the cancellation of the subject TCCs for having been found as fake and spurious. It
should not make the Government suffer for its own misfortune.

IN VIEW WHEREOF, the instant Petition is hereby DENIED. The Decision as well as the Resolution of the Court of Appeals
in CA-G.R. SP No. 77684 dated 29 April 2004 and 2 August 2004, respectively, affirming the Orders of the RTC are
hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

PROTON PILIPINAS CORPORATION et al. v. BANQUE NATIONALE DE PARIS


460 SCRA 260 (2005), THIRD DIVISION
Facts: Petitioner Proton Pilipinas Corporation (Proton) is duly organized and existing under Philippine Laws and
registered with the Board of Investments (BOI) and is engaged in business of importing, manufacturing and selling
vehicles.
Devmark and Texasia Inc purchased 13 vehicles using Tax Credit Certificates (TCC) from Proton ang guaranteed that the
TCCs were valid, genuine and subsisting was issued by the Department of Finance (DOF) and duly honoured and
accepted by the Bureau of Customs (BOC). The TCCs were subsequently cleared and evaluated by the DOF.
However on March 1999, 4 TCCs were investigated for being irregularly issued to Devmark to which the fact finding
committee of the Ombudsman found that the said TCCs were irregularly and fraudulently issued by several officers of
DOF to Devmark prior to its assignment to Proton. They were found to be fake and spurious therefore, its transfer to
Proton was invalid and illegal.
Petitioner files for motion to dismiss in the BOC’s civil case against it on the grounds of lack of jurisdiction, prematurity
of action and litis pendencia but was denied by the CA.

Issue: Whether or not the CA erred in holding that, the rule on litis pendencia is inapplicable in the present case.

Held:
No. Moreover, a judgment in the criminal cases, to our mind, will not be determinative of the civil case upon which the
principle of res judicata will operate. A judgment in the criminal cases will only lead to either conviction or acquittal of
the accused officers of the petitioner as the crime only attaches to them but will not in anyway affect the liability of the
petitioner as it is a distinct and separate juridical person. Nor do we believe that a finding on the efficacy of the TCCs will
change the dire situation in which the Government finds itself in as the tax and the customs duties remain unpaid. The
fate of the TCCs for whatever its worth is already fait accompli. It is not disputed by the parties concerned that the
subject TCCs have already been cancelled by the [DOF] for which reason the twin suits have been brought. It is on this
basis too, that petitioner filed a [C]omplaint for [E]stafa against Devmarks officers before the City Prosecutor of
Mandaluyong City. Hence, it is absurd for the petitioner to anchor its complaint on the alleged worthlessness of the TCCs
only to argue in the present action that the same must await final determination in the criminal cases before the
Sandiganbayan.[28]

Attention must be given to the fact that taxes are the lifeblood of the nation through which the government agencies
continue to operate and with which the State effects its functions for the welfare of its constituents.[29] It is also settled
that taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. [30] So then,
the determination of the validity or invalidity of the TCCs cannot be regarded as a prejudicial issue that must first be
resolved with finality in the Criminal Cases filed before the Sandiganbayan. The Government should not and must not
await the result of the criminal proceedings in the Sandiganbayan before it can collect the outstanding customs duties
and taxes of the petitioner for such will unduly restrain the Government in doing its functions. The machineries of the
Government will not be able to function well if the collection of taxes will be delayed so much so if its collection will
depend on the outcome of any criminal proceedings on the guise that the issue of collection of taxes is a prejudicial
issue that need to be first resolved before enforcing its collection.

Therefore, it is the obligation of the petitioner to make good its obligation by paying the customs duties and taxes,
which remain unpaid by reason of the cancellation of the subject TCCs for having been found as fake and spurious. It
should not make the Government suffer for its own misfortune.
LUCAS G. ADAMSON, THERESE G.R. No. 120935
JUNE D. ADAMSON, and SARA
S. DE LOS REYES, in their capacities
as President, Treasurer and Secretary
of Adamson Management Corporation,
Petitioners,
- versus -

COURT OF APPEALS and


LIWAYWAY VINZONS-CHATO,
in her capacity as Commissioner
of the Bureau of Internal Revenue,
Respondents.
x-- - - - - - - - - - - - - - - - - - - - - - - - x
COMMISSIONER OF G.R. No. 124557
INTERNAL REVENUE,
Petitioner,
Present:

-versus- PUNO, C.J., Chairperson,


CARPIO,
CORONA,
COURT OF APPEALS, COURT LEONARDO-DE CASTRO, and
OF TAX APPEALS, ADAMSON BERSAMIN, JJ.
MANAGEMENT CORPORATION,
LUCAS G. ADAMSON, THERESE
JUNE D. ADAMSON, and SARA Promulgated:
S. DE LOS REYES,
Respondents. May 21, 2009
x--------------------------------------------------x

DECISION

PUNO, C.J.:

Before the Court are the consolidated cases of G.R. No. 120935 and G.R. No. 124557.

G.R. No. 120935 involves a petition for review on certiorari filed by petitioners LUCAS G. ADAMSON, THERESE JUNE D.
ADAMSON, and SARA S. DE LOS REYES (private respondents), in their respective capacities as president, treasurer and
secretary of Adamson Management Corporation (AMC) against then Commissioner of Internal Revenue Liwayway
Vinzons-Chato (COMMISSIONER), under Rule 45 of the Revised Rules of Court. They seek to review and reverse the
Decision promulgated on March 21, 1995 and Resolution issued on July 6, 1995 of the Court of Appeals in CA-G.R. SP No.
35488 (Liwayway Vinzons-Chato, et al. v. Hon. Judge Erna Falloran-Aliposa, et al.).
G.R. No. 124557 is a petition for review on certiorari filed by the Commissioner, assailing the Decision datedMarch 29,
1996 of the Court of Appeals in CA-G.R. SP No. 35520, titled Commissioner of Internal Revenue v. Court of Tax Appeals,
Adamson Management Corporation, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes. In the said
Decision, the Court of Appeals upheld the Resolution promulgated on September 19, 1994 by the Court of Tax Appeals
(CTA) in C.T.A. Case No. 5075 (Adamson Management Corporation, Lucas G. Adamson, Therese Adamson and Sara de los
Reyes v. Commissioner of Internal Revenue).
The facts, as culled from the findings of the appellate court, follow:
On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares of stock in Adamson and Adamson, Inc. (AAI)
to APAC Holding Limited (APAC). The shares were valued at P7,789,995.00.[1] On June 22, 1990, P159,363.21 was paid as
capital gains tax for the transaction.

On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870 common shares of stock
in AAIfor P17,718,360.00. AMC paid the capital gains tax of P352,242.96.

On October 15, 1993, the Commissioner issued a Notice of Taxpayer to AMC, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes, informing them of deficiencies on their payment of capital gains tax and Value Added
Tax (VAT). The notice contained a schedule for preliminary conference.
The events preceding G.R. No. 120935 are the following:

On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ) her Affidavit of
Complaint[2] against AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes for violation of Sections
45 (a) and (d)[3], and 110[4], in relation to Section 100[5], as penalized under Section 255,[6] and for violation of Section
253[7], in relation to Section 252 (b) and (d) of the National Internal Revenue Code (NIRC).[8]

AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed with the DOJ a motion to suspend
proceedings on the ground of prejudicial question, pendency of a civil case with the Supreme Court, and pendency of
their letter-request for re-investigation with the Commissioner. After the preliminary investigation, State Prosecutor
Alfredo P. Agcaoili found probable cause. The Motion for Reconsideration against the findings of probable cause was
denied by the prosecutor.

On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes were charged before the
Regional Trial Court (RTC) of Makati, Branch 150 in Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to
Dismiss or Suspend the Proceedings. They invoked the grounds that there was yet no final assessment of their tax
liability, and there were still pending relevant Supreme Court and CTA cases. Initially, the trial court denied the
motion. A Motion for Reconsideration was however filed, this time assailing the trial courts lack of jurisdiction over the
nature of the subject cases. On August 8, 1994, the trial court granted the Motion. It ruled that the complaints for tax
evasion filed by the Commissioner should be regarded as a decision of the Commissioner regarding the tax liabilities of
Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, and appealable to the CTA. It further held that
the said cases cannot proceed independently of the assessment case pending before the CTA, which has jurisdiction to
determine the civil and criminal tax liability of the respondents therein.

On October 10, 1994, the Commissioner filed a Petition for Review with the Court of Appeals assailing the trial courts
dismissal of the criminal cases. She averred that it was not a condition prerequisite that a formal assessment should first
be given to the private respondents before she may file the aforesaid criminal complaints against them. She argued that
the criminal complaints for tax evasion may proceed independently from the assessment cases pending before the CTA.

On March 21, 1995, the Court of Appeals reversed the trial courts decision and reinstated the criminal complaints. The
appellate court held that, in a criminal prosecution for tax evasion, assessment of tax deficiency is not required
because the offense of tax evasion is complete or consummated when the offender has knowingly and willfully filed a
fraudulent return with intent to evade the tax.[9] It ruled that private respondents filed false and fraudulent returns
with intent to evade taxes, and acting thereupon, petitioner filed an Affidavit of Complaint with the Department of
Justice, without an accompanying assessment of the tax deficiency of private respondents, in order to commence
criminal action against the latter for tax evasion.[10]

Private respondents filed a Motion for Reconsideration, but the trial court denied the motion on July 6, 1995.Thus, they
filed the petition in G.R. No. 120935, raising the following issues:
1. WHETHER OR NOT THE RESPONDENT HONORABLE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE
IN UNGAB V. CUSI (Nos. L-41919-24, May 30, 1980, 97 SCRA 877) TO THE CASE AT BAR.
2. WHETHER OR NOT AN ASSESSMENT IS REQUIRED UNDER THE SECOND CATEGORY OF THE OFFENSE IN
SECTION 253 OF THE NIRC.

3. WHETHER OR NOT THERE WAS A VALID ASSESSMENT MADE BY THE COMMISSIONER IN THE CASE AT BAR.

4. WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT SERVES AS AN IMPLIED ASSESSMENT ON THE
TAX LIABILITY OF THE TAXPAYER.

5. WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION FOR TAX EVASION IN THE TRIAL COURT IS
PREMATURE BECAUSE THERE IS YET NO BASIS FOR THE CRIMINAL CHARGE OF WILLFULL INTENT TO EVADE THE
PAYMENT OF A TAX.

6. WHETHER OR NOT THE DOCTRINES LAID DOWN IN THE CASES OF YABES V. FLOJO (No. L-46954,July 20,
1982, 115 SCRA 286) AND CIR V. UNION SHIPPING CORP. (G.R. No. 66160, May 21, 1990, 185 SCRA 547) ARE APPLICABLE
TO THE CASE AT BAR.

7. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION OVER THE DISPUTE ON WHAT
CONSTITUTES THE PROPER TAXES DUE FROM THE TAXPAYER.

In parallel circumstances, the following events preceded G.R. No. 124557:

On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a letter request
for re-investigation with the Commissioner of the Examiners Findings earlier issued by the Bureau of Internal Revenue
(BIR), which pointed out the tax deficiencies.

On March 15, 1994 before the Commissioner could act on their letter-request, AMC, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes filed a Petition for Review with the CTA. They assailed the Commissioners finding of
tax evasion against them. The Commissioner moved to dismiss the petition, on the ground that it was premature, as she
had not yet issued a formal assessment of the tax liability of therein petitioners. OnSeptember 19, 1994, the CTA denied
the Motion to Dismiss. It considered the criminal complaint filed by the Commissioner with the DOJ as an implied formal
assessment, and the filing of the criminal informations with the RTC as a denial of petitioners protest regarding the tax
deficiency.

The Commissioner repaired to the Court of Appeals on the ground that the CTA acted with grave abuse of
discretion. She contended that, with regard to the protest provided under Section 229 of the NIRC, there must first be a
formal assessment issued by the Commissioner, and it must be in accord with Section 6 of Revenue Regulation No. 12-
85. She maintained that she had not yet issued a formal assessment of tax liability, and the tax deficiency amounts
mentioned in her criminal complaint with the DOJ were given only to show the difference between the tax returns filed
and the audit findings of the revenue examiner.

The Court of Appeals sustained the CTAs denial of the Commissioners Motion to Dismiss. Thus, the Commissioner filed
the petition for review under G.R. No. 124557, raising the following issues:

1. WHETHER OR NOT THE INSTANT PETITION SHOULD BE DISMISSED FOR FAILURE TO COMPLY WITH THE
MANDATORY REQUIREMENT OF A CERTIFICATION UNDER OATH AGAINST FORUM SHOPPING;

2. WHETHER OR NOT THE CRIMINAL CASE FOR TAX EVASION IN THE CASE AT BAR CAN PROCEED WITHOUT AN
ASSESSMENT;

3. WHETHER OR NOT THE COMPLAINT FILED WITH THE DEPARTMENT OF JUSTICE CAN BE CONSTRUED AS AN
IMPLIED ASSESSMENT; and
4. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO ACT ON PRIVATE RESPONDENTS
PETITION FOR REVIEW FILED WITH THE SAID COURT.

The issues in G.R. No. 124557 and G.R. No. 120935 can be compressed into three:

1. WHETHER THE COMMISSIONER HAS ALREADY RENDERED AN ASSESSMENT (FORMAL OR OTHERWISE) OF


THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES;

2. WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX EVASION TO PROCEED AGAINST AMC,
LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES; and

3. WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO TAKE COGNIZANCE OF BOTH THE
CIVIL AND THE CRIMINAL ASPECTS OF THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D.
ADAMSON AND SARA S. DE LOS REYES.

The case of CIR v. Pascor Realty, et al.[11] is relevant. In this case, then BIR Commissioner Jose U. Ong authorized revenue
officers to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation
(PRDC) for 1986, 1987 and 1988. This 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 filed a criminal complaint before the DOJ against 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
filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability.

The Commissioner denied the urgent request for reconsideration/reinvestigation because she had not yet issued a
formal assessment.

Private respondents then elevated the Decision of the Commissioner to the CTA on a petition for review. The
Commissioner 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 yet no formal assessment issued against the petitioners. The CTA denied the said
motion to dismiss and ordered the Commissioner to file an answer within thirty (30) days. The Commissioner did not file
an answer nor did she move to reconsider the resolution. Instead, the Commissioner filed a petition for review of the
CTA decision with the Court of Appeals. The Court of Appeals upheld the CTA order. However, this Court reversed the
Court of Appeals decision and the CTA order, and ordered the dismissal of the petition. We held:
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 interests 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.
Neither the NIRC nor the revenue regulations governing the protest of assessments[12] 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 the 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 rate as may be prescribed by rules and
regulations, is to be collected from the date prescribed for its payment until the full payment.[13]
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[14] 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,[15] 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[16] 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.[17]
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.[18]
Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax
rolls.[19]
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 taxevasion. 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.
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 NIRC,[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.

