CARINA C.

MANLAPAZ

Case No. 67

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

versus
LIQUIGAZ PHILIPPINES CORPORATION, Respondent.

FACTS:
Liquigaz Philippines Corporation (Liquigaz) is a corporation duly organized and
existing under Philippine laws. On July 11, 2006, it received a copy of Letter of
Authority (LOA) No. 00067824, dated July 4, 2006, issued by the Commissioner of
Internal Revenue (CIR), authorizing the investigation of all internal revenue taxes for
taxable year 2005. 4On April 9, 2008, Liquigaz received an undated letter purporting
to be a Notice of Informal Conference (NIC), as well as the detailed computation of its
supposed tax liability. On May 28, 2008, it received a copy of the Preliminary
Assessment Notice5(PAN), dated May 20, 2008, together with the attached details of
discrepancies for the calendar year ending December 31, 2005.6 Upon investigation,
Liquigaz was initially assessed with deficiency withholding tax liabilities, inclusive of
interest, in the aggregate amount of P23,931,708.72,

On July 25, 2008, Liquigaz filed its protest against the FLD/FAN and subsequently
submitted its supporting documents on September 23, 2008. Then, on July 1, 2010,
it received a copy of the FDDA8 covering the tax audit under LOA No. 00067824 for
the calendar year ending December 31, 2005. As reflected in the FDDA, the CIR still
found Liquigaz liable for deficiency withholding tax liabilities, inclusive of interest, in
the aggregate amount of P22,380,025.19.

Consequently, on July 29, 2010, Liquigaz filed its Petition for Review before the CTA
Division assailing the validity of the FDDA issued by the CIR.9

The CTA partially granted Liquigaz’s petition cancelling the EWT and FBT
assessments but affirmed with modification the WTC assessment. It ruled that the
portion of the FDDA relating to the EWT and the FBT assessment was void pursuant
to Section 228 of the National Internal Revenue Code (NIRC) of 1997, as implemented
by Revenue Regulations (RR) No. 12-99.
On the other hand, it upheld the WTC assessment against Liquiga
z. It noted that the factual bases used in the FLD and the FDDA with regard thereto
were the same as the difference in the amount merely resulted from the use of a
different tax rate. The CTA Division agreed with Liquigaz that the tax rate of 25.40%
was more appropriate because it represents the effective tax compensation paid,
computed based on the total withholding tax on compensation paid and the total
taxable compensation income for the taxable year 2005. It did not give credence to
Liquigaz’s explanation that the salaries account included accrued bonus, 13th month
pay, de minimis benefits and other benefits and contributions which were not subject
to withholding tax on compensation. The CTA Division relied on the report prepared
by Antonio O. Maceda, Jr.,the court-commissioned independent accountant, which
found that Liquigaz was unable to substantiate the discrepancy found by the CIR
on its withholding tax liability on compensation.
The CTA En Banc affirmed the assailed decision of the CTA Division. It reiterated its
pronouncement that the requirement that the taxpayer should be informed in writing
of the law and the facts on which the assessment was made applies to the FDDA—
otherwise the assessment would be void. The CTA En Banc explained that the FDDA
determined the final tax liability of the taxpayer, which may be the subject of an appeal
before the CTA. The CTA En Banc echoed the findings of the CTA Division that while
the FDDA indicated the legal provisions relied upon for the assessment, the source of
the amounts from which the assessments arose were not shown. It emphasized the
need for stating the factual bases as the FDDA reflected different amounts than that
contained in the FLD/FAN.

On the other hand, the CTA En Banc sustained Liquigaz’s WTC assessment. It
observed that the basis for the assessment was the same for the FLD and the FDDA,
which was a comparison of the salaries declared in the Income Tax Return (ITR) and
the Alphalist that resulted in a discrepancy of P9,318,255.84. The CTA En Banc
highlighted that the change in the amount of assessed WTC deficiency simply arose
from the revision of the tax rate used—from 32% to the effective tax rate of 25.40%
suggested by Liquigaz.
Further, it disregarded the explanation of Liquigaz on the ground of its failure to specify
how much of the salaries account pertained to de minimis benefits, accrued bonuses,
salaries and wages, and contributions to the Social Security System, Medicare and
Pag-Ibig Fund. The CTA En Banc reiterated that even the court-commissioned
independent accountant reported that Liquigaz was unable to substantiate the
discrepancy found by the CIR.

