Tax Remedies Full Text Cases

Contents
1. CIR v. Gonzalez, GR No. 177279, October 13, 2010.........................................2

2. RCBC v. CIR, GR No. 168498, April 24, 2007..................................................17
3. CIR v. Enron Subic Power Corporation, GR No. 166387, January 19, 2009.....24
4. CIR v. United Salvage and Towage (Phils.), Inc., GR No. 197515, July 2, 201428
5. CIR v. First Express Pawnshop Company, Inc., GR No. 172045-46, June 16,
2009................................................................................................................... 38
6. Lascona Land Co., Inc. v. CIR, GR No. 171251, March 5, 2012.......................49
7. Allied Banking Corporation v. CIR, GR No. 175097.........................................56
8. CIR v. Hambrecht & Quist Philippines, Inc., GR No. 169225, November 17,
2010................................................................................................................... 63
9. Adamson v. Court of Appeals, GR No. 120935, May 21, 2009........................68
10. People v. Gloria Kintanar, CTA EB Crim No. 006, December 3, 2010 (CTA
Case) XXXX........................................................................................................ 78
11. Judy Anne Santos v. People of the Phils. and BIR, GR No. 173176, August 26,
2008................................................................................................................... 78
12. CIR v. Kudos Metal Corporation, GR No. 178087, May 5, 2010.....................92
13. CIR v. MERALCO, GR No. 181459, June 9, 2014............................................99
14. CIR v. Aichi Forging Company of Asia, Inc., GR No. 184823, October 6, 2010
......................................................................................................................... 105
15. CIR v. Mindanao II Geothermal Partnership, GR No. 191498, January 25, 2014
......................................................................................................................... 117
16. Miramar Fish Company Inc. v. CIR, GR No. 185432, June 4, 2014..............133
17. United Airlines Inc. v. CIR, GR No. 178788, September 29, 2010...............142
18. Smart Communications Inc. v. Mun. of Malvar, GR No. 204429, February 18,
2014................................................................................................................. 149
19. City of Manila v. SM Mart Inc., GR No. 175723, February 4, 2014..............157
20. St. Paul College of San Rafael v. CIR, CTA Case No. 8217, November 9, 2011
XXXXX.............................................................................................................. 166
21. Commissioner of Customs v. Marina Sales, Inc., GR No. 183868, November
22, 2010........................................................................................................... 166
22. Fishwealth Canning Corporation v. CIR, GR No. 179343, January 21, 2010 174
23. CS Garment Inc. v. CIR, GR No. 182399, March 12, 2014...........................176
1. CIR v. Gonzalez, GR No. 177279, October 13, 2010
THIRD DIVISION
COMMISSIONER
REVENUE,
Petitioner,
OF
INTERNAL G.R. No. 177279
Present:
CARPIO MORALES, J.,