In the cases at bar, the Commissioner denied that she issued a formal assessment of the tax liability of AMC, Lucas G.
Adamson, Therese June D. Adamson and Sara S. de los Reyes. She admits though that she wrote the recommendation
letter[22] addressed to the Secretary of the DOJ recommending the filing of criminal complaints against AMC and the
aforecited persons for fraudulent returns and tax evasion.
The first issue is whether the Commissioners recommendation letter can be considered as a formal assessment of
private respondents tax liability.

In the context in which it is used in the NIRC, an assessment is a written notice and demand made by the BIR on the
taxpayer for the settlement of a due tax liability that is there definitely set and fixed. A written communication
containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to contest
or disprove the BIR examiners findings is not an assessment since it is yet indefinite.[23]

We rule that the recommendation letter of the Commissioner cannot be considered a formal assessment. Even a cursory
perusal of the said letter would reveal three key points:
1. It was not addressed to the taxpayers.
2. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein.
3. The letter was never mailed or sent to the taxpayers by the Commissioner.

In fine, the said recommendation letter served merely as the prima facie basis for filing criminal informations that the
taxpayers had violated Section 45 (a) and (d), and 110, in relation to Section 100, as penalized under Section 255, and for
violation of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code.[24]

The next issue is whether the filing of the criminal complaints against the private respondents by the DOJ is premature
for lack of a formal assessment.

Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:

Sec. 269. Exceptions as to 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 failure to file a return, the tax may be assessed, or a proceeding in court
after the collection of such tax may be begun without assessment, at any time within ten 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 collection thereof

The law is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the
collection of such tax may be begun without assessment. Here, the private respondents had already filed the capital
gains tax return and the VAT returns, and paid the taxes they have declared due therefrom. Upon investigation of the
examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the capital gains taxes
due from the sale of two lots of AAI shares, first to APAC and then to APAC Philippines, Limited. The examiners also
found that the VAT had not been paid for VAT-liable sale of services for the third and fourth quarters of 1990. Arguably,
the gross disparity in the taxes due and the amounts actually declared by the private respondents constitutes badges of
fraud.

Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at bar. In this seminal case, this Court ruled that there
was no need for precise computation and formal assessment in order for criminal complaints to be filed against him. It
quoted Mertens Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the
income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return, with intent to
evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he
has made an inaccurate return, and the governments failure to discover the error and promptly to assess has no
connections with the commission of the crime.
This hoary principle still underlies Section 269 and related provisions of the present Tax Code.

We now go to the issue of whether the CTA has no jurisdiction to take cognizance of both the criminal and civil cases
here at bar.

Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as amended, the rulings of the Commissioner
are appealable to the CTA, thus:
SEC. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein
provided -
(1) 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 laws or part of law administered by the Bureau of Internal Revenue;

Republic Act No. 8424, titled An Act Amending the National Internal Revenue Code, As Amended, And For Other
Purposes, later expanded the jurisdiction of the Commissioner and, correspondingly, that of the CTA, thus:

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to interpret the provisions
of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to
review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction
of the Court ofTax Appeals.

The latest statute dealing with the jurisdiction of the CTA is Republic Act No. 9282.[26] It provides:
SEC. 7. Section 7 of the same Act is hereby amended to read as follows:

Sec. 7. Jurisdiction. The CTA shall exercise:


(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be deemed a denial;
(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them
in the exercise of their original or appellate jurisdiction;
xxx
(b) Jurisdiction over cases involving criminal offenses as herein provided:
(1) Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code
or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of
Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal amount of taxes
and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no
specified amount claimed shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate. Any
provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil
action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry
with it the filing of the civil action, and no right to reserve the filling of such civil action separately from the criminal
action will be recognized.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by
them, in their respected territorial jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in their respective jurisdiction.
(c) Jurisdiction over tax collection cases as herein provided:
(1) Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges
and penalties: Provided, however, That collection cases where the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal Trial
Court, Metropolitan Trial Court and Regional Trial Court.
(2) Exclusive appellate jurisdiction in tax collection cases:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally
decided by them, in their respective territorial jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts
and Municipal Circuit Trial Courts, in their respective jurisdiction.

These laws have expanded the jurisdiction of the CTA. However, they did not change the jurisdiction of the CTA to
entertain an appeal only from a final decision or assessment of the Commissioner, or in cases where the Commissioner
has not acted within the period prescribed by the NIRC. In the cases at bar, the Commissioner has not issued an
assessment of the tax liability of private respondents.

Finally, we hold that contrary to private respondents stance, the doctrines laid down in CIR v. Union Shipping
Co. and Yabes v. Flojo are not applicable to the cases at bar. In these earlier cases, the Commissioner already rendered
an assessment of the tax liabilities of the delinquent taxpayers, for which reason the Court ruled that the filing of the
civil suit for collection of the taxes due was a final denial of the taxpayers request for reconsideration of the tax
assessment.

IN VIEW WHEREOF, premises considered, judgment is rendered:

1. In G.R. No. 120935, AFFIRMING the CA decision dated March 21, 1995, which set aside the Regional Trial
Courts Order dated August 8, 1994, and REINSTATING Criminal Case Nos. 94-1842 to 94-1846 for further proceedings
before the trial court; and

2. In G.R. No. 124557, REVERSING and SETTING ASIDE the Decision of the Court of Appeals dated March 29, 1996, and
ORDERING the dismissal of C.T.A. Case No. 5075.

No costs.

SO ORDERED.

LUCAS ADAMSON vs. COURT OF APPEALS- Deficiency Tax Assessment

FACTS:
A deficiency tax assessment was issued against Petitioners relating to their payment of capital gains tax and VAT on their
sale of shares of stock and parcels of land. Subsequent to the preliminary conference, the CIR filed with the Department
of Justice her Affidavit of Complaint against Petitioners. The Court of Appeals ultimately ruled that, in a criminal
prosecution for tax evasion, assessment of tax deficiency is not required because the offense of tax evasion is complete
or consummated when the offender has knowingly and willfully filed a fraudulent return with intent to evade the tax.
ISSUES:
(1) Dis the CIR issue an assessment?
(2) Must a criminal prosecution for tax evasion be preceded by a deficiency tax assessment?
(3) Does the CTA have jurisdiction on the case?

HELD:
(1) NO. The recommendation letter of the Commissioner cannot be considered a formal assessment as (a) it was not
addressed to the taxpayers; (b) there was no demand made on the taxpayers to pay the tax liability, nor a period for
payment set therein; (c) the letter was never mailed or sent to the taxpayers by the Commissioner. It was only an
affidavit of the computation of the alleged liabilities and thus merely served as prima facie basis for filing criminal
informations.
(2) YES. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such
tax may be begun without assessment considering that upon investigation of the examiners of the BIR, there was a
preliminary finding of gross discrepancy in the computation of the capital gains taxes due from the transactions. The Tax
Code is clear that the remedies may proceed simultaneously.

(3) NO. While the laws governing the CTA have expanded the jurisdiction of the Court, they did not change the
jurisdiction of the CTA to entertain an appeal only from a final decision of the Commissioner, or in cases of inaction
within the prescribed period. Since in the cases at bar, the Commissioner has not issued an assessment of the tax liability
of the Petitioners, the CTA has no jurisdiction.

[G.R. No. 147188. September 14, 2004]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE ESTATE OF BENIGNO P. TODA, JR., Represented
by Special Co-administrators Lorna Kapunan and Mario Luza Bautista, respondents.

DECISION

DAVIDE, JR., C.J.:

This Court is called upon to determine in this case whether the tax planning scheme adopted by a corporation constitutes
tax evasion that would justify an assessment of deficiency income tax.

The petitioner seeks the reversal of the Decision[1] of the Court of Appeals of 31 January 2001 in CA-G.R. SP No. 57799
affirming the 3 January 2000 Decision[2] of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5328,[3] which held that the
respondent Estate of Benigno P. Toda, Jr. is not liable for the deficiency income tax of Cibeles Insurance Corporation
(CIC) in the amount of P79,099,999.22 for the year 1989, and ordered the cancellation and setting aside of the
assessment issued by Commissioner of Internal Revenue Liwayway Vinzons-Chato on 9 January 1995.

The case at bar stemmed from a Notice of Assessment sent to CIC by the Commissioner of Internal Revenue for
deficiency income tax arising from an alleged simulated sale of a 16-storey commercial building known as Cibeles
Building, situated on two parcels of land on Ayala Avenue, Makati City.

On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding
capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not
less than P90 million.[4]

On 30 August 1989, Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold the same
property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced by Deeds of
Absolute Sale notarized on the same day by the same notary public.[5]

For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million.[6]

On 16 April 1990, CIC filed its corporate annual income tax return[7] for the year 1989, declaring, among other things, its
gain from the sale of real property in the amount of P75,728.021. After crediting withholding taxes of P254,497.00, it
paid P26,341,207[8] for its net taxable income of P75,987,725.

On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced by a
Deed of Sale of Shares of Stocks.[9] Three and a half years later, or on 16 January 1994, Toda died.

On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an assessment notice [10] and demand letter to the CIC for
deficiency income tax for the year 1989 in the amount of P79,099,999.22.

The new CIC asked for a reconsideration, asserting that the assessment should be directed against the old CIC, and not
against the new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had undertaken to hold
the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-1989.[11]

On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan and
Mario Luza Bautista, received a Notice of Assessment [12] dated 9 January 1995 from the Commissioner of Internal
Revenue for deficiency income tax for the year 1989 in the amount of P79,099,999.22, computed as follows:

Income Tax 1989


Net Income per return P75,987,725.00

Add: Additional gain on sale

of real property taxable under

ordinary corporate income

but were substituted with

individual capital gains

(P200M 100M) 100,000,000.00

Total Net Taxable Income P175,987,725.00

per investigation

Tax Due thereof at 35% P 61,595,703.75

Less: Payment already made

1. Per return P26,595,704.00

2. Thru Capital Gains

Tax made by R.A.

Altonaga 10,000,000.00 36,595,704.00

Balance of tax due P 24,999,999.75

Add: 50% Surcharge 12,499,999.88

25% Surcharge 6,249,999.94

Total P 43,749,999.57

Add: Interest 20% from

4/16/90-4/30/94 (.808) 35,349,999.65

TOTAL AMT. DUE & COLLECTIBLE P 79,099,999.22

============

The Estate thereafter filed a letter of protest.[13]

In the letter dated 19 October 1995,[14] the Commissioner dismissed the protest, stating that a fraudulent scheme was
deliberately perpetuated by the CIC wholly owned and controlled by Toda by covering up the additional gain of P100
million, which resulted in the change in the income structure of the proceeds of the sale of the two parcels of land and the
building thereon to an individual capital gains, thus evading the higher corporate income tax rate of 35%.

On 15 February 1996, the Estate filed a petition for review[15] with the CTA alleging that the Commissioner erred in holding
the Estate liable for income tax deficiency; that the inference of fraud of the sale of the properties is unreasonable and
unsupported; and that the right of the Commissioner to assess CIC had already prescribed.

In his Answer[16] and Amended Answer,[17] the Commissioner argued that the two transactions actually constituted a single
sale of the property by CIC to RMI, and that Altonaga was neither the buyer of the property from CIC nor the seller of the
same property to RMI. The additional gain of P100 million (the difference between the second simulated sale for P200
million and the first simulated sale for P100 million) realized by CIC was taxed at the rate of only 5% purportedly as capital
gains tax of Altonaga, instead of at the rate of 35% as corporate income tax of CIC. The income tax return filed by CIC for
1989 with intent to evade payment of the tax was thus false or fraudulent. Since such falsity or fraud was discovered by
the BIR only on 8 March 1991, the assessment issued on 9 January 1995 was well within the prescriptive period
prescribed by Section 223 (a) of the National Internal Revenue Code of 1986, which provides that tax may be assessed
within ten years from the discovery of the falsity or fraud. With the sale being tainted with fraud, the separate corporate
personality of CIC should be disregarded. Toda, being the registered owner of the 99.991% shares of stock of CIC and
the beneficial owner of the remaining 0.009% shares registered in the name of the individual directors of CIC, should be
held liable for the deficiency income tax, especially because the gains realized from the sale were withdrawn by him as
cash advances or paid to him as cash dividends. Since he is already dead, his estate shall answer for his liability.

In its decision[18] of 3 January 2000, the CTA held that the Commissioner failed to prove that CIC committed fraud to
deprive the government of the taxes due it. It ruled that even assuming that a pre-conceived scheme was adopted by CIC,
the same constituted mere tax avoidance, and not tax evasion. There being no proof of fraudulent transaction, the
applicable period for the BIR to assess CIC is that prescribed in Section 203 of the NIRC of 1986, which is three years
after the last day prescribed by law for the filing of the return. Thus, the governments right to assess CIC prescribed on 15
April 1993. The assessment issued on 9 January 1995 was, therefore, no longer valid. The CTA also ruled that the mere
ownership by Toda of 99.991% of the capital stock of CIC was not in itself sufficient ground for piercing the separate
corporate personality of CIC. Hence, the CTA declared that the Estate is not liable for deficiency income tax
of P79,099,999.22 and, accordingly, cancelled and set aside the assessment issued by the Commissioner on 9 January
1995.

In its motion for reconsideration,[19] the Commissioner insisted that the sale of the property owned by CIC was the result of
the connivance between Toda and Altonaga. She further alleged that the latter was a representative, dummy, and a close
business associate of the former, having held his office in a property owned by CIC and derived his salary from a foreign
corporation (Aerobin, Inc.) duly owned by Toda for representation services rendered. The CTA denied [20] the motion for
reconsideration, prompting the Commissioner to file a petition for review[21] with the Court of Appeals.

In its challenged Decision of 31 January 2001, the Court of Appeals affirmed the decision of the CTA, reasoning that the
CTA, being more advantageously situated and having the necessary expertise in matters of taxation, is better situated to
determine the correctness, propriety, and legality of the income tax assessments assailed by the Toda Estate.[22]

Unsatisfied with the decision of the Court of Appeals, the Commissioner filed the present petition invoking the following
grounds:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT COMMITTED NO FRAUD WITH INTENT TO
EVADE THE TAX ON THE SALE OF THE PROPERTIES OF CIBELES INSURANCE CORPORATION.

II. THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE SEPARATE CORPORATE PERSONALITY OF
CIBELES INSURANCE CORPORATION.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF PETITIONER TO ASSESS RESPONDENT
FOR DEFICIENCY INCOME TAX FOR THE YEAR 1989 HAD PRESCRIBED.

