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Republic of the Philippines appealable to [u]s.

Respondent’s ground of denial, therefore, that there was no formal


SUPREME COURT assessment issued, is untenable.
Manila
THIRD DIVISION It is the Court’s honest belief, that the criminal case for tax evasion is already an assessment.
G.R. No. 128315 June 29, 1999 The complaint, more particularly, the Joint Affidavit of Revenue Examiners Lagmay and
COMMISSIONER OF INTERNAL REVENUE, petitioner, Savellano attached thereto, contains the details of the assessment like the kind and amount
vs. of tax due, and the period covered:
PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO and Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating to
VIRGINIA S. DIO, respondents. exclusive appellate jurisdiction of this Court, do not, make any mention of “formal
DECISION assessment.” The law merely states, that this Court has exclusive appellate jurisdiction over
PANGANIBAN, J.: decisions of the Commissioner of Internal Revenue on disputed assessments, and other
An assessment contains not only a computation of tax liabilities, but also a demand for matters arising under the National Internal Revenue Code, other law or part administered by
payment within a prescribed period. It also signals the time when penalties and protests begin the Bureau of Internal Revenue Code.
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 As far as this Court is concerned, the amount and kind of tax due, and the period covered,
affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and are sufficient details needed for an “assessment.” These details are more than complete,
attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can compared to the following definitions of the term as quoted hereunder. Thus:
be questioned before the Court of Tax Appeals.
Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386, 387, 163
Statement of the Case Tenn. 332. (Words and Phrases, Permanent Edition, Vol. 4, p. 446).
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court The word assessment when used in connection with taxation, may have more than one
praying for the nullification of the October 30, 1996 meaning. The ultimate purpose of an assessment to such a connection is to ascertain the
Decision 1 of the Court of Appeals 2 in CA-GR SP No. 40853, which effectively affirmed the amount that each taxpayer is to pay. More commonly, the word “assessment” means the
January 25, 1996 Resolution 3 of the Court of Tax Appeals 4 CTA Case No. 5271. The CTA official valuation of a taxpayer’s property for purpose of taxation. State v. New York, N.H. and
disposed as follows: H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325. (Ibid. p. 445)
WHEREFORE, finding [the herein petitioner’s] “Motion to Dismiss” as UNMERITORIOUS, From the above, it can be gleaned that an assessment simply states how much tax is due
the same is hereby DENIED. [The CIR] is hereby given a period of thirty (30) days from from a taxpayer. Thus, based on these definitions, the details of the tax as given in the Joint
receipt hereof to file her answer. 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
Petitioner also seeks to nullify the February 13, 1997 Resolution 5 of the Court of Appeals by petitioners, and there being a denial of their letter disputing such assessment, this Court
denying reconsideration. unquestionably acquired jurisdiction over the instant petition for review. 6
The Facts As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition.
As found by the Court of Appeals, the undisputed facts of the case are as follows: Hence, this recourse to this Court. 7
It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ruling of the Court of Appeals
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 The Court of Appeals held that the tax court committed no grave abuse of discretion in ruling
and Development Corporation. (PRDC) for the years ending 1986, 1987 and 1988. The said that the Criminal Complaint for tax evasion filed by the Commissioner of Internal Revenue
examination resulted in a recommendation for the issuance of an assessment in the amounts with the Department of Justice constituted an “assessment” of the tax due, and that the said
of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively. 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,
On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the details of the tax contained in the BIR examiners’ Joint Affidavit, 8 which was attached to
the Department of Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer the criminal Complaint, constituted an assessment. Since the assailed Order of the CTA was
Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private merely interlocutory and devoid of grave abuse of discretion, a petition for certiorari did not
respondents PRDC, et.al. filed an Urgent Request for Reconsideration/Reinvestigation lie.
disputing the tax assessment and tax liability.
Issues
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. Petitioners submit for the consideration of this Court following issues:
In a letter dated May 17, 1995, the CIR denied the urgent request for (1) Whether or not the criminal complaint for tax evasion can be construed as an assessment.
reconsideration/reinvestigation of the private respondents on the ground that no formal
assessment has as yet been issued by the Commissioner. (2) Whether or not an assessment is necessary before criminal charges for tax evasion may
be instituted.
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. (3) Whether 9or not the CTA can take cognizance of the case in the absence of an
On September 6, 1995, the CIR filed a Motion to Dismiss the petition on the ground that the assessment.
CTA has no jurisdiction over the subject matter of the petition, as there was no formal In the main, the Court will resolve whether the revenue officers’ Affidavit-Report, which was
assessment issued against the petitioners. The CTA denied the said motion to dismiss in a attached to criminal revenue Complaint filed the Department of Justice, constituted an
Resolution dated January 25, 1996 and ordered the CIR to file an answer within thirty (30) assessment that could be questioned before the Court of Tax Appeals.
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. The Court’s Ruling
Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that: The petition is meritorious.
Respondent Court of Tax Appeals acted with grave abuse of discretion and without Main Issue: Assessment
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 Petitioner argues that the filing of the criminal complaint with the Department of Justice
Tax Appeals; 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
Respondent Court Tax Appeals acted with grave abuse of discretion in considering the denial provides that remedies for the collection of deficient taxes may be by either civil or criminal
by petitioner of private respondents’ Motion for Reconsideration as [a] final decision which action. Likewise, petitioner cites Section 223(a) of the same Code, which states that in case
may be appealed to the Court of Tax Appeals. of failure to file a return, the tax may be assessed or a proceeding in court may be begun
without assessment.
In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:
Respondents, on the other hand, maintain that an assessment is not an action or proceeding
We agree with petitioners’ contentions, that the criminal complaint for tax evasion is the for the collection of taxes, but merely a notice that the amount stated therein is due as tax
assessment issued, and that the letter denial of May 17, 1995 is the decision properly 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 resolved. The Court held that such protests could not stop or suspend the criminal action
evasion Complaint filed with the DOJ. Consequently, the denial by the BIR of private which was independent of the resolution of the protest in the CTA. This was because the
respondents’ request for reinvestigation of the disputed assessment is properly appealable commissioner of internal revenue had, in such tax evasion cases, discretion on whether to
to the CTA. issue an assessment or to file a criminal case against the taxpayer or to do both.
We agree with petitioner. Neither the NIRC nor the regulations governing the protest of Private respondents insist that Section 222 should be read in relation to Section 255 of the
assessments 11 provide a specific definition or form of an assessment. However, the NIRC NLRC, 21 which penalizes failure to file a return. They add that a tax assessment should
defines the specific functions and effects of an assessment. To consider the affidavit attached precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an
to the Complaint as a proper assessment is to subvert the nature of an assessment and to assessment is not necessary before a criminal charge can be filed. This is the general rule.
set a bad precedent that will prejudice innocent taxpayers. 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
True, as pointed out by the private respondents, an assessment informs the taxpayer that he return. This fact need not be proven by an assessment.
or she has tax liabilities. But not all documents coming from the BIR containing a computation
of the tax liability can be deemed assessments. 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.
To start with, an assessment must be sent to and received by a taxpayer, and must demand The taxpayer is then given a chance to submit position papers and documents to prove that
payment of the taxes described therein within a specific period. Thus, the NIRC imposes a the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by
25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay deficiency tax him or her is then sent to the taxpayer informing the latter specifically and clearly that an
within the time prescribed for its payment in the notice of assessment. Likewise, an interest assessment has been made against him or her. In contrast, the criminal charge need not go
of 20 percent per annum, or such higher rates as may be prescribed by rules and regulations, through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer
is to be collected from the date prescribed for its payment until the full payment. 12 is notified that a criminal case had been filed against him, not that the commissioner has
The issuance of an assessment is vital in determining, the period of limitation regarding its issued an assessment. It must be stressed that a criminal complaint is instituted not to
proper issuance and the period within which to protest it. Section 203 13 of the NIRC provides demand payment, but to penalize the taxpayer for violation of the Tax Code.
that internal revenue taxes must be assessed within three years from the last day within which WHEREFORE, the petition is hereby GRANTED. The assailed Decision
to file the return. Section 222, 14 on the other hand, specifies a period of ten years in case a is REVERSED and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED. No costs.
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 SO ORDERED.
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 Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
within which to make an assessment or to protest the same, or whether interest and penalty Romero, J., abroad on official business.
may accrue thereon.
Commissioner of Internal Revenue vs Pascor Realty and Development Corporation
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 Taxation – Function of an Assessment Notice – Filing of Criminal Case for Tax Evasion
or sends such notice to the taxpayer. 16
Pascor Realty and Development Corporation (PRDC) was found out to be liable for a total of
In the present case, the revenue officers’ Affidavit merely contained a computation of P10.5 million tax deficiency for the years 1986 and 1987. In March 1995, the Commissioner
respondents’ tax liability. It did not state a demand or a period for payment. Worse, it was of Internal Revenue (CIR) filed a criminal complaint against PRDC with the Department of
addressed to the justice secretary, not to the taxpayers. Justice. Attached to the criminal complaint was a joint affidavit executed by the tax examiners.
Respondents maintain that an assessment, in relation to taxation, is simply understood’ to PRDC then filed a protest with the Court of Tax Appeals (CTA). PRDC averred that the
mean: affidavit attached to the criminal complaint is tantamount to a formal assessment notice (FAN)
A notice to the effect that the amount therein stated is due as tax and a demand for payment hence can be subjected to protest; that there is a simultaneous assessment and filing of
thereof. 17 criminal case; that the same is contrary to due process because it is its theory that an
assessment should come first before a criminal case of tax evasion should be filed. The CIR
Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper then filed a motion to dismiss (MTD) on the ground that the CTA has no jurisdiction over the
presentation of tax rolls. 18 case because the CIR has not yet issued a FAN against PRDC; that the affidavit attached to
the complaint is not a FAN; that since there is no FAN, there cannot be a valid subject of a
Even these definitions fail to advance private respondents’ case. That the BIR examiners’ protest.
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 The CTA however denied the MTD. It ruled that the joint affidavit attached to the complaint
Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. submitted to the DOJ constitutes an assessment; that an assessment is defined as simply
Clearly, it was not meant to be a notice of the tax due and a demand to the private the statement of the details and the amount of tax due from a taxpayer; that therefore, the
respondents for payment thereof. joint affidavit which contains a computation of the tax liability of PRDC is in effect an
assessment which can be the subject of a protest. This ruling was affirmed by the Court of
The fact that the Complaint itself was specifically directed and sent to the Department of Appeals.
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 ISSUE: Whether or not the Court of Tax Appeal is correct.
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 HELD: No. An assessment contains not only a computation of tax liabilities, but also a
DOJ that a criminal case for tax evasion had been filed against them, not a notice that the demand for payment within a prescribed period. It also signals the time when penalties and
Bureau of Internal Revenue had made an assessment. 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
In addition, what private respondents sent to the commissioner was a motion for a taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax
reconsideration of the tax evasion charges filed, not of an assessment, as shown thus: liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be
deemed an assessment that can be questioned before the CTA. Further, such affidavit was
This is to request for reconsideration of the tax evasion charges against my client, PASCOR not issued to the taxpayer, it was submitted as an attachment to the DOJ. It must also be
Realty and Development Corporation and for the same to be referred to the Appellate Division noted that not every document coming from the Bureau of Internal Revenue which provides
in order to give my client the opportunity of a fair and objective hearing. 19 a computation of the tax liability of a taxpayer can be considered as an assessment. An
Additional Issues: assessment is deemed made only when the CIR releases, mails or sends such notice to the
taxpayer.
Assessment Not Necessary Before Filing of Criminal Complaint
Anent the issue of the filing of the criminal complaint, Section 222 of the National Internal
Private respondents maintain that the filing of a criminal complaint must be preceded by an Revenue Code specifically states that in cases where a false or fraudulent return is submitted
assessment. This is incorrect, because Section 222 of the NIRC specifically states that in or in cases of failure to file a return such as this case, proceedings in court may be
cases where a false or fraudulent return is submitted or in cases of failure to file a return such commenced without an assessment. Furthermore, Section 205 of the NIRC clearly mandates
as this case, proceedings in court may be commenced without an assessment. Furthermore, that the civil and criminal aspects of the case may be pursued simultaneously.
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
SECOND DIVISION WHICH FORM PART OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE
[G.R. No. 120880. June 5, 1997] PROBATE COURT TO THE EXCLUSION OF ALL OTHER COURTS AND
FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE COMMISSIONER ADMINISTRATIVE AGENCIES.
OF THE BUREAU OF INTERNAL REVENUE and HERMINIA D. DE
GUZMAN, respondents. B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING
DECISION THAT SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD
TORRES, JR., J.: ALREADY BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO
THE MERITS OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF
In this Petition for Review on Certiorari, Government action is once again assailed as WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER,
precipitate and unfair, suffering the basic and oftly implored requisites of due process of PETITIONER HAS THE RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD
law. Specifically, the petition assails the Decision[1] of the Court of Appeals dated November IN WHICH TAX COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS
29, 1994 in CA-G.R. SP No. 31363, where the said court held: COMMISSIONER AND DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE
FAVORABLY CONSIDERED THE MERITS OF THE FOLLOWING GROUNDS IN THE
PETITION:
"In view of all the foregoing, we rule that the deficiency income tax assessments and estate
tax assessment, are already final and (u)nappealable -and- the subsequent levy of real
properties is a tax remedy resorted to by the government, sanctioned by Section 213 and (1) The Notices of Levy on Real Property were issued beyond the period provided in
218 of the National Internal Revenue Code. This summary tax remedy is distinct and the Revenue Memorandum Circular No. 38-68.
separate from the other tax remedies (such as Judicial Civil actions and Criminal actions),
and is not affected or precluded by the pendency of any other tax remedies instituted by the
(2) [a] The numerous pending court cases questioning the late President's ownership
government.
or interests in several properties (both personal and real) make the total value of his
estate, and the consequent estate tax due, incapable of exact pecuniary
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition determination at this time. Thus, respondents assessment of the estate tax and their
for certiorari with prayer for Restraining Order and Injunction. issuance of the Notices of Levy and Sale are premature, confiscatory and oppressive.

No pronouncements as to costs. [b] Petitioner, as one of the late President's compulsory heirs, was never notified,
much less served with copies of the Notices of Levy, contrary to the mandate of
Section 213 of the NIRC. As such, petitioner was never given an opportunity to
SO ORDERED."
contest the Notices in violation of his right to due process of law.

More than seven years since the demise of the late Ferdinand E. Marcos, the former
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT
President of the Republic of the Philippines, the matter of the settlement of his estate, and its
COURT MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT
dues to the government in estate taxes, are still unresolved, the latter issue being now before
INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF THE NIRC
this Court for resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the
NOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A WRIT OF
decedent, questions the actuations of the respondent Commissioner of Internal Revenue in
PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S AND
assessing, and collecting through the summary remedy of Levy on Real Properties, estate
DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE ALLEGED DEFICIENCY
and income tax delinquencies upon the estate and properties of his father, despite the
ESTATE AND INCOME TAXES BY MEANS OF LEVY.
pendency of the proceedings on probate of the will of the late president, which is docketed
as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156. The facts as found by the appellate court are undisputed, and are hereby adopted:
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and
Prohibition with an application for writ of preliminary injunction and/or temporary restraining "On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.
order on June 28, 1993, seeking to -
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and
I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May examinations of the tax liabilities and obligations of the late president, as well as that of his
20, 1993, issued by respondent Commissioner of Internal Revenue; family, associates and "cronies". Said audit team concluded its investigation with a
Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed to
file a written notice of the death of the decedent, an estate tax returns [sic], as well as several
II. Annul and set aside the Notices of Sale dated May 26, 1993;
income tax returns covering the years 1982 to 1986, -all in violation of the National Internal
Revenue Code (NIRC).
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from
proceeding with the Auction of the real properties covered by Notices of Sale.
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional
Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized under Sections
After the parties had pleaded their case, the Court of Appeals rendered its 253 and 254 in relation to Section 252- a & b) of the National Internal Revenue Code (NIRC).
Decision[2] on November 29, 1994, ruling that the deficiency assessments for estate and
income tax made upon the petitioner and the estate of the deceased President Marcos have
The Commissioner of Internal Revenue thereby caused the preparation and filing of the
already become final and unappealable, and may thus be enforced by the summary remedy
Estate Tax Return for the estate of the late president, the Income Tax Returns of the Spouses
of levying upon the properties of the late President, as was done by the respondent
Marcos for the years 1985 to 1986, and the Income Tax Returns of petitioner Ferdinand
Commissioner of Internal Revenue.
'Bongbong' Marcos II for the years 1982 to 1985.

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


On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no.
for Certiorari with prayer for Restraining Order and Injunction.
FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos in the
amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no. FAC-1-
No pronouncements as to cost. 85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-002451 (against the
Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70 and P184,009,737.40
representing deficiency income tax for the years 1985 and 1986); (3) Deficiency income tax
SO ORDERED." assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner Ferdinand
'Bongbong' Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos;
Unperturbed, petitioner is now before us assailing the validity of the appellate court's and P6,376.60 Pesos representing his deficiency income taxes for the years 1982 to 1985).
decision, assigning the following as errors:

A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE The Commissioner of Internal Revenue avers that copies of the deficiency estate and income
SUMMARY TAX REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT tax assessments were all personally and constructively served on August 26, 1991 and
AFFECTED AND PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her
FOR THE ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE last known address at No. 204 Ortega St., San Juan, M.M. (Annexes 'D' and 'E' of the
CONTRARY, THIS PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES Petition). Likewise, copies of the deficiency tax assessments issued against petitioner
Ferdinand 'Bongbong' Marcos II were also personally and constructively served upon him the pendency of judicial administration over the estate of a deceased person a claim for taxes
(through his caretaker) on September 12, 1991, at his last known address at Don Mariano is presented by the government, the court has the authority to order payment by the
Marcos St. corner P. Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the administrator; but, in the same way that it has authority to order payment or satisfaction, it
Petition). Thereafter, Formal Assessment notices were served on October 20, 1992, upon also has the negative authority to deny the same. While there are cases where courts are
Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan Pambansa, required to perform certain duties mandatory and ministerial in character, the function of the
Quezon City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized court in a case of the present character is not one of them; and here, the court cannot be an
representative or counsel), to a conference, was furnished the counsel of Mrs. Marcos, Dean organism endowed with latitude of judgment in one direction, and converted into a mere
Antonio Coronel - but to no avail. mechanical contrivance in another direction."

The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the On the other hand, it is argued by the BIR, that the state's authority to collect internal
other heirs of the late president, within 30 days from service of said assessments. revenue taxes is paramount. Thus, the pendency of probate proceedings over the estate of
the deceased does not preclude the assessment and collection, through summary remedies,
of estate taxes over the same. According to the respondent, claims for payment of estate and
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real
income taxes due and assessed after the death of the decedent need not be presented in
property against certain parcels of land owned by the Marcoses - to satisfy the alleged estate
the form of a claim against the estate. These can and should be paid immediately. The
tax and deficiency income taxes of Spouses Marcos.
probate court is not the government agency to decide whether an estate is liable for payment
of estate of income taxes. Well-settled is the rule that the probate court is a court with special
On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of and limited jurisdiction.
satisfying the deficiency income taxes.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited
jurisdiction, as a probate court over estate of deceased individual, is not a trifling thing. The
On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The court's jurisdiction, once invoked, and made effective, cannot be treated with indifference nor
foregoing tax remedies were resorted to pursuant to Sections 205 and 213 of the National should it be ignored with impunity by the very parties invoking its authority.
Internal Revenue Code (NIRC).
In testament to this, it has been held that it is within the jurisdiction of the probate
court to approve the sale of properties of a deceased person by his prospective heirs before
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein
final adjudication;[5] to determine who are the heirs of the decedent;[6] the recognition of a
petitioner) calling the attention of the BIR and requesting that they be duly notified of any
natural child;[7] the status of a woman claiming to be the legal wife of the decedent;[8] the
action taken by the BIR affecting the interest of their client Ferdinand 'Bongbong Marcos II,
legality of disinheritance of an heir by the testator;[9] and to pass upon the validity of a waiver
as well as the interest of the late president - copies of the aforesaid notices were served on
of hereditary rights.[10]
April 7, 1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and their
counsel of record, 'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office'. The pivotal question the court is tasked to resolve refers to the authority of the Bureau
of Internal Revenue to collect by the summary remedy of levying upon, and sale of real
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall properties of the decedent, estate tax deficiencies, without the cognition and authority of the
of Tacloban City. The public auction for the sale of the eleven (11) parcels of land took place court sitting in probate over the supposed will of the deceased.
on July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the
The nature of the process of estate tax collection has been described as follows:
government.

"Strictly speaking, the assessment of an inheritance tax does not directly involve the
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for
administration of a decedent's estate, although it may be viewed as an incident to the
certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for temporary
complete settlement of an estate, and, under some statutes, it is made the duty of the probate
restraining order and/or writ of preliminary injunction."
court to make the amount of the inheritance tax a part of the final decree of distribution of the
estate. It is not against the property of decedent, nor is it a claim against the estate as such,
It has been repeatedly observed, and not without merit, that the enforcement of tax but it is against the interest or property right which the heir, legatee, devisee, etc., has in the
laws and the collection of taxes, is of paramount importance for the sustenance of property formerly held by decedent. Further, under some statutes, it has been held that it is
government. Taxes are the lifeblood of the government and should be collected without not a suit or controversy between the parties, nor is it an adversary proceeding between the
unnecessary hindrance. However, such collection should be made in accordance with law as state and the person who owes the tax on the inheritance. However, under other statutes it
any arbitrariness will negate the very reason for government itself. It is therefore necessary has been held that the hearing and determination of the cash value of the assets and the
to reconcile the apparently conflicting interests of the authorities and the taxpayers so that determination of the tax are adversary proceedings. The proceeding has been held to be
the real purpose of taxation, which is the promotion of the common good, may be achieved." [3] necessarily a proceeding in rem.[11]

Whether or not the proper avenues of assessment and collection of the said tax
obligations were taken by the respondent Bureau is now the subject of the Court's inquiry. In the Philippine experience, the enforcement and collection of estate tax, is executive
in character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal
Petitioner posits that notices of levy, notices of sale, and subsequent sale of Revenue. Section 3 of the National Internal Revenue Code attests to this:
properties of the late President Marcos effected by the BIR are null and void for disregarding
the established procedure for the enforcement of taxes due upon the estate of the
"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal
deceased. The case of Domingo vs. Garlitos[4] is specifically cited to bolster the argument
Revenue shall comprehend the assessment and collection of all national internal revenue
that "the ordinary procedure by which to settle claims of indebtedness against the estate of a
taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines
deceased, person, as in an inheritance (estate) tax, is for the claimant to present a claim
connected therewith, including the execution of judgments in all cases decided in its favor by
before the probate court so that said court may order the administrator to pay the amount
the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and
therefor." This remedy is allegedly, exclusive, and cannot be effected through any other
administer the supervisory and police power conferred to it by this Code or other laws."
means.

Petitioner goes further, submitting that the probate court is not precluded from denying Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal treatment
a request by the government for the immediate payment of taxes, and should order the of claims for taxes charged against the estate of the decedent. Such taxes, we said, were
payment of the same only within the period fixed by the probate court for the payment of all exempted from the application of the statute of non-claims, and this is justified by the
the debts of the decedent. In this regard, petitioner cites the case of Collector of Internal necessity of government funding, immortalized in the maxim that taxes are the lifeblood of
Revenue vs. The Administratrix of the Estate of Echarri (67 Phil 502), where it was held that: the government. Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.

"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue "Taxes assessed against the estate of a deceased person, after administration is opened,
(52 Phil 803), relied upon by the petitioner-appellant is good authority on the proposition that need not be submitted to the committee on claims in the ordinary course of administration. In
the court having control over the administration proceedings has jurisdiction to entertain the the exercise of its control over the administrator, the court may direct the payment of such
claim presented by the government for taxes due and to order the administrator to pay the taxes upon motion showing that the taxes have been assessed against the estate."
tax should it find that the assessment was proper, and that the tax was legal, due and
collectible. And the rule laid down in that case must be understood in relation to the case of
Collector of Customs vs. Haygood, supra., as to the procedure to be followed in a given case
by the government to effectuate the collection of the tax. Categorically stated, where during
Such liberal treatment of internal revenue taxes in the probate proceedings extends only on 22 February 1993 and 20 May 1993 when at least seventeen (17) months had already
so far, even to allowing the enforcement of tax obligations against the heirs of the decedent, lapsed from the last service of tax assessment on 12 September 1991. As no notices of
even after distribution of the estate's properties. distraint of personal property were first issued by respondents, the latter should have
complied with Revenue Memorandum Circular No. 38-68 and issued these Notices of Levy
not earlier than three (3) months nor later than six (6) months from 12 September 1991. In
"Claims for taxes, whether assessed before or after the death of the deceased, can be
accordance with the Circular, respondents only had until 12 March 1992 (the last day of the
collected from the heirs even after the distribution of the properties of the decedent. They are
sixth month) within which to issue these Notices of Levy. The Notices of Levy, having been
exempted from the application of the statute of non-claims. The heirs shall be liable therefor,
issued beyond the period allowed by law, are thus void and of no effect."[15]
in proportion to their share in the inheritance." [13]

We hold otherwise. The Notices of Levy upon real property were issued within the
"Thus, the Government has two ways of collecting the taxes in question. One, by going after
prescriptive period and in accordance with the provisions of the present Tax Code. The
all the heirs and collecting from each one of them the amount of the tax proportionate to the
deficiency tax assessment, having already become final, executory, and demandable, the
inheritance received. Another remedy, pursuant to the lien created by Section 315 of the Tax
same can now be collected through the summary remedy of distraint or levy pursuant to
Code upon all property and rights to property belong to the taxpayer for unpaid income tax,
Section 205 of the NIRC.
is by subjecting said property of the estate which is in the hands of an heir or transferee to
the payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda, 21 The applicable provision in regard to the prescriptive period for the assessment and
SCRA 105, September 15, 1967.) collection of tax deficiency in this instance is Article 223 of the NIRC, which pertinently
provides:
From the foregoing, it is discernible that the approval of the court, sitting in probate,
"Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes.- (a)
or as a settlement tribunal over the deceased is not a mandatory requirement in the collection
In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return,
of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with
the tax may be assessed, or a proceeding in court for the collection of such tax may be begun
the levying and sale of the properties allegedly owned by the late President, on the ground
without assessment, at any time within ten (10) years after the discovery of the falsity, fraud,
that it was required to seek first the probate court's sanction. There is nothing in the Tax
or omission: Provided, That, in a fraud assessment which has become final and executory,the
Code, and in the pertinent remedial laws that implies the necessity of the probate or estate
fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the
settlement court's approval of the state's claim for estate taxes, before the same can be
collection thereof.
enforced and collected.
xxx
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court (c) Any internal revenue tax which has been assessed within the period of limitation above
which is bidden not to authorize the executor or judicial administrator of the decedent's estate prescribed, may be collected by distraint or levy or by a proceeding in court within three years
to deliver any distributive share to any party interested in the estate, unless it is shown a following the assessment of the tax.
Certification by the Commissioner of Internal Revenue that the estate taxes have been xxx
paid. This provision disproves the petitioner's contention that it is the probate court which The omission to file an estate tax return, and the subsequent failure to contest or
approves the assessment and collection of the estate tax. appeal the assessment made by the BIR is fatal to the petitioner's cause, as under the above-
cited provision, in case of failure to file a return, the tax may be assessed at any time within
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, ten years after the omission, and any tax so assessed may be collected by levy upon real
this should have been pursued through the proper administrative and judicial avenues property within three years following the assessment of the tax.Since the estate tax
provided for by law. assessment had become final and unappealable by the petitioner's default as regards
protesting the validity of the said assessment, there is now no reason why the BIR cannot
Section 229 of the NIRC tells us how: continue with the collection of the said tax. Any objection against the assessment should
have been pursued following the avenue paved in Section 229 of the NIRC on protests on
"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or his assessments of internal revenue taxes.
duly authorized representative finds that proper taxes should be assessed, he shall first notify Petitioner further argues that "the numerous pending court cases questioning the late
the taxpayer of his findings. Within a period to be prescribed by implementing regulations, president's ownership or interests in several properties (both real and personal) make the
the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary
Commissioner shall issue an assessment based on his findings. determination at this time. Thus, respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are premature and oppressive." He points out the
Such assessment may be protested administratively by filing a request for reconsideration or pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the
reinvestigation in such form and manner as may be prescribed by implementing regulations government to question the ownership and interests of the late President in real and personal
within (30) days from receipt of the assessment; otherwise, the assessment shall become properties located within and outside the Philippines. Petitioner, however, omits to allege
final and unappealable. whether the properties levied upon by the BIR in the collection of estate taxes upon the
decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter
If the protest is denied in whole or in part, the individual, association or corporation adversely at issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does
affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty not affect the enforcement of tax assessments over the properties indubitably included in his
(30) days from receipt of said decision; otherwise, the decision shall become final, executory estate.
and demandable. (As inserted by P.D. 1773)"
Petitioner also expresses his reservation as to the propriety of the BIR's total
Apart from failing to file the required estate tax return within the time required for the assessment of P23,292,607,638.00, stating that this amount deviates from the findings of the
filing of the same, petitioner, and the other heirs never questioned the assessments served Department of Justice's Panel of Prosecutors as per its resolution of 20 September
upon them, allowing the same to lapse into finality, and prompting the BIR to collect the said 1991. Allegedly, this is clear evidence of the uncertainty on the part of the Government as to
taxes by levying upon the properties left by President Marcos. the total value of the estate of the late President.

Petitioner submits, however, that "while the assessment of taxes may have been This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate
validly undertaken by the Government, collection thereof may have been done in violation of tax which had already become final and unappealable.
the law. Thus, the manner and method in which the latter is enforced may be questioned It is not the Department of Justice which is the government agency tasked to
separately, and irrespective of the finality of the former, because the Government does not determine the amount of taxes due upon the subject estate, but the Bureau of Internal
have the unbridled discretion to enforce collection without regard to the clear provision of Revenue[16] whose determinations and assessments are presumed correct and made in good
law."[14] faith.[17] The taxpayer has the duty of proving otherwise. In the absence of proof of any
Petitioner specifically points out that applying Memorandum Circular No. 38-68, irregularities in the performance of official duties, an assessment will not be disturbed. Even
implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's Notices an assessment based on estimates is prima facie valid and lawful where it does not appear
of Levy on the Marcos properties, were issued beyond the allowed period, and are therefore to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining
null and void: party to show clearly that the assessment is erroneous. Failure to present proof of error in
the assessment will justify the judicial affirmance of said assessment.[18] In this instance,
petitioner has not pointed out one single provision in the Memorandum of the Special Audit
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this Petition) in Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed,
satisfaction of said assessments were still issued by respondents well beyond the period the petitioner's attack on the assessment bears mainly on the alleged improbable and
mandated in Revenue Memorandum Circular No. 38-68. These Notices of Levy were issued
unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for cannot therefore, countenance petitioner's insistence that he was denied due process. Where
the charge of impropriety of the assessments made. there was an opportunity to raise objections to government action, and such opportunity was
disregarded, for no justifiable reason, the party claiming oppression then becomes the
Moreover, these objections to the assessments should have been raised, considering oppressor of the orderly functions of government. He who comes to court must come with
the ample remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal clean hands. Otherwise, he not only taints his name, but ridicules the very structure of
Revenue and the Court of Tax Appeals, as described earlier, and cannot be raised now via established authority.
Petition for Certiorari, under the pretext of grave abuse of discretion. The course of action
taken by the petitioner reflects his disregard or even repugnance of the established IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The
institutions for governance in the scheme of a well-ordered society. The subject tax Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in all
assessments having become final, executory and enforceable, the same can no longer be respects.
contested by means of a disguised protest. In the main, Certiorari may not be used as a
substitute for a lost appeal or remedy.[19] This judicial policy becomes more pronounced in SO ORDERED.
view of the absence of sufficient attack against the actuations of government.
Regalado, (Chairman), Romero, Puno, and Mendoza, JJ., concur.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we
find the respondent appellate court's pronouncements sound and resilient to petitioner's
attacks.