Both parties moved for a partial reconsideration of the CTA En Banc Decision, but the
latter denied the motions in its November 26, 2014 Resolution.

ISSUE:
Whether the Court Of Tax Appeals En Banc Erred In Partially Upholding The Validity
Of The Assessment As To The Withholding Tax On Compensation But Declaring
Invalid The Assessment On Expanded Withholding Tax And Fringe Benefits Tax.
HELD:
The Court, however, finds that the CTA erred in concluding that the assessment on
EWT and FBT deficiency was void because the FDDA covering the same was void.
The assessment remains valid notwithstanding the nullity of the FDDA because as
discussed above, the assessment itself differs from a decision on the disputed
assessment.
As established, an FDDA that does not inform the taxpayer in writing of the facts and
law on which it is based renders the decision void. Therefore, it is as if there was no
decision rendered by the CIR. It is tantamount to a denial by inaction by the CIR, which
may still be appealed before the CTA and the assessment evaluated on the basis of
the available evidence and documents. The merits of the EWT and FBT assessment
should have been discussed and not merely brushed aside on account of the void
FDDA.
On the other hand, the Court agrees that the FDDA substantially informed Liquigaz of
its tax liabilities with regard to its WTC assessment. As highlighted by the CTA, the
basis for the assessment was the same for the FLD and the FDDA, where the salaries
reflected in the ITR and the alphalist were compared resulting in a discrepancy of
P9,318,255.84. The change in the amount of assessed deficiency withholding taxes
on compensation merely arose from the modification of the tax rates used— 32% in
the FLD and the effective tax rate of 25.40% in the FDDA. The Court notes it was
Liquigaz itself which proposed the rate of 25.40% as a more appropriate tax rate as
it represented the effective tax on compensation paid for taxable year 2005.22 As
such, Liquigaz was effectively informed in writing of the factual bases of its
assessment for WTC because the basis for the FDDA, with regards to the WTC, was
identical with the FAN-which had a detail of discrepancy attached to it.
Further, the Court sees no reason to reverse the decision of the CT A as to the amount
of WTC liability of Liquigaz. It is a time-honored doctrine that the findings and
conclusions of the CTA are accorded the highest respect and will not be lightly set
aside because by the very nature of the CT A, it is dedicated exclusively to the
resolution of tax problems and has accordingly developed an expertise on the
subject.23 The issue of Liquigaz' WTC liability had been thoroughly discussed in the
courts a quo and even the court-appointed independent accountant had found that
Liquigaz was unable to substantiate its claim concerning the discrepancies in its WTC.
To recapitulate, a "decision" differs from an "assessment" and failure of the FDDA to
state the facts and law on which it is based renders the decision void-but not
necessarily the assessment. Tax laws may not be extended by implication beyond the
clear import of their language, nor their operation enlarged so as to embrace matters
not specifically provided.24
WHEREFORE, the May 22, 2014 Decision and the November 26, 2014 Resolution of
the Court of Tax Appeals En Banc are PARTIALLY AFFIRMED in that the assessment
on deficiency Withholding Tax in Compensation is upheld.
The case is REMANDED to the Court of Tax Appeals for the assessment on deficiency
Expanded Withholding Tax and Fringe Benefits Tax.
SO ORDERED.
CARINA C. MANLAPAZ

Case No. 68

GR No. 213394
April 6, 2016

Spouses Emmanuel D. Pacquiao and Jinkee J. Pacquiao, Petitioners,

vs.
The Court of Tax Appeals

Facts:
Due to his success and fame as a world-class professional boxer Pacquiao was
able to amass income from both the Philippines and the United States of America
(US). His income from the US came primarily from the purses he received for the
boxing matches he took part under Top Rank, Inc. While his income from the
Philippines consisted of talent fees received from various Philippine Corporations for
product endorsements, advertising commercials and television appearances.