The Commissioner reiterates her arguments in her previous pleadings and insists that the sale by CIC of the Cibeles
property was in connivance with its dummy Rafael Altonaga, who was financially incapable of purchasing it. She further
points out that the documents themselves prove the fact of fraud in that (1) the two sales were done simultaneously on the
same date, 30 August 1989; (2) the Deed of Absolute Sale between Altonaga and RMI was notarized ahead of the
alleged sale between CIC and Altonaga, with the former registered in the Notarial Register of Jocelyn H. Arreza Pabelana
as Doc. 91, Page 20, Book I, Series of 1989; and the latter, as Doc. No. 92, Page 20, Book I, Series of 1989, of the same
Notary Public; (3) as early as 4 May 1989, CIC received P40 million from RMI, and not from Altonaga. The said amount
was debited by RMI in its trial balance as of 30 June 1989 as investment in Cibeles Building. The substantial portion
of P40 million was withdrawn by Toda through the declaration of cash dividends to all its stockholders.

For its part, respondent Estate asserts that the Commissioner failed to present the income tax return of Altonaga to prove
that the latter is financially incapable of purchasing the Cibeles property.

To resolve the grounds raised by the Commissioner, the following questions are pertinent:

1. Is this a case of tax evasion or tax avoidance?

2. Has the period for assessment of deficiency income tax for the year 1989 prescribed? and

3. Can respondent Estate be held liable for the deficiency income tax of CIC for the year 1989, if any?

We shall discuss these questions in seriatim.

Is this a case of tax evasion

or tax avoidance?
Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax
avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in
good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when
availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.[23]

Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known
by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state
of mind which is described as being evil, in bad faith, willfull,or deliberate and not accidental; and (3) a course of action or
failure of action which is unlawful.[24]

All these factors are present in the instant case. It is significant to note that as early as 4 May 1989, prior to the purported
sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40 million from RMI,[25] and not from
Altonaga. That P40 million was debited by RMI and reflected in its trial balance[26] as other inv. Cibeles Bldg. Also, as of
31 July 1989, another P40 million was debited and reflected in RMIs trial balance as other inv. Cibeles Bldg. This would
show that the real buyer of the properties was RMI, and not the intermediary Altonaga.

The investigation conducted by the BIR disclosed that Altonaga was a close business associate and one of the many
trusted corporate executives of Toda. This information was revealed by Mr. Boy Prieto, the assistant accountant of CIC
and an old timer in the company. [27] But Mr. Prieto did not testify on this matter, hence, that information remains to be
hearsay and is thus inadmissible in evidence. It was not verified either, since the letter-request for investigation of
Altonaga was unserved,[28] Altonaga having left for the United States of America in January 1990. Nevertheless, that
Altonaga was a mere conduit finds support in the admission of respondent Estate that the sale to him was part of the tax
planning scheme of CIC. That admission is borne by the records. In its Memorandum, respondent Estate declared:

Petitioner, however, claims there was a change of structure of the proceeds of sale. Admitted one hundred percent. But
isnt this precisely the definition of tax planning? Change the structure of the funds and pay a lower tax. Precisely, Sec. 40
(2) of the Tax Code exists, allowing tax free transfers of property for stock, changing the structure of the property and the
tax to be paid. As long as it is done legally, changing the structure of a transaction to achieve a lower tax is not against the
law. It is absolutely allowed.

Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely petitioner [sic] cannot be faulted
for wanting to reduce the tax from 35% to 5%.[29] [Underscoring supplied].

The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with
fraud.

Fraud in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to
another, or by which an undue and unconscionable advantage is taken of another. [30]

Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the
transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the 35% corporate
income tax. Altonagas sole purpose of acquiring and transferring title of the subject properties on the same day was to
create a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of
ownership. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance.
Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the
consequent income tax liability.

In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax
liabilities than for legitimate business purposes constitutes one of tax evasion. [31]

Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated. [32] The incidence
of taxation depends upon the substance of a transaction. The tax consequences arising from gains from a sale of property
are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be
viewed as a whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. A
sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through
which to pass title. To permit the true nature of the transaction to be disguised by mere formalisms, which exist solely to
alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress. [33]

To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is
proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale to Altonaga
should be disregarded for income tax purposes.[34] The two sale transactions should be treated as a single direct sale by
CIC to RMI.

Accordingly, the tax liability of CIC is governed by then Section 24 of the NIRC of 1986, as amended (now 27 (A) of the
Tax Reform Act of 1997), which stated as follows:

Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax is hereby imposed upon the taxable
net income received during each taxable year from all sources by every corporation organized in, or existing under the
laws of the Philippines, and partnerships, no matter how created or organized but not including general professional
partnerships, in accordance with the following:

Twenty-five percent upon the amount by which the taxable net income does not exceed one hundred thousand pesos;
and

Thirty-five percent upon the amount by which the taxable net income exceeds one hundred thousand pesos.

CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5% individual capital gains tax
provided for in Section 34 (h) of the NIRC of 1986[35] (now 6% under Section 24 (D) (1) of the Tax Reform Act of 1997) is
inapplicable. Hence, the assessment for the deficiency income tax issued by the BIR must be upheld.

Has the period of

assessment prescribed?

No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997) read:

Sec. 269. Exceptions as to 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 failure to file a return, the tax may be assessed, or a proceeding in court
after the collection of such tax may be begun without assessment, at any time within ten 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 collection thereof .

Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a return,
the period within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the case may
be.

It is true that in a query dated 24 August 1989, Altonaga, through his counsel, asked the Opinion of the BIR on the tax
consequence of the two sale transactions.[36] Thus, the BIR was amply informed of the transactions even prior to the
execution of the necessary documents to effect the transfer. Subsequently, the two sales were openly made with the
execution of public documents and the declaration of taxes for 1989. However, these circumstances do not negate the
existence of fraud. As earlier discussed those two transactions were tainted with fraud. And even assuming arguendo that
there was no fraud, we find that the income tax return filed by CIC for the year 1989 was false. It did not reflect the true or
actual amount gained from the sale of the Cibeles property. Obviously, such was done with intent to evade or reduce tax
liability.

As stated above, the prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery
of the falsity. The false return was filed on 15 April 1990, and the falsity thereof was claimed to have been discovered only
on 8 March 1991.[37] The assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995. Clearly,
the issuance of the correct assessment for deficiency income tax was well within the prescriptive period.

Is respondent Estate liable

for the 1989 deficiency

income tax of Cibeles

Insurance Corporation?

A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owners
or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa.
There are, however, certain instances in which personal liability may arise. It has been held in a number of cases that
personal liability of a corporate director, trustee, or officer along, albeit not necessarily, with the corporation may validly
attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in directing its affairs, or
(c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons;

2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto;

3. He agrees to hold himself personally and solidarily liable with the corporation; or

4. He is made, by specific provision of law, to personally answer for his corporate action. [38]

It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and voluntarily held
himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989. Paragraph g of
the Deed of Sale of Shares of Stocks specifically provides:

g. Except for transactions occurring in the ordinary course of business, Cibeles has no liabilities or obligations, contingent
or otherwise, for taxes, sums of money or insurance claims other than those reported in its audited financial statement as
of December 31, 1989, attached hereto as Annex B and made a part hereof. The business of Cibeles has at all times
been conducted in full compliance with all applicable laws, rules and regulations. SELLER undertakes and agrees to
hold the BUYER and Cibeles free from any and all income tax liabilities of Cibeles for the fiscal years 1987, 1988
and 1989.[39] [Underscoring Supplied].

When the late Toda undertook and agreed to hold the BUYER and Cibeles free from any all income tax liabilities of
Cibeles for the fiscal years 1987, 1988, and 1989, he thereby voluntarily held himself personally liable therefor.
Respondent estate cannot, therefore, deny liability for CICs deficiency income tax for the year 1989 by invoking the
separate corporate personality of CIC, since its obligation arose from Todas contractual undertaking, as contained in
the Deed of Sale of Shares of Stock.

WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED. The decision of the Court of Appeals of 31
January 2001 in CA-G.R. SP No. 57799 is REVERSED and SET ASIDE, and another one is hereby rendered ordering
respondent Estate of Benigno P. Toda Jr. to pay P79,099,999.22 as deficiency income tax of Cibeles Insurance
Corporation for the year 1989, plus legal interest from 1 May 1994 until the amount is fully paid.

Costs against respondent.

SO ORDERED.

CIR v. Toda, Jr.

GR No. 147188; 14 September 2004

F A C T S: On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its outstanding
capital stock, to sell the Cibeles Building. On 30 August 1989, Toda purportedly sold the property for P100 million to
Rafael A. Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million.
Three and a half years later Toda died. On 29 March 1994, the BIR sent an assessment notice and demand letter to the
CIC for deficiency income tax for the year 1989. On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by
special co-administrators Lorna Kapunan and Mario Luza Bautista, received a Notice of Assessment from the CIR for
deficiency income tax for the year 1989. The Estate thereafter filed a letter of protest. The Commissioner dismissed the
protest. On 15 February 1996, the Estate filed a petition for review with the CTA. In its decision the CTA held that the
Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due it. It ruled that even
assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax
evasion. Hence, the CTA declared that the Estate is not liable for deficiency of income tax. The Commissioner filed a
petition for review with the Court of Appeals. The Court of Appeals affirmed the decision of the CTA, hence, this recourse.

I S S U E: Whether or not this is a case of tax evasion or tax avoidance.

H E L D: Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e. the payment of less than
that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being “evil,” in “bad faith,” “willfull,” or “deliberate and not accidental”;
and (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case. The
scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e. from CIC to
Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with
fraud. Altonaga’s sole purpose of acquiring and transferring title of the subject properties on the same day was to create a
tax shelter. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance.
Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the
consequent income tax liability.

G.R. No. 76281 September 30, 1991


COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WYETH SUACO LABORATORIES, INC. and THE COURT OF TAX APPEALS, respondents.

The sole issue in this petition for review on certiorari is whether or not petitioner's right to collect deficiency withholding
tax at source and sales tax liabilities from private respondent is barred by prescription.

The antecedent facts are as follows:

Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco for brevity) is a domestic corporation engaged in the
manufacture and sale of assorted pharmaceutical and nutritional products. Its accounting period is on a fiscal year basis
ending October 31 of every year.

By virtue of Letter of Authority No. 52415 dated June 17, 1974 issued by then Commissioner of Internal Revenue Misael
P. Vera, Revenue Examiner Dante Kabigting conducted an investigation and examination of the books of accounts of
Wyeth Suaco.1 On October 15, 1974, he submitted a report containing the result of his investigation. The report
disclosed that Wyeth Suaco was paying royalties to its foreign licensors as well as remuneration for technical services to
Wyeth International Laboratories of London. Wyeth Suaco was also found to have declared cash dividends on
September 27, 1973 and these were paid on October 31, 1973. However, it allegedly failed to remit withholding tax at
source for the fourth (4th) quarter of 1973 on accrued royalties, remuneration for technical services and cash dividends,
resulting in a deficiency withholding tax at source in the aggregate amount of P3,178,994.15.2

Moreover, it was reported that during the periods from November 1, 1972 to December 31, 1972 and January 1, 1973 to
October 31, 1973, Wyeth Suaco deducted the cost of non-deductible raw materials, resulting in its alleged failure to pay
the correct amount of advance sales tax. There was reportedly also a short payment of advance sales tax in its
importation of "Mega Polymycin D" on October 3, 1972. All these resulted in a deficiency sales tax in the amount of
P60,855.21 and compromise penalty in the amount of P300.00 or a total amount of P61,155.21.3

Consequently, the Bureau of Internal Revenue assessed Wyeth Suaco on the aforesaid tax liabilities in two (2) notices
dated December 16, 1974 and December 17, 1974. These assessment notices were both received by Wyeth Suaco on
December 19, 1974.4

Thereafter, Wyeth Suaco through its tax consultant SGV &Co., sent the Bureau of Intemal Revenue two (2) letters dated
January 17, 1975 and February 8, 1975, protesting the assessments and requesting their cancellation or withdrawal on
the ground that said assessments lacked factual or legal basis.

Wyeth Suaco argued that it was not liable to pay withholding tax at source on the accrued royalties and dividends
because they have yet to be remitted or paid abroad. It claimed that it was not able to remit the balance of fifty percent
(50%) of the accrued royalties to its foreign licensors because of Central Bank Circular No. 289 allowing remittance of
royalties up to fifty percent (50%) only. With regard to what the Bureau of Internal Revenue claimed as the amount of
P2,952,391.00 forming part of the cash dividends declared in 1973, Wyeth Suaco alleged that the same was due its
foreign stockholders. Again, Wyeth Suaco was not able to remit these dividends because of the restriction of the Central
Bank in a memorandum implementing CB Circular No. 289 dated February 21, 1970. Thus, Wyeth Suaco's contention
was that a withholding tax at source on royalties and dividends becomes due and payable only upon their actual
payment or remittance.
On the matter of the withholding tax at source on remuneration for technical services, Wyeth Suaco insisted that it was
up-to-date in remitting the corresponding withholding tax on this income to the Bureau of Internal Revenue.

As to the assessed deficiency sales tax, Wyeth Suaco maintained that the difference between its landed cost figure
(which is the basis for computing the advancesales tax) and that of the revenue examiner, was due to the use of
estimated amounts by the Bureau of Customs and to foreign exchange differential.

Wyeth Suaco however, admitted liability with respect to the short payment of advance sales tax in the amount of
P1,000.00 on its importation of "Mega Polymycin D."5

On September 12, 1975, the Commissioner of Internal Revenue asked Wyeth Suaco to avail itself of the compromise
settlement under LOI 308. In its answer, Wyeth Suaco manifested its conformity to a 10% compromise provided it be
applied only to the basic sales tax, excluding surcharge and interest. As to the deficiency withholding tax at source,
Wyeth took exception on the ground that it involves purely a legal question and some of the amounts included in the
assessment have already bee paid.

On December 10, 1979, petitioner, thru then acting Commissioner of Internal Revenue Ruben B. Ancheta, rendered a
decision reducing the assessment of the withholding tax at source for 1973 to P1,973,112.86. However, the amount of
P61,155.21 as deficiency sales tax remained the same.6

Thereafter, Wyeth Suaco filed a petition for review in Court of Tax Appeals on January 18, 1980, praying that lpeti tioner
be enjoined from enforcing the assessments by reason of prescription and that the assessments be declared null and
void for lack of legal and factual basis.7

On February 7, 1980, petitioner issued a warrant of distrain of personal property and warrant of levy of real property
again private respondent to enforce collection of the deficiency taxes. These were served on private respondent on
March 12, 1980.8 However, collection of the deficiency taxes by virtue of warrants of distraint and levy was enjoined by
respondent court upon motion of Wyeth Suaco in a resolution dated May 22, 1980.9

On May 30, 1980, petitioner filed his answer to Wyeth Suaco's petition for review praying, among others, that private
respondent be declared liable to pay the amount of P61,155.21 as deficiency sales tax for the periods November 1, 1972
to December 31, 1972 and January 1, 1973 to October 31, 1973, plus 14% annual interest thereon from December 17,
1974 until payment thereof pursuant to Section 183 (now Section 193) of the Tax Code, and the amount of
P1,973,112.86 as deficie withholding tax at source for the 4th quarter of 1973 plus 5% surcharge and 14% per annum
interest thereon from December 16, 1974 to December 16, 1977, pursuant to Section 51 (e) of the Tax Code of 1977, as
amended.10

On August 29, 1986, the Court of Tax Appeals rendered a decision enjoining the Commissioner of Internal Revenue from
collecting the deficiency taxes, the dispositive portion of which reads as follows:

WHEREFORE, the decision appealed from is hereby reversed and respondent Commissioner of Internal Revenue is
hereby enjoined from collecting the deficiency withholding tax at source for the fourth quarter of 1973 as well as the
deficiency sales tax assessed against petitioner (Wyeth Suaco). Without pronouncement as to costs.11

The basis of the above decision was the finding of the Tax Court that while the assessments for the deficiency taxes were
made within the five-year period of limitation, the right of petitioner to collect the same has already prescribed, in
accordance with Section 319 (c) of the Tax Code of 1977. The said law provides that an assessment of any internal
revenue tax within the five-year period of limitation may be collected by distraint or levy or by a proceeding in court, but
only if begun within five (5) years after the assessment of the tax.