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

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

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

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

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

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

"xxx

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

xxx"

The foregoing notwithstanding, the record shows that notices of warrants of distraint
and levy of sale were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, Republic of the Philippines
and the petitioner himself on April 12, 1993 at his office at the Batasang Pambansa. [21] We SUPREME COURT
Manila
FIRST DIVISION period 1962 to 1969 plus interests and surcharges due thereon and to pay 25% thereof to
G.R. No. L-36181 October 23, 1982 Maniago as informer's reward.
MERALCO SECURITIES CORPORATION (now FIRST PHILIPPINE HOLDINGS
CORPORATION), petitioner,
All parties filed motions for reconsideration of the decision but the same were denied by
vs.
respondent judge in his order dated April 6, 1973, with respondent judge denying
HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as
respondents' claim for attorneys fees and for execution of the decision pending appeal.
heirs of the late Juan G. Maniago, respondents.
G.R. No. L-36748 October 23, 1982
COMMISSIONER OF INTERNAL REVENUE, petitioner, Hence, the Commissioner filed a separate petition with this Court, docketed as G.R. No. L-
vs. 36748 praying that the decision of respondent judge dated January 10, 1973 and his order
HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as dated April 6, 1973 be reconsidered for respondent judge has no jurisdiction over the subject
heirs of the late Juan G. Maniago, respondents. matter of the case and that the issuance or non-issuance of a deficiency assessment is a
G.R. No. L-36181 prerogative of the Commissioner of Internal Revenue not reviewable by mandamus.
San Juan, Africa, Gonzales & San Agustin for petitioner.
Ramon A. Gonzales for respondents.
The Meralco Securities Corporation (now First Philippine Holdings Corporation) likewise
TEEHANKEE, J.: appealed the same decision of respondent judge in G.R. No. L-36181 and in the Court's
These are original actions for certiorari to set aside and annul the writ of mandamus issued resolution dated June 13, 1973, the two cases were ordered consolidated.
by Judge Victorino A. Savellano of the Court of First Instance of Manila in Civil Case No.
80830 ordering petitioner Meralco Securities Corporation (now First Philippine Holdings We grant the petitions.
Corporation) to pay, and petitioner Commissioner of Internal Revenue to collect from the
former, the amount of P51,840,612.00, by way of alleged deficiency corporate income tax,
plus interests and surcharges due thereon and to pay private respondents 25% of the total Respondent judge has no jurisdiction to take cognizance of the case because the subject
amount collectible as informer's reward. matter thereof clearly falls within the scope of cases now exclusively within the jurisdiction of
the Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954,
granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by appeal,
On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his wife and among others, decisions of the Commissioner of Internal Revenue in cases involving
children) submitted to petitioner Commissioner of Internal Revenue confidential denunciation disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
against the Meralco Securities Corporation for tax evasion for having paid income tax only imposed in relation thereto, or other matters arising under the National Internal Revenue
on 25 % of the dividends it received from the Manila Electric Co. for the years 1962-1966, Code or other law or part of law administered by the Bureau of Internal Revenue. The law
thereby allegedly shortchanging the government of income tax due from 75% of the said transferred to the Court of Tax Appeals jurisdiction over all cases involving said assessments
dividends. previously cognizable by courts of first instance, and even those already pending in said
courts. 1 The question of whether or not to impose a deficiency tax assessment on Meralco
Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation Securities Corporation undoubtedly comes within the purview of the words "disputed
after which he found and held that no deficiency corporate income tax was due from the assessments" or of "other matters arising under the National Internal Revenue Code . . . .In
Meralco Securities Corporation on the dividends it received from the Manila Electric Co., the case of Blaquera vs. Rodriguez, et al, 2 this Court ruled that "the determination of the
since under the law then prevailing (section 24[a] of the National Internal Revenue Code) "in correctness or incorrectness of a tax assessment to which the taxpayer is not agreeable, falls
the case of dividends received by a domestic or foreign resident corporation liable to within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for
(corporate income) tax under this Chapter . . . .only twenty-five per centum thereof shall be under the provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals
returnable for the purposes of the tax imposed under this section." The Commissioner has exclusive appellate jurisdiction to review, on appeal, any decision of the Collector of
accordingly rejected Maniago's contention that the Meralco from whom the dividends were Internal Revenue in cases involving disputed assessments and other matters arising under
received is "not a domestic corporation liable to tax under this Chapter." In a letter dated April the National Internal Revenue Code or other law or part of law administered by the Bureau
5, 1968, the Commissioner informed Maniago of his findings and ruling and therefore denied of Internal Revenue."
Maniago's claim for informer's reward on a non-existent deficiency. This action of the
Commissioner was sustained by the Secretary of Finance in a 4th Indorsement dated May Thus, even assuming arguendo that the right granted the taxpayers affected to question and
11, 1971. appeal disputed assessments, under section 7 of Republic Act No. 1125, may be availed of
by strangers or informers like the late Maniago, the most that he could have done was to
On August 28, 1970, Maniago filed a petition for mandamus, and subsequently an amended appeal to the Court of Tax Appeals the ruling of petitioner Commissioner of Internal Revenue
petition for mandamus, in the Court of First Instance of Manila, docketed therein as Civil Case within 3 thirty (30) days from receipt thereof pursuant to section 11 of Republic Act No.
No. 80830, against the Commissioner of Internal Revenue and the Meralco Securities 1125. He failed to take such an appeal to the tax court. The ruling is clearly final and no
Corporation to compel the Commissioner to impose the alleged deficiency tax assessment longer subject to review by the courts.
4

on the Meralco Securities Corporation and to award to him the corresponding informer's
reward under the provisions of R.A. 2338. It is furthermore a well-recognized rule that mandamus only lies to enforce the performance
of a ministerial act or duty 5 and not to control the performance of a discretionary
On October 28, 1978, the Commissioner filed a motion to dismiss, arguing that since in power. 7 Purely administrative and discretionary functions may not be interfered with by the
6

matters of issuance and non-issuance of assessments, he is clothed under the National courts. Discretion, as thus intended, means the power or right conferred upon the office by
Internal Revenue Code and existing rules and regulations with discretionary power in law of acting officially under certain circumstances according to the dictates of his own
evaluating the facts of a case and since mandamus win not lie to compel the performance of judgment and conscience and not controlled by the judgment or conscience of
a discretionary power, he cannot be compelled to impose the alleged tax deficiency others. mandamus may not be resorted to so as to interfere with the manner in9 which the
8

assessment against the Meralco Securities Corporation. He further argued that mandamus discretion shall be exercised or to influence or coerce a particular determination.
may not lie against him for that would be tantamount to a usurpation of executive powers,
since the Office of the Commissioner of Internal Revenue is undeniably under the control of In an analogous case, where a petitioner sought to compel the Rehabilitation Finance
the executive department. Corporation to accept payment of the balance of his indebtedness with his backpay
certificates, the Court ruled that "mandamus does not compel the Rehabilitation Finance
On the other hand, the Meralco Securities Corporation filed its answer, dated January 15, Corporation to accept backpay certificates in payment of outstanding loans. Although there
1971, interposing as special and/or affirmative defenses that the petition states no cause of is no provision expressly authorizing such acceptance, nor is there one prohibiting it, yet the
action, that the action is premature, that mandamus win not lie to compel the Commissioner duty imposed by the Backpay Law upon said corporation as to the acceptance or discount of
of Internal Revenue to make an assessment and/or effect the collection of taxes upon a backpay certificates is neither clear nor ministerial, but discretionary merely, and such special
taxpayer, that since no taxes have actually been recovered and/or collected, Maniago has no civil action does not issue to control the exercise of discretion of a public officer." Likewise,
10

right to recover the reward prayed for, that the action of petitioner had already prescribed and we have held that courts have no power to order the Commissioner of Customs to confiscate
that respondent court has no jurisdiction over the subject matter as set forth in the petition, goods imported in violation of the Import Control Law, R.A. 426, as said forfeiture is subject
the same being cognizable only by the Court of Tax Appeals. to the discretion of the said official, 11 nor may courts control the determination of whether or
not an applicant for a visa has a non-immigrant status or whether his entry into this country
would be contrary to public safety for it is not a simple ministerial function but an exercise of
On January 10, 1973, the respondent judge rendered a decision granting the writ prayed for discretion. 12
and ordering the Commissioner of Internal Revenue to assess and collect from the Meralco
Securities Corporation the sum of P51,840,612.00 as deficiency corporate income tax for the
Moreover, since the office of the Commissioner of Internal Revenue is charged with the
administration of revenue laws, which is the primary responsibility of the executive branch of
the government, mandamus may not he against the Commissioner to compel him to impose
a tax assessment not found by him to be due or proper for that would be tantamount to a
usurpation of executive functions. As we held in the case of Commissioner of Immigration vs.
Arca 13 anent this principle, "the administration of immigration laws is the primary
responsibility of the executive branch of the government. Extensions of stay of aliens are
discretionary on the part of immigration authorities, and neither a petition for mandamus nor
one for certiorari can compel the Commissioner of Immigration to extend the stay of an alien
whose period to stay has expired.

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

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

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

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

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

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


Republic of the Philippines Settled is the rule that the factual findings of the Court of Tax Appeals are binding upon this
SUPREME COURT Honorable Court and can only be disturbed on appeal if not supported by substantial
Manila evidence.4
SECOND DIVISION
G.R. No. 81446 August 18, 1988
The assignments of errors boils down to a single issue previously raised before the
BONIFACIA SY PO, petitioner,
respondent Court, i.e., whether or not the assessments have valid and legal bases.
vs.
HONORABLE COURT OF TAX APPEALS AND HONORABLE COMMISSIONER OF
INTERNAL REVENUE, respondents. The applicable legal provision is Section 16(b) of the National Internal Revenue Code of 1977
Basilio E. Duaban for petitioner. as amended. It reads:

SARMIENTO, J.:
Sec. 16. Power of the Commissioner of Internal Revenue to make assessments.—
This is an appeal from the decision of the respondent Court of Tax Appeals, dated
1

September 30,1987, which affirmed an earlier decision of the correspondent Commissioner xxx xxx xxx
of Internal Revenue in assessment letters dated August 16, 1972 and September 26, 1972,
which ordered the payment by the petitioner of deficiency income tax for 1966 to 1970 in the (b) Failure to submit required returns, statements, reports and other documents. - When a
amount of P7,154,685.16 and deficiency specific tax for January 2, 1964 to January 19, 1972, report required by law as a basis for the assessment of an national internal revenue tax shall
in the amount of P5,595,003.68. not be forthcoming within the time fixed by law or regulation or when there is reason to believe
that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue
We adopt the respondent court's finding of facts, to wit: shall assess the proper tax on the best evidence obtainable.

Petitioner is the widow of the late Mr. Po Bien Sing who died on September 7, 1980. In the In case a person fails to file a required return or other document at the time prescribed by
taxable years 1964 to 1972, the deceased Po Bien Sing was the sole proprietor of Silver Cup law, or willfully or otherwise, files a false or fraudulent return or other documents, the
Wine Factory (Silver Cup for brevity), Talisay, Cebu. He was engaged in the business of Commissioner shall make or amend the return from his own knowledge and from such
manufacture and sale of compounded liquors, using alcohol and other ingredients as raw information as he can obtain through testimony or otherwise, which shall be prima
materials. facie correct and sufficient for all legal purposes.

On the basis of a denunciation against Silver Cup allegedly "for tax evasion amounting to The law is specific and clear. The rule on the "best evidence obtainable" applies when a tax
millions of pesos" the then Secretary of Finance Cesar Virata directed the Finance-BIR--NBI report required by law for the purpose of assessment is not available or when the tax report
team constituted under Finance Department Order No. 13-70 dated February 19, 1971 (Exh- is incomplete or fraudulent.
3, pp. 532-553, Folder II, BIR rec.) to conduct the corresponding investigation in a
memorandum dated April 2, 1971 (p. 528, Folder II, BIR rec.). Accordingly, a letter and a In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner to
subpoena duces tecum dated April 13,1971 and May 3,1971, respectively, were issued present their books of accounts for examination for the taxable years involved left the
against Silver Cup requesting production of the accounting records and other related Commissioner of Internal Revenue no other legal option except to resort to the power
documents for the examination of the team. (Exh. 11, pp. 525-526, Folder II, BIR rec.). Mr. conferred upon him under Section 16 of the Tax Code.
Po Bien Sing did not produce his books of accounts as requested (Affidavit dated December
24, 1971 of Mr. Generoso. Quinain of the team, p. 525, Folder H, BIR rec.). This prompted
the team with the assistance of the PC Company, Cebu City, to enter the factory bodega of The tax figures arrived at by the Commissioner of Internal Revenue are by no means
Silver Cup and seized different brands, consisting of 1,555 cases of alcohol products. (Exh. arbitrary. We reproduce the respondent court's findings, to wit:
22, Memorandum Report of the Team dated June 5, 1971, pp. 491-492, Folder II, BIR rec.).
The inventory lists of the seized alcohol products are contained in Volumes I, II, III, IV and VAs thus shown, on the basis of the quantity of bottles of wines seized during the raid and the
(Exhibits 14, 15, 16, 17, and 18, respectively, BIR rec.). On the basis of the team's report of sworn statements of former employees Messrs. Nelson S. Po and Alfonso Po taken on May
investigation, the respondent Commissioner of Internal Revenue assessed Mr. Po Bien Sing 26, and 27,1971, respectively, by the investigating team in Cebu City (Exhs. 4 and 5, pp. 514-
deficiency income tax for 1966 to 1970 in the amount of P7,154,685.16 (Exh. 6 pp. 17-19, 517, pp. 511-513, Folder 11, BIR rec.), it was ascertained that the Silver Cup for the years
Folder I, BIR rec.) and for deficiency specific tax for January 2,1964 to January 19, 1972 in 1964 to 1970, inclusive, utilized and consumed in the manufacture of compounded liquours
the amount of P5,595,003.68 (Exh. 8, p. 107, Folder I, BIR rec.). and other products 20,105 drums of alcohol as raw materials 81,288,787 proof liters of
alcohol. As determined, the total specific tax liability of the taxpayer for 1964 to 1971
Petitioner protested the deficiency assessments through letters dated October 9 and October amounted to P5,593,003.68 (Exh. E, petition, p. 10, CTA rec.)
30, 1972 (Exhs. 7 and 9, pp. 27-28; pp. 152-159, respectively, BIR rec.), which protests were
referred for reinvestigation. The corresponding report dated August 13, 1981 (Exh. 1 0, pp. Likewise, the team found due from Silver Cup deficiency income taxes for the years 1966 to
355, Folder I, BIR rec.) recommended the reiteration of the assessments in view of the 1970 inclusive in the aggregate sum of P7,154,685.16, as follows:
taxpayer's persistent failure to present the books of accounts for examination (Exh. 8, p. 107,
Folder I, BIR rec.), compelling respondent to issue warrants of distraint and levy on
September 10, 1981 (Exh. 11, p. 361, Folder I, BIR rec.). 1966 P207,636.24
1967 645,335.04
1968 1,683,588.48
The warrants were admittedly received by petitioner on October 14, 1981 (Par. IX, Petition; 1969 1,589,622.48
admitted par. 2, Answer), which petitioner deemed respondent's decision denying her protest 1970 3,028,502.92
on the subject assessments. Hence, petitioner's appeal on October 29,1981. 2 Total amount due and collectible P7,154,685.16

The petitioner assigns the following errors: The 50% surcharge has been imposed, pursuant to Section 72 * of the Tax Code and tax
I 1/2% monthly interest has likewise been imposed pursuant to the provision of Section
RESPONDENT INTENTIONALLY ERRED IN HOLDING THAT PETITIONER HAS NOT 51(d) ** of the Tax Code (Exh. O, petition). 5
PRESENTED ANY EVIDENCE OF RELEVANCE AND COMPETENCE REQUIRED TO
BASH THE TROUBLING DISCREPANCIES AND SQUARE THE ISSUE OF ILLEGALITY
POSITED ON THE SUBJECT ASSESSMENTS. The petitioner assails these assessments as wrong.
II
RESPONDENT COURT OF TAX APPEALS PALPABLY ERRED IN DECIDING THE CASE In the case of Collector of Internal Revenue vs. Reyes, 6 we ruled:
IN A WAY CONTRARY TO THE DOCTRINES ALREADY LAID DOWN BY THIS COURT.
III
RESPONDENT COURT OF TAX APPEALS GRAVELY ERRED IN FINDING PO BEEN Where the taxpayer is appealing to the tax court on the ground that the Collector's
SING TO HAVE INCURRED THE ALLEGED DEFICIENCY TAXES IN QUESTION. 3 assessment is erroneous, it is incumbent upon him to prove there what is the correct and just
liability by a full and fair disclosure of all pertinent data in his possession. Otherwise, if the
taxpayer confines himself to proving that the tax assessment is wrong, the tax court
We affirm.
proceedings would settle nothing, and the way would be left open for subsequent
assessments and appeals in interminable succession.

Tax assessments by tax examiners are presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise. 7 In the absence of proof of any irregularities in the
performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner
and approved by his superior officers will not be disturbed. 8 All presumptions are in favor of
the correctness of tax assessments. 9

On the whole, we find that the fraudulent acts detailed in the decision under review had not
been satisfactorily rebutted by the petitioner. There are indeed clear indications on the part
of the taxpayer to deprive the Government of the taxes due. The Assistant Factory
Superintendent of Silver Cup, Nelson Po gave the following testimony:

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

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

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

A — As factory personnel manager and all-around handy man of Po Bien Sing, owner of
Silver Cup, these labels were entrusted to me to make the false entries in the official register
book of Silver Cup, which I did under the direction of Po Bien Sing. (Sworn statement, p. 512,
Folder II, BIR rec.) 10 (Emphasis ours)

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

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

SO ORDERED.

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


FIRST DIVISION Sec. 142, (c), last par. 15% 20%

[G.R. No. 119761. August 29, 1996] Champion Lights

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. COURT OF APPEALS, Sec. 142, (c), last par. 15% 20%"[5]
HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION,
respondents. A bill, which later became Republic Act ("RA") No. 7654, [6] was enacted, on 10 June 1993,
by the legislature and signed into law, on 14 June 1993, by the President of the Philippines.
DECISION The new law became effective on 03 July 1993. It amended Section 142(c)(1) of the National
Internal Revenue Code ("NIRC") to read; as follows:
VITUG, J.:
"SEC. 142. Cigars and Cigarettes. -
The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995,
of respondent Court of Appeals[1] affirming the 10th August 1994 decision and the 11th "x x x x x x x x x.
October 1994 resolution of the Court of Tax Appeals[2] ("CTA") in C.T.A. Case No. 5015,
entitled "Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato in her capacity as "(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on
Commissioner of Internal Revenue." cigarettes packed by machine a tax at the rates prescribed below based on the constructive
manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is
The facts, by and large, are not in dispute. higher:

Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different "(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five
brands of cigarettes. percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five
(55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.
On various dates, the Philippine Patent Office issued to the corporation separate certificates
of trademark registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated "(2). On other locally manufactured cigarettes, forty-five percent (45%) provided that the
06 January 1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to minimum tax shall not be less than Three Pesos (P3.00) per pack.
Deputy Minister Ramon Diaz of the Presidential Commission on Good Government, "the
initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign "x x x x x x x x x.
brands since they were listed in the World Tobacco Directory as belonging to foreign
companies. However, Fortune Tobacco changed the names of 'Hope' to Hope Luxury' and "When the registered manufacturer's wholesale price or the actual manufacturer's wholesale
'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. price whichever is higher of existing brands of cigarettes, including the amounts intended to
Proof was also submitted to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an cover the taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty
original Fortune Tobacco Corporation register and therefore a local brand."[3] Ad Valorem centavos (P4.80) per pack, the rate shall be twenty percent (20%)."[7] (Italics supplied.)
taxes were imposed on these brands,[4] at the following rates:
About a month after the enactment and two (2) days before the effectivity of RA 7654,
"BRAND AD VALOREM TAX RATE Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text
of which expressed:
E.O. 22
"REPUBLIKA NG PILIPINAS
06-23-86 KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
07-01-86 and E.O. 273
July 1, 1993
07-25-87
REVENUE MEMORANDUM CIRCULAR NO. 37-93
01-01-88 RA 6956
SUBJECT : Reclassification of Cigarettes Subject to Excise Tax
06-18-90
TO : All Internal Revenue Officers and Others Concerned.
07-05-90
"In view of the issues raised on whether 'HOPE,' 'MORE' and 'CHAMPION' cigarettes which
are locally manufactured are appropriately considered as locally manufactured cigarettes
bearing a foreign brand, this Office is compelled to review the previous rulings on the matter.
Hope Luxury M. 100's
"Section 142(c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides:
Sec. 142, (c), (2) 40% 45%
"'On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%)
Hope Luxury M. King Provided, That this rate shall apply regardless of whether or not the right to use or title to the
foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has
Sec. 142, (c), (2) 40% 45% to be determined whether or not a cigarette bears a foreign brand, the listing of brands
manufactured in foreign countries appearing in the current World Tobacco Directory shall
More Premium M. 100's govern."

Sec. 142, (c), (2) 40% 45% "Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that
the locally manufactured cigarettes bear a foreign brand regardless of whether or not the right
More Premium International to use or title to the foreign brand was sold or transferred by its owner to the local
manufacturer. The brand must be originally owned by a foreign manufacturer or producer. If
Sec. 142, (c), (2) 40% 45% ownership of the cigarette brand is, however, not definitely determinable, 'x x x the listing of
brands manufactured in foreign countries appearing in the current World Tobacco Directory
Champion Int'l. M. 100's shall govern. x x x'

Sec. 142, (c), (2) 40% 45% "'HOPE' is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. 'MORE' is listed in the said directory
Champion M. 100's as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-
Macdonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds,
Sec. 142, (c), (2) 40% 45% Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds,
Champion M. King Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland;
and (m) R.J. Reynolds, USA. 'Champion' is registered in the said directory as being
manufactured by (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, "V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING HOPE,
Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, MORE AND CHAMPION CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654.
Switzerland.
VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO ITS
"Since there is no showing who among the above-listed manufacturers of the cigarettes VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS CORRECTNESS OR
bearing the said brands are the real owner/s thereof, then it follows that the same shall be PROPRIETY; RMC 37-93 IS CORRECT." [10]
considered foreign brand for purposes of determining the ad valorem tax pursuant to Section
142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which
24, 1988, 'in cases where it cannot be established or there is dearth of evidence as to whether can thus become effective without any prior need for notice and hearing, nor publication, and
a brand is foreign or not, resort to the World Tobacco Directory should be made.' that its issuance is not discriminatory since it would apply under similar circumstances to all
locally manufactured cigarettes.
"In view of the foregoing, the aforesaid brands of cigarettes, viz: 'HOPE,' 'MORE' and
'CHAMPION' being manufactured by Fortune Tobacco Corporation are hereby considered The Court must sustain both the appellate court and the tax court.
locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax
on cigarettes. Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for
the effective implementation of the provisions of the National Internal Revenue Code. Let it
"Any ruling inconsistent herewith is revoked or modified accordingly. be made clear that such authority of the Commissioner is not here doubted. Like any other
government agency, however, the CIR may not disregard legal requirements or applicable
(SGD) LIWAYWAY VINZONS-CHATO principles in the exercise of its quasi-legislative powers.
Commissioner"
Let us first distinguish between two kinds of administrative issuances - a legislative rule and
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., an interpretative rule.
sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in
particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary,
copy of RMC 37-93. [11] the Court expressed:

In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune "x x x a legislative rule is in the nature of subordinate legislation, designed to implement a
Tobacco, requested for a review, reconsideration and recall of RMC 37-93. The request was primary legislation by providing the details thereof. In the same way that laws must have the
denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune benefit of public hearing, it is generally required that before a legislative rule is adopted there
Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. must be hearing. In this connection, the Administrative Code of 1987 provides:

On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. [8] "Public Participation. - If not otherwise required by law, an agency shall, as far as practicable,
publish or circulate notices of proposed rules and afford interested parties the opportunity to
On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged: submit their views prior to the adoption of any rule.

"WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of "(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall
cigarettes, viz: `HOPE,' `MORE' and `CHAMPION' being manufactured by Fortune Tobacco have been published in a newspaper of general circulation at least two (2) weeks before the
Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% first hearing thereon.
ad valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that
when R.A. No. 7654 took effect on July 3, 1993, the brands in question were not "(3) In case of opposition, the rules on contested cases shall be observed.
CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax
Code, as amended by R.A. No. 7654 and were therefore still classified as other locally "In addition such rule must be published. On the other hand, interpretative rules are designed
manufactured cigarettes and taxed at 45% or 20% as the case may be. to provide guidelines to the law which the administrative agency is in charge of enforcing."
[12]
"Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune
Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is It should be understandable that when an administrative rule is merely interpretative in
hereby canceled for lack of legal basis. nature, its applicability needs nothing further than its bare issuance for it gives no real
consequence more than what the law itself has already prescribed. When, upon the other
"Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the hand, the administrative rule goes beyond merely providing for the means that can facilitate
deficiency tax assessment made and issued on petitioner in relation to the implementation of or render least cumbersome the implementation of the law but substantially adds to or
RMC No. 37-93. increases the burden of those governed, it behooves the agency to accord at least to those
directly affected a chance to be heard, and thereafter to be duly informed, before that new
"SO ORDERED." [9] issuance is given the force and effect of law.

In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for A reading of RMC 37-93, particularly considering the circumstances under which it has been
reconsideration. issued, convinces us that the circular cannot be viewed simply as a corrective measure
(revoking in the process the previous holdings of past Commissioners) or merely as
The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly,
10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the been made in order to place "Hope Luxury," "Premium More" and "Champion" within the
appellate court's Special Thirteenth Division affirmed in all respects the assailed decision and classification of locally manufactured cigarettes bearing foreign brands and to thereby have
resolution. them covered by RA 7654. Specifically, the new law would have its amendatory provisions
applied to locally manufactured cigarettes which at the time of its effectivity were not so
In the instant petition, the Solicitor General argues: That - classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope
Luxury," "Premium More," and "Champion" cigarettes were in the category of locally
"I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence,
REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE. without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence
on private respondent's products. Evidently, in order to place "Hope Luxury," "Premium
"II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF RMC 37- More," and "Champion" cigarettes within the scope of the amendatory law and subject them
93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND PRIOR HEARING to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR
ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND ENFORCEABILITY. not simply interpreted the law; verily, it legislated under its quasi-legislative authority. The
due observance of the requirements of notice, of hearing, and of publication should not have
"III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-93 ON been then ignored.
JULY 2, 1993.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY
MANUFACTURED CIGARETTES SIMILARLY SITUATED AS 'HOPE,' 'MORE' AND "RMC NO. 10-86
'CHAMPION' CIGARETTES.
Effectivity of Internal Revenue Rules and Regulations
The court quoted at length from the transcript of the hearing conducted on 10 August 1993
"It has been observed that one of the problem areas bearing on compliance with Internal by the Committee on Ways and Means of the House of Representatives; viz:
Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying
public. Unless there is due notice, due compliance therewith may not be reasonably "THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't
expected. And most importantly, their strict enforcement could possibly suffer from legal have specific information on other tobacco manufacturers. Now, there are other brands which
infirmity in the light of the constitutional provision on `due process of law' and the essence of are similarly situated. They are locally manufactured bearing foreign brands. And may I
the Civil Code provision concerning effectivity of laws, whereby due notice is a basic enumerate to you all these brands, which are also listed in the World Tobacco Directory x x
requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil Code). x. Why were these brands not reclassified at 55 if your want to give a level playing field to
foreign manufacturers?
"In order that there shall be a just enforcement of rules and regulations, in conformity with the
basic element of due process, the following procedures are hereby prescribed for the drafting, "MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum
issuance and implementation of the said Revenue Tax Issuances: Circular that was supposed to come after RMC No. 37-93 which have really named
specifically the list of locally manufactured cigarettes bearing a foreign brand for excise tax
"(1). This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit purposes and includes all these brands that you mentioned at 55 percent except that at that
Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum time, when we had to come up with this, we were forced to study the brands of Hope, More
Orders bearing on internal revenue tax rules and regulations. and Champion because we were given documents that would indicate the that these brands
were actually being claimed or patented in other countries because we went by Revenue
"(2). Except when the law otherwise expressly provides, the aforesaid internal revenue tax Memorandum Circular 1488 and we wanted to give some rationality to how it came about but
issuances shall not begin to be operative until after due notice thereof may be fairly we couldn't find the rationale there. And we really found based on our own interpretation that
presumed. the only test that is given by that existing law would be registration in the World Tobacco
Directory. So we came out with this proposed revenue memorandum circular which we
"Due notice of the said issuances may be fairly presumed only after the following procedures forwarded to the Secretary of Finance except that at that point in time, we went by the
have been taken: Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that on locally
manufactured cigarettes which are currently classified and taxed at 55 percent. So we were
"xxx xxx xxx saying that when this law took effect in July 3 and if we are going to come up with this revenue
circular thereafter, then I think our action would really be subject to question but we feel that
"(5). Strict compliance with the foregoing procedures is enjoined." [13] . . . Memorandum Circular Number 37-93 would really cover even similarly situated brands.
And in fact, it was really because of the study, the short time that we were given to study the
Nothing on record could tell us that it was either impossible or impracticable for the BIR to matter that we could not include all the rest of the other brands that would have been really
observe and comply with the above requirements before giving effect to its questioned classified as foreign brand if we went by the law itself. I am sure that by the reading of the
circular. law, you would without that ruling by Commissioner Tan they would really have been included
in the definition or in the classification of foregoing brands. These brands that you referred to
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation. or just read to us and in fact just for your information, we really came out with a proposed
revenue memorandum circular for those brands. (Italics supplied)
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform
and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, "Exhibit 'FF-2-C', pp. V-5 TO V-6, VI-1 to VI-3).
are to be treated alike or put on equal footing both in privileges and liabilities.[14] Thus, all
taxable articles or kinds of property of the same class must be taxed at the same rate[15] and "x x x x x x x x x.
the tax must operate with the same force and effect in every place where the subject may be
found. "MS. CHATO. x x x But I do agree with you now that it cannot and in fact that is why I felt that
we . . . I wanted to come up with a more extensive coverage and precisely why I asked that
Apparently, RMC 37-93 would only apply to "Hope Luxury," Premium More" and "Champion" revenue memorandum circular that would cover all those similarly situated would be prepared
cigarettes and, unless petitioner would be willing to concede to the submission of private but because of the lack of time and I came out with a study of RA 7654, it would not have
respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo been possible to really come up with the reclassification or the proper classification of all
so expresses in his separate opinion, be considered adjudicatory in nature and thus violative brands that are listed there. x x x' (italics supplied) (Exhibit 'FF-2d', page IX-1)
of due process following the Ang Tibay[16] doctrine, the measure suffers from lack of
uniformity of taxation. In its decision, the CTA has keenly noted that other cigarettes bearing "x x x x x x x x x.
foreign brands have not been similarly included within the scope of the circular, such as -
"HON. DIAZ. But did you not consider that there are similarly situated?
"1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
"MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue
(a) `PALM TREE' is listed as manufactured by office of Monopoly, Korea (Exhibit `R') Memorandum Circular No. 37-93, the other brands came about the would have also clarified
RMC 37-93 by I was saying really because of the fact that I was just recently appointed and
"2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY the lack of time, the period that was allotted to us to come up with the right actions on the
matter, we were really caught by the July 3 deadline. But in fact, We have already prepared
(a) `GOLDEN KEY' is listed being manufactured by United Tobacco, Pakistan (Exhibit `S') a revenue memorandum circular clarifying with the other . . . does not yet, would have been
a list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes which
(b) `CANNON' is listed as being manufactured by Alpha Tobacco, Bangladesh (Exhibit `T') would include all the other brands that were mentioned by the Honorable Chairman. (Italics
supplied) (Exhibit 'FF-2-d,' par. IX-4)."18
"3. Locally manufactured by LA PERLA INDUSTRIES, INC.
All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of
(a) `WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit `U') a valid and effective administrative issuance.

(b) `RIGHT' is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit `V-1') WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax
Appeals, is AFFIRMED. No costs.
"4. Locally manufactured by MIGHTY CORPORATION
SO ORDERED.
(a) 'WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit 'U-1')
Kapunan, J., concurs.
"5. Locally manufactured by STERLING TOBACCO CORPORATION
Padilla, J., joins Justice Hermosisima, Jr., in his dissenting opinion.
(a) UNION' is listed as being manufactured by Sumatra Tobacco, Indonesia and Brown and
Williamson, USA (Exhibit 'U-3') Bellosillo, J., see separate opinion.

(b) WINNER' is listed as being manufactured by Alpha Tobacco, Bangladesh; Nanyang, Hermosisima, Jr., J., see dissenting opinion.
Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier Tobacco, Pakistan
and Haggar, Sudan (Exhibit 'U-4')." [17]
Republic of the Philippines No. 008-92 would not unduly prejudice mining companies and, thus, could be applied
SUPREME COURT retroactively.19
SECOND DIVISION
G.R. Nos. 134587 & 134588 July 8, 2005
Respondent filed three separate petitions for review with the Court of Tax Appeals (CTA),
COMMISSIONER OF INTERNAL REVENUE, Petitioners,
docketed as CTA Case No. 4945, CTA Case No. 4627, and the consolidated cases of CTA
vs.
Case Nos. 4686 and 4829.
BENGUET CORPORATION, Respondent.
DECISION
Tinga, J.: In the three cases, respondent argued that a retroactive application of BIR VAT Ruling No.
008-92 would violate Sec. 246 of the NIRC, which mandates the non-retroactivity of rulings
or circulars issued by the Commissioner of Internal Revenue that would operate to prejudice
This is a petition for the review of a consolidated Decision of the Former Fourteenth Division
the taxpayer. Respondent then discussed in detail the manner and extent by which it was
of the Court of Appeals1 ordering the Commissioner of Internal Revenue to award tax credits
prejudiced by this retroactive application.20 Petitioner on the other hand, maintained that BIR
to Benguet Corporation in the amount corresponding to the input value added taxes that the
VAT Ruling No. 008-92 is, firstly, not void and entitled to great respect, having been issued
latter had incurred in relation to its sale of gold to the Central Bank during the period of 01
by the body charged with the duty of administering the VAT law, and secondly, it may validly
August 1989 to 31 July 1991.
be given retroactive effect since it was not prejudicial to respondent.