On April 15, 2009, Pacquiao filed his 2008 income tax return reporting his
Philippine sourced-income. It was subsequently amended to include his US-sourced
income. On March 25, 2010, Pacquiao received a Letter of Authority (March LA) from
the Regional District Office NO. 43 (RDO) of the Bureau of Internal Revenue (BIR) for
the examination of his books of accounts another accounting records for the period
covering January 1, 2008 to December 31, 2008.

On April 15, 2010, Pacquiao filed his 2009 income tax return however; he failed
to include his income derived from US. He also failed to file his Value Added Tax (VAT)
returns for the years 2008 and 2009. Commissioner on Internal Revenue (CIR) issued
another Letter of Authority, dated July 27, 2010 (July LA), authorizing the BIR’s
National Investigation Division (NID) to examine the books of accounts and other
accounting records of both Pacquiao and Jinkee for the last 15 years, from 1995 to
2009. On September 21 and 22, 2010, the CIR replaced the July LA by issuing to both
Pacquiao and Jinkee separate electronic versions of the July LA pursuant to Revenue
Memorandum Circular (RMC) No. 56-2010.

Due to these developments, petitioners wrote a letter questioning the propriety

of the CIR investigation as they were already subjected to an earlier investigation by
the BIR for the years prior to 2007, and no fraud was ever found to have been
committed. The NID informed the counsel of the petitioners that the July LA issued by
the CIR had effectively cancelled and superseded the March LA issued by its RDO.
The same letter also stated that fraud had been established by the Commissioner, still
spouses were given the opportunity to present documents as part of their procedural
rights to due process with regard to the civil aspect thereof. The CIR informed the
petitioners that its reinvestigation of years prior to 2007 was justified because the
assessment thereof was pursuant to a “fraud investigation” against the petitioners
under the “Run After Tax Evaders” (RATE) program of the BIR.

On January 5 and 21, 2011, the petitioners submitted various income tax
related documents for the years 2007-2009.18 As for the years 1995 to 2006, the
petitioners explained that they could not furnish the bureau with the books of accounts
and other tax related documents as they had already been disposed. Finally, the
petitioners pointed out that their tax liabilities for the said years had already been fully
settled with then CIR Jose Mario Buñag, who after a review, found no fraud against
them. On June 21, 2011, on the same day that the petitioners made their last
compliance in submitting their tax-related documents, the CIR issued a subpoena
duces tecum, requiring the petitioners to submit additional income tax and VAT-related
documents for the years 1995-2009. After conducting its own investigation, the CIR
made its initial assessment finding that the petitioners were unable to fully settle their
tax liabilities. Thus, the CIR issued its Notice of Initial Assessment-Informal
Conference (NIC), directly addressed to the petitioners, informing them that based on
the best evidence obtainable, they were liable for deficiency income taxes in the
amount of P714,061,116.30 for 2008 and P1,446,245,864.33 for 2009, inclusive of
interests and surcharges.

The CIR then issued the Preliminary Assessment Notice (PAN), informing the
petitioners that based on third-party information (allowed under Section 5(B) and 6 of
the NIRC), they found the petitioners liable not only for deficiency income taxes in the
amount of P714,061,116.30 for 2008 and P1,446,245,864.33 for 2009, but also for
their non-payment of their VAT liabilities in the amount P4,104,360.01 for 2008 and P
24,901,276.77 for 2009. The petitioners filed their protest against the PAN. After
denying the protest, the BIR issued its Formal Letter Demand (FLD), finding the
petitioners liable for deficiency income tax and VAT amounting to P766,899,530.62 for
taxable years 2008 and P1,433,421,214.61 for 2009, inclusive of interests and
surcharges. Again, the petitioners questioned the findings of the CIR. On May 14,
2013, the BIR issued its Final Decision on Disputed Assessment (FDDA), addressed
to Pacquiao only, informing him that the CIR found him liable for deficiency income tax
and VAT for taxable years 2008 and 2009 which, inclusive of interests and surcharges,
amounted to a total of P2,261,217,439.92. Seeking to collect the total outstanding tax
liabilities of the petitioners, the Accounts Receivable Monitoring Division of the BIR
(BIR-ARMD), issued the Preliminary Collection Letter (PCL), demanding that both
Pacquiao and Jinkee pay the amount of P2,261,217,439.92, inclusive of interests and
surcharges.