Hence, this recourse by petitioner.


The applicable laws in the instant case are Sections 318 and 319 (c) of the National Internal Revenue Code of 1977 (now
Sections 203 and 224 of the National Internal Revenue Code of 1986), to wit:

SEC. 318. Period of limitation upon assessment and collection — Except as provided in the succeeding section, internal
revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of such period. ...

SEC. 319. Exceptions as to period of limitations of assessment and collection of taxes. —

xxx xxx xxx

(c) Where the assessment of any internal revenue tax has been made within the period of limitation above-
prescribed such tax may be collected by distraint or levy by a proceeding in court, but only if begun (1) within five years
after the assessment of the tax, or (2) prior the expiration of any period for collection agreed upon in writing by the
Commissioner and the taxpayer before the expiration of such five-year period. The period so agreed upon may be
extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.
(emphasis supplied)

The main thrust of petitioner for the allowance of this petition is that the five-year prescriptive period provided by law
to mak a collection by distraint or levy or by a proceeding in court has not yet prescribed. Although he admits that more
than five (5) years have already lapsed from the time the assessment notices were received by private respondent on
December 19, 1974 up to the time the warrants of distraint and levy were served on March 12, 1980, he avers that the
running of the prescriptive period was stayed or interrupted when Wyeth Suaco protested the assessments. Petitioner
argues that the protest letters sent by SGV & Co. in behalf of Wyeth Suaco dated January 17, 1975 and February 8, 1975,
requesting for withdrawal and cancellation of the assessments were actually requests for reinvestigation or
reconsideration, which could interrupt the running of the five-year prescriptive period.

Wyeth Suaco, on the other hand, maintains the position that it never asked for a reinvestigation nor reconsideration of
th assessments. What it requested was the cancellation and with drawal of the assessments for lack of legal and factual
basis. Thus, its protest letters dated January 17, 1975 and February 8, 1975 did not suspend or interrupt the running of
the five-year prescriptive period.

Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a
proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. In
the case of Commissioner of Internal Revenue vs. Capitol Subdivision, Inc.,12 this Court held:

The period of prescription of action to collect a taxpayer's deficiency income tax assessment is interrupted when the
taxpayer request for a review or reconsideration of said assessment, and starts to run again when said request is denied.

In another case, this Court stated that the statutory period of limitation for collection may be interrupted if by the
taxpayer's repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the
Goverrument.13 Also in the case of Cordero vs. Gonda,14 we held:

Partial payment would not prevent the government from suing the taxpayer. Because, by such act of payment, the
government is not thereby "persuaded to postpone collection to make him feel that the demand was not unreasonable
or that no harassment or injustice is meant." This is the underlying reason behind the rule that the prescriptive period is
arrested by the taxpayer's request for re-examination or reinvestigation — even if he "has not previously waived it
(prescription in writing)". ... (emphasis supplied)

Thus, the pivotal issue in this case is whether or not Wyeth Suaco sought reinvestigation or reconsideration of the
deficiency tax assessments issued by the Bureau of Internal Revenue.
After carefully examining the records of the case, we find that Wyeth Suaco admitted that it was seeking reconsideration
of the tax assessments as shown in a letter of James A. Gump, its President and General Manager, dated April 28, 1975,
the relevant portion of which is quoted hereunder, to wit:

We submit this letter as a follow-up to our protest filed with your office, through our tax advisers, Sycip, Gorres, Velayo
& Co., on January 20 and February 10, 1975 regarding alleged deficiency on withholding tax at source of P3,178,994.15
and on percentage tax of P60,855.21, including interest and surcharges, on which we are seeking reconsideration.15
(emphasis supplied)

Furthermore, when Wyeth Suaco thru its tax consultant SGV & Co. sent the letters protesting the assessments, the
Bureau of Internal Revenue, Manufacturing Audit Division, conducted a review and reinvestigation of the assessments.
This fact was admitted by Wyeth Suaco thru its Finance Manager in a letter dated July 1, 1975 addressed to the Chief,
Tax Accounts Division. The pertinent portion of said letter reads as follows:

This will acknowledge receipt of your letter dated May 22, 1975 regarding our alleged income and business tax
deficiencies for fiscal year 1972/73.

xxx xxx xxx

Nevertheless, please be advised that the deficiency tax stated in your letter is what we are protesting on pursuant to the
letters we filed with the Bureau of Internal Revenue on January 20, 1975 and on February 10, 1975.

xxx xxx xxx

As we understand, the matter is now undergoing review and consideration by your Manufacturing Audit Division.
Pending the outcome of their decision, we regret our inability to make settlement. ...16 (Emphasis supplied)

Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use th
words "reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and
reconsideration. By virtue of these letters, the Bureau of Internal Revenue ordered its Manufacturing Audit Division to
review the assessment made. Furthermore, private respondent's claim that it did not seek reinvestigation or
reconsideration of the assessments is belied by the subsequent correspondence or letters written by its officers, as
shown above.

These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes.
The Bureau of Internal Revenue, after having reviewed the record of Wyeth Suaco, in accordance with its request for
reinvestigation, rendered a final assessment. This final assessment issue by then Acting Commissioner Ruben B. Ancheta
was date December 10, 1979 and received by private respondent on January 2, 1980, fixed its tax liability at
P1,973,112.86 as deficiency withholding tax at source and P61,155.21 as deficiency sales tax. It was only upon receipt by
Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.

Verily, the original assessments dated December 16 and 17, 1974 were both received by Wyeth Suaco on December 19,
1974. However, when Wyeth Suaco protested the assessments and sought its reconsideration in two (2) letters received
by the Bureau of Internal Revenue on January 20 and February 10, 1975, the prescriptive period was interrupted. This
period started to run again when the Bureau of Internal Revenue served the final assessment to Wyeth Suaco on
January 2, 1980. Since the warrants of distraint and levy were served on Wyeth Suaco on March 12, 1980, then, only
about four (4) months of the five-year prescriptive period was used.

Having resolved the issue of prescription, we now come to the merits of the case.

Wyeth Suaco questions the legality of the regulation imposed by the Bureau of Intemal Revenue of requiring a
withholding agent or taxpayer to remit the taxes deducted and withheld at source on incomes which have not yet been
paid. It maintains the stand that withholding tax at source should only be remitted to the Bureau of Internal Revenue
once the incomes subject to withholding tax at source have actually been paid. Thus, private respondent avers that it
was not liable to remit the taxes withheld at source on royalties and dividends unless these incomes have been actually
paid to its foreign licensors and stockholders.

It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of
the motive power to activate and operate it. ... It is the lifeblood of the government and so should be collected without
unnecessary hindrance ...17

In line with this principle, the Tax Code, particularly Section 54 (a) [now Section 51 (a)] provides that "the Commissioner
of Internal Revenue may, with the approval of the Secretary of Finance, require the withholding agents to pay or deposit
the taxes deducted and withheld at more frequent intervals when necessary to protect the interest of the government.
The return shall be filed and the payment made within 25 days from the close of each calendar quarter". Presently,
Revenue Regulation No. 6-85 effective July 1, 1985, requires the filing of monthly return and payment of taxes withheld
at source within (10) days after the end of each month.

Moreover, the records show that Wyeth Suaco adopted the accrual method of accounting wherein the effect of
transactions and other events on assets and liabilities are recognized and reported in the time periods to which they
relate rather than only when cash is received or paid. The "Report of Investigation" submitted by the tax examiner
indicated that accrual was the basis of the taxpayer's return.18 Thus, private respondent recorded accrued royalties and
dividends payable as well as the withholding tax at source payable on these incomes. Having deducted and withheld the
tax at source and having recorded the withholding tax at source payable in its books of accounts, private respondent
was obligated to remit the same to the Bureau of Internal Revenue.

With regard to the accuracy of the assessment on deficiency sales tax, we rule that the examiner's assessment should be
given full weight and credit, in the absence of proof submitted by Wyeth Suaco to the contrary. This is in line with our
ruling in several cases wherein we said that tax assessments by tax examiners are presumed correct and made in good
faith. The taxpayer has the duty to prove otherwise. 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. All presumptions are in favor of the correctness of tax assessments.19 The case of Commissioner of
Internal Revenue vs. Construction Resources of Asia, Inc.,20 where this Court cited 51 Am. Jur. pp. 620-621, states the
principle in detail, thus:

All presumptions are in favor of the correctness of tax assessments. The good faith of tax assessors and the validity of
their actions are presumed. They will be presumed to have taken into consideration all the facts to which their attention
was called. No presumption can be indulged that all of the public officials of the State in the various counties who have
to do with the assessment of property for taxation will knowingly violate the duties imposed upon them by law.

The final assessment issued by the Bureau of Internal Revenue declared the issuance of deficiency sales tax assessments
to be legal and valid. It was ascertained that during the investigation, Wyeth Suaco deducted non-deductible raw
materials which were not subjected to advance sales tax thereby resulting in its failure to pay the correct amount of
sales tax under Section 183, in relation to Section 186 and 186-B of the Tax Code, prior to and after amendment by
Presidential Decree No. 69. Wyeth Suaco was not able to refute this by submitting supporting documents.21

WHEREFORE, the petition is GRANTED. Wyeth Suaco Laboratories, Inc, is hereby ordered to pay the Bureau of Internal
Revenue the amount of P1,973,112.86 as deficiency withholding tax at source, with interest and surcharge in
accordance with law, without prejudice to any reduction brought about by payments or remittance made. Wyeth Suaco
Laboratories, Inc. is also ordered to pay the Bureau of Internal Revenue the amount of P60,855.21 as deficiency sales tax
with interest and surcharge in accordance with law. Costs against private respondent. SO ORDERED.

G.R. No. 76281 September 30, 1991


COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.WYETH SUACO LABORATORIES, INC. and THE COURT OF TAX APPEALS, respondents.
The facts:Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth) is a domestic corporation engaged in the
manufacture and sale of assorted pharmaceutical and nutritional products. By virtue of Letter of Authority, an
investigation and examination was conducted on the books of accounts of Wyeth. A report was submitted disclosing
that Wyeth was paying royalties to its foreign licensors as well as remuneration for technical services to Wyeth
International Laboratories of London. Wyeth was also found to have declared cash dividends on September 27, 1973
paid on October 31, 1973. However, it allegedly failed to remit withholding tax at source for the fourth (4th) quarter of
1973 on accrued royalties, remuneration for technical services and cash dividends, resulting in a deficiency withholding
tax of P3,178,994.15.

Moreover, it was reported that Wyeth deducted the cost of non-deductible raw materials, resulting in its alleged failure
to pay the correct amount of advance sales tax. There was reportedly also a short payment of advance sales tax in its
importation of "Mega Polymycin D". All these resulted in a deficiency sales tax in the amount of P60,855.21 and
compromise penalty in the amount of P300.00.

Consequently, the BIR assessed Wyeth on the aforesaid tax liabilities in two (2) notices. Wyeth protested the
assessments and requested their cancellation or withdrawal because they lacked factual or legal basis. The CIR asked
Wyeth to avail of the compromise settlement to which Wyeth manifested its conformity to a 10% compromise to be
applied only to the basic sales tax, excluding surcharge and interest. As to the deficiency withholding tax at source,
Wyeth took exception on the ground that it involves purely a legal question and some of the amounts included in the
assessment have already been paid.

Petitioner reduced the assessment of the withholding tax at source. However, the deficiency sales tax remained the
same. Wyeth filed a petition for review in CTA which enjoined the Commissioner of Internal Revenue from collecting the
deficiency taxes.

Issue: Whether or not petitioner's right to collect deficiency withholding tax at source and sales tax liabilities from
private respondent is barred by prescription.

The Court’s Ruling: Settled is the rule that the prescriptive period provided by law to make a collection by distraint or
levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the
assessment.

Partial payment would not prevent the government from suing the taxpayer. Because, by such act of payment, the
government is not thereby "persuaded to postpone collection to make him feel that the demand was not unreasonable
or that no harassment or injustice is meant." This is the underlying reason behind the rule that the prescriptive period is
arrested by the taxpayer's request for re-examination or reinvestigation — even if he "has not previously waived it.

Thus, the pivotal issue in this case is whether or not Wyeth Suaco sought reinvestigation or reconsideration of the
deficiency tax assessments issued by the Bureau of Internal Revenue.

Wyeth admitted that it was seeking reconsideration of the tax assessments. Furthermore, when Wyeth sent the letters
protesting the assessments, the BIR Manufacturing Audit Division, conducted a review and reinvestigation of the
assessments. This fact was admitted by Wyeth. Although the protest letters did not categorically state or use the words
"reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and reconsideration. By
virtue of these letters, the BIR ordered to review the assessment made. Private respondent's claim that it did not seek
reinvestigation or reconsideration of the assessments is belied by the subsequent correspondence or letters written by
its officers.

These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes.
The BIR, after having reviewed the record of Wyeth Suaco, in accordance with its request for reinvestigation, rendered a
final assessment on January 2, 1980. This final assessment fixed its tax liability on the deficiency withholding tax at
source and deficiency sales tax. It was only upon receipt by Wyeth Suaco of this final assessment that the five-year
prescriptive period started to run again. Since the warrants of distraint and levy were served on Wyeth on March 12,
1980, then, only about four (4) months of the five-year prescriptive period was used.
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.

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.1âwphi1.nêt

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.

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. 128315 June 29, 1999


COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO and VIRGINIA S. DIO, respondents.

The Facts
By virtue of Letter of Authority, the BIR Commissioner authorized revenue officers 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 examination resulted in a recommendation for the issuance of an assessment.

Instead, the CIR filed a criminal complaint before the DOJ against the PRDC, its President and its Treasurer, alleging
evasion of taxes. Private respondents filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax
assessment and tax liability. The CIR denied the urgent request for reconsideration/reinvestigation of the private
respondents on the ground that no formal assessment has as yet been issued by the Commissioner.