Petitioner is the Commissioner of Internal Revenue ("petitioner") acting in his official capacity
In three separate decisions,21 the CTA dismissed respondent’s respective petitions. It held,
as head of the Bureau of Internal Revenue (BIR), an attached agency of the Department of
with Presiding Judge Ernesto D. Acosta dissenting, that no prejudice had befallen respondent
Finance,2 with the authority, inter alia, to determine claims for refunds or tax credits as
by virtue of the retroactive application of BIR VAT Ruling No. 008-92, and that, consequently,
provided by law.3
the application did not violate Sec. 246 of the NIRC.22

Respondent Benguet Corporation ("respondent") is a domestic corporation organized and


The CTA decisions were appealed by respondent to the Court of Appeals. The cases were
existing by virtue of Philippine laws, engaged in the exploration, development and operation
docketed therein as CA-G.R. SP Nos. 37205, 38958, and 39435, and thereafter consolidated.
of mineral resources, and the sale or marketing thereof to various entities. Respondent is a
4
The Court of Appeals, after evaluating the arguments of the parties, rendered the
value added tax (VAT) registered enterprise.5
questioned Decision reversing the Court of Tax Appeals insofar as the latter had ruled that
BIR VAT Ruling No. 008-92 did not prejudice the respondent and that the same could be
The transactions in question occurred during the period between 1988 and 1991. Under Sec. given retroactive effect.
99 of the National Internal Revenue Code (NIRC),6 as amended by Executive Order (E.O.)
No. 273 s. 1987, then in effect, any person who, in the course of trade or business, sells,
In its Decision, the appellate court held that respondent suffered financial damage equivalent
barters or exchanges goods, renders services, or engages in similar transactions and any
to the sum of the disapproved claims. It stated that had respondent known that such sales
person who imports goods is liable for output VAT at rates of either 10% or 0% ("zero-rated")
were subject to 10% VAT, which rate was not the prevailing rate at the time of the
depending on the classification of the transaction under Sec. 100 of the NIRC. Persons
transactions, respondent would have passed on the cost of the input taxes to the Central
registered under the VAT system are allowed to recognize input VAT, or the VAT due from
7
Bank. It also ruled that the remedies which the CTA supposed would eliminate any resultant
or paid by it in the course of its trade or business on importation of goods or local purchases
prejudice to respondent were not sufficient palliatives as the monetary values provided in the
of goods or service, including lease or use of properties, from a VAT-registered person.8
supposed remedies do not approximate the monetary values of the tax credits that
respondent lost after the implementation of the VAT ruling in question. It cited
In January of 1988, respondent applied for and was granted by the BIR zero-rated status on
its sale of gold to Central Bank.9 On 28 August 1988, Deputy Commissioner of Internal
Manila Mining Corporation v. Commissioner of Internal Revenue,23 in which the Court of
Revenue Eufracio D. Santos issued VAT Ruling No. 3788-88, which declared that "[t]he sale
Appeals held24 that BIR VAT Ruling No. 008-92 cannot be given retroactive effect. Lastly, the
of gold to Central Bank is considered as export sale subject to zero-rate pursuant to Section
Court of Appeals observed that R.A. 7716, the "The New Expanded VAT Law," reveals the
100[10] of the Tax Code, as amended by Executive Order No. 273." The BIR came out with
intent of the lawmakers with regard to the treatment of sale of gold to the Central Bank since
at least six (6) other issuances11 reiterating the zero-rating of sale of gold to the Central Bank,
the amended version therein of Sec. 100 of the NIRC expressly provides that the sale of gold
the latest of which is VAT Ruling No. 036-90 dated 14 February 1990. 12
to the Bangko Sentral ng Pilipinas is an export sale subject to 0% VAT rate. The appellate
court thus allowed respondent’s claims, decreeing in its dispositive portion, viz:
Relying on its zero-rated status and the above issuances, respondent sold gold to the Central
Bank during the period of 1 August 1989 to 31 July 1991 and entered into transactions that
WHEREFORE, the appealed decision is hereby REVERSED. The respondent Commissioner
resulted in input VAT incurred in relation to the subject sales of gold. It then filed applications
of Internal Revenue is ordered to award the following tax credits to petitioner.
for tax refunds/credits corresponding to input VAT for the amounts13 of ₱46,177,861.12,14
1) In CA-G.R. SP No. 37209 – ₱49,611,914.00
₱19,218,738.44, and ₱84,909,247.96. Respondent’s applications were either unacted
15 16
2) in CA-G.R. SP No. 38958 - ₱19,218,738.44
upon or expressly disallowed by petitioner.17 In addition, petitioner issued a deficiency
3) in CA-G.R. SP No. 39435 - ₱84,909,247.9625
assessment against respondent when, after applying respondent’s creditable input VAT costs
against the retroactive 10% VAT levy, there resulted a balance of excess output VAT. 18

Dissatisfied with the above ruling, petitioner filed the instant Petition for Review questioning
the determination of the Court of Appeals that the retroactive application of the subject
The express disallowance of respondent’s application for refunds/credits and the issuance of
issuance was prejudicial to respondent and could not be applied retroactively.
deficiency assessments against it were based on a BIR ruling-BIR VAT Ruling No. 008-92
dated 23 January 1992-that was issued subsequent to the consummation of the subject sales
of gold to the Central Bank which provides that sales of gold to the Central Bank shall not be Apart from the central issue on the validity of the retroactive application of VAT Ruling No.
considered as export sales and thus, shall be subject to 10% VAT. In addition, BIR VAT 008-92, the question of the validity of the issuance itself has been touched upon in the
Ruling No. 008-92 withdrew, modified, and superseded all inconsistent BIR issuances. The pleadings, including a reference made by respondent to a Court of Appeals Decision holding
relevant portions of the ruling provides, thus: that the VAT Ruling had no legal basis.26 For its part, as the party that raised this issue,
petitioner spiritedly defends the validity of the issuance.27 Effectively, however, the question
is a non-issue and delving into it would be a needless exercise for, as respondent
1. In general, for purposes of the term "export sales" only direct export sales and foreign
emphatically pointed out in its Comment, "unlike petitioner’s formulation of the issues, the
currency denominated sales, shall be qualified for zero-rating.
only real issue in this case is whether VAT Ruling No. 008-92 which revoked previous rulings
....
of the petitioner which respondent heavily relied upon . . . may be legally applied retroactively
4. Local sales of goods, which by fiction of law are considered export sales (e.g., the Export
to respondent."28 This Court need not invalidate the BIR issuances, which have the force and
Duty Law considers sales of gold to the Central Bank of the Philippines, as export sale). This
effect of law, unless the issue of validity is so crucially at the heart of the controversy that the
transaction shall not be considered as export sale for VAT purposes.
Court cannot resolve the case without having to strike down the issuances. Clearly, whether
....
the subject VAT ruling may validly be given retrospective effect is the lis mota in the case.
[A]ll Orders and Memoranda issued by this Office inconsistent herewith are considered
Put in another but specific fashion, the sole issue to be addressed is whether respondent’s
withdrawn, modified or superseded." (Emphasis supplied)
sale of gold to the Central Bank during the period when such was classified by BIR issuances
as zero-rated could be taxed validly at a 10% rate after the consummation of the transactions
The BIR also issued VAT Ruling No. 059-92 dated 28 April 1992 and Revenue Memorandum involved.
Order No. 22-92 which decreed that the revocation of VAT Ruling No. 3788-88 by VAT Ruling
In a long line of cases,29 this Court has affirmed that the rulings, circular, rules and regulations its exemption from payment of output VAT and its opportunity to recover input VAT, and at
promulgated by the Commissioner of Internal Revenue would have no retroactive application the same time subjected it to the 10% VAT sans the option to pass on this cost to the Central
if to so apply them would be prejudicial to the taxpayers. In fact, both petitioner30 and Bank, with the total prejudice in money terms being equivalent to the 10% VAT levied on its
respondent31 agree that the retroactive application of VAT Ruling No. 008-92 is valid only if sales of gold to the Central Bank.
such application would not be prejudicial to the respondent– pursuant to the explicit mandate
under Sec. 246 of the NIRC, thus:
Petitioner had made its position hopelessly untenable by arguing that "the deficiency 10%
that may be assessable will only be equal to 1/11th of the amount billed to the [Central Bank]
Sec. 246. Non-retroactivity of rulings.- Any revocation, modification or reversal of any of the rather than 10% thereof. In short, [respondent] may only be charged based on the tax amount
rules and regulationspromulgated in accordance with the preceding Section or any of the actually and technically passed on to the [Central Bank] as part of the invoiced price." 40 To
rulings or circulars promulgated by the Commissioner shall not be given retroactive the Court, the aforequoted statement is a clear recognition that respondent would suffer
application if the revocation, modification or reversal will be prejudicial to the prejudice in the "amount actually and technically passed on to the [Central Bank] as part of
taxpayers except in the following cases: (a) where the taxpayer deliberately misstates or the invoiced price." In determining the prejudice suffered by respondent, it matters little how
omits material facts from his return on any document required of him by the Bureau of Internal the amount charged against respondent is computed,41 the point is that the amount (equal to
Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are 1/11th of the amount billed to the Central Bank) was charged against respondent, resulting
materially different form the facts on which the ruling is based; or (c) where the taxpayer acted in damage to the latter.
in bad faith. (Emphasis supplied)
Petitioner posits that the retroactive application of BIR VAT Ruling No. 008-92 is stripped of
In that regard, petitioner submits that respondent would not be prejudiced by a retroactive any prejudicial effect when viewed in relation to several available options to recoup whatever
application; respondent maintains the contrary. Consequently, the determination of the issue liabilities respondent may have incurred, i.e., respondent’s input VAT may still be used (1) to
of retroactivity hinges on whether respondent would suffer prejudice from the retroactive offset its output VAT on the sales of gold to the Central Bank or on its output VAT on other
application of VAT Ruling No. 008-92. sales subject to 10% VAT, and (2) as deductions on its income tax under Sec. 29 of the Tax
Code.42
We agree with the Court of Appeals and the respondent.
On petitioner’s first suggested recoupment modality, respondent counters that its other sales
subject to 10% VAT are so minimal that this mode is of little value. Indeed, what use would a
To begin with, the determination of whether respondent had suffered prejudice is a factual
credit be where there is nothing to set it off against? Moreover, respondent points out that
issue. It is an established rule that in the exercise of its power of review, the Supreme Court
after having been imposed with 10% VAT sans the opportunity to pass on the same to the
is not a trier of facts. Moreover, in the exercise of the Supreme Court’s power of review, the
Central Bank, it was issued a deficiency tax assessment because its input VAT tax credits
findings of facts of the Court of Appeals are conclusive and binding on the Supreme
were not enough to offset the retroactive 10% output VAT. The prejudice then experienced
Court.32 An exception to this rule is when the findings of fact a quo are conflicting,33 as is in
by respondent lies in the fact that the tax refunds/credits that it expected to receive had
this case.
effectively disappeared by virtue of its newfound output VAT liability against which petitioner
had offset the expected refund/credit. Additionally, the prejudice to respondent would not
VAT is a percentage tax imposed at every stage of the distribution process on the sale, barter, simply disappear, as petitioner claims, when a liability (which liability was not there to begin
exchange or lease of goods or properties and rendition of services in the course of trade or with) is imposed concurrently with an opportunity to reduce, not totally eradicate, the
business, or the importation of goods.34 It is an indirect tax, which may be shifted to the buyer, newfound liability. In sum, contrary to petitioner’s suggestion, respondent’s net income still
transferee, or lessee of the goods, properties, or services.35However, the party directly liable decreased corresponding to the amount it expected as its refunds/credits and the deficiency
for the payment of the tax is the seller.36 assessments against it, which when summed up would be the total cost of the 10% retroactive
VAT levied on respondent.
In transactions taxed at a 10% rate, when at the end of any given taxable quarter the output
VAT exceeds the input VAT, the excess shall be paid to the government; when the input VAT Respondent claims to have incurred further prejudice. In computing its income taxes for the
exceeds the output VAT, the excess would be carried over to VAT liabilities for the relevant years, the input VAT cost that respondent had paid to its suppliers was not treated
succeeding quarter or quarters.37 On the other hand, transactions which are taxed at zero- by respondent as part of its cost of goods sold, which is deductible from gross income for
rate do not result in any output tax. Input VAT attributable to zero-rated sales could be income tax purposes, but as an asset which could be refunded or applied as payment for
refunded or credited against other internal revenue taxes at the option of the taxpayer.38 other internal revenue taxes. In fact, Revenue Regulation No. 5-87 (VAT Implementing
Guidelines), requires input VAT to be recorded not as part of the cost of materials or inventory
purchased but as a separate entry called "input taxes," which may then be applied against
To illustrate, in a zero-rated transaction, when a VAT-registered person ("taxpayer") output VAT, other internal revenue taxes, or refunded as the case may be.43 In being denied
purchases materials from his supplier at ₱80.00, ₱7.3039 of which was passed on to him by the opportunity to deduct the input VAT from its gross income, respondent’s net income was
his supplier as the latter’s 10% output VAT, the taxpayer is allowed to recover ₱7.30 from overstated by the amount of its input VAT. This overstatement was assessed tax at the 32%
the BIR, in addition to other input VAT he had incurred in relation to the zero-rated transaction, corporate income tax rate, resulting in respondent’s overpayment of income taxes in the
through tax credits or refunds. When the taxpayer sells his finished product in a zero-rated corresponding amount. Thus, respondent not only lost its right to refund/ credit its input VAT
transaction, say, for ₱110.00, he is not required to pay any output VAT thereon. In the case and became liable for deficiency VAT, it also overpaid its income tax in the amount of 32%
of a transaction subject to 10% VAT, the taxpayer is allowed to recover both the input VAT of its input VAT.
of ₱7.30 which he paid to his supplier and his output VAT of ₱2.70 (10% the ₱30.00 value
he has added to the ₱80.00 material) by passing on both costs to the buyer. Thus, the buyer
pays the total 10% VAT cost, in this case ₱10.00 on the product. This leads us to the second recourse that petitioner has suggested to offset any resulting
prejudice to respondent as a consequence of giving retroactive effect to BIR VAT Ruling No.
008-92. Petitioner submits that granting that respondent has no other sale subject to 10%
In both situations, the taxpayer has the option not to carry any VAT cost because in the zero- VAT against which its input taxes may be used in payment, then respondent is constituted
rated transaction, the taxpayer is allowed to recover input tax from the BIR without need to as the final entity against which the costs of the tax passes-on shall legally stop; hence, the
pay output tax, while in 10% rated VAT, the taxpayer is allowed to pass on both input and input taxes may be converted as costs available as deduction for income tax purposes.44
output VAT to the buyer. Thus, there is an elemental similarity between the two types of VAT
ratings in that the taxpayer has the option not to take on any VAT payment for his transactions
by simply exercising his right to pass on the VAT costs in the manner discussed above. Even assuming that the right to recover respondent’s excess payment of income tax has not
yet prescribed, this relief would only address respondent’s overpayment of income tax but
not the other burdens discussed above. Verily, this remedy is not a feasible option for
Proceeding from the foregoing, there appears to be no upfront economic difference in respondent because the very reason why it was issued a deficiency tax assessment is that
changing the sale of gold to the Central Bank from a 0% to 10% VAT rate provided that its input VAT was not enough to offset its retroactive output VAT. Indeed, the burden of having
respondent would be allowed the choice to pass on its VAT costs to the Central Bank. In the to go through an unnecessary and cumbersome refund process is prejudice enough.
instant case, the retroactive application of VAT Ruling No. 008-92 unilaterally forfeited or Moreover, there is in fact nothing left to claim as a deduction from income taxes.
withdrew this option of respondent. The adverse effect is that respondent became the
unexpected and unwilling debtor to the BIR of the amount equivalent to the total VAT cost of
its product, a liability it previously could have recovered from the BIR in a zero-rated scenario From the foregoing it is clear that petitioner’s suggested options by which prejudice would be
or at least passed on to the Central Bank had it known it would have been taxed at a 10% eliminated from a retroactive application of VAT Ruling No. 008-92 are either simply
rate. Thus, it is clear that respondent suffered economic prejudice when its consummated inadequate or grossly unrealistic.
sales of gold to the Central Bank were taken out of the zero-rated category. The change in
the VAT rating of respondent’s transactions with the Central Bank resulted in the twin loss of
At the time when the subject transactions were consummated, the prevailing BIR regulations
relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. The
BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which
prescribed that gold sold to the Central Bank shall be considered export and therefore shall
be subject to the export and premium duties. In coming out with this interpretation, the BIR
also considered Sec. 169 of Central Bank Circular No. 960 which states that all sales of gold
to the Central Bank are considered

constructive exports.45 Respondent should not be faulted for relying on the BIR’s
interpretation of the said laws and regulations.46 While it is true, as petitioner alleges, that
government is not estopped from collecting taxes which remain unpaid on account of the
errors or mistakes of its agents and/or officials and there could be no vested right arising from
an erroneous interpretation of law, these principles must give way to exceptions based on
and in keeping with the interest of justice and fairplay, as has been done in the instant matter.
For, it is primordial that every person must, in the exercise of his rights and in the performance
of his duties, act with justice, give everyone his due, and observe honesty and good faith.47
The case of ABS-CBN Broadcasting Corporation v. Court of Tax Appeals48 involved a similar
factual milieu. There the Commissioner of Internal Revenue issued Memorandum Circular
No. 4-71 revoking an earlier circular for being "erroneous for lack of legal basis." When the
prior circular was still in effect, petitioner therein relied on it and consummated its transactions
on the basis thereof. We held, thus:
. . . .Petitioner was no longer in a position to withhold taxes due from foreign corporations
because it had already remitted all film rentals and no longer had any control over them when
the new Circular was issued. . . .
....
This Court is not unaware of the well-entrenched principle that the [g]overnment is never
estopped from collecting taxes because of mistakes or errors on the part of its agents. But,
like other principles of law, this also admits of exceptions in the interest of justice and fairplay.
. . .In fact, in the United States, . . . it has been held that the Commissioner [of Internal
Revenue] is precluded from adopting a position inconsistent with one previously taken where
injustice would result therefrom or where there has been a misrepresentation to the
taxpayer.49

Respondent, in this case, has similarly been put on the receiving end of a grossly unfair deal.
Before respondent was entitled to tax refunds or credits based on petitioner’s own issuances.
Then suddenly, it found itself instead being made to pay deficiency taxes with petitioner’s
retroactive change in the VAT categorization of respondent’s transactions with the Central
Bank. This is the sort of unjust treatment of a taxpayer which the law in Sec. 246 of the NIRC
abhors and forbids.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Appeals
is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

DANTE O. TINGA Associate Justice


Republic of the Philippines P147,317,189.62 P3,361,174.14
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 153205 January 22, 2007 On December 29, 1997, [respondent] availed of the Voluntary Assessment Program (VAP)
COMMISSIONER OF INTERNAL REVENUE, Petitioner, of the BIR. It allegedly misinterpreted Revenue Regulations No. 5-96 dated February 20,
vs. 1996 to be applicable to its case. Revenue Regulations No. 5-96 provides in part thus:
BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO,
INC., Respondent.
DECISION SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of Revenue Regulations No. 7-95 are hereby
CARPIO, J.: amended to read as follows:
The Case
Section 4.102-2(b)(2) – "Services other than processing, manufacturing or repacking for other
This petition for review1 seeks to set aside the 16 April 2002 Decision2 of the Court of Appeals persons doing business outside the Philippines for goods which are subsequently exported,
in CA-G.R. SP No. 66341 affirming the 8 August 2001 Decision3 of the Court of Tax Appeals as well as services by a resident to a non-resident foreign client such as project studies,
(CTA). The CTA ordered the Commissioner of Internal Revenue (petitioner) to issue a tax information services, engineering and architectural designs and other similar services, the
credit certificate for P6,994,659.67 in favor of Burmeister and Wain Scandinavian Contractor consideration for which is paid for in acceptable foreign currency and accounted for in
Mindanao, Inc. (respondent). accordance with the rules and regulations of the BSP."

The Antecedents x x x x x x x x x x.

The CTA summarized the facts, which the Court of Appeals adopted, as follows: In [conformity] with the aforecited Revenue Regulations, [respondent] subjected its sale of
services to the Consortium to the 10% VAT in the total amount of P103,558,338.11
representing April to December 1996 sales since said Revenue Regulations No. 5-96
[Respondent] is a domestic corporation duly organized and existing under and by virtue of became effective only on April 1996. The sum of P43,893,951.07, representing January to
the laws of the Philippines with principal address located at Daruma Building, Jose P. Laurel March 1996 sales was subjected to zero rate. Consequently, [respondent] filed its 1996
Avenue, Lanang, Davao City. amended VAT return consolidating therein the VAT output and input taxes for the four
calendar quarters of 1996. It paid the amount of P6,994,659.67 through BIR’s collecting
It is represented that a foreign consortium composed of Burmeister and Wain Scandinavian agent, PCIBank, as its output tax liability for the year 1996, computed as follows:
Contractor A/S (BWSC-Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and
Co., Ltd. entered into a contract with the National Power Corporation (NAPOCOR) for the Amount subject to 10% VAT P103,558,338.11
operation and maintenance of [NAPOCOR’s] two power barges. The Consortium appointed Multiply by 10%
BWSC-Denmark as its coordination manager. VAT Output Tax P 10,355,833.81
Less: 1996 Input VAT P 3,361,174.14
BWSC-Denmark established [respondent] which subcontracted the actual operation and VAT Output Tax Payable P 6,994,659.67
maintenance of NAPOCOR’s two power barges as well as the performance of other duties
and acts which necessarily have to be done in the Philippines. On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-99 from the VAT
Review Committee which reconfirmed BIR Ruling No. 023-95 "insofar as it held that the
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, services being rendered by BWSCMI is subject to VAT at zero percent (0%)."
Yen, and Peso). The freely convertible non-Peso component is deposited directly to the
Consortium’s bank accounts in Denmark and Japan, while the Peso-denominated On the strength of the aforementioned rulings, [respondent] on April 22,1999, filed a claim for
component is deposited in a separate and special designated bank account in the Philippines. the issuance of a tax credit certificate with Revenue District No. 113 of the BIR. [Respondent]
On the other hand, the Consortium pays [respondent] in foreign currency inwardly remitted believed that it erroneously paid the output VAT for 1996 due to its availment of the Voluntary
to the Philippines through the banking system. Assessment Program (VAP) of the BIR.4

In order to ascertain the tax implications of the above transactions, [respondent] sought a On 27 December 1999, respondent filed a petition for review with the CTA in order to toll the
ruling from the BIR which responded with BIR Ruling No. 023-95 dated February 14, 1995, running of the two-year prescriptive period under the Tax Code.
declaring therein that if [respondent] chooses to register as a VAT person and the
consideration for its services is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the aforesaid The Ruling of the Court of Tax Appeals
services shall be subject to VAT at zero-rate.
In its 8 August 2001 Decision, the CTA ordered petitioner to issue a tax credit certificate
[Respondent] chose to register as a VAT taxpayer. On May 26, 1995, the Certificate of for P6,994,659.67 in favor of respondent. The CTA’s ruling stated:
Registration bearing RDO Control No. 95-113-007556 was issued in favor of [respondent] by
the Revenue District Office No. 113 of Davao City.
[Respondent’s] sale of services to the Consortium [was] paid for in acceptable foreign
currency inwardly remitted to the Philippines and accounted for in accordance with the rules
For the year 1996, [respondent] seasonably filed its quarterly Value-Added Tax Returns and regulations of Bangko Sentral ng Pilipinas. These were established by various BPI Credit
reflecting, among others, a total zero-rated sales of P147,317,189.62 with VAT input taxes Memos showing remittances in Danish Kroner (DKK) and US dollars (US$) as payments for
of P3,361,174.14, detailed as follows: the specific invoices billed by [respondent] to the consortium. These remittances were further
certified by the Branch Manager x x x of BPI-Davao Lanang Branch to represent payments
for sub-contract fees that came from Den Danske Aktieselskab Bank-Denmark for the
Qtr. Exh. Date Filed Zero-Rated Sales VAT Input Tax account of [respondent]. Clearly, [respondent’s] sale of services to the Consortium is subject
to VAT at 0% pursuant to Section 108(B)(2) of the Tax Code.

1st E 04-18-96 P 33,019,651.07 P608,953.48 xxxx

2nd F 07-16-96 37,108,863.33 756,802.66


The zero-rating of [respondent’s] sale of services to the Consortium was even confirmed by
3rd G 10-14-96 34,196,372.35 930,279.14 the [petitioner] in BIR Ruling No. 023-95 dated February 15, 1995, and later by VAT Ruling
No. 003-99 dated January 7,1999, x x x.
4th H 01-20-97 42,992,302.87 1,065,138.86

Totals
Since it is apparent that the payments for the services rendered by [respondent] were indeed At the outset, the Court declares that the denial of the instant petition is not on the ground
subject to VAT at zero percent, it follows that it mistakenly availed of the Voluntary that respondent’s services are subject to 0% VAT. Rather, it is based on the non-retroactivity
Assessment Program by paying output tax for its sale of services. x x x of the prejudicial revocation of BIR Ruling No. 023-9517 and VAT Ruling No. 003-99,18 which
held that respondent’s services are subject to 0% VAT and which respondent invoked in
applying for refund of the output VAT.
x x x Considering the principle of solutio indebiti which requires the return of what has been
delivered by mistake, the [petitioner] is obligated to issue the tax credit certificate prayed for
by [respondent]. x x x5 Section 102(b) of the Tax Code,19 the applicable provision in 1996 when respondent rendered
the services and paid the VAT in question, enumerates which services are zero-rated, thus:
Petitioner filed a petition for review with the Court of Appeals, which dismissed the petition
for lack of merit and affirmed the CTA decision.6 (b) Transactions subject to zero-rate. ― The following services performed in the Philippines
by VAT-registered persons shall be subject to 0%:
Hence, this petition.
(1) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported,
The Court of Appeals’ Ruling
where the services are paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng
In affirming the CTA, the Court of Appeals rejected petitioner’s view that since respondent’s Pilipinas(BSP);
services are not destined for consumption abroad, they are not of the same nature as project
studies, information services, engineering and architectural designs, and other similar
(2) Services other than those mentioned in the preceding sub-paragraph,
services mentioned in Section 4.102-2(b)(2) of Revenue Regulations No. 5-967 as subject to
the consideration for which is paid for in acceptable foreign currency and
0% VAT. Thus, according to petitioner, respondent’s services cannot legally qualify for 0%
accounted for in accordance with the rules and regulations of the Bangko Sentral
VAT but are subject to the regular 10% VAT.8
ng Pilipinas (BSP);

The Court of Appeals found untenable petitioner’s contention that under VAT Ruling No. 040-
(3) Services rendered to persons or entities whose exemption under special laws
98, respondent’s services should be destined for consumption abroad to enjoy zero-rating.
or international agreements to which the Philippines is a signatory effectively
Contrary to petitioner’s interpretation, there are two kinds of transactions or services subject
subjects the supply of such services to zero rate;
to zero percent VAT under VAT Ruling No. 040-98. These are (a) services other than
repacking goods for other persons doing business outside the Philippines which goods are
subsequently exported; and (b) services by a resident to a non-resident foreign client, such (4) Services rendered to vessels engaged exclusively in international shipping;
as project studies, information services, engineering and architectural designs and other and
similar services, the consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng
(5) Services performed by subcontractors and/or contractors in processing,
Pilipinas (BSP).9
converting, or manufacturing goods for an enterprise whose export sales exceed
seventy percent (70%) of total annual production. (Emphasis supplied)
The Court of Appeals stated that "only the first classification is required by the provision to
be consumed abroad in order to be taxed at zero rate. In x x x the absence of such express
In insisting that its services should be zero-rated, respondent claims that it complied with the
or implied stipulation in the statute, the second classification need not be consumed
requirements of the Tax Code for zero rating under the second paragraph of Section 102(b).
abroad."10
Respondent asserts that (1) the payment of its service fees was in acceptable foreign
currency, (2) there was inward remittance of the foreign currency into the Philippines, and (3)
The Court of Appeals further held that assuming petitioner’s interpretation of Section 4.102- accounting of such remittance was in accordance with BSP rules. Moreover, respondent
2(b)(2) of Revenue Regulations No. 5-96 is correct, such administrative provision is void contends that its services which "constitute the actual operation and management of two (2)
being an amendment to the Tax Code. Petitioner went beyond merely providing the power barges in Mindanao" are not "even remotely similar to project studies, information
implementing details by adding another requirement to zero-rating. "This is indicated by the services and engineering and architectural designs under Section 4.102-2(b)(2) of Revenue
additional phrase ‘as well as services by a resident to a non-resident foreign client, such as Regulations No. 5-96." As such, respondent’s services need not be "destined to be consumed
project studies, information services and engineering and architectural designs and other abroad in order to be VAT zero-rated."
similar services.’ In effect, this phrase adds not just one but two requisites: (a) services must
be rendered by a resident to a non-resident; and (b) these must be in the nature of project
Respondent is mistaken.
studies, information services, etc."11

The Tax Code not only requires that the services be other than "processing, manufacturing
The Court of Appeals explained that under Section 108(b)(2) of the Tax Code,12 for services
or repacking of goods" and that payment for such services be in acceptable foreign currency
which were performed in the Philippines to enjoy zero-rating, these must comply only with
accounted for in accordance with BSP rules. Another essential condition for qualification to
two requisites, to wit: (1) payment in acceptable foreign currency and (2) accounted for in
zero-rating under Section 102(b)(2) is that the recipient of such services is doing business
accordance with the rules of the BSP. Section 108(b)(2) of the Tax Code does not provide
outside the Philippines. While this requirement is not expressly stated in the second
that services must be "destined for consumption abroad" in order to be VAT zero-rated.13
paragraph of Section 102(b), this is clearly provided in the first paragraph of Section 102(b)
where the listed services must be "for other persons doing business outside the Philippines."
The Court of Appeals disagreed with petitioner’s argument that our VAT law generally follows The phrase "for other persons doing business outside the Philippines" not only refers to the
the destination principle (i.e., exports exempt, imports taxable).14 The Court of Appeals stated services enumerated in the first paragraph of Section 102(b), but also pertains to the general
that "if indeed the ‘destination principle’ underlies and is the basis of the VAT laws, then term "services" appearing in the second paragraph of Section 102(b). In short, services other
petitioner’s proper remedy would be to recommend an amendment of Section 108(b)(2) to than processing, manufacturing, or repacking of goods must likewise be performed for
Congress. Without such amendment, however, petitioner should apply the terms of the basic persons doing business outside the Philippines.
law. Petitioner could not resort to administrative legislation, as what [he] had done in this
case."15
This can only be the logical interpretation of Section 102(b)(2). If the provider and recipient
of the "other services" are both doing business in the Philippines, the payment of foreign
The Issue currency is irrelevant. Otherwise, those subject to the regular VAT under Section 102(a) can
avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by
the recipient of services. To interpret Section 102(b)(2) to apply to a payer-recipient of
The lone issue for resolution is whether respondent is entitled to the refund of P6,994,659.67
services doing business in the Philippines is to make the payment of the regular VAT under
as erroneously paid output VAT for the year 1996. 16
Section 102(a) dependent on the generosity of the taxpayer. The provider of services can
choose to pay the regular VAT or avoid it by stipulating payment in foreign currency inwardly
The Ruling of the Court remitted by the payer-recipient. Such interpretation removes Section 102(a) as a tax measure
in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction,
not a voluntary contribution.
We deny the petition.
When Section 102(b)(2) stipulates payment in "acceptable foreign currency" under BSP on services enumerated in Section 102 and performed in the Philippines. For services
rules, the law clearly envisions the payer-recipient of services to be doing business outside covered by Section 102(b)(1) and (2), the recipient of the services must be a person doing
the Philippines. Only those not doing business in the Philippines can be required under BSP business outside the Philippines. Thus, to be exempt from the destination principle under
rules20 to pay in acceptable foreign currency for their purchase of goods or services from the Section 102(b)(1) and (2), the services must be (a) performed in the Philippines; (b) for a
Philippines. In a domestic transaction, where the provider and recipient of services are both person doing business outside the Philippines; and (c) paid in acceptable foreign currency
doing business in the Philippines, the BSP cannot require any party to make payment in accounted for in accordance with BSP rules.
foreign currency.
Respondent’s reliance on the ruling in American Express26 is misplaced. That case involved
Services covered by Section 102(b) (1) and (2) are in the nature of export sales since the a recipient of services, specifically American Express International, Inc. (Hongkong Branch),
payer-recipient of services is doing business outside the Philippines. Under BSP rules,21 the doing business outside the Philippines. There, the Court stated:
proceeds of export sales must be reported to the Bangko Sentral ng Pilipinas. Thus, there is
reason to require the provider of services under Section 102(b) (1) and (2) to account for the
Respondent [American Express International, Inc. (Philippine Branch)] is a VAT-registered
foreign currency proceeds to the BSP. The same rationale does not apply if the provider and
person that facilitates the collection and payment of receivables belonging to its non-resident
recipient of the services are both doing business in the Philippines since their transaction is
foreign client [American Express International, Inc. (Hongkong Branch)], for which it gets paid
not in the nature of an export sale even if payment is denominated in foreign currency.
in acceptable foreign currency inwardly remitted and accounted for in accordance with BSP
rules and regulations. x x x x27 (Emphasis supplied)
Further, when the provider and recipient of services are both doing business in the
Philippines, their transaction falls squarely under Section 102(a) governing domestic sale or
In contrast, this case involves a recipient of services – the Consortium – which is doing
exchange of services. Indeed, this is a purely local sale or exchange of services subject to
business in the Philippines. Hence, American Express’ services were subject to 0% VAT,
the regular VAT, unless of course the transaction falls under the other provisions of Section
while respondent’s services should be subject to 10% VAT.
102(b).

Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling
Thus, when Section 102(b)(2) speaks of "[s]ervices other than those mentioned in the
No. 003-99,28 which reconfirmed BIR Ruling No. 023-9529 "insofar as it held that the services
preceding subparagraph," the legislative intent is that only the services are different
being rendered by BWSCMI is subject to VAT at zero percent (0%)." Respondent’s reliance
between subparagraphs 1 and 2. The requirements for zero-rating, including the essential
on these BIR rulings binds petitioner.
condition that the recipient of services is doing business outside the Philippines, remain the
same under both subparagraphs.
Petitioner’s filing of his Answer before the CTA challenging respondent’s claim for refund
effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95.
Significantly, the amended Section 108(b)22 [previously Section 102(b)] of the present Tax
However, such revocation cannot be given retroactive effect since it will prejudice
Code clarifies this legislative intent. Expressly included among the transactions subject to 0%
respondent. Changing respondent’s status will deprive respondent of a refund of a substantial
VAT are "[s]ervices other than those mentioned in the [first] paragraph [of Section 108(b)]
amount representing excess output tax.30 Section 246 of the Tax Code provides that any
rendered to a person engaged in business conducted outside the Philippines or to a
revocation of a ruling by the Commissioner of Internal Revenue shall not be given retroactive
nonresident person not engaged in business who is outside the Philippines when the services
application if the revocation will prejudice the taxpayer. Further, there is no showing of the
are performed, the consideration for which is paid for in acceptable foreign currency and
existence of any of the exceptions enumerated in Section 246 of the Tax Code for the
accounted for in accordance with the rules and regulations of the BSP."
retroactive application of such revocation.

In this case, the payer-recipient of respondent’s services is the Consortium which is a joint-
However, upon the filing of petitioner’s Answer dated 2 March 2000 before the CTA
venture doing business in the Philippines. While the Consortium’s principal members are non-
contesting respondent’s claim for refund, respondent’s services shall be subject to the regular
resident foreign corporations, the Consortium itself is doing business in the Philippines. This
10% VAT.31 Such filing is deemed a revocation of VAT Ruling No. 003-99 and BIR Ruling No.
is shown clearly in BIR Ruling No. 023-95 which states that the contract between the
023-95.
Consortium and NAPOCOR is for a 15-year term, thus:

WHEREFORE, the Court DENIES the petition.


This refers to your letter dated January 14, 1994 requesting for a clarification of the tax
implications of a contract between a consortium composed of Burmeister & Wain
Scandinavian Contractor A/S ("BWSC"), Mitsui Engineering & Shipbuilding, Ltd. (MES), and SO ORDERED.
Mitsui & Co., Ltd. ("MITSUI"), all referred to hereinafter as the "Consortium", and the National
Power Corporation ("NAPOCOR") for the operation and maintenance of two 100-
Megawatt power barges ("Power Barges") acquired by NAPOCOR for a 15-year
term.23 (Emphasis supplied)

Considering this length of time, the Consortium’s operation and maintenance of NAPOCOR’s
power barges cannot be classified as a single or isolated transaction. The Consortium does
not fall under Section 102(b)(2) which requires that the recipient of the services must be a
person doing business outside the Philippines. Therefore, respondent’s services to the
Consortium, not being supplied to a person doing business outside the Philippines, cannot
legally qualify for 0% VAT.

Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR’s


power barges in the Philippines. NAPOCOR pays the Consortium, through its non-resident
partners, partly in foreign currency outwardly remitted. In turn, the Consortium pays
respondent also in foreign currency inwardly remitted and accounted for in accordance with
BSP rules. This payment scheme does not entitle respondent to 0% VAT. As the Court held
in Commissioner of Internal Revenue v. American Express International, Inc. (Philippine
Branch),24 the place of payment is immaterial, much less is the place where the output of the
service is ultimately used. An essential condition for entitlement to 0% VAT under Section
102(b)(1) and (2) is that the recipient of the services is a person doing business outside the
Philippines. In this case, the recipient of the services is the Consortium, which is doing
business not outside, but within the Philippines because it has a 15-year contract to operate
and maintain NAPOCOR’s two 100-megawatt power barges in Mindanao.

The Court recognizes the rule that the VAT system generally follows the "destination
principle" (exports are zero-rated whereas imports are taxed). However, as the Court stated
in American Express, there is an exception to this rule.25 This exception refers to the 0% VAT
Commission of Internal Revenue vs Hantex Trading Co., Inc. Bank of the Philippine Islands vs Commissioner of Internal Revenue

454 SCRA 301 – Taxation Law – Assessment Taxation – Collection – Prescriptive Period – Reconsideration vs Reinvestigation
Remedial Law – Evidence – Documentary Evidence
Best Evidence Rule in Taxation vs Best Evidence Rule under the Rules of Court

In 1989, an informant informed the Counter-Intelligence Division of the Economic Intelligence On October 20, 1989, the Bureau of Internal Revenue (BIR) issued a formal assessment
and Investigation Bureau that Hantex Trading Co., Inc. underdeclared its importations in the notice (FAN) against the Bank of the Philippine Islands (BPI). The FAN demanded BPI to pay
year 1987. The said informant based its report from another informant and the photocopied P28k in taxes. In November 1989, BPI filed a protest however the protest did not specify if it
documents provided to him. The photocopies were copies of Hantex’s Consumption Entries was a request for reconsideration or a reinvestigation. The BIR did not reply on the protest
for the year 1987 where it was stated that Hantex’s importations amounted to Php 115 M. but on October 15, 1992 (four days before the expiration of the period to collect – or 1095
Hantex only declared Php 45 M. days [3 years]after issuance of FAN on 10/20/1989), the Commissioner of Internal Revenue
(CIR) issued a warrant of distraint/levy against BPI for the satisfaction of the assessed tax.
The original copies of Consumption Entries cannot be produced because the copies in the The warrant was served to BPI on October 23, 1992 (four days after period has prescribed).
possession of the Collection Division (official repository of said records) were eaten by In September 1997, the CIR finally sent a letter to BPI advising the latter that its protest is
termites. Hantex did not want to produce the said records because it alleged that it has been denied.
the subject of numerous investigations already and if they will provide their records, there will
be no end to the investigation.
ISSUE:
As such, the Investigation Division, in determining Hantex’s alleged tax deficiency, relied on
the photocopied (xerox) copies submitted to them by their informant. After investigation, it
was found that Hantex’s importations amounted to Php 105 M. Hantex contested the findings
as it averred that the same was based on incompetent evidence considering that it was based 1. Whether or not the filing of the protest by BPI suspended the running of the prescriptive
merely on xerox copies which were not even authenticated or certified. period.

The Commissioner however argued that under the National Internal Revenue Code, under
the best evidence rule, if the taxpayer does not want to provide the required documents for
taxation purposes, the taxing authorities can rely on other evidences, in this case, the xerox 2. Whether or not the government’s right to collect the assessed tax has prescribed.
copies, to determine tax liabilities.

Hantex however averred that the best evidence rule was not complied with or was HELD:
erroneously availed of because the said xerox copies were not properly authenticated. To
this the Commissioner argued that the BIR is not bound by the technical rules of evidence.

ISSUE: Whether or not it is proper to use the xerox copies of the Consumption Entries of No. The protest did not indicate whether BPI was asking for a reconsideration or a
Hantex Trading Co., Inc. as proof of its tax liabilities. reinvestigation but since BPI did not adduce additional evidence, it should be treated as a
request for reconsideration. Under the tax code, a request for reconsideration does not
HELD: No. It is true that the BIR is not bound by strict rules of evidence. It is also true that suspend the running of the prescriptive period. Even assuming that the protest is a request
the best evidence rule under the NIRC should not be equated to the best evidence rule under for reinvestigation, the same did not toll the running of the prescriptive period because the
the Rules of Court. That being, the best evidence rule under the NIRC may even mean that CIR failed to show proof that the request has been granted and that a reinvestigation has
the best evidence obtainable may consist of hearsay evidence, such as the testimony of third been actually conducted. In fact, BPI never heard from the BIR not until the CIR decided the
parties or accounts or other records of other taxpayers similarly circumstanced as the protest in September 1997 – 5 years after the protest has been filed.
taxpayer subject of the investigation – which are inadmissible in a regular proceeding in the
regular courts. However in this case, the xerox copies are not the best evidence obtainable. Yes. When it comes to collection, even though the warrant for distraint/levy was issued within
The official copies of the Consumption Entries are not solely kept in the Collection Division the prescriptive period, it is required that the same should be served upon the taxpayer within
(where such records were destroyed by termites). The NSO (National Statistics Office) also the prescriptive period. This is because it is upon the service of the Warrant that the taxpayer
keep such records. In fact, there are at least four copies of such Consumption Entries. There is informed of the denial by the BIR of any pending protest of the said taxpayer, and the
was no showing that BIR tried to obtain the copies held by NSO. resolute intention of the BIR to collect the tax assessed. In the case at bar, BPI received the
warrant 4 days after the expiration of the prescriptive period hence, the right to collect has
Further, it was not contested that Hantex was indeed subjected to various investigations for already prescribed.
its 1987 tax liabilities. And those tax investigations resulted to a finding that Hantex was only
liable for the minimum tax due. Such findings, done by the BIR and the BOC (Bureau of
Customs) themselves, are presumed to be regularly done. There was even no showing that
the investigating officers were negligent.

In fine, then, the CIR acted arbitrarily and capriciously in relying on and giving weight to the
machine copies of the Consumption Entries in fixing the tax deficiency assessments against
Hantex.The rule is that in the absence of the accounting records of a taxpayer, his tax liability
may be determined by estimation. CIR is not required to compute such tax liabilities with
mathematical exactness. Approximation in the calculation of the taxes due is justified. To hold
otherwise would be tantamount to holding that skillful concealment is an invincible barrier to
proof. However, the rule does not apply where the estimation is arrived at arbitrarily and
capriciously.
FIRST DIVISION already become final, executory and incontestable, and that petitioner Estate was liable
G.R. No. 155541 January 27, 2004 therefor.
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner,
vs.
On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Although acknowledging that the bond of agency between Philtrust and the decedent was
DECISION
severed upon the latter’s death, it was ruled that the administrator of the Estate had failed in
YNARES-SANTIAGO, J.:
its legal duty to inform respondent of the decedent’s death, pursuant to Section 104 of the
This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R.
National Internal Revenue Code of 1977. Consequently, the BIR’s service to Philtrust of the
CV No. 09107, dated September 30, 2002,1 which reversed the November 19, 1995 Order of
demand letter and Notice of Assessment was binding upon the Estate, and, upon the lapse
Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled "Testate
of the statutory thirty-day period to question this claim, the assessment became final,
Estate of Juliana Diez Vda. De Gabriel". The petition was filed by the Estate of the Late
executory and incontestable. The dispositive portion of said decision reads:
Juliana Diez Vda. De Gabriel, represented by Prudential Bank as its duly appointed and
qualified Administrator.
WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET
ASIDE. Another one is entered ordering the Administrator of the Estate to pay the
As correctly summarized by the Court of Appeals, the relevant facts are as follows:
Commissioner of Internal Revenue the following:

During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were
a. The amount of P318,223.93, representing the deficiency income tax liability for the year
managed by the Philippine Trust Company (Philtrust). The decedent died on April 3, 1979.
1978, plus 20% interest per annum from November 2, 1982 up to November 2, 1985 and in
Two days after her death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed
addition thereto 10% surcharge on the basic tax of P169,155.34 pursuant to Section 51(e)(2)
her Income Tax Return for 1978. The return did not indicate that the decedent had died.
and (3) of the Tax Code as amended by PD 69 and 1705; and

On May 22, 1979, Philtrust also filed a verified petition for appointment as Special
b. The costs of the suit.
Administrator with the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. Proc.
No. R-82-6994. The court a quo appointed one of the heirs as Special Administrator.
Philtrust’s motion for reconsideration was denied by the probate court. SO ORDERED.9

On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, Hence, the instant petition, raising the following issues:
and appointed Antonio Lantin to take over as Special Administrator. Subsequently, on July
30, 1981, Mr. Lantin was also relieved of his appointment, and Atty. Vicente Onosa was
appointed in his stead. 1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax
assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was
a valid service in order to bind the Estate;
In the meantime, the Bureau of Internal Revenue conducted an administrative investigation
on the decedent’s tax liability and found a deficiency income tax for the year 1977 in the
amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a 2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment
demand letter and Assessment Notice No. NARD-78-82-00501 addressed to the decedent and final demand was already final, executory and incontestable.
"c/o Philippine Trust Company, Sta. Cruz, Manila" which was the address stated in her 1978
Income Tax Return. No response was made by Philtrust. The BIR was not informed that the Petitioner Estate denies that Philtrust had any legal personality to represent the decedent
decedent had actually passed away. after her death. As such, petitioner argues that there was no proper notice of the assessment
which, therefore, never became final, executory and incontestable.10 Petitioner further
In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the contends that respondent’s failure to file its claim against the Estate within the proper period
Commissioner and Auditor Tax Consultant of the Estate of the decedent. prescribed by the Rules of Court is a fatal error, which forever bars its claim against the
Estate.11

On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint
and levy to enforce collection of the decedent’s deficiency income tax liability, which were Respondent, on the other hand, claims that because Philtrust filed the decedent’s income tax
served upon her heir, Francisco Gabriel. On November 22, 1984, respondent filed a "Motion return subsequent to her death, Philtrust was the de facto administrator of her
for Allowance of Claim and for an Order of Payment of Taxes" with the court a quo. On Estate.12 Consequently, when the Assessment Notice and demand letter dated November
January 7, 1985, Mr. Ambrosio filed a letter of protest with the Litigation Division of the BIR, 18, 1982 were sent to Philtrust, there was proper service on the Estate.13Respondent further
which was not acted upon because the assessment notice had allegedly become final, asserts that Philtrust had the legal obligation to inform petitioner of the decedent’s death,
executory and incontestable. which requirement is found in Section 104 of the NIRC of 1977. 14 Since Philtrust did not,
respondent contends that petitioner Estate should not be allowed to profit from this
omission.15 Respondent further argues that Philtrust’s failure to protest the aforementioned
On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal assessment within the 30-day period provided in Section 319-A of the NIRC of 1977 meant
opposition to the BIR’s Motion for Allowance of Claim based on the ground that there was no that the assessment had already become final, executory and incontestable.16
proper service of the assessment and that the filing of the aforesaid claim had already
prescribed. The BIR filed its Reply, contending that service to Philippine Trust Company was
sufficient service, and that the filing of the claim against the Estate on November 22, 1984 The resolution of this case hinges on the legal relationship between Philtrust and the
was within the five-year prescriptive period for assessment and collection of taxes under decedent, and, by extension, between Philtrust and petitioner Estate. Subsumed under this
Section 318 of the 1977 National Internal Revenue Code (NIRC). primary issue is the sub-issue of whether or not service on Philtrust of the demand letter and
Assessment Notice No. NARD-78-82-00501 was valid service on petitioner, and the issue of
whether Philtrust’s inaction thereon could bind petitioner. If both sub-issues are answered in
On November 19, 1985, the court a quo issued an Order denying respondent’s claim against the affirmative, respondent’s contention as to the finality of Assessment Notice No. NARD-
the Estate,2 after finding that there was no notice of its tax assessment on the proper party.3 78-82-00501 must be answered in the affirmative. This is because Section 319-A of the NIRC
of 1977 provides a clear 30-day period within which to protest an assessment. Failure to file
such a protest within said period means that the assessment ipso jure becomes final and
On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-G.R.
unappealable, as a consequence of which legal proceedings may then be initiated for
CV No. 09107, assailing the Order of the probate court dated November 19, 1985. It was
4
collection thereof.
claimed that Philtrust, in filing the decedent’s 1978 income tax return on April 5, 1979, two
days after the taxpayer’s death, had "constituted itself as the administrator of the estate of
the deceased at least insofar as said return is concerned."5 Citing Basilan Estate Inc. v. We find in favor of the petitioner.
Commissioner of Internal Revenue,6 respondent argued that the legal requirement of notice
with respect to tax assessments7 requires merely that the Commissioner of Internal Revenue
release, mail and send the notice of the assessment to the taxpayer at the address stated in The first point to be considered is that the relationship between the decedent and Philtrust
the return filed, but not that the taxpayer actually receive said assessment within the five-year was one of agency, which is a personal relationship between agent and principal. Under
prescriptive period.8 Claiming that Philtrust had been remiss in not notifying respondent of Article 1919 (3) of the Civil Code, death of the agent or principal automatically terminates the
the decedent’s death, respondent therefore argued that the deficiency tax assessment had agency. In this instance, the death of the decedent on April 3, 1979 automatically severed
the legal relationship between her and Philtrust, and such could not be revived by the mere
fact that Philtrust continued to act as her agent when, on April 5, 1979, it filed her Income Tax begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies
Return for the year 1978. thereon, due process requires that it must be served on and received by the taxpayer.

Since the relationship between Philtrust and the decedent was automatically severed at the In Republic v. De le Rama,20 we clarified that, when an estate is under administration, notice
moment of the Taxpayer’s death, none of Philtrust’s acts or omissions could bind the estate must be sent to the administrator of the estate, since it is the said administrator, as
of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice No. NARD- representative of the estate, who has the legal obligation to pay and discharge all debts of
78-82-00501 was improperly done. the estate and to perform all orders of the court. In that case, legal notice of the assessment
was sent to two heirs, neither one of whom had any authority to represent the estate. We
said:
It must be noted that Philtrust was never appointed as the administrator of the Estate of the
decedent, and, indeed, that the court a quo twice rejected Philtrust’s motion to be thus
appointed. As of November 18, 1982, the date of the demand letter and Assessment Notice, The notice was not sent to the taxpayer for the purpose of giving effect to the assessment,
the legal relationship between the decedent and Philtrust had already been non-existent and said notice could not produce any effect. In the case of Bautista and Corrales Tan v.
for three years. Collector of Internal Revenue … this Court had occasion to state that "the assessment is
deemed made when the notice to this effect is released, mailed or sent to the taxpayer for
the purpose of giving effect to said assessment." It appearing that the person liable for the
Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed
payment of the tax did not receive the assessment, the assessment could not become final
the legal obligation on Philtrust to inform respondent of the decedent’s death. The said
and executory. (Citations omitted, emphasis supplied.)
Section reads:

In this case, the assessment was served not even on an heir of the Estate, but on a
SEC. 104. Notice of death to be filed. – In all cases of transfers subject to tax or where,
completely disinterested third party. This improper service was clearly not binding on the
though exempt from tax, the gross value of the estate exceeds three thousand pesos, the
petitioner.
executor, administrator, or any of the legal heirs, as the case may be, within two months after
the decedent’s death, or within a like period after qualifying as such executor or administrator,
shall give written notice thereof to the Commissioner of Internal Revenue. By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2)
Philtrust was remiss in its obligation to respond to the demand letter and assessment notice,
(3) Philtrust was remiss in its obligation to inform respondent of the decedent’s death, and
The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code of
(4) the assessment notice is therefore binding on the Estate, respondent is arguing in circles.
1977, or the chapter on Estate Tax, and pertains to "all cases of transfers subject to tax" or
The most crucial point to be remembered is that Philtrust had absolutely no legal relationship
where the "gross value of the estate exceeds three thousand pesos". It has absolutely no
to the deceased, or to her Estate. There was therefore no assessment served on the Estate
applicability to a case for deficiency income tax, such as the case at bar. It further lacks
as to the alleged underpayment of tax. Absent this assessment, no proceedings could be
applicability since Philtrust was never the executor, administrator of the decedent’s estate,
initiated in court for the collection of said tax,21 and respondent’s claim for collection, filed with
and, as such, never had the legal obligation, based on the above provision, to inform
the probate court only on November 22, 1984, was barred for having been made beyond the
respondent of her death.
five-year prescriptive period set by law.

Although the administrator of the estate may have been remiss in his legal obligation to inform
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R.
respondent of the decedent’s death, the consequences thereof, as provided in Section 119
CV No. 09107, dated September 30, 2002, is REVERSED and SET ASIDE. The Order of the
of the National Internal Revenue Code of 1977, merely refer to the imposition of certain penal
Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated November
sanctions on the administrator. These do not include the indefinite tolling of the prescriptive
19, 1985, which denied the claim of the Bureau of Internal Revenue against the Estate of
period for making deficiency tax assessments, or the waiver of the notice requirement for
Juliana Diez Vda. De Gabriel for the deficiency income tax of the decedent for the year 1977
such assessments.
in the amount of P318,223.93, is AFFIRMED.

Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice No.
No pronouncement as to costs.
NARD-78-82-00501, there was absolutely no legal obligation on the part of Philtrust to either
(1) respond to the demand letter and assessment notice, (2) inform respondent of the
decedent’s death, or (3) inform petitioner that it had received said demand letter and SO ORDERED.
assessment notice. This lack of legal obligation was implicitly recognized by the Court of
Appeals, which, in fact, rendered its assailed decision on grounds of "equity".17
Davide, Jr., C.J., (Chairman), Panganiban, and Carpio, JJ., concur.
Azcuna, J., on official leave.
Since there was never any valid notice of this assessment, it could not have become final,
executory and incontestable, and, for failure to make the assessment within the five-year
period provided in Section 318 of the National Internal Revenue Code of 1977, respondent’s
claim against the petitioner Estate is barred. Said Section 18 reads:

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. For the purpose 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: Provided, That this limitation shall not apply to cases already investigated prior to
the approval of this Code.

Respondent argues that an assessment is deemed made for the purpose of giving effect to
such assessment when the notice is released, mailed or sent to the taxpayer to effectuate
the assessment, and there is no legal requirement that the taxpayer actually receive said
notice within the five-year period.18 It must be noted, however, that the foregoing rule requires
that the notice be sent to the taxpayer, and not merely to a disinterested party. Although there
is no specific requirement that the taxpayer should receive the notice within the said period,
due process requires at the very least that such notice actually be received. In Commissioner
of Internal Revenue v. Pascor Realty and Development Corporation,19 we had occasion to
say:

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
Republic of the Philippines The lower court erroneously applied Section 203 of the same Code providing for the three-
SUPREME COURT year prescriptive period from the filing of the tax return within which internal revenue taxes
THIRD DIVISION shall be assessed. It held that such period should be counted from the day the return was
G.R. No. 139858 October 25, 2005 filed, or from August 15, 1990 up to August 15, 1993. However, as shown by the records,
COMMISSIONER OF INTERNAL REVENUE, Petitioner, respondent failed to file a tax return, forcing petitioner to invoke the powers of his office in
vs. tax administration and enforcement. Respondent’s failure to file his tax returns is thus
ARTURO TULIO, Respondent. covered by Section 223 providing for a ten-year prescriptive period within which a proceeding
DECISION in court may be filed.
SANDOVAL-GUTIERREZ, J.:
Section 223 (now Section 222) of the National Internal Revenue Code provides:
Before us is a petition for review on certiorari1 assailing the Orders dated June 15, 1999 and
August 25, 1999 of the Regional Trial Court (RTC), Branch 60, Baguio City, in Civil Case No.
"Section 223. Exceptions as to Period of Limitation of Assessment and Collection of
3853-R, entitled "REPUBLIC OF THE PHILIPPINES, plaintiff, versus, ARTURO
Taxes. –
TULIO, defendant."

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
The legal issue being raised here is whether the complaint in the said civil case may be
return, the tax may be assessed, or a proceeding in court for the collection of such tax
dismissed on the ground of prescription.
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 had become
Arturo Tulio, respondent, is engaged in the construction business. On February 28, 1991, the final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
Commissioner of Internal Revenue, petitioner, sent him a demand letter with two final criminal action for the collection thereof.
assessment notices2 requesting payment of his deficiency percentage taxes of ₱188,585.76
and ₱245,669.53 for the taxable years 1986 and 1987. However, despite receipt, respondent
xxx
failed to act on the assessment notices. Hence, the same became final and executory
pursuant to Section 229 of the 1996 National Internal Revenue Code.
3

(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
On October 15, 1991, in order to enforce the collection of the taxes through administrative
proceeding in court within three (3) years following the assessment of the tax."
summary remedy, petitioner issued a warrant of distraint and/or levy against respondent.
However, he has no properties which can be placed under distraint and/or levy.
Section 223 specifies three (3) instances when the running of the three-year prescriptive
period does not apply. These are: (1) filing a false return, (2) filing a fraudulent return with
On different dates, specifically on April 3, 1991, October 5, 1993 and May 14, 1997, petitioner
intent to evade tax or (3) failure to file a return. The period within which to assess tax is ten
sent letters to respondent giving him the last opportunity to settle his deficiency tax liabilities.
years from discovery of the fraud, falsification or omission.
But respondent was obstinate. Thus, on October 29, 1997, petitioner filed with the RTC,
Branch 60, Baguio City a civil action for the collection of the deficiency percentage taxes,
docketed as Civil Case No. 3853-R. Incidentally, it bears emphasis that it is the RTC which Here, respondent failed to file his tax returns for 1986 and 1987. On September 14, 1989,
has jurisdiction over this case, not the Court of Tax Appeals. It is the ordinary courts, not the petitioner found respondent’s omission. Hence, the running of the ten-year prescriptive period
tax court, which can entertain BIR money claims based on assessments that have become within which to assess and collect the taxes due from respondent commenced on that date
final and executory.4 until September 14, 1999. The two final assessment notices were issued on February 28,
1991, well within the prescriptive period of three (3) years. When respondent failed to
question or protest the deficiency assessments thirty (30) days therefrom, or until March 30,
On March 22, 1999, the RTC issued an Order directing respondent to file his answer to the
1991, the same became final and executory.
complaint. Three days thereafter, respondent filed a motion to dismiss alleging that the
complaint was filed beyond the three-year prescriptive period provided by Section 203 of the
National Internal Revenue Code.5 As we held in Marcos II vs. Court of Appeals,6 the omission to file an estate tax return, and
the subsequent failure to contest or appeal the assessment made by the BIR is fatal,
considering that under Section 223 of the NIRC, in case of failure to file a return, the tax may
On June 15, 1999, the RTC issued its first challenged Order dismissing Civil Case No. 3853-
be assessed at any time within ten years after the omission, and any tax so assessed may
R by reason of prescription, thus:
be collected by levy upon real property within three years following the assessment of the tax
(as was done here). Since the estate tax assessment had become final and unappealable,
"Since there was admittedly a return filed by the Bureau of Internal Revenue in the name of there is now no reason why petitioner should not enforce its authority to collect respondent’s
the taxpayer, defendant Arturo Tulio on August 15, 1990 or beyond the period prescribed by deficiency percentage taxes for 1986 and 1987.
law for the filing thereof, the three (3) year period shall be counted from the day the return
was filed. Ergo, the plaintiff had until August 15, 1993 within which to file for collection of the
WHEREFORE, the petition is GRANTED. The assailed Orders of the Regional Trial Court,
alleged deficiency percentage taxes in court. Considering that this instant case was filed only
Branch 60, Baguio City dismissing Civil Case No. 3853-R are hereby REVERSED. Let
on October 19, 1997, the government’s right to file this case has already prescribed as
the case be remanded to said court for further proceedings with dispatch.
correctly pointed out by the defendant."

SO ORDERED.
"The court is not convinced that the case falls under Section 223 of the NIRC as alleged by
the plaintiff for the simple reason that the complaint never alleged fraud. Why should it be
when it was the government entity charged with the collection of taxes which filed the return. ANGELINA SANDOVAL-GUTIERREZ
It would be impossible for them to charge themselves with filing a fraudulent return. The 10-
year prescriptive period provided for under the cited section of the tax code therefore, should
not apply in this case." Associate Justice

xxx

"WHEREFORE, in the light of the foregoing premises, the motion to dismiss is hereby
GRANTED. Let this case be as it is hereby DISMISSED with prejudice."

Petitioner filed a motion for reconsideration but was denied on August 25, 1999. Hence, this
petition for review on certiorari.

As mentioned earlier, the main issue for our resolution is whether petitioner’s cause of action
for the collection of deficiency percentage taxes against respondent has prescribed.
Republic of the Philippines The court a quo likewise stated that the finality of the denial of the protest by petitioner against
SUPREME COURT the tax deficiency assessments was bolstered by the subsequent issuance of the warrants of
FIRST DIVISION distraint and/or levy and garnishment to enforce the collection of the deficiency taxes. The
G.R. No. 148380 December 9, 2005 issuance was not barred by prescription because the mere filing of the letter of protest by
OCEANIC WIRELESS NETWORK, INC., Petitioner, petitioner which was given due course by the Bureau of Internal Revenue suspended the
vs. running of the prescription period as expressly provided under the then Section 224 of the
COMMISSIONER OF INTERNAL REVENUE, THE COURT OF TAX APPEALS, and THE Tax Code:
COURT OF APPEALS,Respondents.
DECISION
SEC. 224. Suspension of Running of the Statute of Limitations. – The running of the
AZCUNA, J.:
Statute of Limitations provided in Section 203 and 223 on the making of assessment and the
This is a Petition for Review on Certiorari seeking to reverse and set aside the Decision of
beginning of distraint or levy or a proceeding in court for collection, in respect of any
the Court of Appeals dated October 31, 2000, and its Resolution dated May 3, 2001, in
deficiency, shall be suspended for the period during which the Commissioner is prohibited
"Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue" docketed as CA-G.R.
from making the assessment or beginning distraint or levy or a proceeding in court and for
SP No. 35581, upholding the Decision of the Court of Tax Appeals dismissing the Petition for
sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted
Review in CTA Case No. 4668 for lack of jurisdiction.
by the Commissioner; when the taxpayer cannot be located in the address given by him in
the return files upon which a tax is being assessed or collected: Provided, That if the taxpayer
Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the inform the Commissioner of any change of address, the running of the statute of limitations
Accounts Receivable and Billing Division of the Bureau of Internal Revenue (BIR) National will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer,
Office to decide and/or act with finality on behalf of the Commissioner of Internal Revenue his authorized representative, or a member of his household with sufficient discretion, and no
(CIR) on protests against disputed tax deficiency assessments. property could located; and when the taxpayer is out of the Philippines. 6 (Underscoring
supplied.)
The facts of the case are as follows:
On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24,
tax assessments for the taxable year 1984 in the total amount of ₱8,644,998.71, broken 1991 cannot be considered as the final decision of the Commissioner of Internal Revenue on
down as follows: its protest because the same was signed by a mere subordinate and not by the Commissioner
Kind of Tax Assessment No. Amount himself.7
Deficiency Income Tax FAR-4-1984-88-001130 ₱8,381,354.00
Penalties for late payment FAR-4-1984-88-001131 3,000.00
With the denial of its motion for reconsideration, petitioner consequently filed a Petition for
of income and failure to
Review with the Court of Appeals contending that there was no final decision to speak of
file quarterly returns
because the Commissioner had yet to make a personal determination as regards the merits
Deficiency Contractor’s FAR-4-1984-88-001132 29,849.06
of petitioner’s case.8
Tax
Deficiency Fixed Tax FAR-4--88-001133 12,083.65
Deficiency Franchise Tax FAR-4—84-88-001134 ___227,712.00 The Court of Appeals denied the petition in a decision dated October 31, 2000, the dispositive
T o t a l -------- ₱8,644,998.71 portion of which reads:
Petitioner filed its protest against the tax assessments and requested a reconsideration or "WHEREFORE, the petition is DISMISSED for lack of merit.
cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988. SO ORDERED."
Petitioner’s Motion for Reconsideration was likewise denied in a resolution dated May 3,
2001.
Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and
Hence, this petition with the following assignment of errors:9
Billing Division, Mr. Severino B. Buot, reiterated the tax assessments while denying
I
petitioner’s request for reinvestigation in a letter 1dated January 24, 1991, thus:
THE HONORABLE RESPONDENT CA ERRED IN FINDING THAT THE DEMAND LETTER
ISSUED BY THE (THEN) ACCOUNTS RECEIVABLE/BILLING DIVISION OF THE BIR
"Note: Your request for re-investigation has been denied for failure to submit the necessary NATIONAL OFFICE WAS THE FINAL DECISION OF THE RESPONDENT CIR ON THE
supporting papers as per endorsement letter from the office of the Special Operation Service DISPUTED ASSESSMENTS, AND HENCE CONSTITUTED THE DECISION APPEALABLE
dated 12-12-90." TO THE HONORABLE RESPONDENT CTA; AND,
II
THE HONORABLE RESPONDENT CA ERRED IN DECLARING THAT THE DENIAL OF
Said letter likewise requested petitioner to pay the total amount of ₱8,644,998.71 within ten
THE PROTEST OF THE SUBJECT ALLEGED DEFICIENCY TAX ASSESSMENTS HAD
(10) days from receipt thereof, otherwise the case shall be referred to the Collection
LONG BECOME FINAL AND EXECUTORY FOR FAILURE OF THE PETITIONER TO
Enforcement Division of the BIR National Office for the issuance of a warrant of distraint and
INSTITUTE THE APPEAL FROM THE DEMAND LETTER OF THE CHIEF OF THE
levy without further notice.
ACCOUNTS RECEIVABLE/BILLING DIVISION, BIR NATIONAL OFFICE, TO THE
HONORABLE RESPONDENT CTA, WITHIN THIRTY (30) DAYS FROM RECEIPT
Upon petitioner’s failure to pay the subject tax assessments within the prescribed period, the THEREOF.
Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, Thus, the main issue is whether or not a demand letter for tax deficiency assessments issued
issued the corresponding warrants of distraint and/or levy and garnishment. These were and signed by a subordinate officer who was acting in behalf of the Commissioner of Internal
served on petitioner on October 10, 1991 and October 17, 1991, respectively.2 Revenue, is deemed final and executory and subject to an appeal to the Court of Tax
Appeals.
On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals
(CTA) to contest the issuance of the warrants to enforce the collection of the tax We rule in the affirmative.
assessments. This was docketed as CTA Case No. 4668.
A demand letter for payment of delinquent taxes may be considered a decision on a disputed
The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16, or protested assessment. The determination on whether or not a demand letter is final is
1994, declaring that said petition was filed beyond the thirty (30)-day period reckoned from conditioned upon the language used or the tenor of the letter being sent to the taxpayer.
the time when the demand letter of January 24, 1991 by the Chief of the BIR Accounts
Receivable and Billing Division was presumably received by petitioner, i.e., "within a
We laid down the rule that the Commissioner of Internal Revenue should always indicate to
reasonable time from said date in the regular course of mail pursuant to Section 2(v) of Rule
the taxpayer in clear and unequivocal language what constitutes his final determination of
131 of the Rules of Court."3
the disputed assessment, thus:

The decision cited Surigao Electric Co., Inc. v. Court of Tax Appeals4 wherein this Court
. . . we deem it appropriate to state that the Commissioner of Internal Revenue should always
considered a mere demand letter sent to the taxpayer after his protest of the assessment
indicate to the taxpayer in clear and unequivocal language whenever his action on an
notice as the final decision of the Commissioner of Internal Revenue on the protest. Hence,
assessment questioned by a taxpayer constitutes his final determination on the disputed
the filing of the petition on November 8, 1991 was held clearly beyond the reglementary
assessment, as contemplated by Sections 7 and 11 of Republic Act No. 1125, as amended.
period.5
On the basis of his statement indubitably showing that the Commissioner’s communicated
action is his final decision on the contested assessment, the aggrieved taxpayer would then
be able to take recourse to the tax court at the opportune time. Without needless difficulty, (d) The power to assign or reassign internal revenue officers to establishments where articles
the taxpayer would be able to determine when his right to appeal to the tax court accrues. subject to excise tax are produced or kept.