Then, on August 7, 2013, the BIR-ARMD sent Pacquiao and Jinkee the Final
Notice Before Seizure (FNBS), informing the petitioners of their last opportunity to
make the necessary settlement of deficiency income and VAT liabilities before the
bureau would proceed against their property. Although they no longer questioned the
BIR’s assessment of their deficiency VAT liability, the petitioners requested that they
be allowed to pay the same in four (4) quarterly installments. Eventually, through a
series of installments, Pacquiao and Jinkee paid a total P32,196,534.40 in satisfaction
of their liability for deficiency VAT.

Issues:
1. Whether or not Respondent Court acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in presuming the correctness of a
fraud assessment without evidentiary support other than the issuance of fraud
assessments themselves.
 2. Whether or not Respondent Court acted with grave abuse of discretion
amounting to lack or excess of jurisdiction when it required Petitioners to post
a bond even if the tax collection processes employed by the Respondent Court
against Petitioners was patently in violation of law thereby blatantly breaching
Petitioner’s constitutional right to due process.

Held:
Section 11 of R.A. No. 1125, as amended by R.A. No. 9282, embodies the rule
that an appeal to the CTA from the decision of the CIR will not suspend the payment,
levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax
liability as provided by existing law.

It is clear that the authority of the courts to issue injunctive writs to restrain the
collection of tax and to dispense with the deposit of the amount claimed or the filing of
the required bond is not simply confined to cases where prescription has set in. As
explained by the Court in those cases, whenever it is determined by the courts that
the method employed by the Collector of Internal Revenue in the collection of tax is
not sanctioned by law, the bond requirement under Section 11 of R.A. No. 1125 should
be dispensed with. The purpose of the rule is not only to prevent jeopardizing the
interest of the taxpayer, but more importantly, to prevent the absurd situation wherein
the court would declare “that the collection by the summary methods of distraint and
levy was violative of law, and then, in the same breath require the petitioner to deposit
or file a bond as a prerequisite for the issuance of a writ of injunction.” The
determination of whether the petitioners’ case falls within the exception provided under
Section 11, R.A No. 1125 cannot be determined at this point.

Though it may be true that it would have been premature for the CTA to
immediately determine whether the assessment made against the petitioners was
valid or whether the warrants were properly issued and served, still, it behooved upon
the CTA to properly determine, at least preliminarily, whether the CIR, in its
assessment of the tax liability of the petitioners, and its effort of collecting the same,
complied with the law and the pertinent issuances of the BIR itself. The CTA should
have conducted a preliminary hearing and received evidence so it could have properly
determined whether the requirement of providing the required security under Section
11, R.A. No. 1125 could be reduced or dispensed with pendente lite. The Court cannot
make a preliminary determination on whether the CIR used methods not sanctioned
by law Absent any evidence and preliminary determination by the CTA, the Court
cannot make any factual finding and settle the issue of whether the petitioners should
comply with the security requirement under Section 11, R.A. No. 1125. In this regard,
the CTA is in a better position to initiate this given its time and resources. The remand
of the case to the CTA on this question is, therefore, more sensible and proper. For
the Court to make any finding of fact on this point would be premature. As stated
earlier, there is no evidentiary basis. All the arguments are mere allegations from both
sides. Moreover, any finding by the Court would pre-empt the CTA from properly
exercising its jurisdiction and settle the main issues presented before it, that is,
whether the petitioners were afforded due process; whether the CIR has valid basis
for its assessment; and whether the petitioners should be held liable for the deficiency
taxes.
 Petition to be remanded to the CTA to conduct preliminary hearing As the CTA
is in a better position to make such a preliminary determination; a remand to the CTA
is in order. Let a Writ of Preliminary Injunction be issued, enjoining the implementation
of the April 22, 2014 and July 11, 2014 Resolutions of the Court of Tax Appeals, First
Division, in CTA Case No. 8683, requiring the petitioners to first deposit a cash bond
in the amount of P3,298,514,894.35 or post a bond of P4,947,772,341.53, as a
condition to restrain the collection of the deficiency taxes assessed against them.
CARINA C. MANLAPAZ