Private respondents elevated the Decision of the CIR to the CTA on a petition for review. 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 with the reason that the criminal
case for tax evasion is already an assessment. The Court of Appeals sustained the CTA and dismissed the petition.

Issues
Whether or not the revenue officers' Affidavit-Report attached to criminal revenue Complaint, constituted an
assessment that could be questioned before the Court of Tax Appeals.

The Court's Ruling


The petition is meritorious.

Neither the NIRC nor the regulations governing the protest of assessments 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.

An assessment informs the taxpayer that he has tax liabilities. But not all documents coming from the BIR containing a
computation of the tax liability can be deemed assessments. An assessment must be sent to and received by a taxpayer,
and must demand payment of the taxes described therein within a specific period.

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 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, 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. An assessment is deemed made
only when the collector of internal revenue releases, mails or sends such notice to the taxpayer.

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 and it was not addressed to the taxpayers. That it 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.

G.R. No. 187589 December 3, 2014


COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
THE STANLEY WORKS SALES (PHILS.), INCORPORATED, Respondent.
DECISION
SERENO, CJ:

This is a Petition for Review on Certiorari1 filed by the Commissioner of Internal Revenue (petitioner) under Rule 45 of
the 1997 Rules of Civil Procedure assailing the Court of Tax Appeals En Banc (CTA En Banc) Decision2 dated 27 February
2009 and Resolution3 dated 24 April 2009 in C.T.A. EB No. 406.

THE FACTS
The pertinent findings of fact of the CTA En Banc are as follows:

Petitioner is the duly appointed officer of the Bureau of Internal Revenue (BIR) mandated to exercise the powers and
perform the duties of his office including, among others, the power to decide disputed assessments, refunds of internal
revenue taxes, fees and other charges, penalties imposed in relation thereto, or other matters arising under the National
Internal Revenue Code. Respondent, on the other hand, is a domestic corporation duly organized and existing under
Philippine laws and duly registered with the Securities and Exchange Commission. Its office address is at the 5th Floor,
Pan Pacific Hotel, Adriatico Street corner Gen. Malvar Street, Manila.

Respondent is authorized "to engage in the business of designing, manufacturing, fabricating, or otherwise producing,
and the purchase, sale at whole sale, importation, export, distribution, marketing or otherwise dealing with,
construction and hardware materials, tools, fixtures and equipment."

On January 1, 1979, respondent and Stanley Works Agencies (Pte.) Limited, Singapore (Stanley-Singapore) entered into a
Representation Agreement. Under such agreement, Stanley-Singapore appointed respondent as its sole agent for the
selling of its products within the Philippines on an indent basis.

On April 16, 1990, respondent filed with the BIR its Annual Income Tax Return for taxable year 1989.

On March 19, 1993, pursuant to Letter of Authority dated July 3, 1992, the BIR issued against respondent a Pre-
Assessment Notice (PAN) No. 002523 for 1989 deficiency income tax.

On March 29, 1993, respondent received its copy of the PAN.


On April 12, 1993, petitioner, through OTC Domingo C. Paz of Revenue Region No. 4B-2 of Makati, issued to respondent
Assessment Notice No. 002523-89-6014 for deficiency income tax for taxable year 1989. The Notice was sent on April
15, 1993 and respondent received it on April 21, 1993.

On May 19, 1993, respondent, through its external auditors Punongbayan & Araullo, filed a protest letter and requested
reconsideration and cancellation of the assessment.

On November 16, 1993, a certain Mr. John Ang, on behalf of respondent, executed a "Waiver of the Defense of
Prescription Under the Statute of Limitations of the National Internal Revenue Code" (Waiver). Under the terms of the
Waiver, respondent waived its right to raise the defense of prescription under Section 223 of the NIRC of 1977 insofar as
the assessment and collection of any deficiency taxes for the year ended December 31, 1989, but not after June 30,
1994. The Waiver was not signed by petitioner or any of his authorized representatives and did not state the date of
acceptance as prescribed under Revenue Memorandum Order No. 20-90. Respondent did not execute any other Waiver
or similar document before or after the expiration of the November 16, 1993 Waiver on June 30, 1994.

On January 6, 1994, respondent, through its external auditors Punongbayan & Araullo, wrote a letter to the Chief of the
BIR Appellate Division and requested the latter to take cognizance of respondent's protest/request for reconsideration,
asserting that the dispute involved pure questions of law. On February 22, 1994, respondent sent a similar letter to the
Revenue District Officer (RDO) of BIR Revenue Region No. 4B-2 and asked for the transmittal of the entire docket of the
subject tax assessment to the BIR Appellate Division.

On September 30, 1994, respondent, through its external auditors Punongbayan & Araullo, submitted a Supplemental
Memorandum on its protest to the BIR Revenue Region No. 4B-2.

On September 20, 1995, respondent, through its external auditors Punongbayan & Araullo, filed a Supplemental
Memorandum with the BIR Appellate Division.

On November 29, 2001, the Chief of the BIR Appellate Division sent a letter to respondent requiring it to submit duly
authenticated financial statements for the worldwide operations of Stanley Works and a sworn declaration from the
home office on the allocated share of respondent as a "branch office."

On December 11, 2001, respondent, through its counsel, the Quisumbing Torres Law Offices, wrote the BIR Appellate
Division and asked for an extension of period within which to comply with the request for submission of documents. On
January 15, 2002, respondent sent a request for an extension of period to submit a Supplemental Memorandum.

On March 4, 2002, respondent, through its counsel, the Quisumbing Torres Law Offices, submitted a Supplemental
Memorandum alleging, inter alia, that petitioner's right to collect the alleged deficiency income tax has prescribed.

On March 22, 2004, petitioner rendered a Decision denying respondent’s request for reconsideration and ordering
respondent to pay the deficiency income tax plus interest that may have accrued. The dispositive portion reads:

IN VIEW WHEREOF, this Office resolves, as it hereby resolves, to DENY the request for reconsideration of STANLEY
WORK SALES (Philippines), INC. dated May 19, 1993 of Assessment No. 002523-89-6014 dated April 12, 1993 issued by
this Bureau demanding payment of the total amount of Php41,284,968.34 as deficiency income tax for taxable year
1989. Consequently, Stanley Works Sales (Philippines), Inc. is hereby ordered to pay the above-stated amount plus
interest that may have accrued thereon to the Collection Service, within thirty (30) days from receipt hereof, otherwise,
collection will be effected through the summary remedies provided by law.

This constitutes the final decision of this Office on the matter.

On March 30, 2004, respondent received its copy of the assailed Decision. Hence, on April 28, 2004, respondent filed
before the Court in Division a Petition for Review docketed as C.T.A. Case No. 6971 entitled "The Stanley Works Sales
(Philippines), Inc., petitioner, vs. Commissioner of Internal Revenue, respondent. x x x
THE CTA FIRST DIVISION RULING
After trial on the merits, the CTA First Division found that although the assessment was made within the prescribed
period, the period within which petitioner may collect deficiency income taxes had already lapsed. Accordingly, the
court cancelled Assessment Notice No. 002523-89-6014 dated 12 April 1993.

The CTA Division ruled that the request for reconsideration did not suspend the running of the prescriptive period to
collect deficiency income tax. There was no valid waiver of the statute of limitations, as the following infirmities were
found: (1) there was no conformity, either by respondent or his duly authorized representative; (2) there was no date of
acceptance to show that both parties had agreed on the Waiver before the expiration of the prescriptive period; and (3)
there was no proof that respondent was furnished a copy of the Waiver. Applying jurisprudence and relevant BIR rulings,
the waiver was considered defective; thus, the period for collection of deficiency income tax had already prescribed.

THE CTA EN BANC RULING


The CTA En Banc affirmed the CTA First Division Decision dated 6 May 2008 and Resolution dated 14 July 2008. The
Waiver executed by respondent on 16 November 1993 could not be used by petitioner as a basis for extending the
period of assessment and collection, as there was no evidence that the latter had acted upon the waiver. Hence, the
unilateral act of respondent in executing said document did not produce any effect on the prescriptive period for the
assessment and collection of its deficiency tax. As to the issue of estoppel, the court ruled that this measure could not
be used against respondent, as it was petitioner who had failed to act within the prescribed period on the protest asking
for a reconsideration of the assessment. ISSUES

In the present recourse, petitioner raises the following issues:

Whether or not petitioner’s right to collect the deficiency income tax of respondent for taxable year 1989 has
prescribed.

Whether or not respondent’s repeated requests and positive acts constitute "estoppel" from setting up the defense of
prescription under the NIRC.6

THE COURT’S RULING


We deny the Petition.

Petitioner mainly argues that in view of respondent’s execution of the Waiver of the statute of limitations, the period to
collect the assessed deficiency income taxes has not yet prescribed.

The resolution of the main issue requires a factual determination of the proper execution of the Waiver. The CTA
Division has already made a factual finding on the infirmities of the Waiver executed by respondent on 16 November
1993. The Court found that the following requisites were absent:

(1) Conformity of either petitioner or a duly authorized representative;

(2) Date of acceptance showing that both parties had agreed on the Waiver before the expiration of the prescriptive
period; and

(3) Proof that respondent was furnished a copy of the Waiver.7

These findings are undisputed by petitioner. In fact, it cites BPI v. CIR8 to support its contention that the approval of the
CIR need not be express, but may be implied from the acts of the BIR officials in response to the request for
reinvestigation. Accordingly, petitioner argues that the actual approval of the Waiver is apparent from the proceedings
that were additionally conducted indetermining the propriety of the subject assessment.9

We do not agree.
The statute of limitations on the right to assess and collect a tax means that once the period established by law for the
assessment and collection of taxes has lapsed, the government’s corresponding right to enforce that action is barred by
provision of law.

The period to assess and collect deficiency taxes may be extended only upon a written agreement between the CIR and
the taxpayer prior to the expiration of the three-year prescribed period in accordance with Section 222 (b) of the NIRC.
In relation to the implementation of this provision, the CIR issued Revenue Memorandum Order (RMO) No. 20-9010 on
4 April 1990 to provide guidelines on the proper execution of the Waiver of the Statute of Limitations. In the execution
of this waiver, the following procedures should be followed:

1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concerned but there
should be no deviation from such form. The phrase "but not after __________ 19___" should be filled up x x x

2. x x x x

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official authorized
by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver.
The date of such acceptance by the Bureau should be indicated. x x x.

3. The following revenue officials are authorized to sign the waiver.

A. In the National Office

xxxx

3. Commissioner For tax cases involving more than 1M

B. In the Regional Offices

1. The Revenue District Officer with respect to tax cases still pending investigation and the period toassess is about to
prescribe regardless of amount.

xxxx

5. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this Order
resulting in prescription of the right to assess/collect shall be administratively dealt with.

Furthermore, jurisprudence is replete with requisites of a valid waiver:

1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after ______ 19 ___", which
indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation,
the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer toa
representative, such delegation should be in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and
agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver,
the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly
notarized, and executed by the taxpayer or his duly authorized representative.

5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of
the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.

6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second
copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of
his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the
BIR and the perfection of the agreement.11

In Philippine Journalist, Inc. v. Commissioner of Internal Revenue,12 the Court categorically stated that a Waiver must
strictly conform to RMO No. 20-90. The mandatory nature of the requirements set forth in RMO No. 20-90, as ruled
upon by this Court, was recognized by the BIR itself in the latter’s subsequent issuances, namely, Revenue Memorandum
Circular (RMC) Nos. 6-200513 and 29-2012.14 Thus, the BIR cannot claim the benefits of extending the period to collect
the deficiency tax as a consequence of the Waiver when, in truth it was the BIR’s inaction which is the proximate cause
of the defects of the Waiver. The BIR has the burden of ensuring compliance with the requirements of RMO No. 20-90,
as they have the burden of securing the right of the government to assess and collect tax deficiencies. This right would
prescribe absent any showing of a valid extension of the period set by the law.

To emphasize, the Waiver was not a unilateral act of the taxpayer; hence, the BIR must act on it, either by conforming to
or by disagreeing with the extension. A waiver of the statute of limitations, whether on assessment or collection, should
not be construed asa waiver of the right to invoke the defense of prescription but, rather, an agreement between the
taxpayer and the BIR to extend the period to a date certain, within which the latter could still assess or collect taxes due.
The waiver does not imply that the taxpayer relinquishes the right to invoke prescription unequivocally.15

Although we recognize that the power of taxation is deemed inherent in order to support the government, tax
provisions are not all about raising revenue. Our legislature has provided safeguards and remedies beneficial to both the
taxpayer, to protect against abuse; and the government, to promptly act for the availability and recovery ofrevenues. A
statute of limitations on the assessment and collection of internal revenue taxes was adopted to serve a purpose that
would benefit both the taxpayer and the government.

This Court has expounded on the significance of adopting a statute of limitation on tax assessment and collection in this
case:

The provision of law on prescription was adopted in our statute books upon recommendation of the tax commissioner
of the Philippines which declares:

Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the
taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5
years from the date of assessment thereof. Just as the government is interested in the stability of its collection, so
alsoare the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax purposes
after the expiration of a reasonable period of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-
322)

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and
to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment,
and to citizens because after the lapse of the period of prescription citizens would havea feeling of security against
unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's
real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such legal
defense taxpayers would furthermore be under obligation to always keep their books and keep them open for
inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should
be interpreted in a way conducive to bringing about the beneficient purpose of affording protection to the taxpayer
within the contemplation of the Commission which recommends the approval of the law.16

Anent the second issue, we do not agree with petitioner that respondent is now barred from setting up the defense of
prescription by arguing that the repeated requests and positive acts of the latter constituted estoppels, as these were
attempts to persuade the CIR to delay the collection of respondent’s deficiency income tax.

True, respondent filed a Protest and asked for a reconsideration and cancellation of the assessment on 19 May 1993;
however, it is uncontested that petitioner failed to act on that Protest until 29 November 2001, when the latter required
the submission of other supporting documents. In fact, the Protest was denied only on 22 March 2004.

Petitioner’s reliance on CIR v. Suyoc17 (Suyoc) is likewise misplaced. In Suyoc, the BIR was induced to extend the
collection of tax through repeated requests for extension to pay and for reinvestigation, which were all denied by the
Collector. Contrarily, herein respondent filed only one Protest over the assessment, and petitioner denied it 10 years
after. The subsequent letters of respondent cannot be construed as inducements to extend the period of limitation,
since the letters were intended to urge petitioner to act on the Protest, and not to persuade the latter to delay the
actual collection.