The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer It is clear from the above provision that the act of issuance of the demand letter by the Chief
to continually delay the finality of the assessment – and, consequently, the collection of the of the Accounts Receivable and Billing Division does not fall under any of the exceptions that
amount demanded as taxes – by repeated requests for recomputation and reconsideration. have been mentioned as non-delegable.
On the part of the Commissioner, this would encourage his office to conduct a careful and
thorough study of every questioned assessment and render a correct and definite decision
Section 6 of the Code further provides:
thereon in the first instance. This would also deter the Commissioner from unfairly making
"SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional
the taxpayer grope in the dark and speculate as to which action constitutes the decision
Requirements for Tax Administration and Enforcement. –
appealable to the tax court. Of greater import, this rule of conduct would meet a pressing
(A) Examination of Returns and Determination of Tax Due. - After a return has been filed as
need for fair play, regularity, and orderliness in administrative action.10
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
In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the correct amount of tax; Provided, however, That failure to file a return shall not prevent the
final action taken by the Bureau of Internal Revenue on petitioner’s request for Commissioner from authorizing the examination of any taxpayer.
reconsideration when it reiterated the tax deficiency assessments due from petitioner, and
requested its payment. Failure to do so would result in the "issuance of a warrant of distraint
The tax or any deficiency tax so assessed shall be paid upon notice and demand from
and levy to enforce its collection without further notice."11 In addition, the letter contained a
the Commissioner or from his duly authorized representative. . . ." (Emphasis supplied)
notation indicating that petitioner’s request for reconsideration had been denied for lack of
supporting documents.
Thus, the authority to make tax assessments may be delegated to subordinate officers. Said
assessment has the same force and effect as that issued by the Commissioner himself, if not
The above conclusion finds support in Commissioner of Internal Revenue v. Ayala Securities
reviewed or revised by the latter such as in this case.16
Corporation,12 where we held:

A request for reconsideration must be made within thirty (30) days from the taxpayer’s receipt
The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial
of the tax deficiency assessment, otherwise, the decision becomes final, unappealable and
of the reconsideration or [respondent corporation’s]…protest o[f] the assessment made by
therefore, demandable. A tax assessment that has become final, executory and enforceable
the petitioner, considering that the said letter [was] in itself a reiteration of the demand by the
for failure of the taxpayer to assail the same as provided in Section 228 can no longer be
Bureau of Internal Revenue for the settlement of the assessment already made, and for the
contested, thus:
immediate payment of the sum of P758,687.04 in spite of the vehement protest of the
respondent corporation on April 21, 1961. This certainly is a clear indication of the firm stand
of petitioner against the reconsideration of the disputed assessment…This being so, the said "SEC. 228. Protesting of Assessment. – When the Commissioner or his duly authorized
letter amount[ed] to a decision on a disputed or protested assessment, and, there, the court representative finds that proper taxes should be assessed, he shall first notify the taxpayer
a quo did not err in taking cognizance of this case. of his findings…Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in
such form and manner as may be prescribed by implementing rules and regulations. Within
Similarly, in Surigao Electric Co., Inc v. Court of Tax Appeals,13 and in CIR v. Union Shipping
sixty (60) days from filing of the protest, all relevant supporting documents shall have been
Corporation, we held:
14
submitted; otherwise, the assessment shall become final.

". . . In this letter, the commissioner not only in effect demanded that the petitioner pay the
If the protest is denied in whole or in part, or is not acted upon within one hundred (180) days
amount of ₱11,533.53 but also gave warning that in the event it failed to pay, the said
from submission of documents, the taxpayer adversely affected by the decision or inaction
commissioner would be constrained to enforce the collection thereof by means of the
may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said
remedies provided by law. The tenor of the letter, specifically the statement regarding the
decision, or from the lapse of the one hundred eighty (180) - day period; otherwise, the
resort to legal remedies, unmistakably indicate[d] the final nature of the determination made
decision shall become final, executory and demandable."
by the commissioner of the petitioner’s deficiency franchise tax liability."
The demand letter received by petitioner verily signified a character of finality.
Therefore, it was tantamount to a rejection of the request for reconsideration. As correctly Here, petitioner failed to avail of its right to bring the matter before the Court of Tax Appeals
held by the Court of Tax Appeals, "while the denial of the protest was in the form of a demand within the reglementary period upon the receipt of the demand letter reiterating the assessed
letter, the notation in the said letter making reference to the protest filed by petitioner clearly delinquent taxes and denying its request for reconsideration which constituted the final
shows the intention of the respondent to make it as [his] final decision."15 determination by the Bureau of Internal Revenue on petitioner’s protest. Being a final
This now brings us to the crux of the matter as to whether said demand letter disposition by said agency, the same would have been a proper subject for appeal to the
indeed attained finality despite the fact that it was issued and signed by the Chief of the Court of Tax Appeals.
Accounts Receivable and Billing Division instead of the BIR Commissioner.
The 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, The rule is that for the Court of Tax Appeals to acquire jurisdiction, an assessment must first
delegate the four powers granted to him under the National Internal Revenue Code (NIRC) be disputed by the taxpayer and ruled upon by the Commissioner of Internal Revenue to
enumerated in Section 7. warrant a decision from which a petition for review may be taken to the Court of Tax Appeals.
As amended by Republic Act No. 8424, Section 7 of the Code authorizes the Where an adverse ruling has been rendered by the Commissioner of Internal Revenue with
BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the reference to a disputed assessment or a claim for refund or credit, the taxpayer may appeal
Code to any subordinate official with the rank equivalent to a division chief or higher, except the same within thirty (30) days after receipt thereof.17
the following:
(a) The power to recommend the promulgation of rules and regulations by the Secretary of We agree with the factual findings of the Court of Tax Appeals that the demand letter may be
Finance; presumed to have been duly directed, mailed and was received by petitioner in the regular
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing course of the mail in the absence of evidence to the contrary. This is in accordance with
ruling of the Bureau; Section 2(v), Rule 131 of the Rules of Court, and in this case, since the period to appeal has
(c) The power to compromise or abate under Section 204(A) and (B) of this Code, any tax commenced to run from the time the letter of demand was presumably received by petitioner
deficiency: Provided, however, that assessments issued by the Regional Offices involving within a reasonable time after January 24, 1991, the period of thirty (30) days to appeal the
basic deficiency taxes of five hundred thousand pesos (P500,000) or less, and minor criminal adverse decision on the request for reconsideration had already lapsed when the petition
violations as may be determined by rules and regulations to be promulgated by the Secretary was filed with the Court of Tax Appeals only on November 8, 1991. Hence, the Court of Tax
of Finance, upon the recommendation of the Commissioner, discovered by regional and Appeals properly dismissed the petition as the tax delinquency assessment had long become
district officials, may be compromised by a regional evaluation board which shall be final and executory.
composed of the Regional Director as Chairman, the Assistant Regional Director, heads of
the Legal, Assessment and Collection Divisions and the Revenue District Officer having
jurisdiction over the taxpayer, as members; and WHEREFORE, premises considered, the Decision of the Court of Appeals dated October 31,
2000 and its Resolution dated May 3, 2001 in CA-G.R. SP No. 35581 are hereby AFFIRMED.
The petition is accordingly DENIED for lack of merit. SO ORDERED.
Republic of the Philippines "On April 13, 1999, [petitioner] filed its Annual Income Tax Return with the [BIR] for the
SUPREME COURT taxable year 1998 declaring a net loss of ₱1,504,951.00. Thus, there was no tax due against
THIRD DIVISION [petitioner] for the taxable year 1998. Likewise, [petitioner] had an unapplied creditable
G.R. Nos. 156637/162004 December 14, 2005 withholding tax in the amount of ₱459,756.07, which amount had been previously withheld
PHILAM ASSET MANAGEMENT, INC., Petitioner, in that year by petitioner’s withholding agents[,] namely x x x [PFI], x x x [PBFI], and Philam
vs. Strategic Growth Fund, Inc. (PSGFI).
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
"In the next succeeding year, [petitioner] had a tax due in the amount of ₱80,042.00, and a
PANGANIBAN, J.:
creditable withholding tax in the amount of ₱915,995.00. [Petitioner] likewise declared in its
1999 tax return the amount of ₱459,756.07, which represents its prior excess credit for
Under Section 76 of the National Internal Revenue Code, a taxable corporation with excess taxable year 1998.
quarterly income tax payments may apply for either a tax refund or a tax credit, but not both.
The choice of one precludes the other. Failure to indicate a choice, however, will not bar a
"Thereafter, on November 14, 2000, [petitioner] filed with the Revenue District Office No. 50,
valid request for a refund, should this option be chosen by the taxpayer later on.
Revenue Region No. 8, a written administrative claim for refund with respect to the unapplied
creditable withholding tax of ₱459,756.07. According to [petitioner,] the amount of
The Case ₱80,042.00, representing the tax due for the taxable year 1999 has been credited from its
Before us are two consolidated Petitions for Review1 under Rule 45 of the Rules of Court, ₱915,995.00 creditable withholding tax for taxable year 1999, thus leaving its 1998 creditable
seeking to review and reverse the December 19, 2002 Decision2 of the Court of Appeals (CA) withholding tax in the amount of ₱459,756.07 still unapplied.
in CA-GR SP No. 69197 and its January 30, 2004 Decision3 in CA-GR SP No. 70882.
"The claim for refund yielded no action on the part of the BIR. [Petitioner] then filed a Petition
The dispositive portion of the assailed December 19, 2002 Decision, on the one hand, reads for Review before the CTA on December 26, 2000, asserting that it is entitled [to] the refund
as follows: [of ₱459,756.07,] since said amount has not been applied against its tax liabilities in the
taxable year 1998.
"WHEREFORE, the petition is hereby DENIED. The assailed decision and resolution of the
Court of Tax Appeals are AFFIRMED."4 "On May 2, 2002, the CTA rendered [a] x x x decision denying [petitioner’s] Petition for
Review. x x x."8
That of the assailed January 30, 2004 Decision, on the other hand, was similarly worded,
except that it referred to the May 2, 2002 Decision of the Court of Tax Appeals (CTA).5 Ruling of the Court of Appeals

The Facts The CA denied the claim of petitioner for a refund of the latter’s excess creditable taxes
In GR No. 156637, the CA adopted the CTA’s narration of the facts as follows: withheld for the years 1997 and 1998, despite compliance with the basic requirements of
"Petitioner, formerly Philam Fund Management, Inc., is a domestic corporation duly Revenue Regulations (RR) No. 12-94. The appellate court pointed out that, in the respective
organized and existing under the laws of the Republic of the Philippines. It acts as the Income Tax Returns (ITRs) for both years, petitioner did not indicate its option to have the
investment manager of both Philippine Fund, Inc. (PFI) and Philam Bond Fund, Inc. (PBFI), amounts either refunded or carried over and applied to the succeeding year. It was held that
which are open-end investment companies[,] in the sale of their shares of stocks and in the to request for either a refund or a credit of income tax paid, a corporation must signify its
investment of the proceeds of these sales into a diversified portfolio of debt and equity intention by marking the corresponding option box on its annual corporate adjustment return.
securities. Being an investment manager, [p]etitioner provides management and technical
services to PFI and PBFI. Petitioner is, likewise, PFI’s and PBFI’s principal distributor which
The CA further held in GR No. 156637 that the failure to present the 1998 ITR was fatal to
takes charge of the sales of said companies’ shares to prospective investors. Pursuant to the
the claim for a refund, because there was no way to verify if the tax credit for 1997 could not
separate [m]anagement and [d]istribution agreements between the [p]etitioner and PFI and
have been applied against the 1998 tax liabilities of petitioner.
PBFI, both PFI and PBFI [agree] to pay the [p]etitioner, by way of compensation for the latter’s
services and facilities, a monthly management fee from which PFI and PBFI withhold the
amount equivalent to [a] five percent (5%) creditable tax[,] pursuant to the Expanded In GR No. 162004, however, the subsequent acts of petitioner demonstrated its option to
Withholding Tax Regulations. carry over its tax credit for 1998, even if it again failed to tick the appropriate box for that
option in its 1998 ITR. Under RR 12-94, its failure to indicate that option resulted in the
automatic carry-over of any excess tax credit for the prior year. The appellate court said that
"On April 3, 1998, [p]etitioner filed its [a]nnual [c]orporate [i]ncome [t]ax [r]eturn for the taxable
the government would not be unjustly enriched by denying a refund, because there would be
year 1997 representing a net loss of ₱2,689,242.00. Consequently, it failed to utilize the
no forfeiture of the amount in its favor. The amount claimed as a refund would remain in the
creditable tax withheld in the amount of Five Hundred Twenty-Two Thousand Ninety-Two
account of the taxpayer until utilized in succeeding taxable years.
Pesos (₱522,092.00) representing [the] tax withheld by [p]etitioner’s withholding agents, PFI
and PBFI[,] on professional fees.
Hence, these Petitions.9
The Issues
"The creditable tax withheld by PFI and PBFI in the amount of ₱522,092.00 is broken down
Petitioner raises two issues in GR No. 156637 for the Court’s consideration:
as follows:
"A.
PFI ₱496,702.05
"Whether or not the failure of the [p]etitioner to indicate in its [a]nnual [i]ncome [t]ax [r]eturn
PBFI 25,389.66_
the option to refund its creditable withholding tax is fatal to its claim for refund.
Total ₱522,091.71
"B.
"On September 11, 1998, [p]etitioner filed an administrative claim for refund with the [Bureau
"Whether or not the presentation in evidence of the [p]etitioner’s [a]nnual [i]ncome [t]ax
of Internal Revenue (BIR)] -- Appellate Division in the amount of ₱522,092.00 representing
[r]eturn for the succeeding calendar year is a legal requisite in a claim for refund of unapplied
unutilized excess tax credits for calendar year 1997. Thereafter, on July 28, 1999, a written
creditable withholding tax."10
request was filed with the same division for the early resolution of [p]etitioner’s claim for
In GR No. 162004, petitioner raises one question only:
refund.
"Whether or not the petitioner is entitled to the refund of its unutilized creditable withholding
tax in the taxable year 1998 in the amount of ₱459,756.07."11
"Respondent did not act on [p]etitioner’s claim for refund[;] hence, a Petition for Review was In both cases, a simple issue needs to be resolved: whether petitioner is entitled to a refund
filed with this Court6 on November 29, 1999 to toll the running of the two-year prescriptive of its creditable taxes withheld for taxable years 1997 and 1998.
period."7 The Court’s Ruling
The Petition in GR No. 156637 is meritorious, but that in GR No. 162004 is not.
Main Issue:
On October 9, 2001, the CTA rendered a Decision denying petitioner’s Petition for Review.
Entitlement to Refund
Its Motion for Reconsideration was likewise denied in a Resolution dated January 29, 2002.

The provision on the final adjustment return (FAR) was originally found in Section 69 of
In GR No. 162004, the antecedents are narrated by the CA in this wise:
Presidential Decree (PD) No. 1158, otherwise known as the "National Internal Revenue Code
of 1977."12 On August 1, 1980, this provision was restated as Section 8613 in PD 1705.14
On November 5, 1985, all prior amendments and those introduced by PD 1994 15 were determining whether its claimed 1997 tax credit had not been applied against its 1998 tax
codified16 into the National Internal Revenue Code (NIRC) of 1985, as a result of which liabilities.
Section 86 was renumbered17 as Section 79.18
Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in
On July 31, 1986, Section 24 of Executive Order (EO) No. 37 changed all "net income" requesting a tax refund has no basis in law and jurisprudence.
phrases appearing in Title II of the NIRC of 1977 to "taxable income." Section 79 of the NIRC
of 1985,19 however, was not amended.
First, Section 76 of the Tax Code does not mandate it. The law merely requires the filing of
the FAR for the preceding -- not the succeeding -- taxable year. Indeed, any refundable
On July 25, 1987, EO 27320 renumbered21 Section 86 of the NIRC22 as Section 76,23 which amount indicated in the FAR of the preceding taxable year may be credited against the
was also rearranged24 to fall under Chapter 10 of Title II of the NIRC. Section 79, which had estimated income tax liabilities for the taxable quarters of the succeeding taxable year.
earlier been renumbered by PD 1994, remained unchanged. However, nowhere is there even a tinge of a hint in any of the provisions of the Tax Code
that the FAR of the taxable year following the period to which the tax credits are originally
being applied should also be presented to the BIR.
Thus, Section 69 of the NIRC of 1977 was renumbered as Section 86 under PD 1705; later,
as Section 79 under PD 1994; then, as Section 76 under EO 273. Finally, after being
25 26

renumbered and reduced to the chaff of a grain, Section 69 was repealed by EO 37. Second, Section 534 of RR 12-94, amending Section 10(a) of RR 6-85, merely provides that
claims for the refund of income taxes deducted and withheld from income payments shall be
given due course only (1) when it is shown on the ITR that the income payment received is
Subsequently, Section 69 reappeared in the NIRC (or Tax Code) of 1997 as Section 76,
being declared part of the taxpayer’s gross income; and (2) when the fact of withholding is
which reads:
established by a copy of the withholding tax statement, duly issued by the payor to the payee,
showing the amount paid and the income tax withheld from that amount.35
"Section 76. Final Adjustment Return. -- Every corporation liable to tax under Section 24 shall
file a final adjustment return covering the total net income 27 for the preceding calendar or
Undisputedly, the records do not show that the income payments received by petitioner have
fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not
not been declared as part of its gross income, or that the fact of withholding has not been
equal to the total tax due on the entire taxable net income of that year the corporation shall
28
established. According to the CTA, "[p]etitioner substantially complied with the x x x
either:
requirements" of RR 12-94 "[t]hat the fact of withholding is established by a copy of a
statement duly issued by the payor (withholding agent) to the payee, showing the amount
"(a) Pay the excess tax still due; or paid and the amount of tax withheld therefrom; and x x x [t]hat the income upon which the
taxes were withheld were included in the return of the recipient."36
"(b) Be refunded the excess amount paid, as the case may be.
The established procedure is that a taxpayer that wants a cash refund shall make a written
request for it, and the ITR showing the excess expanded withholding tax credits shall then be
"In case the corporation is entitled to a refund of the excess estimated quarterly income taxes examined by the BIR. For the grant of refund, RRs 12-94 and 6-85 state that all
paid, the refundable amount shown on its final adjustment return may be credited against the pertinent accounting records should be submitted by the taxpayer. These records, however,
estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable actually refer only to (1) the withholding tax statements; (2) the ITR of the present quarter to
year." which the excess withholding tax credits are being applied; and (3) the ITR of the quarter for
GR No. 156637 the previous taxable year in which the excess credits arose.37 To stress, these regulations
This section applies to the first case before the Court. Differently numbered in 1977 but implementing the law do not require the proffer of the FAR for the taxable year following the
similarly worded 20 years later (1997), Section 76 offers two options to a taxable corporation period to which the tax credits are being applied.
whose total quarterly income tax payments in a given taxable year exceeds its
total income tax due. These options are (1) filing for a tax refund or (2) availing of a tax credit.
Third, there is no automatic grant of a tax refund. As a matter of procedure, the BIR should
be given the opportunity "to investigate and confirm the veracity"38 of a taxpayer’s claim,
The first option is relatively simple. Any tax on income that is paid in excess of the amount before it grants the refund. Exercising the option for a tax refund or a tax credit does not ipso
due the government may be refunded, provided that a taxpayer properly applies for the facto confer upon a taxpayer the right to an immediate availment of the choice made. Neither
refund. does it impose a duty on the government to allow tax collection to be at the sole control of a
taxpayer.39
The second option works by applying the refundable amount, as shown on the FAR of a given
taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable Fourth, the BIR ought to have on file its own copies of petitioner’s FAR for the succeeding
year. year, on the basis of which it could rebut the assertion that there was a subsequent credit of
the excess income tax payments for the previous year. Its failure to present this vital
These two options under Section 76 are alternative in nature.29 The choice of one precludes document to support its contention against the grant of a tax refund to petitioner is certainly
the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal fatal.
Revenue,30 the Court ruled that a corporation must signify its intention -- whether to request
a tax refund or claim a tax credit -- by marking the corresponding option box provided in the Fifth, the CTA should have taken judicial notice 40 of the fact of filing and the pendency of
FAR.31 While a taxpayer is required to mark its choice in the form provided by the BIR, this petitioner’s subsequent claim for a refund of excess creditable taxes withheld for 1998. The
requirement is only for the purpose of facilitating tax collection. existence of the claim ought to be known by reason of its judicial functions. Furthermore, it is
decisive to and will easily resolve the material issue in this case. If only judicial notice were
One cannot get a tax refund and a tax credit at the same time for the same excess income taken earlier, the fact that there was no carry-over of the excess creditable taxes withheld for
taxes paid. Failure to signify one’s intention in the FAR does not mean outright barring of a 1997 would have already been crystal clear.
valid request for a refund, should one still choose this option later on. A tax credit should be
construed merely as an alternative remedy to a tax refund under Section 76, subject to prior Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing within two
verification and approval by respondent.32 years after payment of the taxes erroneously received by the BIR.41 Despite the failure of
petitioner
The reason for requiring that a choice be made in the FAR upon its filing is to ease tax to make the appropriate marking in the BIR form, the filing of its written claim effectively
administration,33 particularly the self-assessment and collection aspects. A taxpayer that serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert
makes a choice expresses certainty or preference and thus demonstrates clear diligence. that any future claim for a tax refund will be instantly hindered by a failure to signify one’s
Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference intention in the FAR is to render nugatory the clear provision that allows for a two-year
and hence shows simple negligence or plain oversight. prescriptive period.

In the present case, respondent denied the claim of petitioner for a refund of excess taxes In fact, in BPI-Family Savings Bank v. CA,42 this Court even ordered the refund of a taxpayer’s
withheld in 1997, because the latter excess creditable taxes, despite the express declaration in the FAR to apply the excess to
(1) had not indicated in its ITR for that year whether it was opting for a credit or a refund; and the succeeding year.43 When circumstances show that a choice of tax credit has been made,
(2) had not submitted as evidence its 1998 ITR, which could have been the basis for it should be respected. But when indubitable circumstances clearly show that another choice
-- a tax refund -- is in order, it should be granted. "Technicalities and legalisms, however
exalted, should not be misused by the government to keep money not belonging to it and Third, the "first-in first-out" (FIFO) principle enunciated by the CTA49 does not apply.50 Money
thereby enrich itself at the expense of its law-abiding citizens."44 is fungible property.51The amount to be applied against the ₱80,042 income tax due in the
1998 FAR52 of petitioner may be taken from its excess credits in 1997 or from those withheld
in 1998 or from both. Whichever of these the amount will be taken from will not make a
In the present case, although petitioner did not mark the refund box in its 1997 FAR, neither
difference.
did it perform any act indicating that it chose a tax credit. On the contrary, it filed on
September 11, 1998, an administrative claim for the refund of its excess taxes withheld in
1997. In none of its quarterly returns for 1998 did it apply the excess creditable taxes. Under Even if the FIFO principle were to be applied, the tax credits would have to be in consonance
these circumstances, petitioner is entitled to a tax refund of its 1997 excess tax credits in the with the usual and normal course of events. In fact, the FAR is cumulative in
amount of ₱522,092. nature.53 Following a natural sequence, the prior year’s excess tax credits will have to be
GR No. 162004 reduced first to answer for any current tax liabilities before the current year’s withheld
As to the second case, Section 76 also applies. Amended by Republic Act (RA) No. 8424, amounts can be applied. Otherwise, there will be no sense in requiring a taxpayer to fill out
otherwise known as the "Tax Reform Act of 1997," it now states: the line items in the FAR to segregate its sources of tax credits.
"SEC. 76. Final Adjustment Return. -- Every corporation liable to tax under Section 27 shall
file a final adjustment return covering the total taxable income for the preceding calendar or
Whether the FIFO principle is applied or not, Section 76 remains clear and unequivocal. Once
fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not
the carry-over option is taken, actually or constructively, it becomes irrevocable. Petitioner
equal to the total tax due on the entire taxable income of that year, the corporation shall
has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled
either:
to a tax refund of ₱459,756.07, which corresponds to its 1998 excess tax credit.
(A) Pay the balance of tax still due; or
Nonetheless, the amount will not be forfeited in the government’s favor, because it may be
(B) Carry over the excess credit; or
claimed by petitioner as tax credits in the succeeding taxable years.
(C) Be credited or refunded with the excess amount paid, as the case may be.

WHEREFORE, the Petition in GR No. 156637 is GRANTED and the assailed December 19,
"In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly
2002 Decision REVERSED and SET ASIDE. No pronouncement as to costs.
income taxes paid, the excess amount shown on its final adjustment return may be carried
over and credited against the estimated quarterly income tax liabilities for the taxable quarters
of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly The Petition in GR No. 162004 is, however, DENIED and the assailed January 30, 2004
income tax against income tax due for the taxable quarters of the succeeding taxable years Decision AFFIRMED. Costs against petitioner.
has been made, such option shall be considered irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit certificate shall be allowed therefor."
SO ORDERED.

The carry-over option under Section 76 is permissive. A corporation that is entitled to a tax
refund or a tax credit for excess payment of quarterly income taxes may carry over and credit ARTEMIO V. PANGANIBAN
the excess income taxes paid in a given taxable year against the estimated income tax
liabilities of the succeeding quarters. Once chosen, the carry-over option shall be considered Associate Justice
irrevocable45 for that taxable period, and no application for a tax refund or issuance of a tax
credit certificate shall then be allowed.
Chairman, Third Division

According to petitioner, it neither chose nor marked the carry-over option box in its 1998
FAR.46 As this option was not chosen, it seems that there is nothing that can be considered Philippine Journalists, Inc. Vs CIR G.R. No. 162852, 16 December 2004
irrevocable. In other words, petitioner argues that it is still entitled to a refund of its 1998
excess income tax payments. Facts: Upon failure of PJI to pay the assessment on despite demand, a Warrant of Distraint
and/or Levy was sent to it. In a Petition for Review with the Court of Tax Appeals, It
This argument does not hold water. The subsequent acts of petitioner reveal that it canceled the assessment. On appeal to the CA, it ruled that Only decisions of the BIR,
has effectively chosen the carry-over option. denying the request for reconsideration or reinvestigation may be appealed to the CTA.
Mere assessment notices which have become final after the lapse of the thirty (30)-day
reglementary period are not appealable. Thus, the CTA should not have entertained the
First, the fact that it filled out the portion "Prior Year’s Excess Credits" in its 1999 FAR means petition at all.
that it categorically availed itself of the carry-over option. In fact, the line that precedes that
phrase in the BIR form clearly states "Less: Tax Credits/Payments." The contention that it
merely filled out that portion because it was a requirement -- and that to have done otherwise Issue: WON CTA has appellate jurisdiction to entertain the validity of a warrant of distraint
would have been tantamount to falsifying the FAR -- is a long shot. And/or levy issued by the CIR.

The FAR is the most reliable firsthand evidence of corporate acts pertaining to income taxes.
In it are found the itemization and summary of additions to and deductions from income taxes
due. These entries are not without rhyme or reason. They are required, because they Ruling:
facilitate the tax administration process.
Yes. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of
Failure to indicate the amount of "prior year’s excess credits" does not mean falsification by the Commissioner of Internal Revenue on matters relating to assessments or refunds. The
a taxpayer of its current year’s FAR. On the contrary, if an application for a tax refund has second part of Section 7(1) of Republic Act No. 1125 covers other cases that arise out of
been -- or will be -- filed, then that portion of the BIR form should necessarily be blank, even the NIRC or related laws administered by the Bureau of Internal Revenue. The wording of
if the FAR of the previous taxable year already shows an overpayment in taxes. the provision is clear and simple. It gives the CTA the jurisdiction to determine if the warrant
of distraint and levy issued by the BIR is valid.
Second, the resulting redundancy in the claim of petitioner for a refund of its 1998 excess tax
credits on November 14, 200047 cannot be countenanced. It cannot be allowed to avail itself
of a tax refund and a tax credit at the same time for the same excess income taxes paid.
Besides, disallowing it from getting a tax refund of those excess tax credits will not enervate
the two-year prescriptive period under the Tax Code. That period will apply if the carry-over
option has not been chosen.