Case No. 69

G.R. Nos. 203054-55

July 29, 2015

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
COURT OF TAX APPEALS and CBK POWER COMPANY LIMITED, Respondents.

FACTS:

The case at bar is a petition for certiorari under Rule 65 which seeks to annul and set
aside the Resolutions of the Court of Tax Appeals (CTA) dated December 23,
2011,1 April 19, 2012,2 and June 13, 20123 issued in CTA Case Nos. 8246 and 8302.

Private respondent CBK Power Company Limited is a special purpose entity engaged
in all aspects of (1) design, financing, construction, testing, commissioning, operation,
maintenance, management, and ownership of Kalayaan II pumped storage
hydroelectric power plant, the new Caliraya Spillway in Laguna; and (2) the
rehabilitation, expansion, commissioning, operation, maintenance and management
of the Caliraya, Botocan, and Kalayaan I hydroelectric power plants and their related
facilities in Laguna. Petitioner is the duly appointed Commissioner of Internal Revenue
vested with authority to act as such, inter alia, the power to decide, approve and grant
refunds or tax credit of erroneously or illegally collected internal revenue taxes as
provided by law.

On March 30, 2011, private respondent filed with the CTA a judicial claim for the
issuance of a tax credit certificate in the amount of Seventeen Million Seven Hundred
Eighty-Four Thousand Nine Hundred Sixty-Eight and 91/100 Pesos (₱17,784,968.91).
The case was docketed as CTA Case No. 8246.

Earlier, on June 28, 2011, private respondent filed another judicial claim for the
issuance of a tax credit certificate in the amount of Thirty-One Million Six Hundred
Eighty Thousand Two Hundred Ninety and 87 II 00 Pesos (₱31,680,290.87), and the
case was docketed as CTA Case No. 8302.

The CTA granted the motion for consolidation and set the pre-trial conference on
November 3, 2011. The CTA issued the first assailed Resolution allowing to present
its evidence ex parte and appointed Court Commissioner to receive the evidence for
the petitioner.5

On January 6, 2012, petitioner filed a Motion to Lift Order of Default6 alleging that the
failure to attend the pre-trial conference on November 3, 2011 was due to confusion
in office procedure in relation to the consolidation of CTA Case No. 8246 with CTA
Case No. 8302 since the latter was being handled by a different lawyer; that when the
pre-trial conference was reset to December 1, 2011, petitioner's counsel, Atty.
Sandico, had to attend the hearing of another case in the CTA's First Division also at
9:00 a.m., hence, he unintentionally missed the pre-trial conference of the
consolidated cases. Private respondent was ordered to file its comment on the motion
to lift order of default but failed to do so.

On April 19, 2012, the CTA issued the second assailed Resolution denying the motion
to lift order of default.

In a Resolution dated June 13, 2012, the CTA denied the motion for reconsideration.

ISSUES:

1. Whether or not there is no plain, speedy and adequate remedy in the

ordinary course of law but the filing of a petition for Certiorari under Rule 65;
2. Whether or not the public respondent gravely abused its discretion when it
declared petitioner in default when clearly petitioner’s counsel has been actively
dfending her cause; and
3. Whether or not public respondent gravely abused its discretion when it declared
petitioner in default as there was no intention on the part of the petitioner to defy
or refuse the order of the public respondent.