Petitioner cannot take refuge in BPI18 either, considering that respondent and BPI are similarly situated. Similar to BP I,
this is a simple case in which the BIR Commissioner and other BIR officials failed to act promptly in resolving and denying
the request for reconsideration filed by the taxpayer and in enforcing the collection on the assessment. Both in BP I and
in this case, the BIR presented no reason or explanation as to why it took many years to address the Protest of the
taxpayer. The statute of limitations imposed by the Tax Code precisely intends to protect the taxpayer from prolonged
and unreasonable assessment and investigation by the BIR.19

Even assuming arguendo that the Waiver executed by respondent on 16 November 1993 is valid, the right of petitioner
to collect the deficiency income tax for the year 1989 would have already prescribed by 2001 when the latter first acted
upon the protest, more so in 2004 when it finally denied the reconsideration. Records show that the Waiver extends
only for the period ending 30 June 1994, and that there were no further extensions or waivers executed by respondent.
Again, a waiver is not a unilateral act of the taxpayer or the BIR, but is a bilateral agreement between two parties to
extend the period to a date certain.20

Since the Waiver in this case is defective and therefore invalid, it produces no effect; thus, the prescriptive period for
collecting deficiency income tax for taxable year 1989 was never suspended or tolled. Consequently, the right to enforce
collection based on Assessment Notice No. 002523-89-6014 has already prescribed.

WHEREFORE, premises considered, the Petition is DENIED. SO ORDERED.

G.R. No. 187589 December 3, 2014


COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
THE STANLEY WORKS SALES (PHILS.), INCORPORATED, Respondent.

THE FACTS
Respondent is a domestic corporation. Respondent and Stanley-Singapore entered into a Representation Agreement
wherein the latter appointed respondent as its sole agent for the selling of its products within the Philippines.

Respondent filed with the BIR its Annual ITR for taxable year 1989. On March 19, 1993, the BIR issued against
respondent a Pre-Assessment Notice (PAN) and later on an Assessment Notice for 1989 deficiency income tax.

Respondent filed a protest letter and requested reconsideration and cancellation of the assessment. On November 16,
1993, Mr. John Ang, on behalf of respondent, executed a Waiver, waiving its right to raise the defense of prescription
under Section 223 of the NIRC of 1977 insofar as the assessment and collection of any deficiency taxes for the year 1989,
but not after June 30, 1994. The Waiver was not signed by petitioner or any of his authorized representatives and did
not state the date of acceptance.

Petitioner denied respondent’s request for reconsideration and ordered the payment of the deficiency income tax plus
interest that may have accrued. Respondent filed before the CTA Fist Division a Petition for Review which rendered that
although the assessment was made within the prescribed period, the period within which petitioner may collect
deficiency income taxes had already lapsed. The CTA En Banc affirmed the CTA First Division Decision

ISSUES
Whether or not petitioner’s right to collect the deficiency income tax of respondent for taxable year 1989 has
prescribed.

THE COURT’S RULING


We deny the Petition.

Petitioner argues that in view of respondent’s execution of the Waiver, the period to collect the assessed deficiency
income taxes has not yet prescribed. The CTA Division made a factual finding, which were undisputed by petitioner, on
the infirmities of the Waiver executed by respondent. The Court found that the following requisites were absent:
(1) Conformity of either petitioner or a duly authorized representative;
(2) Date of acceptance showing that both parties had agreed on the Waiver before the expiration of the prescriptive
period; and
(3) Proof that respondent was furnished a copy of the Waiver.

The period to assess and collect deficiency taxes may be extended only upon a written agreement between the CIR and
the taxpayer prior to the expiration of the three-year prescribed period in accordance with Section 222 (b) of the NIRC.
In a previously decided case, the Court categorically stated that a Waiver must strictly conform to RMO No. 20-90. The
mandatory nature of the requirements was recognized by the BIR itself in its subsequent issuances. Thus, the BIR cannot
claim the benefits of extending the period to collect the deficiency tax as a consequence of the Waiver when, in truth it
was the BIR’s inaction which is the proximate cause of the defects of the Waiver. The Waiver was not a unilateral act
ofthe taxpayer. The BIR must act on it, either by conforming to or by disagreeing with the extension.

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and
to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment,
and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against
unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's
real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens.

Hence, respondent is not barred from setting up the defense of prescription. The repeated requests and positive acts do
not constitute estoppels. Respondent filed only one Protest over the assessment, and petitioner denied it 10 years after.
The subsequent letters of respondent cannot be construed as inducements to extend the period of limitation, since the
letters were intended to urge petitioner to act on the Protest, and not to persuade the latter to delay the actual
collection.

Since the Waiver in this case is defective and therefore invalid, it produces no effect; thus, the prescriptive period for
collecting deficiency income tax for taxable year 1989 was never suspended or tolled. Consequently, the right to enforce
collection based on the assessment notice has already prescribed.

G.R. No. L-14519 July 26, 1960

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,


vs.
LUIS G. ABLAZA, defendant-appellee.
Assistant Solicitor General Jose P. Alejandro and Special Attorneys Cirilio R. Francisco and Santiago M. Kapunan for
appellant.
Martin B. Istaro for appellee.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance of Manila, Hon. Carmelino G. Alvendia, presiding, dismissing an
action instituted by the Government to recover income taxes from the defendant-appellee corresponding to the years
1945, 1946, 1947 and 1948.

The record discloses that on October 3, 1951, the Collector of Internal Revenue assessed income taxes for the years
1945, 1946, 1947 and 1948 on the income tax returns of defendant-appellee Luis G. Ablaza. The assessments total
P5,254.70 (Exhibit "I"). On October 16, 1951, the accountants for Ablaza requested a reinvestigation of Ablaza's tax
liability, on the ground that (1) the assessment is based on third-party information and (3) neither the taxpayer nor his
accountants were permitted to appear in person (Exh. "J"). The petition for reinvestigation was granted in a letter of the
Collector of Internal Revenue, dated October 17, 1951. On October 30, 1951, the accountants for Ablaza again sent
another letter to the Collector of Internal Revenue submitting a copy of their own computation (Exh. "L"). On October
23, 1952, said accountants again submitted a supplemental memorandum (Exh. "M"). On March 10, 1954, the
accountants for Ablaza sent a letter to the examiner of accounts and collections of the Bureau of Internal Revenue,
stating:

In this connection, we wish to state that this case is presently under reinvestigation as per our request dated October
16, 1951, and your letter to us dated October 17, 1951, and that said tax liability being only a tentative assessment, we
are not as yet advised of the results of the requested reinvestigation.

In view thereof, we wish to request, in fairness to the taxpayer concerned, that we be furnished a copy of the detailed
computation of the alleged tax liability as soon as the reinvestigation is terminated to enable us to prove the veracity of
the taxpayer's side of the case, and if it is found out that said assessment is proper and in order, we assure you of our
assistance in the speedy disposition of this case. (Exh. "P")

On February 11, 1957, after the reinvestigation, the Collector of Internal Revenue made a final assessment of the income
taxes of Ablaza, fixing said income taxes for the years already mentioned at P2,066.56 (Exh. "Q"). Notice of the said
assessment was sent (Exhs. "V", "W" and "X") and upon receipt thereof the accountants of Ablaza sent a letter to the
Collector of Internal Revenue, dated May 8, 1957, protesting the assessments, on the ground that the income taxes are
no longer collectible for the reason that they have already prescribed. As the Collector did not agree to the alleged claim
of prescription, action was instituted by him in the Court of First Instance to recover the amount assessed. The Court of
First Instance upheld the contention of Ablaza that the action to collect the said income taxes had prescribed. Against
this decision the case was brought here on appeal, where it is claimed by the Government that the prescriptive period
has not fully run at the time of the assessment, in view especially of the letter of the accountants of Ablaza, dated March
10, 1954, pertinent provisions of which are quoted above.

It is of course true on October 14, 1951, Ablaza's accountants requested a reinvestigation of the assessment of the
income taxes against him, the period of prescription of action to collect the taxes was suspended. (Sec. 333, C. A. No.
466.) The provision of law on prescription was adopted in our statute books upon recommendation of the tax
commissioner of the Philippines which declares:

Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the
taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5
years from the date of assessment thereof. just as the government is interested in the stability of its collection, so also
are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax purposes after
the expiration of a reasonable period of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322)
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and
to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment,
and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against
unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's
real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such legal
defense taxpayers would furthermore be under obligation to always keep their books and keep them open for
inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should
be interpreted in a way conducive to bringing about the beneficient purpose of affording protection to the taxpayer
within the contemplation of the Commission which recommend the approval of the law.

The question in the case at bar boils down to the interpretation of Exhibit "P", dated March 10, 1954, quoted above. If
said letter be interpreted as a request for further investigation or a new investigation, different and distinct from the
investigation demanded or prayed for in Ablaza's first letter, Exhibit "L", then the period of prescription would continue
to be suspended thereby. but if the letter in question does not ask for another investigation, the result would be just the
opposite. In our opinion the letter in question, Exhibit "P", does not ask for another investigation. Its first paragraph
quoted above shows that the reinvestigation then being conducted was by virtue of its request of October 16, 1951. All
that the letter asks is that the taxpayer be furnished a copy of the computation. The request may be explained in this
manner: As the reinvestigation was allowed on October 1, 1951 and on October 16, 1951, the taxpayer supposed or
expected that at the time, March, 1954 the reinvestigation was about to be finished and he wanted a copy of the re-
assessment in order to be prepared to admit or contest it. Nowhere does the letter imply a demand or request for a
ready requested and, therefore, the said letter may not be interpreted to authorize or justify the continuance of the
suspension of the period of limitations.

We find the appeal without merit and we hereby affirm the judgment of the lower court dismissing the action. Without
costs.

G.R. No. L-14519 July 26, 1960


REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
LUIS G. ABLAZA, defendant-appellee.

The Facts
Record discloses that on October 3, 1951, the Collector of Internal Revenue (Collector) assessed income taxes for the
years 1945, 1946, 1947 and 1948 on the income tax returns of Luis G. Ablaza. On October 3, 1951, Ablaza requested a
reinvestigation of the tax liability, on the ground that (1) the assessment is based on third-party information and (3)
neither the taxpayer nor his accountants were permitted to appear in person. The petition for reinvestigation was
granted. On March 10, 1954, the accountants for Ablaza sent a letter (marked Exhibit P) to the BIR requestig to be
furnished a copy of the detailed computation of the alleged tax liability as soon as the reinvestigation is terminated. On
February 11, 1957, after the reinvestigation, the Collector made a final assessment fixing income taxes. Notice of the
said assessment was sent and upon receipt thereof, Ablaza sent a letter to the Collector protesting the assessments on
the ground that the collection of income taxes has already prescribed. The Collector disagreed instituted an action to
recover the amount assessed. The CFI upheld the contention of Ablaza that the action to collect the said income taxes
had prescribed.

Issue
Whether or not the action to recover the amount assessed has already prescribed.

The Court’s Ruling


The provision of law on prescription was adopted in our statute books upon recommendation of the tax commissioner
of the Philippines which declares:

Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the
taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5
years from the date of assessment thereof.

When Ablaza's accountants requested a reinvestigation of the assessment of the income taxes against him on October
14, 1951, the period of prescription of action to collect the taxes was suspended.

The question in the case at bar boils down to the interpretation of Exhibit "P". If said letter be interpreted as a request
for further investigation or a new investigation, different and distinct from the investigation demanded for in Ablaza's
first letter, then the period of prescription would continue to be suspended. But if the letter does not ask for another
investigation, the result would be just the opposite. In our opinion the letter in question, Exhibit "P", does not ask for
another investigation. All that the letter asks is that the taxpayer be furnished a copy of the computation. Nowhere does
the letter imply a demand or request for a ready requested and, therefore, the said letter may not be interpreted to
authorize or justify the continuance of the suspension of the period of limitations. The appeal is without merit and the
judgment of the lower is affirmed.

Sec. 222 (a) - Exceptions as to Period of Limitation of Assessment and Collection of Taxes
1. Samar-I Electric Cooperative v. Commissioner of Internal Revenue, G.R. No. 193100, December 10, 2014, citing
Aznar v. Court of Tax Appeals, 157 Phil. 510 (1974)
2. Republic v. GMCC United Development Corp., G.R. No. 191856, December 7, 2016
3. Commissioner of Internal Revenue v. Philippine Daily Inquirer, Inc., G.R. No. 213943, March 22, 2017
Sec. 222 (b) - Exceptions as to Period of Limitation of Assessment and Collection of Taxes
1. Commissioner of Internal Revenue v. Kudos Metal Corp., G.R. No. 178087, May 5, 2010
Sec. 222 (e) - Exceptions as to Period of Limitation of Assessment and Collection of Taxes
1. ING Bank N.V. v. Commissioner of Internal Revenue, G.R. No. 167679, July 22, 2015
2. Commissioner of Internal Revenue v. Philippine Aluminum Wheels, Inc., G.R. No. 216161, August 9, 2017
Sec. 223 - Suspension of Running of Statute of Limitations
1. Commissioner of Internal Revenue v. Hambrecht & Quist Philippines, Inc., G.R. No. 169225, November 17, 2010
2. Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 174942, March 7, 2008

Samar-I Electric Cooperative v. Commissioner of Internal Revenue


G.R. No. 193100
December 10, 2014
citing Aznar v. Court of Tax Appeals, 157 Phil. 510 (1974)

FACTS:
 Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal office at Barangay
Carayman, Calbayog City.
 July 13, 1999 and April 17, 2000 - Petitioner filed its 1998 and 1999 income tax returns, respectively.
 February 17, 1998, February 1, 1999, and February 4, 2000, in that order - Petitioner filed its 1997, 1998, and
1999 Annual Information Return of Income Tax Withheld on Compensation, Expanded and Final Withholding
Taxes
 February 28, 2002 - Respondent issued a Preliminary Assessment Notice (PAN).
 April 9, 2002 - The PAN was received by petitioner
 April 18, 2002 – Protest was filed by petitioner.
 September 15, 2002 - Petitioner received a demand letter and assessments notices (Final Assessment Notices)
for the alleged 1997, 1998, and 1999 deficiency withholding tax in the amount of [P]3,760,225.69, as well as
deficiency income tax covering the years 1998 to 1999 in the amount of [P]440,545.71, or in the aggregate
amount of [P]4,200,771.40.
CTA held that CIR can validly assess within the ten (10)-year prescriptive period even if the notice of informal
conference, PAN, formal letter of demand, and assessment notice mention not a word that the BIR is invoking Section
222 (a) of the 1997 Tax Code [then Sec. 223, NIRC], due to alleged false withholding tax returns filed by [SAMELCO-I] as
the same assertions were mere afterthought to justify application of the 10-year prescriptive period to assess.
Petitioner contends that the subject 1997 and 1998 withholding tax assessments on compensation were issued beyond
the prescriptive period of three years under Section 203 of the NIRC of 1997. Under this section, the government is
allowed a period of only three years to assess the correct tax liability of a taxpayer. Relying on Section 203, petitioner
argues that the subject deficiency tax assessments issued by respondent CIR on September 15, 2002 was issued beyond
the three-year prescriptive period. Petitioner filed its Annual Information Return of Income Tax Withheld on
Compensation, Expanded and Final Withholding Taxes on the following dates: on February 17, 1998 for the taxable year
1997; and on February 1, 1999 for the year taxable 1998. Thus, if the period prescribed under Section 203 of the NIRC
of 1997 is to be followed, the three-year prescriptive period to assess for the taxable years 1997 and 1998 should
have ended on February 16,2001 and January 31, 2002, respectively.
ISSUE: What is the correct prescriptive period, 3 years in accordance with Section 203 or 10 years in accordance with
Section 222?
HELD: 10 years in accordance with Section 222?
While petitioner is correct that Section 203 sets the three-year prescriptive period to assess, the following exceptions
are provided under Section 222 of the NIRC of 1997, viz.:
SEC. 222. Exceptions as to 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 failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be filed 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 (Emphasis supplied.)
In the case at bar, it was petitioner’s substantial under declaration of withholding taxes in the amount of ₱2,690,850.91
which constituted the "falsity" in the subject returns – giving respondent the benefit of the period under Section 222 of
the NIRC of 1997 to assess the correct amount of tax "at any time within ten (10) years after the discovery of the falsity,
fraud or omission."
The case of Aznar v. Court of Tax Appeals discusses what acts or omissions may constitute falsity, viz.:
“The proper and reasonable interpretation of said provision should be that in the three different cases of (1) false
return, (2) fraudulent return with intent to evade tax, (3) 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 years
after the discovery of the (1) falsity, (2) fraud,(3) omission. Our stand that the law should be interpreted to mean a
separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a
return is strengthened immeasurably by the last portion of the provision which segregates the situations into three
different classes, namely "falsity," "fraud" and "omission." That there is a difference between "false return" and
"fraudulent return" cannot be denied. While the first merely implies deviation from the truth, whether intentional or
not, the second implies intentional or deceitful entry with intent to evade the taxes due.