Besides, "tax refunds x x x are construed strictly against the taxpayer."48 Petitioner has failed
to meet the burden of proof required in order to establish the factual basis of its claim for a tax
refund.
Dizon v. CTA G.R. No. 140944; 30 April 2008 abandoned in a long line of cases in which the Court held that evidence not formally offered
Dizon v. CTA is without any weight or value; that Section 34 of Rule 132 of the Rules on Evidence requiring
G.R. No. 140944, 30 April 2008 a formal offer of evidence is mandatory in character; that, while BIR's witness Alberto
Facts: Enriquez (Alberto) in his testimony before the CTA identified the pieces of evidence
1. Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will was filed. aforementioned such that the same were marked, BIR's failure to formally offer said pieces
of evidence and depriving petitioner the opportunity to cross-examine Alberto, render the
2. The probate court then appointed retired Justice Dizon and petitioner, Atty. Rafael Arsenio P. same inadmissible in evidence; that assuming arguendo that the ruling in Vda. de Oñate is
Dizon as Special and Assistant Special Administrator. still applicable, BIR failed to comply with the doctrine's requisites because the documents
herein remained simply part of the BIR records and were not duly incorporated in the court
3. Justice Dizon informed respondent Commissioner of the Bureau of Internal Revenue (BIR) of records
the special proceedings for the Estate.
Respondent- counters that the documents, being part of the records of the case and duly
4. Petitioner alleged that several requests for extension of the period to file the required estate identified in a duly recorded testimony are considered evidence even if the same were not
tax return were granted by the BIR since the assets of the estate, as well as the claims against formally offered;
it, had yet to be collated, determined and identified.
Held: Yes
5. Justice Dizon authorized Atty. Gonzales) to sign and file on behalf of the Estate the required No evidentiary value can be given the pieces of evidence submitted by the BIR, as the rules
estate tax return and to represent the same in securing a Certificate of Tax Clearance. on documentary evidence require that these documents must be formally offered before the
CTA.
6. Atty. Gonzales wrote a letter addressed to the BIR Regional Director and filed the estate tax
return with the same BIR Regional Office, showing therein a NIL estate tax liability. The CTA and the CA rely solely on the case of Vda. de Oñate, which reiterated this Court's
previous rulings in People v. Napat-a and People v. Mate on the admission and consideration
7. BIR Regional Director issued Certification stating that the taxes due on the transfer of real and of exhibits which were not formally offered during the trial. Although in a long line of cases
personal properties of Jose had been fully paid and said properties may be transferred to his many of which were decided after Vda. de Oñate, we held that courts cannot consider
heirs. evidence which has not been formally offered, nevertheless, petitioner cannot validly assume
that the doctrine laid down in Vda. de Oñate has already been abandoned.
8. Petitioner requested the probate court's authority to sell several properties forming part of the
Estate, for the purpose of paying its creditors. However, the Assistant Commissioner for Recently, in Ramos v. Dizon, this Court, applying the said doctrine, ruled that the trial court
Collection of the BIR, issued Estate Tax Assessment Notice demanding the payment of judge therein committed no error when he admitted and considered the respondents' exhibits
P66,973,985.40 as deficiency estate tax. in the resolution of the case, notwithstanding the fact that the same were not formally offered.

9. Atty. Gonzales moved for the reconsideration of the said estate tax assessment but the BIR Indubitably, the doctrine laid down in Vda. De Oñate still subsists in this jurisdiction. In Vda.
Commissioner denied the request. So petitioner filed a petition for review before the CTA. de Oñate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the same must be
10. During the hearings conducted, petitioner did not present testimonial evidence but merely formally offered. Corollarily, the mere fact that a particular document is identified and marked
documentary evidence consisting of the following: as an exhibit does not mean that it has already been offered as part of the evidence of a
party. Xxx
a. Letter to CIR informing them of the probate proceedings
b. Petition for probate of will and issuance of letter of administration However, in People v. Napat-a citing People v. Mate, we relaxed the foregoing rule and
c. Inventory allowed evidence not formally offered to be admitted and considered by the trial court
d. Several claims against the estate provided the following requirements are present, viz.: first, the same must have been duly
e. Estate tax return identified by testimony duly recorded and, second, the same must have been incorporated in
f. Certification of Payment of Taxes the records of the case.

11. Respondent's [BIR] counsel presented one witness in the person of Alberto Enriquez, who From the foregoing declaration, however, it is clear that Vda. de Oñate is merely an exception
was one of the revenue examiners who conducted the investigation on the estate tax case of to the general rule. Being an exception, it may be applied only when there is strict compliance
Jose. In the course of the direct examination of the witness, he identified the following: with the requisites mentioned therein; otherwise, the general rule in Section 34 of Rule 132
a. Estate tax return prep by BIR of the Rules of Court should prevail.
b. Demand Letter
c. Assessment Notice In this case, we find that these requirements have not been satisfied. The assailed pieces of
d. Etc….. evidence were presented and marked during the trial particularly when Alberto took the
witness stand. Alberto identified these pieces of evidence in his direct testimony. He was also
12. CTA: denied pet. For review Citing this Court's ruling in Vda. de Oñate v. Court of Appeals, subjected to cross-examination and re-cross examination by petitioner. But Alberto's account
the CTA opined that the aforementioned pieces of evidence introduced by the BIR were and the exchanges between Alberto and petitioner did not sufficiently describe the contents
admissible in evidence. of the said pieces of evidence presented by the BIR. In fact, petitioner sought that the lead
a. Although the above-mentioned documents were not formally offered as evidence for examiner, one Ma. Anabella A. Abuloc, be summoned totestify, inasmuch as Alberto was
respondent, considering that respondent has been declared to have waived the presentation incompetent to answer questions relative to the working papers. The lead examiner never
thereof during the hearing on March 20, 1996, still they could be considered as evidence for testified. Moreover, while Alberto's testimony identifying the BIR's evidence was duly
respondent since they were properly identified during the presentation of respondent's recorded, the BIR documents themselves were not incorporated in the records of the case.
witness, whose testimony was duly recorded as part of the records of this case. Besides, the
documents marked as respondent's exhibits formed part of the BIR records of the case.
A common fact threads through Vda. de Oñate and Ramos that does not exist at all in the
b. the CTA did not fully adopt the assessment made by the BIR and it came up with its own instant case. In the aforementioned cases, the exhibits were marked at the pre-trial
computation of the deficiency estate tax.= P 37,419,493.7 proceedings to warrant the pronouncement that the same were duly incorporated in the
records of the case. Thus, we held in Ramos:
13. Petitioner filed a pet. For review with the CA. CA: Affirmed CTA; the petitioner's act of filing an
estate tax return with the BIR and the issuance of BIR Certification Nos. 2052 and 2053 did In this case, we find and so rule that these requirements have been satisfied.
not deprive the BIR Commissioner of her authority to re-examine or re-assess the said return The exhibits in question were presented and marked during the pre-trial of the case thus,
filed on behalf of the Estate. MR denied they have been incorporated into the records. Further, Elpidio himself explained the contents
of these exhibits when he was interrogated by respondents' counsel...
Issue:
WON the CTA and the CA gravely erred in allowing the admission of the pieces of evidence While the CTA is not governed strictly by technical rules of evidence, as rules of procedure
which were not formally offered by the BIR are not ends in themselves and are primarily intended as tools in the administration of justice,
the presentation of the BIR's evidence is not a mere procedural technicality which may be
Contentions: disregarded considering that it is the only means by which the CTA may ascertain and verify
Petitioner- claims that in as much as the valid claims of creditors against the Estate are in the truth of BIR's claims against the Estate. The BIR's failure to formally offer these pieces of
excess of the gross estate, no estate tax was due; that the lack of a formal offer of evidence evidence, despite CTA's directives, is fatal to its cause. Such failure is aggravated by the fact
is fatal to BIR's cause; that the doctrine laid down in Vda. de Oñate has already been
that not even a single reason was advanced by the BIR to justify such fatal omission. This,
we take against the BIR.

Per the records of this case, the BIR was directed to present its evidence[48] in the
hearing of February 21, 1996, but BIR's counsel failed to appear.[49] The CTA denied
petitioner's motion to consider BIR's presentation of evidence as waived, with a warning to
BIR that such presentation would be considered waived if BIR's evidence would not be
presented at the next hearing. Again, in the hearing of March 20, 1996, BIR's counsel
failed to appear.[50] Thus, in its Resolution[51] dated March 21, 1996, the CTA considered
the BIR to have waived presentation of its evidence. In the same Resolution, the parties were
directed to file their respective memorandum. Petitioner complied but BIR failed to
do so.[52] In all of these proceedings, BIR was duly notified. Hence, in this case, we are
constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:[53]
A formal offer is necessary because judges are mandated to rest their findings of facts and
their judgment only and strictly upon the evidence offered by the parties at the trial. Its function
is to enable the trial judge to know the purpose or purposes for which the proponent is
presenting the evidence. On the other hand, this allows opposing parties to examine the
evidence and object to its admissibility. Moreover, it facilitates review as the appellate court
will not be required to review documents not previously scrutinized by the trial court.

Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of
Appeals ruled that the formal offer of one's evidence is deemed waived after failing to
submit it within a considerable period of time. It explained that the court cannot admit
an offer of evidence made after a lapse of three (3) months because to do so would
"condone an inexcusable laxity if not non-compliance with a court order which, in
effect, would encourage needless delays and derail the speedy administration of
justice."

Applying the aforementioned principle in this case, we find that the trial court had reasonable
ground to consider that petitioners had waived their right to make a formal offer of
documentary or object evidence. Despite several extensions of time to make their formal
offer, petitioners failed to comply with their commitment and allowed almost five months to
lapse before finally submitting it. Petitioners' failure to comply with the rule on admissibility of
evidence is anathema to the efficient, effective, and expeditious dispensation of justice.

*other issue:
It is admitted that the claims of the Estate's aforementioned creditors have been
condoned. Verily, the second issue in this case involves the construction of Section 79 of the
NIRC which provides for the allowable deductions from the gross estate of the decedent.

The specific question is whether the actual claims of the aforementioned creditors may be
fully allowed as deductions from the gross estate of Jose despite the fact that the said claims
were reduced or condoned through compromise agreements entered into by the Estate with
its creditors.

We express our agreement with the date-of-death valuation rule. Xxx the claims existing at
the time of death are significant to, and should be made the basis of, the determination of
allowable deductions.
Republic of the Philippines Meanwhile, in late 1999, and despite the pendency of CA-G.R. SP No. 55329, the Center
SUPREME COURT sent several letters to PSPC dated August 31, 1999,8 September 1, 1999,9 and October 18,
Manila 1999.10 The first required PSPC to submit copies of pertinent sales invoices and delivery
SECOND DIVISION receipts covering sale transactions of PSPC products to the TCC assignors/transferors
G.R. No. 172598 December 21, 2007 purportedly in connection with an ongoing post audit. The second letter similarly required
PILIPINAS SHELL PETROLEUM CORPORATION, Petitioner, submission of the same documents covering PSPC Industrial Fuel Oil (IFO) deliveries to
vs. Spintex International, Inc. The third letter is in reply to the September 29, 1999 letter sent
COMMISSIONER OF INTERNAL REVENUE, Respondent. by PSPC requesting a list of the serial numbers of the TCCs assigned or transferred to it by
DECISION various BOI-registered companies, either assignors or transferors.
VELASCO, JR., J.:
The Case
In its letter dated October 29, 1999 and received by the Center on November 3, 1999,
Before us is a Petition for Review on Certiorari under Rule 45 assailing the April 28, 2006
PSPC emphasized that the required submission of these documents had no legal basis, for
Decision1 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 64, which upheld
the applicable rules and regulations on the matter only require that both the assignor and
respondent’s assessment against petitioner for deficiency excise taxes for the taxable years
assignee of TCCs be BOI-registered entities.11 On November 3, 1999, the Center informed
1992 and 1994 to 1997. Said En Banc decision reversed and set aside the August 2, 2004
PSPC of the cancellation of the first batch of TCCs transferred to PSPC and the TDM
Decision2 and January 20, 2005 Resolution3 of the CTA Division in CTA Case No. 6003
covering PSPC’s use of these TCCs as well as the corresponding TCC assignments.
entitled Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue, which
PSPC’s motion for reconsideration was not acted upon.
ordered the withdrawal of the April 22, 1998 collection letter of respondent and enjoined him
from collecting said deficiency excise taxes.
On November 22, 1999, PSPC received the November 15, 1999 assessment letter12 from
respondent for excise tax deficiencies, surcharges, and interest based on the first batch of
The Facts
cancelled TCCs and TDM covering PSPC’s use of the TCCs. All these cancelled TDM and
TCCs were also part of the subject matter in CTA Case No. 5728, now pending before the
Petitioner Pilipinas Shell Petroleum Corporation (PSPC) is the Philippine subsidiary of the CA in CA-G.R. SP No. 55329.
international petroleum giant Shell, and is engaged in the importation, refining and sale of
petroleum products in the country.
PSPC protested13 the assessment letter, but the protest was denied by the BIR,
constraining it to file another petition for review14 before the CTA, docketed as CTA Case
From 1988 to 1997, PSPC paid part of its excise tax liabilities with Tax Credit Certificates No. 6003.
(TCCs) which it acquired through the Department of Finance (DOF) One Stop Shop Inter-
Agency Tax Credit and Duty Drawback Center (Center) from other Board of Investment
Parenthetically, on March 30, 2004, Republic Act No. (RA) 928215 was promulgated
(BOI)-registered companies. The Center is a composite body run by four government
amending RA 1125,16expanding the jurisdiction of the CTA and enlarging its membership. It
agencies, namely: the DOF, Bureau of Internal Revenue (BIR), Bureau of Customs (BOC),
became effective on April 23, 2004 after its due publication. Thus, CTA Case No. 6003 was
and BOI.
heard and decided by a CTA Division.

Through the Center, PSPC acquired for value various Center-issued TCCs which were
The Ruling of the Court of Tax Appeals Division
correspondingly transferred to it by other BOI-registered companies through Center-
(CTA Case No. 6003)
approved Deeds of Assignments. Subsequently, when PSPC signified its intent to use the
On August 2, 2004, the CTA Division rendered a Decision17 granting the PSPC’s petition for
TCCs to pay part of its excise tax liabilities, said payments were duly approved by the
review. The dispositive portion reads:
Center through the issuance of Tax Debit Memoranda (TDM), and the BIR likewise
[T]he instant petition is hereby GRANTED. Accordingly, the assessment issued by the
accepted as payments the TCCs by issuing its own TDM covering said TCCs, and the
respondent dated November 15, 1999 against petitioner is hereby CANCELLED and SET
corresponding Authorities to Accept Payment for Excise Taxes (ATAPETs).
ASIDE.18

However, on April 22, 1998, the BIR sent a collection letter4 to PSPC for alleged deficiency
In granting PSPC’s petition for review, the CTA Division held that respondent failed to prove
excise tax liabilities of PhP 1,705,028,008.06 for the taxable years 1992 and 1994 to 1997,
with convincing evidence that the TCCs transferred to PSPC were fraudulently issued as
inclusive of delinquency surcharges and interest. As basis for the collection letter, the BIR
respondent’s finding of alleged fraud was merely speculative. The CTA Division found that
alleged that PSPC is not a qualified transferee of the TCCs it acquired from other BOI-
neither the respondent nor the Center could state what sales figures were used as basis for
registered companies. These alleged excise tax deficiencies covered by the collection letter
the TCCs to issue, as they merely based their conclusions on the audited financial
were already paid by PSPC with TCCs acquired through, and issued and duly authorized
statements of the transferors which did not clearly show the actual export sales of
by the Center, and duly covered by TDMs of both the Center and BIR, with the latter also
transactions from which the TCCs were issued.
issuing the corresponding ATAPETs.

In the same vein, the CTA Division held that the machinery and equipment cannot be the
PSPC protested the April 22, 1998 collection letter, but the protest was denied by the BIR
basis in concluding that transferor could not have produced the volume of products
through the Regional Director of Revenue Region No. 8. PSPC filed its motion for
indicated in its BOI registration. It further ruled that the Center erroneously based its
reconsideration. However, due to respondent’s inaction on the motion, on February 2, 1999,
findings of fraud on two possibilities: either the transferor did not declare its export sales or
PSPC filed a petition for review before the CTA, docketed as CTA Case No. 5728.
underdeclare them. Thus, no specific fraudulent acts were identified or proven. The CTA
Division concluded that the TCCs transferred to PSPC were not fraudulently issued.
On July 23, 1999, the CTA rendered a Decision5 in CTA Case No. 5728 ruling, inter alia,
that the use by PSPC of the TCCs was legal and valid, and that respondent’s attempt to
On the issue of whether a TCC transferee should be a supplier of either capital equipment,
collect alleged delinquent taxes and penalties from PSPC without an assessment
materials, or supplies, the CTA Division ruled in the negative as the Memorandum of
constitutes denial of due process. The dispositive portion of the July 23, 1999 CTA Decision
Agreement (MOA)19 between the DOF and BOI executed on August 29, 1989 specifying
reads:
such requirement was not incorporated in the Implementing Rules and Regulations (IRR) of
Executive Order No. (EO) 226.20 The CTA Division found that only the October 5, 1982
[T]he instant petition for review is GRANTED. The collection letter issued by the MOA between the then Ministry of Finance (MOF) and BOI was incorporated in the IRR of
Respondent dated April 22, 1998 is considered withdrawn and he is ENJOINED from any EO 226. It held that while the August 29, 1989 MOA indeed amended the October 5, 1982
attempts to collect from petitioner the specific tax, surcharge and interest subject of this MOA still it was not incorporated in the IRR. Moreover, according to the CTA Division, even
petition.6 if the August 29, 1989 MOA was elevated or incorporated in the IRR of EO 226, still, it is
ineffective and could not bind nor prejudice third parties as it was never published.
Respondent elevated the July 23, 1999 CTA Decision in CTA Case No. 5728 to the Court
of Appeals (CA) through a petition for review7 docketed as CA-G.R. SP No. 55329. This Anent the affidavits of former Officers or General Managers of transferors attesting that no
case was subsequently consolidated with the similarly situated case of Petron Corporation IFO deliveries were made by PSPC, the CTA Division ruled that such cannot be given
under CA-G.R. SP No. 55330. To date, these consolidated cases are still pending probative value as the affiants were not presented during trial of the case. However, the
resolution before the CA. CTA Division said that the November 15, 1999 assessment was not precluded by the prior
CTA Case No. 5728 as the latter concerned the validity of the transfer of the TCCs, while
CTA Case No. 6003 involved alleged fraudulent procurement and transfer of the TCCs.
Respondent forthwith filed his motion for reconsideration of the above decision which was HUNDRED EIGHTY SEVEN PESOS (P285,766,987.00), AS ALLEGED
rejected on January 20, 2005. And, pursuant to Section 1121 of RA 9282, respondent DEFICIENCY EXCISE TAXES, FOR THE TAXABLE YEARS, 1992 AND 1994
appealed the above decision through a petition for review22 before the CTA En Banc. TO 1997.
The Ruling of the Court of Tax Appeals En Banc II
(CTA EB No. 64) WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN
The CTA En Banc, however, rendered the assailed April 28, 2006 Decision 23 setting aside ISSUING THE QUESTIONED DECISION DATED 28 APRIL 2006
the August 2, 2004 Decision and the January 20, 2005 Resolution of the CTA Division. UPHOLDING THE CANCELLATION OF THE TAX CREDIT CERTIFICATES
The fallo reads: UTILIZED BY PETITIONER PSPC IN PAYING ITS EXCISE TAX LIABILITIES.
III
WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. The
IMPOSING SURCHARGES AND INTERESTS ON THE ALLEGED
assailed Decision and Resolution dated August 2, 2004 and January 20, 2005, respectively,
DEFICIENCY EXCISE TAX OF PETITIONER PSPC.
are hereby SET ASIDE and a new one entered dismissing respondent Pilipinas Shell
IV
Petroleum Corporation’s Petition for Review filed in C.T.A. Case No. 6003 for lack of merit.
WHETHER OR NOT THE ASSESSMENT DATED 15 NOVEMBER 1999 IS
Accordingly, respondent is ORDERED TO PAY the petitioner the amount of
VOID CONSIDERING THAT IT FAILED TO COMPLY WITH THE STATUTORY
P570,577,401.61 as deficiency excise tax for the taxable years 1992 and 1994 to 1997,
AS WELL AS REGULATORY REQUIREMENTS IN THE ISSUANCE OF
inclusive of 25% surcharge and 20% interest, computed as follows:
ASSESSMENTS.26
The Court’s Ruling
Basic Tax P285,766,987.00 The petition is meritorious.
Add:
Surcharge (25%) 71,441,746.75
First Issue: Assessment of excise tax deficiencies
Interest (20%) 213,368,667.86
Total Tax Due P570,577,401.61
PSPC contends that respondent had no basis in issuing the November 15, 1999 assessment
as PSPC had no pending unpaid excise tax liabilities. PSPC argues that under the IRR of EO
In addition, respondent is hereby ORDERED TO PAY 20% delinquency interest thereon per
226, it is allowed to use TCCs transferred from other BOI-registered entities. On one hand,
annum computed from December 4, 1999 until full payment thereof, pursuant to Sections
relative to the validity of the transferred TCCs, PSPC asserts that the TCCs are not subject
248 and 249 of the NIRC of 1997.
to a suspensive condition; that the post-audit of a transferred TCC refers only to
computational discrepancy; that the solidary liability of the transferor and transferee refers to
SO ORDERED.24 computational discrepancy resulting from the transfer and not from the issuance of the TCC;
that a post-audit cannot affect the validity and effectivity of a TCC after it has been utilized by
the transferee; and that the BIR duly acknowledged the use of the subject TCCs, accepting
The CTA En Banc resolved respondent’s appeal by holding that PSPC was liable to pay the them as payment for the excise tax liabilities of PSPC. On the other hand, PSPC maintains
alleged excise tax deficiencies arising from the cancellation of the TDM issued against its that if there was indeed fraud in the issuance of the subject TCCs, of which it had no
TCCs which were used to pay some of its excise tax liabilities for the years 1992 and 1994 knowledge nor participation, the Center’s remedy is to go after the transferor for the value of
to 1997. It ratiocinated in this wise, to wit: the TCCs the Center may have erroneously issued.

First, the finding of the DOF that the TCCs had no monetary value was undisputed. PSPC likewise assails the BIR assessment on prescription for having been issued beyond
Consequently, there was a non-payment of excise taxes corresponding to the value of the the three-year prescriptive period under Sec. 203 of the National Internal Revenue Code
TCCs used for payment. Since it was PSPC which acquired the subject TCCs from a third (NIRC); and neither can the BIR use the 10-year prescriptive period under Sec. 222(a) of the
party and utilized the same to discharge its own obligations, then it must bear the loss. NIRC, as PSPC has neither failed to file a return nor filed a false or fraudulent return with
intent to evade taxes.
Second, the TCCs carry a suspensive condition, that is, their issuance was subject to post
audit in order to determine if the holder is indeed qualified to use it. Thus, until final Respondent, on the other hand, counters that petitioner is liable for the tax liabilities adjudged
determination of the holder’s right to the issuance of the TCCs, there is no obligation on the by the CTA En Bancsince PSPC, as transferee of the subject TCCs, is bound by the liability
part of the DOF or BIR to recognize the rights of the holder or assignee. And, considering clause found at the dorsal side of the TCCs which subjects the genuineness, validity, and
that the subject TCCs were canceled after the DOF’s finding of fraud in its issuance, the value of the TCCs to the outcome of the post-audit to be conducted by the Center. He relies
assignees must bear the consequence of such cancellation. on the CTA En Banc’s finding of the presence of a suspensive condition in the issuance of
the TCCs. Thus, according to him, with the finding by the Center that the TCCs were
Third, PSPC was not an innocent purchaser for value of the TCCs as they contained liability fraudulently procured the subsequent cancellation of the TCCs resulted in the non-payment
clauses expressly stipulating that the transferees are solidarily liable with the transferors for by PSPC of its excise tax liabilities equivalent to the value of the canceled TCCs.
any fraudulent act or violation of pertinent laws, rules, or regulations relating to the transfer
of the TCC. Respondent likewise posits that the Center erred in approving the transfer and issuance of
the TDM, and of the TDM and ATAPETs issued by the BIR in accepting the utilization by
Fourth, the BIR was not barred by estoppel as it is a settled rule that in the performance of PSPC of the subject TCCs, as payments for excise taxes cannot prejudice the BIR from
its governmental functions, the State cannot be estopped by the neglect of its agents and assessing the tax deficiencies of PSPC resulting from the non-payment of the deficiencies
officers. Although the TCCs were confirmed to be valid in view of the TDM, the subsequent after due cancellation by the Center of the subject TCCs and corresponding TDM.
finding on post audit by the Center declaring the TCCs to be fraudulently issued is entitled
to the presumption of regularity. Thus, the cancellation of the TCCs was legal and valid. Respondent concludes that due to the fraudulent procurement of the subject TCCs, his right
to assess has not yet prescribed. He relies on the finding of the Center that the fraud was
Fifth, the BIR’s assessment did not prescribe considering that no payment took effect as the discovered only after the post-audit was conducted; hence, Sec. 222(a) of the NIRC applies,
subject TCCs were canceled upon post audit. Consequently, the filing of the tax return sans reckoned from October 24, 1999 or the date of the post-audit report. In fine, he points that
payment due to the cancellation of the TCCs resulted in the falsity and/or omission in the what is at issue is the resulting non-payment of PSPC’s excise tax liabilities from the
filing of the tax return which put them in the ambit of the applicability of the 10-year cancellation of subject TCCs and not the amount of deficiency taxes due from PSPC, as what
prescriptive period from the discovery of falsity, fraud, or omission. was properly assessed on November 15, 1999 was the amount of tax declared and found in
PSPC’s excise tax returns covered by the subject TCCs.
Finally, however, the CTA En Banc applied Aznar v. Court of Tax Appeals,25 where this
Court held that without proof that the taxpayer participated in the fraud, the 50% fraud We find for PSPC.
surcharge is not imposed, but the 25% late payment and the 20% interest per annum are
applicable. The CTA En Banc upheld respondent’s theory by holding that the Center has the authority to
Thus, PSPC filed this petition with the following issues: do a post-audit on the TCCs it issued; the TCCs are subject to the results of the post-audit
I since their issuance is subject to a suspensive condition; the transferees of the TCCs are
WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN solidarily liable with the transferors on the result of the post-audit; and the cancellation of the
ORDERING PETITIONER PSPC TO PAY THE AMOUNT OF TWO HUNDRED subject TCCs resulted in PSPC having to bear the loss anchored on its solidary liability with
EIGHTY FIVE MILLION SEVEN HUNDRED SIXTY SIX THOUSAND NINE the transferor of the subject TCCs.
We can neither sustain respondent’s theory nor that of the CTA En Banc. of Finance." Tax credits were granted under EO 226 as incentives to encourage investments
in certain businesses. A tax credit generally refers to an amount that may be "subtracted
directly from one’s total tax liability."30 It is therefore an "allowance against the tax itself"31 or
First, in overturning the August 2, 2004 Decision of the CTA Division, the CTA En Banc
"a deduction from what is owed"32by a taxpayer to the government. In RR 5-2000,33 a tax
applied Article 1181 of the Civil Code in this manner:
credit is defined as "the amount due to a taxpayer resulting from an overpayment of a tax
liability or erroneous payment of a tax due."34
To completely understand the matter presented before Us, it is worth emphasizing that the
statement on the subject certificate stating that it is issued subject to post-audit is in the nature
A TCC is
of a suspensive condition under Article 1181 of the Civil Code, which is quoted hereunder for
ready reference, to wit:
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
‘In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally
those already acquired, shall depend upon the happening of the event which constitutes the
entitled a tax credit, the money value of which may be used in payment or in satisfaction of
condition.’
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
The above-quoted article speaks of obligations. ‘These conditions affect obligations in limitations, if any, as may be prescribed by the provisions of these Regulations.35
diametrically opposed ways. If the suspensive condition happens, the obligation arises; in
other words, if the condition does not happen, the obligation does not come into existence.
From the above definitions, it is clear that a TCC is an undertaking by the government through
On the other hand, the resolutory condition extinguishes rights and obligations already
the BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit
existing; in other words, the obligations and rights already exist, but under the threat of
from either an overpayment of income taxes, a direct benefit granted by law or other sources
extinction upon the happening of the resolutory condition’. (8 Manresa 130-131, cited on page
and instances granted by law such as on specific unused input taxes and excise taxes on
140, Civil Code of the Philippines, Tolentino, 1962 ed., Vol. IV).
certain goods. As such, tax credit is transferable in accordance with pertinent laws, rules, and
regulations.
In adopting the foregoing provision of law, this Court rules that the issuance of the tax credit
certificate is subject to the condition that a post-audit will subsequently be conducted in order
Therefore, the TCCs are immediately valid and effective after their issuance. As aptly pointed
to determine if the holder is indeed qualified for its issuance. As stated earlier, the holder
out in the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines
takes the same subject to the outcome of the post-audit. Thus, unless and until there is a
and Instructions found at the back of each TCC, which provide:
final determination of the holder’s right to the issuance of the certificate, there exists no
obligation on the part of the DOF or the BIR to recognize the rights of then holder or
transferee. x x x 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.
xxxx

xxxx
The validity and propriety of the TCC to effectively constitute payment of taxes to the
government are still subject to the outcome of the post-audit. In other words, when the issuing
authority (DOF) finds, as in the case at bar, circumstances which may warrant the 4. To acknowledge application of payment, the One-Stop-Shop Tax Credit Center shall
cancellation of the certificate, the holder is inevitably bound by the outcome by the virtue of issue the corresponding Tax Debit Memo (TDM) to the grantee.
the express provisions of the TCCs.27
The authorized Revenue Officer/Customs Collector to which payment/utilization was made
The CTA En Banc is incorrect. shall accomplish the Application of Tax Credit portion at the back of the certificate and affix
his signature on the column provided. (Emphasis supplied.)
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.28 However, Art. The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay
1181 does not apply to the present case since the parties did NOT agree to a suspensive or settle tax liabilities of the grantee or transferee, as they do not make the effectivity and
condition. Rather, specific laws, rules, and regulations govern the subject TCCs, not the validity of the TCC dependent on the outcome of a post-audit. In fact, if we are to sustain the
general provisions of the Civil Code. Among the applicable laws that cover the TCCs are EO appellate tax court, it would be absurd to make the effectivity of the payment of a TCC
226 or the Omnibus Investments Code, Letter of Instructions No. 1355, EO 765, RP-US dependent on a post-audit since there is no contemplation of the situation wherein there is
Military Agreement, Sec. 106(c) of the Tariff and Customs Code, Sec. 106 of the NIRC, BIR no post-audit. Does the payment made become effective if no post-audit is conducted? Or
Revenue Regulations (RRs), and others. Nowhere in the aforementioned laws does the post- does the so-called suspensive condition still apply as no law, rule, or regulation specifies a
audit become necessary for the validity or effectivity of the TCCs. Nowhere in the period when a post-audit should or could be conducted with a prescriptive period? Clearly, a
aforementioned laws is it provided that a TCC is issued subject to a suspensive condition. 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.
The CTA En Banc’s holding of the presence of a suspensive condition is untenable as the
subject TCCs duly issued by the Center are immediately effective and valid. The suspensive Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition,
condition as ratiocinated by the CTA En Banc is one where the transfer contract was duly the very purpose of the TCC would be defeated as there would be no guarantee that the TCC
effected on the day it was executed between the transferee and the transferor but the TCC would be honored by the government as payment for taxes. No investor would take the risk
cannot be enforced until after the post-audit has been conducted. In short, under the ruling of utilizing TCCs if these were subject to a post-audit that may invalidate them, without
of the CTA En Banc, even if the TCC has been issued, the real and true application of the prescribed grounds or limits as to the exercise of said post-audit.
tax credit happens only after the post-audit confirms the TCC’s validity and not before the
confirmation; thus, the TCC can still be canceled even if it has already been ostensibly applied
The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive
to specific internal revenue tax liabilities.
condition, and are thus valid and effective from their issuance. As such, in the present case,
if the TCCs have already been applied as partial payment for the tax liability of PSPC, a post-
We are not convinced. audit of the TCCs cannot simply annul them and the tax payment made through said TCCs.
Payment has already been made and is as valid and effective as the issued TCCs. The
subsequent post-audit cannot void the TCCs and allow the respondent to declare that utilizing
We cannot subscribe to the CTA En Banc’s holding that the suspensive condition suspends
canceled TCCs results in nonpayment on the part of PSPC. As will be discussed, respondent
the effectivity of the TCCs as payment until after the post-audit. This strains the very nature
and the Center expressly recognize the TCCs as valid payment of PSPC’s tax liability.
of a TCC.