HELD:

The petition for review to be filed with the CTA en banc as the mode for appealing a
decision, resolution, or order of the CTA Division, under Section 18 of Republic Act
No. 1125, as amended, is not a totally new remedy, unique to the CTA, with a special
application or use therein. To the contrary, the CTA merely adopts the procedure for
petitions for review and appeals long established and practiced in other Philippine
courts. Accordingly, doctrines, principles, rules, and precedents laid down in
jurisprudence by this Court as regards petitions for review and appeals in courts of
general jurisdiction should likewise bind the CTA, and it cannot depart therefrom.

It is, therefore, clear that the CTA en bane has jurisdiction over final order or judgment
but not over interlocutory orders issued by the CTA in division.

Conversely, an order that does not finally dispose of the case, and does not end the
Court's task of adjudicating the parties' contentions and determining their rights and
liabilities as regards each other, but obviously indicates that other things remain to be
done by the Court, is "interlocutory," e.g., an order denying a motion to dismiss under
Rule 16 of the Rules x x x. Unlike a "final" judgment or order, which is appealable, as
above pointed out, an "interlocutory" order may not be questioned on appeal except
only as part of an appeal that may eventually be taken from the final judgment
rendered in the case.12

As to the merit of the petition, petitioner argues that the order declaring it as in default
and allowing the ex-parte presentation of private respondent's evidence was
excessive as it has no intention of defying the scheduled pre-trial conferences.

In this case, there is no showing that petitioner intentionally disregarded the CTA's
authority. CTA Case Nos. 8246 and 8302 were filed on different dates and were
handled by different lawyers, i.e., Atty. Sandico and Atty. Mauricio, respectively. The
cases were later on consolidated per private respondent's motion and the pre-trial was
set on November 3, 2011 but petitioner's counsel, Atty. Mauricio, was not able to
attend for health reasons; and Atty. Sandico to whom the consolidated cases were
later on assigned was not able to attend the pre-trial on time on December 1, 2011 as
he was attending another case in another division of the CTA. We find nothing to show
that petitioner had acted with the deliberate intention of delaying the proceedings as
petitioner had timely filed its pre-trial brief for the consolidated cases.

Also, after petitioner's receipt of the default Order dated December 23, 2011,
petitioner, on January 6, 2012, immediately filed a Motion to lift the order of default,
i.e., 20 days before the scheduled ex-parte presentation of private respondent's
evidence on January 26, 2012.1avvphi1 The CTA should have been persuaded to
reconsider its earlier order of default as its lifting would not in any way prejudice or
deprive private respondent of any substantive right, especially so considering that the
latter did not file any opposition or comment to petitioner's motion to lift order of default
or to the motion for reconsideration of the denial thereof.

It appears, however, that the CTA proceeded with the ex-parte reception of private
respondent's evidence and had already rendered its decision on the merits on June
10, 2014 ordering petitioner to issue a tax certificate in favor of private respondent in
the reduced amount of ₱22, 126,419.93 representing unutilized input VAT incurred in
relation to its zero rated sales of electricity to the NPC for the first and second quarters
of 2009. Petitioner filed a motion for reconsideration which the CTA had also denied.
Petitioner then filed a petition for review ad cautelam with the CTA En Banc which is
now pending before it.

Considering our foregoing discussions, we find a need to give petitioner the

opportunity to properly present her claims on the merits of the case without resorting
to technicalities. WHEREFORE, the petition for certiorari is GRANTED. The
Resolutions dated December 23, 2011, April 19, 2012 and June 13, 2012 issued by
the Court of Tax Appeals in CTA Case Nos. 8246 and 8302 are hereby SET ASIDE.
The consolidated cases are hereby REMANDED to the CTA Third Division to give
petitioner the chance to present evidence, rebuttal and sur rebuttal evidence, if
needed.

SO ORDERED.