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be
applicable to normal circumstances, but whenever the government is placed at a disadvantage so as to prevent its lawful
agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax
or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the
falsity, fraud or omission even seems to be inadequate and should be the one enforced. There being undoubtedly false
tax returns in this case, We affirm the conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC
should apply and that the period of ten years within which to assess petitioner’s tax liability had not expired at the time
said assessment was made.”
In this case, petitioner failed to withhold taxes from its employees’ 13th month pay and other benefits in excess of
thirty thousand pesos (₱30,000.00) amounting to ₱2,690,850.91 for the taxable years 1997 to 1999 – resulting to its
filing of the subject false returns. Petitioner failed to refute this finding, both in fact and in law, before the courts a quo.
During the trial a witness testified that “Because I based the computation of my deficiency withholding taxes on
declared taxable income per alpha list submitted then, I have extracted a data from the Alpha List, particularly that of
the manager and other officials, only their basic salary and their overtime pay were declared but the other benefits were
not actually subjected to withholding tax. So, the deficiency withholding taxes from the taxes on the taxable 13th month
pay and other benefits in excess of the [P]12,000.00 for 1997 and for the taxable years 1998 and 1999, in excess of the
[P]30,000.00. I also noticed that the per diem of the Manager was not included in the withholding tax computation of
SAMELCO”
Republic v. GMCC United Development Corp
G.R. No. 191856
December 7, 2016

Facts:
On March 28, 2003, the Bureau of Internal Revenue National Investigation Division issued a Letter of Authority,
authorizing its revenue officers to examine the books of accounts and other accounting records of GMCC United
Development Corporation (GMCC) covering taxable years 1998 and 1999. The investigation revealed that in 1998,
GMCC, through Go, executed two dacion en pago agreements to pay for the obligations of GMCC's sister companies,
Ever Emporium, Inc., Gotesco Properties, Inc. and Ever Price Club, Inc., to Rizal Commercial Banking Corporation. GMCC
allegedly failed to declare the income it earned from these agreements for taxation purposes in 1998. Moreover, these
transactions constituted a donation in favor of GMCC's sister companies for which GMCC failed to pay the corresponding
donor's tax. The BIR also assessed the value added tax over the said transactions. It was also discovered that in 1999,
GMCC sold condominium units and parking slots for a total amount of P5,350,000.00 to a Valencia K. Wong. However,
GMCC did not declare the income it earned from these transactions in its 1999 Audited Financial Statements.
Thus, on November 17, 2003, the Bureau of Internal Revenue issued a Notice to Taxpayer to GMCC, which GMCC
ignored. On December 8, 2003, the Bureau of Internal Revenue issued a Preliminary Assessment Notice. It was only
when the Bureau of Internal Revenue issued the Final Assessment Notice that GMCC responded. In a Letter dated
November 23, 2004, GMCC protested the issuance of the Final Assessment Notice citing that the period to assess and
collect the tax had already prescribed. Bureau of Internal Revenue, on October 7, 2005, filed with the Department of
Justice a criminal complaint for violation of Sections 254, 255, and 267, of the National Internal Revenue Code against
GMCC, its president, Jose C. Go, and its treasurer, Xu Xian Chun.
Go prayed that the complaint be dismissed, arguing, among others, that the action had already prescribed and that
GMCC did not defraud the government. Assuming that the period to assess had not yet prescribed, GMCC argued that
there was nothing to declare since it earned no income from the dacion en pago transactions. Furthermore, even
though the dacion en pago transactions were not included in the GMCC 1998 Financial Statement, they had been duly
reflected in the GMCC 2000 Financial Statement.
Department of Justice, through the Chief State Prosecutor, issued a Resolutiondismissing the criminal complaint against
the GMCC officers. The State Prosecutor ruled that there was no proof that GMCC defrauded the government. The
Bureau went beyond its authority when it assessed and issued the Letter of Authority knowing that the period to assess
had already lapsed. Moreover, the prosecutor ruled that since GMCC did not gain from the assailed transactions, the
imposition of income, VAT, and donor's taxes were improper.
Issue: Whether the applicable prescriptive period for the tax assessment is the ten-year period or the three-year
period.
Held: 3 years
Since the assessment for the tax had already prescribed, no proceeding in court on the basis of such return can be filed.
While the dacion en pago transactions were missing in the GMCC 1998 Financial Statement, they had been listed in the
GMCC 2000 Financial Statement. Respondents' act of filing and recording said transactions in their 2000 Financial
Statement belie the allegation that they intended to evade paying their tax liability. Petitioner's contention that the
belated filing is a mere afterthought designed to make it appear that the non-reporting was not deliberate, does not
persuade considering that the filing of the 2000 Financial Statement was done prior to the issuance of the March 2003
Letter of Authority, which authorized the investigation of GMCC's books.
In arguing for the application of the 10-year prescriptive period, petitioner claims that the tax return in this case is
fraudulent and thus, the three-year prescriptive period is not applicable. Petitioner fails to convince that respondents
filed a fraudulent tax return. The respondents may have erred in reporting their tax liability when they recorded the
assailed transactions in the wrong year, but such error stemmed from the wrong application of the law and is not an
indication of their intent to evade payment. If there were really an intent to evade payment, respondents would not
have reported and subsequently paid the income tax, albeit in the wrong year.
As found by the Court of Appeals, there is no clear and deliberate intent to evade payment of taxes in relation to
the dacion en pago transactions or on the sale transaction with Valencia Wong. The dacion en pago transactions, though
not included in the 1998 Financial Statement, were properly listed in GMCC's Financial Statement for the year
2000. Regarding the sale transaction with Valencia Wong, the respondents said that it was not reflected in the year 1999
because it was an installment sale. Units sold on installment, they explained, are recognized not in the year they are fully
paid, but in the year when at least 25% of the selling price is paid. In this instance, the unit and the parking lot were sold
prior to 1996, thus, in the Schedule of Unsold Units filed by GMCC as of December 31, 1996, the said properties were no
longer included.
For the ten-year period under Section 222(a) to apply, it is not enough that fraud is alleged in the complaint, it must be
established by clear and convincing evidence. The petitioner, having failed to discharge the burden of proving fraud,
cannot invoke Section 222(a).
Having settled that the case falls under Section 203 of the Tax Code, the three-year prescriptive period should be
applied. In GMCC's case, the last day prescribed by law for filing its 1998 tax return was April 15, 1999. The petitioner
had three years or until 2002 to make an assessment. Since the Preliminary Assessment was made only on December
8, 2003, the period to assess the tax had already prescribed.
A reading of Section 203 will show that it prohibits two acts after the expiration of the three-year period. First, an
assessment for the collection of the taxes in the return, and second, initiating a court proceeding on the basis of such
return. The State Prosecutor was correct in dismissing the complaint for tax evasion since it was clear that the
prescribed return cannot be used as basis for the case. All told, the dismissal of the tax evasion case against respondent
officers was proper. failed to prove that respondent officers willfully intended to evade paying tax. Moreover, having
found no basis to disregard the three-year period of prescription, it is clear that the assessments were issued beyond the
statute of limitations.
Commissioner of Internal Revenue v. Philippine Daily Inquirer, Inc.,
G.R. No. 213943
March 22, 2017

Facts:
PDI is a corporation engaged in the business of newspaper publication. On 15 April 2005, it filed its Annual Income Tax
Return for taxable year 2004. Its Quarterly VAT Returns for the same year showed the following: For the First Quarter 20
April 2004, For the Second Quarter 16 July 2004, For the Third Quarter 18 October 2004, For the Fourth Quarter 21
January 2005.
On 10 August 2006, PDI received a letter dated 30 June 2006 from Region 020 Large Taxpayers' Service of BIR. BIR
alleged that based on the computerized matching it conducted on the information and data provided by third party
sources against PDI's declaration on its VAT Returns for taxable year 2004, there was an under declaration of domestic
purchases from its suppliers amounting to P317,705,610.52. The BIR invited PDI to reconcile the deficiencies, PDI
submitted reconciliation reports pertaining thereto.
On 21 March 2007, PDI executed a Waiver of the Statute of Limitation (First Waiver) consenting to the assessment
and/or collection of taxes for the year 2004 which may be found due after the investigation, at any time before or after
the lapse of the period of limitations fixed by Sections 203 and 222 of the National Internal Revenue Code (NIRC) but not
later than 30 June 2007. On 5 June 2007, PDI executed a Waiver of the Statute of Limitation (Second Waiver). In a
Preliminary Assessment Notice (PAN), PDI was assessed for alleged deficiency income tax and VAT for taxable year 2004.
PDI sought reconsideration of the PAN and expressed its willingness to execute another Waiver (Third Waiver), which
it did on the same date, thus extending BIR's right to assess and/or collect from it until 30 April 2008.
On 17 April 2008, PDI received a Formal Letter of Demand and an Audit Result/ Assessment Notice from the BIR,
demanding for the payment of alleged deficiency VAT and income tax. On 16 May 2008, PDI filed its protest. On 12
December 2008, PDI filed a Petition for Review against the Commissioner of Internal Revenue (CIR) alleging that the 180-
day period within which the BIR should act on its protest had already lapsed. On the basis of the investigation conducted
by respondent through the RELIEF system, respondent though the FLD, outlined how the tax liabilities in the aggregate
amount of ₱4,679,005.55 representing income and VAT liabilities were arrived at.
The CIR alleges that PDT filed a false or fraudulent return. As such, Section 222 of the NIRC should apply to this case
and the applicable prescriptive period is 10 years from the discovery of the falsity of the return. The CIR argues that
the ten-year period starts from the time of the issuance of its Letter Notice on 10 August 2006. As such, the
assessment made I through the Formal Letter of Demand dated 11 March 2008 is within the prescriptive period.
ISSUES: What is the correct prescriptive period, 3 years in accordance with Section 203 or 10 years in accordance with
Section 222?
Held: 3 years in accordance with Section 203 and the defects in the Waivers resulted to the non-extension of the
period to assess or collect taxes, and made the assessments issued by the BIR beyond this three-year prescriptive
period.
Under Section 203 of the NIRC, the prescriptive period to assess is set at three years. This rule is subject to the
exceptions provided under Section 222 of the NIRC. The CIR invokes Section 222(a) which provides: SEC. 222. Exceptions
as to 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 failure to file a return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be filed 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.
Fraud is never imputed. The Court will not sustain findings of fraud upon circumstances which, at most, create only
suspicion. The Court added that the mere understatement of a tax is not itself proof of fraud for the purpose of tax
evasion. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of
deception willfully and deliberately done or resorted to in order to induce another to give up some legal right.
Negligence, whether slight or gross, is not equivalent to fraud with intent to evade the tax contemplated by law. It must
amount to intentional wrongdoing with the sole object of avoiding the tax.
Thus, while the filing of a fraudulent return necessarily implies that the act of the taxpayer was intentional and done
with intent to evade the taxes due, the filing of a false return can be intentional or due to honest mistake. The entry of
wrong information due to mistake, carelessness, or ignorance, without intent to evade tax, does not constitute a false
return. In this case, we do not find enough evidence to prove fraud or intentional falsity on the part of PDI.
Since the case does not fall under the exceptions, Section 203 of the NIRC should apply. It provides: SEC. 203. Period of
Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of such period. Provided, That in a case
where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the
return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof
shall be considered as filed on such last day.
Indeed, the Waivers executed by the BIR and PDI were meant to extend the three-year prescriptive period, and would
have extended such period were it not for the defects found by the CTA. This further shows that at the outset, the BIR
did not find any ground that would make the assessment fall under the exceptions. Under Section 222(b) of the NIRC
provides that the period to assess and collect taxes may only be extended upon a written agreement between the CIR
and the taxpayer executed before the expiration of the three-year period.
RMO 20-90 issued on April 4, 1990 and RDAO 05-01 issued on August 2, 2001 lay down the procedure for the proper
execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after __ 19_", which indicates
the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription,
should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation,
the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed
to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or
the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and
executed by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of
the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second
copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her
file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and
the perfection of the agreement.
In this case, the CTA found that contrary to PDI's allegations, the First and Second Waivers were executed in three
copies. However, the CTA also found that the CIR failed to provide the office accepting the First and Second Waivers
with their respective third copies, as the CTA found them still attached to the docket of the case. In addition, the CTA
found that the Third Waiver was not executed in three copies. The failure to provide the office accepting the waiver with
the third copy violates RMO 20-90 and RDAO 05-01. Therefore, the First Waiver was not properly executed on 21 March
2007 and thus, could not have extended the three-year prescriptive period to assess and collect taxes for the year 2004.
To make matters worse, the CIR committed the same error in the execution of the Second Waiver on 5 June 2007. Even
if we consider that the First Waiver was validly executed, the Second Waiver failed to extend the prescriptive period
because its execution was contrary to the procedure set forth in RMO 20-90 and RDAO 05-01. Granting further that the
First and Second Waivers were validly executed, the Third Waiver executed on 12 December 2007 still failed to extend
the three-year prescriptive period because it was not executed in three copies. In short, the records of the case showed
that the CIR's three-year prescriptive period to assess deficiency tax had already prescribed due to the defects of all the
Waivers.
Clearly, the defects in the Waivers resulted to the non-extension of the period to assess or collect taxes, and made the
assessments issued by the BIR beyond the three-year prescriptive period void. A waiver of the statute of limitations is
a derogation of the taxpayer's right to security against prolonged and unscrupulous investigations and thus, it must be
carefully and strictly construed. Since the three Waivers in this case are defective, they do not produce any effect and
did not suspend the three-year prescriptive period under Section 203 of the NIRC.
Commissioner of Internal Revenue v. Kudos Metal Corp.
G.R. No. 178087
May 5, 2010