Second, the only conditions the TCCs are subjected to are those found on its face. And these
A tax credit is not specifically defined in our Tax Code,29 but Art. 21 of EO 226 defines a tax
are:
credit as "any of the credits against taxes and/or duties equal to those actually paid or would
1. Post-audit and subsequent adjustment in the event of computational
have been paid to evidence which a tax credit certificate shall be issued by the Secretary of
discrepancy;
Finance or his representative, or the Board (of Investments), if so delegated by the Secretary
2. A reduction for any outstanding account/obligation of herein claimant with the E.O. 226. To date, said Rule VII has not been repealed, amended or otherwise modified. It
BIR and/or BOC; and is noteworthy that the 1999 edition of the official publication by the BOI of E.O. 226 and its
3. Revalidation with the Center in case the TCC is not utilized or applied within IRRs (Exhibit R) which is the latest version, as amended, has not mentioned expressly or by
one (1) year from date of issuance/date of last utilization. reference [sic] 1989 MOA. The MOA mentioned therein is still the 1982 MOA.
The above conditions clearly show that the post-audit contemplated in the TCCs does not
pertain to their genuineness or validity, but on computational discrepancies that may have
The 1982 MOA, although executed as a mere agreement between the DOF and the BOI was
resulted from the transfer and utilization of the TCC.
elevated to the status of a rule and regulation applicable to the general public by reason of
its having been expressly incorporated in Rule VII of the IRRs. On the other hand, the 1989
This is shown by a close reading of the first and second conditions above; the third condition MOA which purportedly amended the 1982 MOA, remained a mere agreement between the
is self explanatory. Since a tax credit partakes of what is owed by the State to a taxpayer, if DOF and the BOI because, unlike the 1982 MOA, it was never incorporated either expressly
the taxpayer has an outstanding liability with the BIR or the BOC, the money value of the tax or by reference to any amendment or revision of the said IRRs. Thus, it cannot be the basis
credit covered by the TCC is primarily applied to such internal revenue liabilities of the holder of any invalidation of the transfers of TCCs to petitioner nor of any other sanction against
as provided under condition number two. Elsewise put, the TCC issued to a claimant is petitioner.36
applied first and foremost to any outstanding liability the claimant may have with the
government. Thus, it may happen that upon post-audit, a TCC of a taxpayer may be reduced
For another, even if the August 29, 1989 MOA has indeed amended the IRR, which it has
for whatever liability the taxpayer may have with the BIR which remains unpaid due to
not, still, it is ineffective and cannot prejudice third parties for lack of publication as
inadvertence or computational errors, and such reduction necessarily affects the balance of
mandatorily required under Chapter 2 of Book VII, EO 292, otherwise known as the
the monetary value of the tax credit of the TCC.
Administrative Code of 1987, which pertinently provides:

For example, Company A has been granted a TCC in the amount of PhP 500,000 through its
Section 3. Filing.––(1) Every agency shall file with the University of the Philippines Law
export transactions, but it has an outstanding excise tax liability of PhP 250,000 which due to
Center three (3) certified copies of every rule adopted by it. Rules in force on the date of
inadvertence was erroneously assessed and paid at PhP 225,000. On post-audit, with the
effectivity of this Code which are not filed within three (3) months from the date shall not
finding of a deficiency of PhP 25,000, the utilization of the TCC is accordingly corrected and
thereafter be the basis of any sanction against any party or person.
the tax credit remaining in the TCC correspondingly reduced by PhP 25,000. This is a
concrete example of a computational discrepancy which comes to light after a post-audit is
conducted on the utilization of the TCC. The same holds true for a transferee’s use of the (2) The records officer of the agency, or his equivalent functionary, shall carry
TCC in paying its outstanding internal revenue tax liabilities. out the requirements of this section under pain of disciplinary action.

Other examples of computational errors would include the utilization of a single TCC to settle (3) A permanent register of all rules shall be kept by the issuing agency and shall
several internal revenue tax liabilities of the taxpayer or transferee, where errors committed be open to public inspection.
in the reduction of the credit tax running balance are discovered in the post-audit resulting in
the adjustment of the TCC utilization and remaining tax credit balance.
Section 4. Effectivity.––In addition to other rule-making requirement provided by law not
inconsistent with this Book, each rule shall become effective fifteen (15) days from the date
Third, the post-audit the Center conducted on the transferred TCCs, delving into their of filing as above provided unless a different date is fixed by law, or specified in the rule in
issuance and validity on alleged violations by PSPC of the August 29, 1989 MOA between cases of imminent danger to public health, safety and welfare, the existence of which must
the DOF and BOI, is completely misplaced. As may be recalled, the Center required PSPC be expressed in a statement accompanying the rule. The agency shall take appropriate
to submit copies of pertinent sales invoices and delivery receipts covering sale transactions measures to make emergency rules known to persons who may be affected by them.
of PSPC products to the TCC assignors/transferors purportedly in connection with an ongoing
post audit. As correctly protested by PSPC but which was completely ignored by the Center,
PSPC is not required by law to be a capital equipment provider or a supplier of raw material Section 5. x x x x
and/or component supplier to the transferors. What the law requires is that the transferee be
a BOI-registered company similar to the BOI-registered transferors. (2) Every rule establishing an offense or defining an act which pursuant to law, is punishable
as a crime or subject to a penalty shall in all cases be published in full text.
The IRR of EO 226, which incorporated the October 5, 1982 MOA between the MOF and
BOI, pertinently provides for the guidelines concerning the transferability of TCCs: It is clear that the Center or DOF cannot compel PSPC to submit sales documents for the
purported post-audit, as PSPC has duly complied with the requirements of the law and rules
[T]he MOF and the BOI, through their respective representatives, have agreed on the to be a qualified transferee of the subject TCCs.
following guidelines to govern the transferability of tax credit certificates:
Fourth, we likewise fail to see the liability clause at the dorsal portion of the TCCs to be a
1) All tax credit certificates issued to BOI-registered enterprises under P.D. 1789 suspensive condition relative to the result of the post-audit. Said liability clause indicates:
may be transferred under conditions provided herein;
LIABILITY CLAUSE
2) The transferee should be a BOI-registered firm;
Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any
3) The transferee may apply such tax credit certificates for payment of taxes, fraudulent act or violation of the pertinent laws, rules and regulations relating to
duties, charges or fees directly due to the national government for as long as it the transfer of this TAX CREDIT CERTIFICATE. (Emphasis supplied.)
enjoys incentives under P.D. 1789. (Emphasis supplied.)
The above clause to our mind clearly provides only for the solidary liability relative to the
The above requirement has not been amended or repealed during the unfolding of the instant transfer of the TCCs from the original grantee to a transferee. There is nothing in the above
controversy. Thus, it is clear from the above proviso that it is only required that a TCC clause that provides for the liability of the transferee in the event that the validity of the TCC
transferee be BOI-registered. In requiring PSPC to submit sales documents for its purported issued to the original grantee by the Center is impugned or where the TCC is declared to
post-audit of the TCCs, the Center gravely abused its discretion as these are not required of have been fraudulently procured by the said original grantee. Thus, the solidary liability, if
the transferee PSPC by law and by the rules. 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
While the October 5, 1982 MOA appears to have been amended by the August 29, 1989 for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor
MOA between the DOF and BOI, such may not operate to prejudice transferees like PSPC. in the procurement or issuance of the TCC from the Center. It is not only unjust but well-nigh
For one, the August 29, 1989 MOA remains only an internal agreement as it has neither been violative of the constitutional right not to be deprived of one’s property without due process
elevated to the level of nor incorporated as an amendment in the IRR of EO 226. As aptly put of law. Thus, a re-assessment of tax liabilities previously paid through TCCs by a transferee
by the CTA Division: in good faith and for value is utterly confiscatory, more so when surcharges and interests are
likewise assessed.
If the 1989 MOA has validly amended the 1982 MOA, it would have been incorporated either
expressly or by reference in Rule VII of the Implementing Rules and Regulations (IRRs) of
A transferee in good faith and for value of a TCC who has relied on the Center’s Therefore, PSPC cannot be prejudiced by the Center’s turnaround in assailing the validity of
representation of the genuineness and validity of the TCC transferred to it may not be legally the subject TCCs which it issued in due course.
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
Sixth, we are of the view that the subject TCCs cannot be canceled by the Center as these
tax liabilities. Conversely, when the transferee is party to the fraud as when it did not obtain
had already been canceled after their application to PSPC’s excise tax liabilities. PSPC
the TCC for value or was a party to or has knowledge of its fraudulent issuance, said
contends they are already functus officio, not quite in the sense of being no longer effective,
transferee is liable for the taxes and for the fraud committed as provided for by law.
but in the sense that they have been used up. When the subject TCCs were accepted by the
BIR through the latter’s issuance of TDM and the ATAPETs, the subject TCCs were duly
In the instant case, a close review of the factual milieu and the records reveals that PSPC is canceled.
a transferee in good faith and for value. No evidence was adduced that PSPC participated in
any way in the issuance of the subject TCCs to the corporations who in turn conveyed the
The tax credit of a taxpayer evidenced by a TCC is used up or, in accounting parlance,
same to PSPC. It has likewise been shown that PSPC was not involved in the processing for
debited when applied to the taxpayer’s internal revenue tax liability, and the TCC canceled
the approval of the transfers of the subject TCCs from the various BOI-registered transferors.
after the tax credit it represented is fully debited or used up. A credit is a payable or a liability.
A tax credit, therefore, is a liability of the government evidenced by a TCC. Thus, the tax
Respondent, through the Center, made much of the alleged non-payment through non- credit of a taxpayer evidenced by a TCC is debited by the BIR through a TDM, not only
delivery by PSPC of the IFOs it purportedly sold to the transferors covered by supply evidencing the payment of the tax by the taxpayer, but likewise deducting or debiting the
agreements which were allegedly the basis of the Center for the approval of the transfers. existing tax credit with the amount of the tax paid.
Respondent points to the requirement under the August 29, 1989 MOA between the DOF
and BOI, specifying the requirement that "[t]he transferee should be a BOI-registered firm
For example, a transferee or the tax claimant has a TCC of PhP 1 million, which was used to
which is a domestic capital equipment supplier, or a raw material and/or component supplier
pay income tax liability of PhP 500,000, documentary stamp tax liability of PhP 100,000, and
of the transferor." 37
value-added tax liability of PhP 350,000, for an aggregate internal revenue tax liability of PhP
950,000. After the payments through the PhP 1 million TCC have been approved and
As discussed above, the above amendment to the October 5, 1982 MOA between BOI and accepted by the BIR through the issuance of corresponding TDM, the TCC money value is
MOF cannot prejudice any transferee, like PSPC, as it was neither incorporated nor elevated reduced to only PhP 50,000, that is, a credit balance of PhP 50,000. In this sense, the tax
to the IRR of EO 226, and for lack of due publication. The pro-forma supply agreements credit of the TCC has been canceled or used up in the amount of PhP 950,000. Now, let us
allegedly executed by PSPC and the transferors covering the sale of IFOs to the transferors say the transferee or taxpayer has excise tax liability of PhP 250,000, s/he only has the
have been specifically denied by PSPC. Moreover, the above-quoted requirement is not remaining PhP 50,000 tax credit in the TCC to pay part of said excise tax. When the
required under the IRR of EO 226. Therefore, it is incumbent for respondent to present said transferee or taxpayer applies such payment, the TCC is canceled as the money value of the
supply agreements to prove participation by PSPC in the approval of the transfers of the tax credit it represented has been fully debited or used up. In short, there is no more tax credit
subject TCCs. Respondent failed to do this. available for the taxpayer to settle his/her other tax liabilities.

PSPC claims to be a transferee in good faith of the subject TCCs. It believed that its tax In the instant case, with due application, approval, and acceptance of the payment by PSPC
obligations for 1992 and 1994 to 1997 had in fact been paid when it applied the subject TCCs, of the subject TCCs for its then outstanding excise tax liabilities in 1992 and 1994 to 1997,
considering that all the necessary authorizations and approvals attendant to the transfer and the subject TCCs have been canceled as the money value of the tax credits these
utilization of the TCCs were present. It is undisputed that the transfers of the TCCs from the represented have been used up. Therefore, the DOF through the Center may not now cancel
original holders to PSPC were duly approved by the Center, which is composed of a number the subject TCCs as these have already been canceled and used up after their acceptance
of government agencies, including the BIR. Such approval was annotated on the reverse side as payment for PSPC’s excise tax liabilities. What has been used up, debited, and canceled
of the TCCs, and the Center even issued TDM which is proof of its approval for PSPC to cannot anymore be declared to be void, ineffective, and canceled anew.
apply the TCCs as payment for the tax liabilities. The BIR issued its own TDM, also signifying
approval of the TCCs as payment for PSPC’s tax liabilities. The BIR also issued ATAPETs
Besides, it is indubitable that with the issuance of the corresponding TDM, not only is the
covering the aforementioned BIR-issued TDM, further proving its acceptance of the TCCs as
TCC canceled when fully utilized, but the payment is also final subject only to a post-audit on
valid tax payments, which formed part of PSPC’s total tax payments along with checks duly
computational errors. Under RR 5-2000, a TDM is
acknowledged and received by BIR’s authorized agent banks.

a certification, duly issued by the Commissioner or his duly authorized representative,


Several approvals were secured by PSPC before it utilized the transferred TCCs, and it relied
reduced in a BIR Accountable Form in accordance with the prescribed formalities,
on the verification of the various government agencies concerned of the genuineness and
acknowledging that the taxpayer named therein has duly paid his internal revenue tax liability
authenticity of the TCCs as well as the validity of their issuances. Furthermore, the parties
in the form of and through the use of a Tax Credit Certificate, duly issued and existing in
stipulated in open court that the BIR-issued ATAPETs for the taxes covered by the subject
accordance with the provisions of these Regulations. The Tax Debit Memo shall serve as
TCCs confirm the correctness of the amount of excise taxes paid by PSPC during the tax
the official receipt from the BIR evidencing a taxpayer’s payment or satisfaction of his
years in question.
tax obligation. The amount shown therein shall be charged against and deducted from the
credit balance of the aforesaid Tax Credit Certificate.
Thus, it is clear that PSPC is a transferee in good faith and for value of the subject TCCs and
may not be prejudiced with a re-assessment of excise tax liabilities it has already settled
Thus, with the due issuance of TDM by the Center and TDM by the BIR, the payments made
when due with the use of the subject TCCs. Logically, therefore, the excise tax returns filed
by PSPC with the use of the subject TCCs have been effected and consummated as the
by PSPC duly covered by the TDM and ATAPETs issued by the BIR confirming the full
TDMs serve as the official receipts evidencing PSPC’s payment or satisfaction of its tax
payment and satisfaction of the excise tax liabilities of PSPC, have not been fraudulently
obligation. Moreover, the BIR not only issued the corresponding TDM, but it also issued
filed. Consequently, as PSPC is a transferee in good faith and for value, Sec. 222(a) of the
ATAPETs which doubly show the payment of the subject excise taxes of PSPC.
NIRC does not apply in the instant case as PSPC has neither been shown nor proven to have
committed any fraudulent act in the transfer and utilization of the subject TCCs. With more
reason, therefore, that the three-year prescriptive period for assessment under Art. 203 of Based on the above discussion, we hold that respondent erroneously and without factual and
the NIRC has already set in and bars respondent from assessing anew PSPC for the excise legal basis levied the assessment. Consequently, the CTA En Banc erred in sustaining
taxes already paid in 1992 and 1994 to 1997. Besides, even if the period for assessment has respondent’s assessment.
not prescribed, still, there is no valid ground for the assessment as the excise tax liabilities of
PSPC have been duly settled and paid.
Second Issue: Cancellation of TCCs

Fifth, PSPC cannot be blamed for relying on the Center’s approval for the transfers of the
subject TCCs and the Center’s acceptance of the TCCs for the payment of its excise tax PSPC argues that the CTA En Banc erred in upholding the cancellation by the Center of the
liabilities. Likewise, PSPC cannot be faulted in relying on the BIR’s acceptance of the subject subject TCCs it used in paying some of its excise tax liabilities as the subject TCCs were
TCCs as payment for its excise tax liabilities. This reliance is supported by the fact that the genuine and authentic, having been subjected to thorough and stringent procedures, and
subject TCCs have passed through stringent reviews starting from the claims of the approvals by the Center. Moreover, PSPC posits that both the CTA’s Division and En
transferors, their issuance by the Center, the Center’s approval for their transfer to PSPC, Banc duly found that PSPC had neither knowledge, involvement, nor participation in the
the Center’s acceptance of the TCCs to pay PSPC’s excise tax liabilities through the issuance alleged fraudulent issuance of the subject TCCs, and, thus, as a transferee in good faith and
of the Center’s TDM, and finally the acceptance by the BIR of the subject TCCs as payment for value, it cannot be held solidarily liable for any fraud attendant to the issuance of the
through the issuance of its own TDM and ATAPETs. subject TCCs. PSPC further asserts that the Center has no authority to cancel the subject
TCCs as such authority is lodged exclusively with the BOI. Lastly, PSPC said that the
Center’s Excom Resolution No. 03-05-99 which the Center relied upon as basis for the a. To promulgate the necessary rules and regulations and/or guidelines for the
cancellation is defective, ineffective, and cannot prejudice third parties for lack of publication. effective implementation of this administrative order;

As we have explained above, the subject TCCs after being fully utilized in the settlement of x x x x
PSPC’s excise tax liabilities have been canceled, and thus cannot be canceled anymore. For
being immediately effective and valid when issued, the subject TCCs have been duly utilized
g. To enforce compliance with tax credit/duty drawback policy and procedural
by transferee PSPC which is a transferee in good faith and for value.
guidelines;

On the issue of the fraudulent procurement of the TCCs, it has been asseverated that fraud
xxxx
was committed by the TCC claimants who were the transferors of the subject TCCs. We see
no need to rule on this issue in view of our finding that the real issue in this petition does not
dwell on the validity of the TCCs procured by the transferor from the Center but on whether l. To perform such other functions/duties as may be necessary or incidental in the
fraud or breach of law attended the transfer of said TCCs by the transferor to the transferee. furtherance of the purpose for which it has been established. (Emphasis supplied.)

The finding of the CTA En Banc that there was fraud in the procurement of the subject TCCs Sec. 3, letter l. of AO 266, in relation to letters a. and g., does give ample authority to the
is, therefore, irrelevant and immaterial to the instant petition. Moreover, there are pending Center to cancel the TCCs it issued. Evidently, the Center cannot carry out its mandate if it
criminal cases arising from the alleged fraud. We leave the matter to the anti-graft court cannot cancel the TCCs it may have erroneously issued or those that were fraudulently
especially considering the failure of the affiants to the affidavits to appear, making these issued. It is axiomatic that when the law and its implementing rules are silent on the matter
hearsay evidence. of cancellation while granting explicit authority to issue, an inherent and incidental power
resides on the issuing authority to cancel that which was issued. A caveat however is required
in that while the Center has authority to do so, it must bear in mind the nature of the TCC’s
We note in passing that PSPC and its officers were not involved in any fraudulent act that
immediate effectiveness and validity for which cancellation may only be exercised before a
may have been undertaken by the transferors of subject TCCs, supported by the finding of
transferred TCC has been fully utilized or canceled by the BIR after due application of the
the Ombudsman Special Prosecutor Leonardo P. Tamayo that Pacifico R. Cruz, PSPC
available tax credit to the internal revenue tax liabilities of an innocent transferee for value,
General Manager of the Treasury and Taxation Department, who was earlier indicted as
unless of course the claimant or transferee was involved in the perpetration of the fraud in
accused in OMB-0-99-2012 to 2034 for violation of Sec. 3(e) and (j) of RA 3019, as amended,
the TCC’s issuance, transfer, or utilization. The utilization of the TCC will not shield a guilty
otherwise known as the "Anti-Graft and Corrupt Practices Act," for allegedly conspiring with
party from the consequences of the fraud committed.
other accused in defrauding and causing undue injury to the government,38 did not in any
way participate in alleged fraudulent activities relative to the transfer and use of the subject
TCCs. While we agree with respondent that the State in the performance of governmental function
is not estopped by the neglect or omission of its agents, and nowhere is this truer than in the
field of taxation,42 yet this principle cannot be applied to work injustice against an innocent
In a Memorandum39 addressed to then Ombudsman Aniano A. Desierto, the Special
party. In the case at bar, PSPC’s rights as an innocent transferee for value must be protected.
Prosecutor Leonardo P. Tamayo recommended dropping Pacifico Cruz as accused in
Therefore, the remedy for respondent is to go after the claimant companies who allegedly
Criminal Case Nos. 25940-25962 entitled People of the Philippines v. Antonio P. Belicena,
perpetrated the fraud. This is now the subject of a criminal prosecution before the
et al., pending before the Sandiganbayan Fifth Division for lack of probable cause. Special
Sandiganbayan docketed as Criminal Case Nos. 25940-25962 for violation of RA 3019.

Prosecutor Tamayo found that Cruz’s involvement in the transfers of the subject TCCs came
On the issue of the publication of the Center’s Excom Resolution No. 03-05-99 providing for
after the applications for the transfers had been duly processed and approved; and that Cruz
the "Guidelines and Procedures for the Cancellation, Recall and Recovery of Fraudulently
could not have been part of the conspiracy as he cannot be presumed to have knowledge of
Issued Tax Credit Certificates," we find that the resolution is invalid and unenforceable. It
the irregularity, because the 1989 MOA, which prescribed the additional requirement that the
authorizes the cancellation of TCCs and TDM which are found to have been granted without
transferee of a TCC should be a supplier of the transferor, was not yet published and made
legal basis or based on fraudulent documents. The cancellation of the TCCs and TDM is
known to private parties at the time the subject TCCs were transferred to PSPC. The
covered by a penal provision of the assailed resolution. Such being the case, it should have
Memorandum of Special Prosecutor Tamayo was duly approved by then Ombudsman
been published and filed with the National Administrative Register of the U.P. Law Center in
Desierto. Consequently, on May 31, 2000, the Sandiganbayan Fifth Division, hearing
accordance with Secs. 3, 4, and 5, Chapter 2 of Book VII, EO 292 or the Administrative Code
Criminal Case Nos. 25940-25962, dropped Cruz as accused.40
of 1987.

But even assuming that fraud attended the procurement of the subject TCCs, it cannot
We explained in People v. Que Po Lay43 that a rule which carries a penal sanction will bind
prejudice PSPC’s rights as earlier explained since PSPC has not been shown or proven to
the public if the public is officially and specifically informed of the contents and penalties
have participated in the perpetration of the fraudulent acts, nor is it shown that PSPC
prescribed for the breach of the rule. Since Excom Resolution No. 03-05-99 was neither
committed fraud in the transfer and utilization of the subject TCCs.
registered with the U.P.

On the issue of the authority to cancel duly issued TCCs, we agree with respondent that the
Law Center nor published, it is ineffective and unenforceable. Even if the resolution need not
Center has concurrent authority with the BIR and BOC to cancel the TCCs it issued. The
be published, the punishment for any alleged fraudulent act in the procurement of the TCCs
Center was created under Administrative Order No. (AO) 266 in relation to EO 226. A scrutiny
must not be visited on PSPC, an innocent transferee for value, which has not been shown to
of said executive issuances clearly shows that the Center was granted the authority to issue
have participated in the fraud. Respondent must go after the perpetrators of the fraud.
TCCs pursuant to its mandate under AO 266. Sec. 5 of AO 266 provides:

Third Issue: Imposition of surcharges and interests


SECTION 5. Issuance of Tax Credit Certificates and/or Duty Drawback.—The Secretary
of Finance shall designate his representatives who shall, upon the recommendation of the
CENTER, issue tax credit certificates within thirty (30) working days from acceptance of PSPC claims that having no deficiency excise tax liabilities, it may not be liable for the late
applications for the enjoyment thereof. (Emphasis supplied.) payment surcharges and annual interests.

On the other hand, it is undisputed that the BIR under the NIRC and related statutes has the This issue has been mooted by our disquisition above resolving the first issue in that PSPC
authority to both issue and cancel TCCs it has issued and even those issued by the Center, has duly settled its excise tax liabilities for 1992 and 1994 to 1997. Consequently, there is no
either upon full utilization in the settlement of internal revenue tax liabilities or upon basis for the imposition of a late payment surcharges and for interests, and no need for further
conversion into a tax refund of unutilized TCCs in specific cases under the conditions discussion on the matter.
provided.41 AO 266 however is silent on whether or not the Center has authority to cancel a
TCC it itself issued. Sec. 3 of AO 266 reveals:
Fourth Issue: Non-compliance with statutory and
procedural due process
SECTION 3. Powers, Duties and Functions.—The Center shall have the following powers,
duties and functions:
Finally, PSPC avers that its statutory and procedural right to due process was violated by
respondent in the issuance of the assessment. PSPC claims respondent violated RR 12-99
since no pre-assessment notice was issued to PSPC before the November 15, 1999
assessment. Moreover, PSPC argues that the November 15, 1999 assessment effectively
deprived it of its statutory right to protest the pre-assessment within 30 days from receipt of
the disputed assessment letter.

While this has likewise been mooted by our discussion above, it would not be amiss to state
that PSPC’s rights to substantive and procedural due process have indeed been violated.
The facts show that PSPC was not accorded due process before the assessment was levied
on it. The Center required PSPC to submit certain sales documents relative to supposed
delivery of IFOs by PSPC to the TCC transferors. PSPC contends that it could not submit
these documents as the transfer of the subject TCCs did not require that it be a supplier of
materials and/or component supplies to the transferors in a letter dated October 29, 1999
which was received by the Center on November 3, 1999. On the same day, the Center
informed PSPC of the cancellation of the subject TCCs and the TDM covering the application
of the TCCs to PSPC’s excise tax liabilities. The objections of PSPC were brushed aside by
the Center and the assessment was issued by respondent on November 15, 1999, without
following the statutory and procedural requirements clearly provided under the NIRC and
applicable regulations.

What is applicable is RR 12-99, which superseded RR 12-85, pursuant to Sec. 244 in relation
to Sec. 245 of the NIRC implementing Secs. 6, 7, 204, 228, 247, 248, and 249 on the
assessment of national internal revenue taxes, fees, and charges. The procedures delineated
in the said statutory provisos and RR 12-99 were not followed by respondent, depriving PSPC
of due process in contesting the formal assessment levied against it. Respondent ignored
RR 12-99 and did not issue PSPC a notice for informal conference44 and a preliminary
assessment notice, as required.45 PSPC’s November 4, 1999 motion for reconsideration of
the purported Center findings and cancellation of the subject TCCs and the TDM was not
even acted upon.1âwphi1

PSPC was merely informed that it is liable for the amount of excise taxes it declared in its
excise tax returns for 1992 and 1994 to 1997 covered by the subject TCCs via the formal
letter of demand and assessment notice. For being formally defective, the November 15,
1999 formal letter of demand and assessment notice is void. Paragraph 3.1.4 of Sec. 3, RR
12-99 pertinently provides:

3.1.4 Formal Letter of Demand and Assessment Notice.––The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayer’s deficiency tax or
taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and assessment notice
shall be void. The same shall be sent to the taxpayer only by registered mail or by personal
delivery. x x x (Emphasis supplied.)

In short, respondent merely relied on the findings of the Center which did not give PSPC
ample opportunity to air its side. While PSPC indeed protested the formal assessment, such
does not denigrate the fact that it was deprived of statutory and procedural due process to
contest the assessment before it was issued. Respondent must be more circumspect in the
exercise of his functions, as this Court aptly held in Roxas v. Court of Tax Appeals:

The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden
egg." And, in the order to maintain the general public’s trust and confidence in the
Government this power must be used justly and not treacherously.46

WHEREFORE, the petition is GRANTED. The April 28, 2006 CTA En Banc Decision in CTA
EB No. 64 is hereby REVERSED and SET ASIDE, and the August 2, 2004 CTA Decision in
CTA Case No. 6003 disallowing the assessment is hereby REINSTATED. The assessment
of respondent for deficiency excise taxes against petitioner for 1992 and 1994 to 1997
inclusive contained in the April 22, 1998 letter of respondent is canceled and declared without
force and effect for lack of legal basis. No pronouncement as to costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR.


Associate Justice
COMMISSIONER OF INTERNAL REVENUE and ARTURO V. PARCERO, petitioners,vs.
PRIMETOWN PROPERTY GROUP INC., respondent.
G.R. No. 162155. August 28,2007.

Facts:

On March 11, 1999, Gilbert Yap, the Vice President of Primetown (respondent), applied for
refund of the income tax which they have paid on 1997. According to Yap, the company
accrued losses amounting to P/ 71,879,228. These losses enabled them to be exempt from
paying income tax, which respondent paid diligently. Respondent was therefore claiming a
refund. Respondents submitted requirements but the petitioners ignored their claim. On April
14, 2000, respondents filed a review in the Court of Tax Appeals. The said Court, however,
denied the petition stating that the petition was filed beyond the 2-year prescriptive period for
filing judicial claim for tax refund.

According to Sec 229 of the National Internal Revenue Code, “no suit or proceedings shall
be filed after the expiration of 2-yearsfrom the date of the payment of the tax regardless of
any supervening cause that may arise after payment. Respondents paid the last income tax
return on April 14, 1998. Article 13 of the New Civil Code states that a year is considered 365
days; months 30 days; days 24-hours; and night from sunset to sunrise. Therefore, according
to CTA, the date of filing a petition fell on the 731st day, which is beyond the prescriptive
period.

Issues:

Whether the two-year/730-day prescriptive period ends on April 13, 2000 or April 14, 2000
considering that the last payment of tax was on April 14, 1998 and that year 2000 was a leap
year.

Whether or not Article 13 of the New Civil Code be repealed by EO 292 Sec 31 Chap 8 Book
1 of the Administrative Code of 1987.

Ruling:

The Court ruled that when a subsequent law impliedly repeals a prior law, the new law shall
apply. In the case at bar, Art 13 of the New Civil Code, which states that a year shall compose
365 days, shall be repealed by EO 292 Sec 31 of the Administrative Code of 1987, which
states that a year shall be composed of 12 months regardless of the number of days in a
month. Therefore, the two-year prescriptive period ends on April 14, 2000. Respondents filed
petition on April 14, 2000 (which is the last day prescribed to file a petition.
FIRST DIVISION [the CIR] demanded payment of the amount of P18,034,382.13 on or before April 15, 2000[;]
G.R. No. 159694 January 27, 2006 otherwise, the notice of sale of the subject property would be published.
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the
AZUCENA T. REYES, Respondent.
basic tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated
x -- -- -- -- -- -- -- -- -- -- -- -- -- x
May 18, 2000.
G.R. No. 163581 January 27, 2006
AZUCENA T. REYES, Petitioner,
vs. "As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief,
COMMISSIONER OF INTERNAL REVENUE, Respondent. Collection Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject
DECISION property would be sold at public auction on August 8, 2000.
PANGANIBAN, CJ.:
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the
Under the present provisions of the Tax Code and pursuant to elementary due process, scheduled auction sale, she asserted that x x x the assessment, letter of demand[,] and the
taxpayers must be informed in writing of the law and the facts upon which a tax assessment whole tax proceedings against the estate are void ab initio. She offered to file the
is based; otherwise, the assessment is void. Being invalid, the assessment cannot in turn be corresponding estate tax return and pay the correct amount of tax without surcharge [or]
used as a basis for the perfection of a tax compromise. interest.

The Case "Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection Enforcement
Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000,
[Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or ‘CTA’), docketed as
Before us are two consolidated Petitions for Review filed under Rule 45 of the Rules of
1 2
CTA Case No. 6124.
Court, assailing the August 8, 2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No.
71392. The dispositive portion of the assailed Decision reads as follows:
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction
or Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyes’s] filing
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals
of a surety bond in the amount of P27,000,000.00, the CTA issued a [R]esolution dated
is ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation
August 16, 2000 ordering [the CIR] to desist and refrain from proceeding with the auction
Board on the proposed compromise settlement of the Maria C. Tancinco estate’s tax
sale of the subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank
liability."4
[A]ccount[,] pending determination of the case and/or unless a contrary order is issued.

The Facts
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer
has jurisdiction over the case[,] because the assessment against the estate is already final
The CA narrated the facts as follows: and executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November
23, 2000, the CTA denied [the CIR’s] motion.
"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292 square-meter
residential lot and an old house thereon (or ‘subject property’) located at 4931 Pasay Road, "During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued
Dasmariñas Village, Makati City. Revenue Regulation (or ‘RR’) No. 6-2000 and Revenue Memorandum Order (or ‘RMO’) No.
42-2000 offering certain taxpayers with delinquent accounts and disputed assessments an
opportunity to compromise their tax liability.
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain
Raymond Abad (or ‘Abad’), Revenue District Office No. 50 (South Makati) conducted an
investigation on the decedent’s estate (or ‘estate’). Subsequently, it issued a Return "On November 25, 2000, [Reyes] filed an application with the BIR for the compromise
Verification Order. But without the required preliminary findings being submitted, it issued settlement (or ‘compromise’) of the assessment against the estate pursuant to Sec. 204(A)
Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena of the Tax Code, as implemented by RR No. 6-2000 and RMO No. 42-2000.
T. Reyes (or ‘[Reyes]’), one of the decedent’s heirs, received the Letter of Authority on March
14, 1997.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing
before the CTA scheduled on January 9, 2001, citing her pending application for compromise
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or with the BIR. The motion was granted and the hearing was reset to February 6, 2001.
‘BIR’), issued a preliminary assessment notice against the estate in the amount
of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or ‘heirs’) received a final
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6,
estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount
2001, this time on the ground that she had already paid the compromise amount
of P14,912,205.47, inclusive of surcharge and interest.
of P1,062,778.20 but was still awaiting approval of the National Evaluation Board (or ‘NEB’).
The CTA granted the motion and reset the hearing to February 27, 2001.
"On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’) protested the assessment [o]n
behalf of the heirs on the ground that the subject property had already been sold by the
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of
decedent sometime in 1990.
Disputed Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR]
had not yet signed the compromise[,] because of procedural red tape requiring the initials of
"On November 12, 1998, the Commissioner of Internal Revenue (or ‘[CIR]’) issued a four Deputy Commissioners on relevant documents before the compromise is signed by the
preliminary collection letter to [Reyes], followed by a Final Notice Before Seizure dated [CIR]. [Reyes] posited that the absence of the requisite initials and signature[s] on said
December 4, 1998. documents does not vitiate the perfected compromise.

"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed "Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB,
on February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it. [Reyes’s] application for compromise with the BIR cannot be considered a perfected or
consummated compromise.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the
heirs proposed a compromise settlement of P1,000,000.00. "On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a Motion for
Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the
[M]otion for [R]econsideration with the suggestion that[,] for an orderly presentation of her
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic
case and to prevent piecemeal resolutions of different issues, [Reyes] should file a
tax due, citing the heirs’ inability to pay the tax assessment. On March 20, 2000, [the CIR]
[S]upplemental [P]etition for [R]eview[,] setting forth the new issue of whether there was
rejected [Reyes’s] offer, pointing out that since the estate tax is a charge on the estate and
already a perfected compromise.
not on the heirs, the latter’s financial incapacity is immaterial as, in fact, the gross value of
the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. Thus,
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on In GR No. 159694, petitioner raises the following issues for the Court’s consideration:
June 4, 2001 by its Amplificatory Arguments (for the Supplemental Petition for Review),
raising the following issues:
"I.

‘1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the
Whether petitioner’s assessment against the estate is valid.
Secretary of Finance, of a tax liability pending in court, that was accepted and paid by the
taxpayer, is a perfected and consummated compromise.
"II.
‘2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code
(CTRP) that requires approval by the BIR [NEB].’ Whether respondent can validly argue that she, as well as the other heirs, was not aware of
the facts and the law on which the assessment in question is based, after she had opted to
propose several compromises on the estate tax due, and even prematurely acting on such
"Answering the Supplemental Petition, [the CIR] averred that an application for compromise
proposal by paying 20% of the basic estate tax due."11
of a tax liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and
approval of either the NEB or the Regional Evaluation Board (or ‘REB’), as the case may be.
The foregoing issues can be simplified as follows: first, whether the assessment against the
estate is valid; and, second, whether the compromise entered into is also valid.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was
granted on July 11, 2001. After submission of memoranda, the case was submitted for
[D]ecision. The Court’s Ruling

"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently The Petition is unmeritorious.
reads:
First Issue:
‘WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby
DENIED. Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the
amount of Nineteen Million Five Hundred Twenty Four Thousand Nine Hundred Nine and Validity of the Assessment Against the Estate
78/100 (P19,524,909.78), computed as follows:
The second paragraph of Section 228 of the Tax Code 12 is clear and mandatory. It provides
xxxxxxxxx as follows:

‘[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due "Sec. 228. Protesting of Assessment. --
of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section
249(c) of the Tax Code, as amended.’ xxxxxxxxx

"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and "The taxpayers shall be informed in writing of the law and the facts on which the assessment
consummated compromise of the estate’s tax liability[,] if the NEB has approved [Reyes’s] is made: otherwise, the assessment shall be void."
application for compromise in accordance with RR No. 6-2000, as implemented by RMO No.
42-2000.
In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the
"Anent the validity of the assessment notice and letter of demand against the estate, the CTA CIR, who had simply relied upon the provisions of former Section 229 13 prior to its
stated that ‘at the time the questioned assessment notice and letter of demand were issued, amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997.
the heirs knew very well the law and the facts on which the same were based.’ It also
observed that the petition was not filed within the 30-day reglementary period provided under
Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the Tax Code."5 First, RA 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was
changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which
Ruling of the Court of Appeals an assessment would be made; otherwise, the assessment itself would be invalid.

In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 It was on February 12, 1998, that a preliminary assessment notice was issued against the
were mandatory and unequivocal in their requirement. The assessment notice and the estate. On April 22, 1998, the final estate tax assessment notice, as well as demand letter,
demand letter should have stated the facts and the law on which they were based; otherwise, was also issued. During those dates, RA 8424 was already in effect. The notice required
they were deemed void.6 The appellate court held that while administrative agencies, like the under the old law was no longer sufficient under the new law.
BIR, were not bound by procedural requirements, they were still required by law and equity
to observe substantive due process. The reason behind this requirement, said the CA, was
To be simply informed in writing of the investigation being conducted and of the
to ensure that taxpayers would be duly apprised of -- and could effectively protest -- the basis
of tax assessments against them.7Since the assessment and the demand were void, the recommendation for the assessment of the estate taxes due is nothing but a perfunctory
proceedings emanating from them were likewise void, and any order emanating from them discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to
could never attain finality. mean that Reyes already knew the law and the facts on which the assessment was based. It
does not at all conform to the compulsory requirement under Section 228. Moreover, the
Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of
The appellate court added, however, that it was premature to declare as perfected and investigation and was not even the requisite notice under the law.
consummated the compromise of the estate’s tax liability. It explained that, where the basic
tax assessed exceeded P1 million, or where the settlement offer was less than the prescribed
minimum rates, the National Evaluation Board’s (NEB) prior evaluation and approval were The procedure for protesting an assessment under the Tax Code is found in Chapter III of
the conditio sine qua non to the perfection and consummation of any compromise.8Besides, Title VIII, which deals with remedies. Being procedural in nature, can its provision then be
the CA pointed out, Section 204(A) of the Tax Code applied to all compromises, whether applied retroactively? The answer is yes.
government-initiated or not.9 Where the law did not distinguish, courts too should not
distinguish. The general rule is that statutes are prospective. However, statutes that are remedial, or that
do not create new or take away vested rights, do not fall under the general rule against the
Hence, this Petition.10 retroactive operation of statutes.14 Clearly, Section 228 provides for the procedure in case an
assessment is protested. The provision does not create new or take away vested rights. In
both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state,
The Issues either expressly or by necessary implication, that pending actions are excepted from the
operation of Section 228, or that applying it to pending proceedings would impair vested Second Issue:
rights.
Validity of Compromise
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no
moment, considering that it merely implements the law.
It would be premature for this Court to declare that the compromise on the estate tax liability
has been perfected and consummated, considering the earlier determination that the
A tax regulation is promulgated by the finance secretary to implement the provisions of the assessment against the estate was void. Nothing has been settled or finalized. Under Section
Tax Code.15 While it is desirable for the government authority or administrative agency to 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the
have one immediately issued after a law is passed, the absence of the regulation does not settlement offered is less than the prescribed minimum rates, the compromise shall be
automatically mean that the law itself would become inoperative. subject to the approval of the NEB composed of the petitioner and four deputy
commissioners.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the
taxpayer must be informed of both the law and facts on which the assessment was based. Finally, as correctly held by the appellate court, this provision applies to all compromises,
Thus, the CIR should have required the assessment officers of the Bureau of Internal whether government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos.
Revenue (BIR) to follow the clear mandate of the new law. The old regulation governing the Where the law does not distinguish, we should not distinguish.
issuance of estate tax assessment notices ran afoul of the rule that tax regulations -- old as
they were -- should be in harmony with, and not supplant or modify, the law.16
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No
pronouncement as to costs.
It may be argued that the Tax Code provisions are not self-executory. It would be too wide a
stretch of the imagination, though, to still issue a regulation that would simply require tax
SO ORDERED.
officials to inform the taxpayer, in any manner, of the law and the facts on which an
assessment was based. That requirement is neither difficult to make nor its desired results
hard to achieve. ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson, First Division
Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights
and corresponding obligations, is given retroactive effect as of the date of the effectivity of
the statute.17 RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code,
even if it was issued only on September 6, 1999, this regulation was to retroact to January 1,
1998 -- a date prior to the issuance of the preliminary assessment notice and demand letter.

Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.

No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment
has been amended. Furthermore, in case of discrepancy between the law as amended and
its implementing but old regulation, the former necessarily prevails.18 Thus, between Section
228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand
because it cannot go beyond the provision of the law. The law must still be followed, even
though the existing tax regulation at that time provided for a different procedure. The
regulation then simply provided that notice be sent to the respondent in the form prescribed,
and that no consequence would ensue for failure to comply with that form.

Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded
due process. Not only was the law here disregarded, but no valid notice was sent, either. A
void assessment bears no valid fruit.

The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly
with tax collection without first establishing a valid assessment is evidently violative of the
cardinal principle in administrative investigations: that taxpayers should be able to present
their case and adduce supporting evidence.19 In the instant case, respondent has not been
informed of the basis of the estate tax liability. Without complying with the unequivocal
mandate of first informing the taxpayer of the government’s claim, there can be no deprivation
of property, because no effective protest can be made.20 The haphazard shot at slapping an
assessment, supposedly based on estate taxation’s general provisions that are expected to
be known by the taxpayer, is utter chicanery.

Even a cursory review of the preliminary assessment notice, as well as the demand letter
sent, reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and
details of the itemized deductions indicated in the notice and the letter. This Court cannot
countenance an assessment based on estimates that appear to have been arbitrarily or
capriciously arrived at. Although taxes are the lifeblood of the government, their assessment
and collection "should be made in accordance with law as any arbitrariness will negate the
very reason for government itself."21

Fifth, the rule against estoppel does not apply. Although the government cannot be estopped
by the negligence or omission of its agents, the obligatory provision on protesting a tax
assessment cannot be rendered nugatory by a mere act of the CIR .

Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory
provisions of law are void, except when the law itself authorizes the validity of those
acts.23 Failure to comply with Section 228 does not only render the assessment void, but also
finds no validation in any provision in the Tax Code. We cannot condone errant or enterprising
tax officials, as they are expected to be vigilant and law-abiding.
Republic of the Philippines are no shares issued or any additional subscription in the restructuring plan; and (3) there is
SUPREME COURT no proof that the issued shares can be considered as issued certificates of stock.21
Manila The CTA ruled that Section 17522 of the Tax Code contemplates a subscription agreement.
FIRST DIVISION The CTA explained that there can be subscription only with reference to shares of stock which
G.R. Nos. 172045-46 June 16, 2009 have been unissued, in the following cases: (a) the original issuance from authorized capital
COMMISSIONER OF INTERNAL REVENUE, Petitioner, stock at the time of incorporation; (b) the opening, during the life of the corporation, of the
vs. portion of the original authorized capital stock previously unissued; or (c) the increase of
FIRST EXPRESS PAWNSHOP COMPANY, INC., Respondent. authorized capital stock achieved through a formal amendment of the articles of incorporation
DECISION and registration of the articles of incorporation with the Securities and Exchange
CARPIO, J.: Commission.23
The Case The CTA held that in this case, there was no subscription or any contract for the acquisition
The Commissioner of Internal Revenue (petitioner) filed this Petition for Review 1 to reverse of unissued stock for ₱800,000 in the taxable year assessed. The General Information Sheet
the Court of Tax Appeals’ Decision2 dated 24 March 2006 in the consolidated cases of C.T.A. (GIS) of respondent showed only a capital structure of ₱500,000 as Subscribed Capital Stock
EB Nos. 60 and 62. In the assailed decision, the Court of Tax Appeals (CTA) En Banc partially and ₱250,000 as Paid-up Capital Stock and did not include the assessed amount. Mere
reconsidered the CTA First Division’s Decision3 dated 24 September 2004. reliance on the presumption that the assessment was correct and done in good faith was
The Facts unavailing vis-à-vis the evidence presented by respondent. Thus, the CTA ruled that the
On 28 December 2001, petitioner, through Acting Regional Director Ruperto P. Somera of assessment for deficiency DST on deposit on subscription has not become final.24
Revenue Region 6 Manila, issued the following assessment notices against First Express The Issue
Pawnshop Company, Inc. (respondent): Petitioner submits this sole issue for our consideration: whether the CTA erred on a question
a. Assessment No. 31-1-984 for deficiency income tax of ₱20,712.58 with of law in disregarding the rule on finality of assessments prescribed under Section 228 of the
compromise penalty of ₱3,000; Tax Code. Corollarily, petitioner raises the issue on whether respondent is liable to pay
b. Assessment No. 31-14-000053-985 for deficiency value-added tax (VAT) of ₱12,328.45 as DST on deposit on subscription of capital stock.
₱601,220.18 with compromise penalty of ₱16,000; The Ruling of the Court
c. Assessment No. 31-14-000053-986 for deficiency documentary stamp tax Petitioner contends that the CTA erred in disregarding the rule on the finality of assessments
(DST) of ₱12,328.45 on deposit on subscription with compromise penalty of prescribed under Section 228 of the Tax Code.25 Petitioner asserts that even if respondent
₱2,000; and filed a protest, it did not offer evidence to prove its claim that the deposit on subscription was
d. Assessment No. 31-1-000053-987 for deficiency DST of ₱62,128.87 on pawn an "advance" made by respondent’s stockholders.26 Petitioner alleges that respondent’s
tickets with compromise penalty of ₱8,500. failure to submit supporting documents within 60 days from the filing of its protest as required
Respondent received the assessment notices on 3 January 2002. On 1 February 2002, under Section 228 of the Tax Code caused the assessment of ₱12,328.45 for deposit on
respondent filed its written protest on the above assessments. Since petitioner did not act on subscription to become final and unassailable.27
the protest during the 180-day period,8respondent filed a petition before the CTA on 28 Petitioner alleges that revenue officers are afforded the presumption of regularity in the
August 2002.9 performance of their official functions, since they have the distinct opportunity, aside from
Respondent contended that petitioner did not consider the supporting documents on the competence, to peruse records of the assessments. Petitioner invokes the principle that by
interest expenses and donations which resulted in the deficiency income tax.10 Respondent reason of the expertise of administrative agencies over matters falling under their jurisdiction,
maintained that pawnshops are not lending investors whose services are subject to VAT, they are in a better position to pass judgment thereon; thus, their findings of fact are generally
hence it was not liable for deficiency VAT.11 Respondent also alleged that no deficiency DST accorded great respect, if not finality, by the courts. Hence, without the supporting documents
was due because Section 18012 of the National Internal Revenue Code (Tax Code) does not to establish the non-inclusion from DST of the deposit on subscription, petitioner’s
cover any document or transaction which relates to respondent. Respondent also argued that assessment pursuant to Section 228 of the Tax Code had become final and unassailable.28
the issuance of a pawn ticket did not constitute a pledge under Section 19513 of the Tax Respondent, citing Standard Chartered Bank-Philippine Branches v. Commissioner of
Code.14 Internal Revenue,29 asserts that the submission of all the relevant supporting documents
In its Answer filed before the CTA, petitioner alleged that the assessment was valid and within the 60-day period from filing of the protest is directory.
correct and the taxpayer had the burden of proof to impugn its validity or correctness. Respondent claims that petitioner requested for additional documents in petitioner’s letter
Petitioner maintained that respondent is subject to 10% VAT based on its gross receipts dated 12 March 2002, to wit: (1) loan agreement from lender banks; (2) official receipts of
pursuant to Republic Act No. 7716, or the Expanded Value-Added Tax Law (EVAT). interest payments issued to respondent; (3) documentary evidence to substantiate donations
Petitioner also cited BIR Ruling No. 221-91 which provides that pawnshop tickets are subject claimed; and (4) proof of payment of DST on subscription.30 It must be noted that the only
to DST. 15 document requested in connection with respondent’s DST assessment on deposit on
On 1 July 2003, respondent paid ₱27,744.88 as deficiency income tax inclusive of interest.16 subscription is proof of DST payment. However, respondent could not produce any proof of
After trial on the merits, the CTA First Division ruled, thus: DST payment because it was not required to pay the same under the law considering that
IN VIEW OF ALL THE FOREGOING, the instant petition is hereby PARTIALLY GRANTED. the deposit on subscription was an advance made by its stockholders for future subscription,
Assessment No. 31-1-000053-98 for deficiency documentary stamp tax in the amount of and no stock certificates were issued.31 Respondent insists that petitioner could have issued
Sixty-Two Thousand One Hundred Twenty-Eight Pesos and 87/100 (₱62,128.87) and a subpoena requiring respondent to submit other documents to determine if the latter is liable
Assessment No. 31-14-000053-98 for deficiency documentary stamp tax on deposits on for DST on deposit on subscription pursuant to Section 5(c) of the Tax Code.32
subscription in the amount of Twelve Thousand Three Hundred Twenty-Eight Pesos and Respondent argues that deposit on future subscription is not subject to DST under Section
45/100 (₱12,328.45) are CANCELLED and SET ASIDE. However, Assessment No. 31-14- 175 of the Tax Code. Respondent explains:
000053-98 is hereby AFFIRMED except the imposition of compromise penalty in the It must be noted that deposits on subscription represent advances made by the stockholders
absence of showing that petitioner consented thereto (UST vs. Collector, 104 SCRA 1062; and are in the nature of liabilities for which stocks may be issued in the future. Absent any
Exquisite Pawnshop Jewelry, Inc. vs. Jaime B. Santiago, et al., supra). express agreement between the stockholders and petitioner to convert said
Accordingly petitioner is ORDERED to PAY the deficiency value added tax in the amount of advances/deposits to capital stock, either through a subscription agreement or any other
Six Hundred One Thousand Two Hundred Twenty Pesos and 18/100 (₱601,220.18) document, these deposits remain as liabilities owed by respondent to its stockholders. For
inclusive of deficiency interest for the year 1998. In addition, petitioner is ORDERED to these deposits to be subject to DST, it is necessary that a conversion/subscription agreement
PAY 25% surcharge and 20% delinquency interest per annum from February 12, 2002 until be made by First Express and its stockholders. Absent such conversion, no DST can be
fully paid pursuant to Sections 248 and 249 of the 1997 Tax Code. imposed on said deposits under Section 175 of the Tax Code.33 (Underscoring in the original)
SO ORDERED.17 (Boldfacing in the original) Respondent contends that by presenting its GIS and financial statements, it had already
Both parties filed their Motions for Reconsideration which were denied by the CTA First sufficiently proved that the amount sought to be taxed is deposit on future subscription, which
Division for lack of merit. Thereafter, both parties filed their respective Petitions for Review is not subject to DST.34 Respondent claims that it cannot be required to submit proof of DST
under Section 11 of Republic Act No. 9282 (RA 9282) with the CTA En Banc.18 payment on subscription because such payment is non-existent. Thus, the burden of proving
On 24 March 2006, the CTA En Banc promulgated a Decision affirming respondent’s liability that there was an agreement to subscribe and that certificates of stock were issued for the
to pay the VAT and ordering it to pay DST on its pawnshop tickets. However, the CTA En deposit on subscription rests on petitioner and his examiners. Respondent states that absent
Banc found that respondent’s deposit on subscription was not subject to DST.19 any proof, the deficiency assessment has no basis and should be cancelled.35
Aggrieved by the CTA En Banc’s Decision which ruled that respondent’s deposit on On the Taxability of Deposit on Stock Subscription
subscription was not subject to DST, petitioner elevated the case before this Court. DST is a tax on documents, instruments, loan agreements, and papers evidencing the
The Ruling of the Court of Tax Appeals acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.
On the taxability of deposit on subscription, the CTA, citing First Southern Philippines DST is actually an excise tax because it is imposed on the transaction rather than on the
Enterprises, Inc. v. Commissioner of Internal Revenue,20 pointed out that deposit on document.36 DST is also levied on the exercise by persons of certain privileges conferred by
subscription is not subject to DST in the absence of proof that an equivalent amount of shares law for the creation, revision, or termination of specific legal relationships through the
was subscribed or issued in consideration for the deposit. Expressed otherwise, deposit on execution of specific instruments.37 The Tax Code provisions on DST relating to shares or
stock subscription is not subject to DST if: (1) there is no agreement to subscribe; (2) there certificates of stock state:
Section 175. Stamp Tax on Original Issue of Shares of Stock. - On every original issue, agrees to take a certain number of shares of the capital stock of a corporation, paying for the
whether on organization, reorganization or for any lawful purpose, of shares of stock by any same or expressly or impliedly promising to pay for the same.44
association, company or corporation, there shall be collected a documentary stamp tax of In this case, respondent’s Stockholders’ Equity section of its Balance Sheet as of 31
Two pesos (₱2.00) on each Two hundred pesos (₱200), or fractional part thereof, of the par December 199845 shows:
value, of such shares of stock: Provided, That in the case of the original issue of shares of Stockholders’ Equity 1998 1997
stock without par value the amount of the documentary stamp tax herein prescribed shall be
based upon the actual consideration for the issuance of such shares of stock: Provided, Authorized Capital Stock ₱ 2,000,000.00 ₱ 2,000,000.00
further, That in the case of stock dividends, on the actual value represented by each share.38
Section 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Paid-up Capital Stock 250,000.00 250,000.00
Transfer of Due-bills, Certificates of Obligation, or Shares or Certificates of Stock. - On all Deposit on Subscription 800,000.00
sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of due-bills,
certificates of obligation, or shares or certificates of stock in any association, company or Retained Earnings 62,820.34 209,607.20
corporation, or transfer of such securities by assignment in blank, or by delivery, or by any
paper or agreement, or memorandum or other evidences of transfer or sale whether entitling Net Income (858,498.38) (146,786.86)
the holder in any manner to the benefit of such due-bills, certificates of obligation or stock, or Total ₱ 254,321.96 ₱ 312,820.34
to secure the future payment of money, or for the future transfer of any due-bill, certificate of
obligation or stock, there shall be collected a documentary stamp tax of One peso and fifty The GIS submitted to the Securities and Exchange Commission on 31 March 1999 shows
centavos (₱1.50) on each Two hundred pesos (₱200), or fractional part thereof, of the par the following Capital Structure:46
value of such due-bill, certificate of obligation or stock: Provided, That only one tax shall be B. Financial Profile
collected on each sale or transfer of stock or securities from one person to another, 1. Capital Structure :
regardless of whether or not a certificate of stock or obligation is issued, indorsed, or delivered AUTHORIZED - ₱2,000,000.00
in pursuance of such sale or transfer: And provided, further, That in the case of stock without
par value the amount of the documentary stamp tax herein prescribed shall be equivalent to SUBSCRIBED - 500,000.00
twenty-five percent (25%) of the documentary stamp tax paid upon the original issue of said
stock.39 PAID-UP - 250,000.00
In Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock. The These entries were explained by Miguel Rosario, Jr. (Rosario), respondent’s external auditor,
DST, as an excise tax, is levied upon the privilege, the opportunity and the facility of issuing during the hearing before the CTA on 11 June 2003. Rosario testified in this wise:
shares of stock. In Commissioner of Internal Revenue v. Construction Resources of Asia, Atty. Napiza
Inc.,40 this Court explained that the DST attaches upon acceptance of the stockholder’s Q. Mr. Rosario, I refer you to the balance sheet of First Express for the year 1998
subscription in the corporation’s capital stock regardless of actual or constructive delivery of particularly the entry of deposit on subscription in the amount of ₱800 thousand,
the certificates of stock. Citing Philippine Consolidated Coconut Ind., Inc. v. Collector of will you please tell us what is (sic) this entry represents?
Internal Revenue,41 the Court held: Mr. Rosario Jr.
The documentary stamp tax under this provision of the law may be levied only once, that is A. This amount of ₱800 thousand represents the case given by the
upon the original issue of the certificate. The crucial point therefore, in the case before Us is stockholders to the company but does not necessarily made (sic) payment
the proper interpretation of the word ‘issue.’ In other words, when is the certificate of stock to subscribed portion.
deemed ‘issued’ for the purpose of imposing the documentary stamp tax? Is it at the time the Atty. Napiza
certificates of stock are printed, at the time they are filled up (in whose name the stocks Q. What is (sic) that payment stands for?
represented in the certificate appear as certified by the proper officials of the corporation), at Mr. Rosario Jr.
the time they are released by the corporation, or at the time they are in the possession (actual A. This payment stands as (sic) for the deposit for future subscription.
or constructive) of the stockholders owning them? Atty. Napiza
xxx Q. Would you know if First Express issued corresponding shares pertinent to the
Ordinarily, when a corporation issues a certificate of stock (representing the ownership of amount being deposited?
stocks in the corporation to fully paid subscription) the certificate of stock can be utilized for Mr. Rosario Jr.
the exercise of the attributes of ownership over the stocks mentioned on its face. The stocks A. No.
can be alienated; the dividends or fruits derived therefrom can be enjoyed, and they can be Atty. Napiza
conveyed, pledged or encumbered. The certificate as issued by the corporation, irrespective Q. What do you mean by no? Did they or they did not?
of whether or not it is in the actual or constructive possession of the stockholder, is considered Mr. Rosario Jr.
issued because it is with value and hence the documentary stamp tax must be paid as A. They did not issue any shares because that is not the payment of
imposed by Section 212 of the National Internal Revenue Code, as amended. subscription. That is just a mere deposit.
In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell, memoranda Atty. Napiza
of sales, deliveries or transfer of shares or certificates of stock in any association, company, Q. Would you know, Mr. Rosario, how much is the Subscribed Capital of First
or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any Express Pawnshop?
paper or agreement, or memorandum or other evidences of transfer or sale whether entitling Mr. Rosario Jr.
the holder in any manner to the benefit of such certificates of stock, or to secure the future A. The Subscribed Capital of First Express Pawnshop Company, Inc. for the year
payment of money, or for the future transfer of certificates of stock. In Compagnie Financiere 1998 is ₱500 thousand.
Sucres et Denrees v. Commissioner of Internal Revenue, this Court held that under Section Atty. Napiza
176 of the Tax Code, sales to secure the future transfer of due-bills, certificates of obligation Q. How about the Paid Up Capital?
or certificates of stock are subject to documentary stamp tax.42 Mr. Rosario Jr.
Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines on the A. The Paid Up Capital is ₱250 thousand.
corporate stock documentary stamp tax program. RMO 08-98 states that: Atty. Napiza
1. All existing corporations shall file the Corporation Stock DST Declaration, and Q. Are (sic) all those figures appear in the balance sheet?
the DST Return, if applicable when DST is still due on the subscribed share Mr. Rosario Jr.
issued by the corporation, on or before the tenth day of the month following A. The Paid Up Capital appeared here but the Subscribed Portion was not
publication of this Order. stated. (Boldfacing supplied)
xxx Based on Rosario’s testimony and respondent’s financial statements as of 1998, there was
3. All existing corporations with authorization for increased capital stock shall file no agreement to subscribe to the unissued shares. Here, the deposit on stock subscription
their Corporate Stock DST Declaration, together with the DST Return, if refers to an amount of money received by the corporation as a deposit with the possibility of
applicable when DST is due on subscriptions made after the applying the same as payment for the future issuance of capital stock.47 In Commissioner of
authorization, on or before the tenth day of the month following the date of Internal Revenue v. Construction Resources of Asia, Inc.,48 we held:
authorization. (Boldfacing supplied) We are firmly convinced that the Government stands to lose nothing in imposing the
RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 47-97), also states documentary stamp tax only on those stock certificates duly issued, or wherein the
that what is being taxed is the privilege of issuing shares of stock, and, therefore, the taxes stockholders can freely exercise the attributes of ownership and with value at the time they
accrue at the time the shares are issued. RMC 47-97 also defines issuance as the point in are originally issued. As regards those certificates of stocks temporarily subject to
which the stockholder acquires and may exercise attributes of ownership over the stocks. suspensive conditions they shall be liable for said tax only when released from said
As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a subscription conditions, for then and only then shall they truly acquire any practical value for their
agreement in order for a taxpayer to be liable to pay the DST. A subscription contract is owners.lavvphil (Boldfacing supplied)
defined as any contract for the acquisition of unissued stocks in an existing corporation or a Clearly, the deposit on stock subscription as reflected in respondent’s Balance Sheet as of
corporation still to be formed.43 A stock subscription is a contract by which the subscriber 1998 is not a subscription agreement subject to the payment of DST. There is no ₱800,000
worth of subscribed capital stock that is reflected in respondent’s GIS. The deposit on stock Section 228 states that if the protest is not acted upon within 180 days from submission of
subscription is merely an amount of money received by a corporation with a view of applying documents, the taxpayer adversely affected by the inaction may appeal to the CTA within 30
the same as payment for additional issuance of shares in the future, an event which may or days from the lapse of the 180-day period. Respondent, having submitted its supporting
may not happen. The person making a deposit on stock subscription does not have the documents on the same day the protest was filed, had until 31 July 2002 to wait for petitioner’s
standing of a stockholder and he is not entitled to dividends, voting rights or other reply to its protest. On 28 August 2002 or within 30 days after the lapse of the 180-day period
prerogatives and attributes of a stockholder. Hence, respondent is not liable for the payment counted from the filing of the protest as the supporting documents were simultaneously filed,
of DST on its deposit on subscription for the reason that there is yet no subscription that respondent filed a petition before the CTA.
creates rights and obligations between the subscriber and the corporation. Respondent has complied with the requisites in disputing an assessment pursuant to Section
On the Finality of Assessment as Prescribed 228 of the Tax Code. Hence, the tax assessment cannot be considered as final, executory
under Section 228 of the Tax Code and demandable. Further, respondent’s deposit on subscription is not subject to the payment
Section 228 of the Tax Code provides: of DST. Consequently, respondent is not liable to pay the deficiency DST of ₱12,328.45.
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized Wherefore, we DENY the petition. We AFFIRM the Court of Tax Appeals’ Decision dated 24
representative finds that proper taxes should be assessed, he shall first notify the taxpayer March 2006 in the consolidated cases of C.T.A. EB Nos. 60 and 62.
of his findings: Provided, however, That a preassessment notice shall not be required in the
following cases: SO ORDERED.
(a) When the finding for any deficiency tax is the result of mathematical error in ANTONIO T. CARPIO
the computation of the tax as appearing on the face of the return; or Associate Justice
(b) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have carried
over and automatically applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the succeeding taxable year;
or
(d) When the excise tax due on excisable articles has not been paid; or
(e) When an article locally purchased or imported by an exempt person, such
as, but not limited to, vehicles, capital equipment, machineries and spare parts,
has been sold, traded or transferred to non-exempt persons.
The taxpayer shall be informed in writing of the law and the facts on which the assessment
is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his
duly authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or
reinvestigation within thirty (30) days from receipt of the assessment in such form and manner
as may be prescribed by implementing rules and regulations. Within sixty (60) days from
filing of the protest, all relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the decision
or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the
said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the
decision shall become final, executory and demandable. (Boldfacing supplied)
Section 228 of the Tax Code49 provides the remedy to dispute a tax assessment within a
certain period of time. It states that an assessment may be protested by filing a request for
reconsideration or reinvestigation within 30 days from receipt of the assessment by the
taxpayer. Within 60 days from filing of the protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.
In this case, respondent received the tax assessment on 3 January 2002 and it had until 2
February 2002 to submit its protest. On 1 February 2002, respondent submitted its protest
and attached the GIS and Balance Sheet as of 31 December 1998. Respondent explained
that it received ₱800,000 as a deposit with the possibility of applying the same as payment
for the future issuance of capital stock.
Within 60 days from the filing of protest or until 2 April 2002, respondent should submit
relevant supporting documents. Respondent, having submitted the supporting
documents together with its protest, did not present additional documents anymore.
In a letter dated 12 March 2002, petitioner requested respondent to present proof of payment
of DST on subscription. In a letter-reply, respondent stated that it could not produce any proof
of DST payment because it was not required to pay DST under the law considering that the
deposit on subscription was an advance made by its stockholders for future subscription, and
no stock certificates were issued.
Since respondent has not allegedly submitted any relevant supporting documents, petitioner
now claims that the assessment has become final, executory and demandable, hence,
unappealable.
We reject petitioner’s view that the assessment has become final and unappealable. It cannot
be said that respondent failed to submit relevant supporting documents that would render the
assessment final because when respondent submitted its protest, respondent attached the
GIS and Balance Sheet. Further, petitioner cannot insist on the submission of proof of DST
payment because such document does not exist as respondent claims that it is not liable to
pay, and has not paid, the DST on the deposit on subscription.
The term "relevant supporting documents" should be understood as those documents
necessary to support the legal basis in disputing a tax assessment as determined by the
taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR
cannot demand what type of supporting documents should be submitted. Otherwise, a
taxpayer will be at the mercy of the BIR, which may require the production of documents that
a taxpayer cannot submit.1awphi1
After respondent submitted its letter-reply stating that it could not comply with the
presentation of the proof of DST payment, no reply was received from petitioner.
Commissioner of Internal Revenue vs Enron Subic Power Corporation

576 SCRA 212 – Taxation Law – NIRC Remedies – Assessment – Assessment Notice

In 1997, Enron Subic Power Corporation received a pre-assessment notice from the
Bureau of Internal Revenue (BIR). Enron allegedly had a tax deficiency of P2.8 million for
the year 1996. Enron filed a protest. In 1999, Enron received a final assessment notice
(FAN) from the BIR for the same amount of tax deficiency.

Enron however assailed the FAN because according to Enron the FAN is not compliant
with Section 228 of the National Internal Revenue Code (NIRC) which provides that the
legal and factual bases of the assessment must be contained in the FAN. The FAN issued
to Enron only contained the computation of its alleged tax liability.

The Commissioner of Internal Revenue (CIR) admitted that the FAN did not contain the
legal and factual bases of the assessment however, the CIR insisted that the same has
been substantially complied with already because during the pre-assessment stage, the
representative of Enron has been advised of the said factual and legal bases of the
assessment.

ISSUE: Whether or not there is a valid final assessment notice issued to Enron.

HELD: No. The wording of Section 228 of the NIRC provides:

The taxpayer shall be informed in writing of the law and the facts on which the assessment
is made; otherwise the assessment shall be void.

The word “shall” is mandatory. The law requires that the legal and factual bases of the
assessment be stated in the formal letter of demand and assessment notice. It cannot be
substituted by other notices or advisories issued or delivered to the taxpayer during the
preliminary stage.