Facts:
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable year
1998. Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR) served upon
respondent three Notices of Presentation of Records. Respondent failed to comply with these notices, hence, the BIR
issued a Subpeona Duces Tecum dated September 21, 2006, receipt of which was acknowledged by respondent’s
President, Mr. Chan Ching Bio, in a letter dated October 20, 2000. A review and audit of respondent’s records then
ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a Waiver of the Defense of
Prescription, which was notarized on January 22, 2002, received by the BIR Enforcement Service on January 31, 2002
and by the BIR Tax Fraud Division on February 4, 2002, and accepted by the Assistant Commissioner of the Enforcement
Service, Percival T. Salazar (Salazar). This was followed by a second Waiver of Defense of Prescription executed by
Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28,
2003 and accepted by Assistant Commissioner Salazar.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent.
This was followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998, dated September 26,
2003 which was received by respondent on November 12, 2003. Respondent challenged the assessments by filing its
"Protest on Various Tax Assessments" on December 3, 2003 and its "Legal Arguments and Documents in Support of
Protests against Various Assessments" on February 2, 2004. On June 22, 2004, the BIR rendered a final Decision on the
matter, requesting the immediate payment of the P25,624,048.76 tax liabilities.
Petitioner CIR argues that the government’s right to assess taxes is not barred by prescription as the two waivers
executed by respondent, through its accountant, effectively tolled or extended the period within which the
assessment can be made. Whilerespondent maintains that prescription had set in due to the invalidity of the waivers
executed by Pasco, who executed the same without any written authority from it, in clear violation of RDAO No. 5-01. As
to the doctrine of estoppel by acquiescence relied upon by petitioner, respondent counters that the principle of equity
comes into play only when the law is doubtful, which is not present in the instant case.
Issue: Whether or not the waivers executed by the accountant effectively extends the p[period of assessment
Held: NO. The waivers executed by respondent’s accountant did not extend the period within which the assessment can
be made

Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to assess internal revenue
taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of
such return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is no
longer valid and effective. Exceptions however are provided under Section 222 of the NIRC.

Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written
agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO 20-
90 issued on April 4, 1990 and RDAO 05-01 issued on August 2, 2001 lay down the procedure for the proper execution of
the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after ______ 19 ___", which
indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation,
the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and
agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver,
the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly
notarized, and executed by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of
the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second
copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of
his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the
BIR and the perfection of the agreement.

A perusal of the waivers executed by respondent’s accountant reveals the following infirmities:
1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of
respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers.

ING Bank N.V. v. Commissioner of Internal Revenue


G.R. No. 167679
July 22, 2015

Facts:
ING Bank, "the Philippine branch of Internationale Nederlanden Bank N.V., a foreign banking corporation incorporated
in the Netherlands[,] is duly authorized by the Bangko Sentral ng Pilipinas to operate as a branch with full banking
authority in the Philippines."
On January 3, 2000, ING Bank received a Final Assessment Notice dated December 3, 1999. The Final Assessment Notice
also contained the Details of Assessment and 13 Assessment Notices "issued by the Enforcement Service of the Bureau
of Internal Revenue through its Assistant Commissioner Percival T. Salazar[.]"The Final Assessment Notice covered
deficiency tax assessments for taxable years 1996 and 1997 totaling to P672,652,691.65. ING Bank, however, "protested
[on the same day] the remaining ten (10) deficiency tax assessments in the total amount of ₱672,576,939.18."
While the present case was pending before the Supreme Court on December 20, 2007, ING Bank filed a Manifestation
and Motion stating that it availed itself of the government’s tax amnesty program under Republic Act No. 9480 with
respect to its deficiency documentary stamp tax and deficiency onshore tax liabilities. The said law covers "all national
internal revenue taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that
have remained unpaid as of December 31, 2005[.]" ING Bank stated that it filed before the Bureau of Internal Revenue
its Notice of Availment of Tax Amnesty Under Republic Act No. 9480 on December 14, 2007, together with the following
documents:
(1) Statement of Assets, Liabilities and Net Worth (SALN) as of December 31, 2005 (original and amended declarations);
(2) Tax Amnesty Return For Taxable Year 2005 and Prior Years (BIR Form No. 2116); and (3) Tax Amnesty Payment Form
(Acceptance of Payment Form) for Taxable Year 2005 and Prior Years (BIR Form No. 0617) showing payment of the
amnesty tax in the amount of ₱500,000.00.
In short, ING Bank prayed that the Supreme Court issue a resolution taking note of its availment of the tax amnesty, and
confirming its entitlement to all the immunities and privileges under Section 6 of Republic Act No. 9480, particularly with
respect to the "payment of deficiency documentary stamp taxes on its special savings accounts for the taxable years
1996 and 1997 and deficiency tax on onshore interest income derived under the foreign currency deposit system for
taxable year 1996. While respondent Commissioner of Internal Revenue claims that petitioner ING Bank is not qualified
to avail itself of the tax amnesty granted under Republic Act No. 9480 because both the Court of Tax Appeals En Banc
and Second Division ruled in its favor that confirmed the liability of petitioner ING Bank for deficiency documentary
stamp taxes, onshore taxes, and withholding taxes. Respondent Commissioner of Internal Revenue asserts that BIR
Revenue Memorandum Circular No. 19-2008 specifically excludes "cases which were ruled by any court (even without
finality) in favor of the BIR prior to amnesty availment of the taxpayer" from the coverage of the tax amnesty under
Republic Act No. 9480. In any case, respondent Commissioner of Internal Revenue argues that petitioner ING Bank’s
availment of the tax amnesty is still subject to its evaluation, that it is "empowered to exercise its sound discretion in the
implementation of a tax amnesty in favor of a taxpayer," and "petitioner cannot presume that its application would be
granted."
Issues: Whether or not ING Bank is entitled to the immunities and privileges under Republic Act No. 9480

Held: YES
Qualified taxpayers with pending tax cases may still avail themselves of the tax amnesty program under Republic Act No.
9480, otherwise known as the 2007 Tax Amnesty Act. Thus, the provision in BIR Revenue Memorandum Circular No. 19-
2008 excepting "issues and cases which were ruled by any court (even without finality) in favor of the BIR prior to
amnesty availment of the taxpayer" from the benefits of the law is illegal, invalid, and null and void. The duty to
withhold the tax on compensation arises upon its accrual.
The BIR’s inclusion of "issues and cases which were ruled by any court (even without finality) in favor of the BIR prior to
amnesty availment of the taxpayer" as one of the exceptions in RMC 19-2008 is misplaced. RA 9480 is specifically clear
that the exceptions to the tax amnesty program include "tax cases subject of final and executory judgment by the
courts." The Supreme Court confirmed that only cases that involve final and executory judgments are excluded from the
tax amnesty program as explicitly provided under Section 8 of Republic Act No. 9480. Thus, petitioner ING Bank is not
disqualified from availing itself of the tax amnesty under the law during the pendency of its appeal before this court.
Petitioner ING Bank showed that it complied with the requirements set forth under Republic Act No. 9480. Respondent
Commissioner of Internal Revenue never questioned or rebutted that petitioner ING Bank fully complied with the
requirements for tax amnesty under the law. Moreover, the contestability period of one (1) year from the time of
petitioner ING Bank’s availment of the tax amnesty law on December 14, 2007 lapsed. Correspondingly, it is fully
entitled to the immunities and privileges mentioned under Section 6 of Republic Act No. 9480.
Republic Act No. 9480 confers no discretion on respondent Commissioner of Internal Revenue. The provisions of the law
are plain and simple. Unlike the power to compromise or abate a taxpayer’s liability under Section 204 of the 1997
National Internal Revenue Code that is within the discretion of respondent Commissioner of Internal Revenue, its
authority under Republic Act No. 9480 is limited to determining whether (a) the taxpayer is qualified to avail oneself of
the tax amnesty; (b) all the requirements for availment under the law were complied with; and (c) the correct amount of
amnesty tax was paid within the period prescribed by law. There is nothing in Republic Act No. 9480 which can be
construed as authority for respondent Commissioner of Internal Revenue to introduce exceptions and/or conditions to
the coverage of the law nor to disregard its provisions and substitute his own personal judgment.
Republic Act No. 9480 provides a general grant of tax amnesty subject only to the cases specifically excepted by it. A tax
amnesty "partakes of an absolute. . . waiver by the Government of its right to collect what otherwise would be due
it. The effect of a qualified taxpayer’s submission of the required documents and the payment of the prescribed amnesty
tax was immunity from payment of all national internal revenue taxes as well as all administrative, civil, and criminal
liabilities founded upon or arising from non-payment of national internal revenue taxes for taxable year 2005 and prior
taxable years.
Finally, the documentary stamp tax and onshore income tax are covered by the tax amnesty program under Republic Act
No. 9480 and its Implementing Rules and Regulations. Moreover, as to the deficiency tax on onshore interest income, it
is worthy to state that petitioner ING Bank was assessed by respondent Commissioner of Internal Revenue, not as a
withholding agent, but as one that was directly liable for the tax on onshore interest income and failed to pay the same.
Considering petitioner ING Bank’s tax amnesty availment, there is no more issue regarding its liability for deficiency
documentary stamp taxes on its special savings accounts for 1996 and 1997 and deficiency tax on onshore interest
income for 1996, including surcharge and interest.
Commissioner of Internal Revenue v. Philippine Aluminum Wheels, Inc.
G.R. No. 216161
August 9, 2017

Facts:
Respondent is a corporation organized and existing under Philippine laws which engages in the manufacture,
production, sale, and distribution of automotive parts and accessories. On 16 December 2003, the Bureau of Internal
Revenue (BIR) issued a Preliminary Assessment Notice (PAN) against respondent covering deficiency taxes for the
taxable year 2001. On 28 March 2004, the BIR issued a Final Assessment Notice (FAN) against respondent in the amount
of ₱32,100,613.42. On 23 June 2004, respondent requested for reconsideration of the FAN issued by the BIR. On 8
November 2006, the BIR issued a Final Decision on Disputed Assessment (FDDA) and demanded full payment of the
deficiency tax assessment from respondent. On 12 April 2007, the FDDA was served through registered mail.
In a letter dated 19 September 2007, respondent informed the BIR that it already paid its tax deficiency on withholding
tax amounting to ₱736,726.89 through the Electronic Filing and Payment System of the BIR and that if was also in the
process of availing of the Tax Amnesty Program under Republic Act No. 9480 (RA 9480) as implemented by Revenue
Memorandum Circular No. 55-2007 to settle its deficiency tax assessment for the taxable year 2001. On 21 September
2007, respondent complied with the requirements of RA 9480 which include: the filing of a Notice of Availment, Tax
Amnesty Return and Payment Form, and remitting the tax payment. In a letter dated 29 January 2008, the BIR denied
respondent's request and ordered respondent to pay the deficiency tax assessment amounting to ₱29,108,767.63 .
The CIR contends that respondent is disqualified to avail of the tax amnesty under RA 9480. The CIR asserts that the
finality of its assessment, particularly its FDDA is equivalent to a final and executory judgment by the courts, falling
within the exceptions to the Tax Amnesty Program under Section 8 of RA 9480, which states: Section 8. Exceptions. The
tax amnesty provided in Section 5 hereof shall not extend to the following persons or cases existing as of the effectivity
of this Act:
Xxx (f) Tax cases subject of final and executory judgment by the courts.
Issue: Whether respondent is entitled to the benefits of the Tax Amnesty Program under RA 9480.
Held: YES.
A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons
otherwise guilty of evasion or violation of a revenue or tax law. It partakes of an absolute forgiveness or waiver by the
government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean
slate. A tax amnesty, much like a tax exemption, is never favored nor presumed in law. The grant of a tax amnesty,
similar to a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority.
On 24 May 2007, RA 9480, or "An Act Enhancing Revenue Administration and Collection by Granting an. Amnesty on All
Unpaid Internal Revenue Taxes Imposed by the National Government for Taxable Year 2005 and Prior Years," became
law.
The pertinent provisions of RA 9480 are: Section 1. Coverage. There is hereby authorized and granted a tax amnesty
which shall cover all national internal revenue taxes for the taxable year 2005 and prior years, with or without
assessments duly issued therefor, that have remained unpaid as of December 31, 2005: Provided, however, that the
amnesty hereby authorized and granted shall not cover persons or cases enumerated under Section 8 hereof.
Section 6. Immunities and Privileges. Those who availed themselves of the tax amnesty under Section 5 hereof, and have
fully complied with all its conditions shall be entitled to the following immunities and privileges: (a) The taxpayer shall be
immune from the· payment of taxes, as well as additions thereto, and the appurtenant civil, criminal or administrative
penalties under the National Internal Revenue Code of 1997, as amended, arising from the failure to pay any and all
internal revenue taxes for taxable year 2005 and prior years.
The Department of Finance issued DOF Department Order No. 29-07 (DO 29-07). Section 6 of DO 29-07 provides for the
method for availing a tax amnesty under RA 9480, to wit: Section 6. Method of Availment of Tax Amnesty.
1. Forms/Documents to be filed. To avail of the general tax amnesty, concerned taxpayers shall file the following
documents/requirements:
a. Notice of Availment in such forms as may be prescribed by the BIR;
b. Statement of Assets, Liabilities and Networth (SALN) as of December 31, 2005 in such forms, as may be prescribed by
the BIR;
c. Tax Amnesty Return in such forms as may be prescribed by the BIR.
The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax Amnesty Return shall be submitted to
the RDO, which shall be received only after complete payment. The completion of these requirements shall be deemed
full compliance with the provisions of RA 9480. The taxpayer's completion of the requirements under RA 9480, as
implemented by DO 29-07, will extinguish the taxpayer's tax liability, additions and all appurtenant civil, criminal, or
administrative penalties under the National Internal Revenue Code. Respondent's completion of the requirements of the
Tax Amnesty Program under RA 9480 is sufficient to extinguish its tax liability under the FDDA of the BIR.
The CIR is wrong. Section 8(f) is clear: only persons with "tax cases subject of final and executory judgment by the
courts" are disqualified to avail of the Tax Amnesty Program under RA 9480. There must be a judgment promulgated by