Chairperson,
- versus -
BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.
HON.
RAUL
M.
GONZALEZ,
Secretary of Justice, L. M. CAMUS
Promulgated:
ENGINEERING
CORPORATION
(represented by LUIS M. CAMUS
and LINO D. MENDOZA),
October 13, 2010
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision [1] dated October 31, 2006 and
Resolution[2]dated March 6, 2007 of the Court of Appeals (CA) in CA-G.R. SP No.
93387 which affirmed the Resolution[3] dated December 13, 2005 of respondent
Secretary of Justice in I.S. No. 2003-774 for violation of Sections 254 and 255 of
the National Internal Revenue Code of 1997 (NIRC).
The facts as culled from the records:
Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by
then Commissioner of Internal Revenue (petitioner) Dakila B. Fonacier, Revenue
Officers Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., Ricardo L. Suba, Jr. and
Aurelio Agustin T. Zamora supervised by Section Chief Sixto C. Dy, Jr. of the Tax
Fraud Division (TFD), National Office, conducted a fraud investigation for all internal
revenue taxes to ascertain/determine the tax liabilities of respondent L. M. Camus
Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and 1999. [4] The
audit and investigation against LMCEC was precipitated by the information provided
by an informer that LMCEC had substantial underdeclared income for the said
period. For failure to comply with the subpoena duces tecum issued in connection
with the tax fraud investigation, a criminal complaint was instituted by the Bureau
of Internal Revenue (BIR) against LMCEC on January 19, 2001 for violation of Section
266 of the NIRC (I.S. No. 00-956 of the Office of the City Prosecutor of Quezon City).
[5]
Based on data obtained from an informer and various clients of LMCEC, [6] it was
discovered that LMCEC filed fraudulent tax returns with substantial
underdeclarations of taxable income for the years 1997, 1998 and 1999. Petitioner
thus assessed the company of total deficiency taxes amounting to P430,958,005.90
(income tax - P318,606,380.19 and value-added tax [VAT] - P112,351,625.71)
covering the said period. The Preliminary Assessment Notice (PAN) was received by
LMCEC on February 22, 2001.[7]
LMCECs alleged underdeclared income was summarized by petitioner as follows:
Year
Income
Income
Undeclared
Percentage of
Per ITR
Per
Investigation
Income
Underdeclara
tion
1997
96,638,540.
00
283,412,140.8
4
186,733,600.
84
193.30%
1998
86,793,913.
00
236,863,236.8
1
150,069,323.
81
172.90%
1999
88,287,792.
00
251,507,903.1
3
163,220,111.
13
184.90%[8]
In view of the above findings, assessment notices together with a formal letter of
demand dated August 7, 2002 were sent to LMCEC through personal service
on October 1, 2002.[9] Since the company and its representatives refused to receive
the said notices and demand letter, the revenue officers resorted to constructive
service[10] in accordance with Section 3, Revenue Regulations (RR) No. 12-99 [11].
On May 21, 2003, petitioner, through then Commissioner Guillermo L. Parayno, Jr.,
referred to the Secretary of Justice for preliminary investigation its complaint
against LMCEC, Luis M. Camus and Lino D. Mendoza, the latter two were sued in
their capacities as President and Comptroller, respectively. The case was docketed
as I.S. No. 2003-774. In the Joint Affidavit executed by the revenue officers who
conducted the tax fraud investigation, it was alleged that despite the receipt of the
final assessment notice and formal demand letter on October 1, 2002, LMCEC failed
and refused to pay the deficiency tax assessment in the total amount
of P630,164,631.61, inclusive of increments, which had become final and executory
as a result of the said taxpayers failure to file a protest thereon within the thirty
(30)-day reglementary period.[12]
Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC cannot be
held liable whatsoever for the alleged tax deficiency which had become due and
demandable. Considering that the complaint and its annexes all showed that the
suit is a simple civil action for collection and not a tax evasion case, the Department
of Justice (DOJ) is not the proper forum for BIRs complaint. They also assail as
invalid the assessment notices which bear no serial numbers and should be shown
to have been validly served by an Affidavit of Constructive Service executed and
sworn to by the revenue officers who served the same. As stated in LMCECs letterprotest dated December 12, 2002addressed to Revenue District Officer (RDO)
Clavelina S. Nacar of RD No. 40, Cubao, Quezon City, the company had already
undergone a series of routine examinations for the years 1997, 1998 and 1999;
under the NIRC, only one examination of the books of accounts is allowed per
taxable year.[13]
LMCEC further averred that it had availed of the Bureaus Tax Amnesty Programs
(Economic Recovery Assistance Payment [ERAP] Program and the Voluntary
Assessment Program [VAP]) for 1998 and 1999; for 1997, its tax liability was
terminated and closed under Letter of Termination [14] dated June 1, 1999 issued by
petitioner and signed by the Chief of the Assessment Division. [15] LMCEC claimed it
made payments of income tax, VAT and expanded withholding tax (EWT), as
follows:
TAXABLE
AMOUNT OF TAXES
YEAR
PAID
1997
Termination Letter Under EWT - P 6,000.00

Letter of Authority No.
VAT - 540,605.02
174600 DatedNovember 4,
1998
IT - 3,000.00
1998
ERAP Program pursuant
WC - 38,404.55
to RR #2-99
VAT - 61,635.40
1999
VAP Program pursuant
IT - 878,495.28
to RR #8-2001
VAT - 1,324,317.00[16]
LMCEC argued that petitioner is now estopped from further taking any action
against it and its corporate officers concerning the taxable years 1997 to 1999. With
the grant of immunity from audit from the companys availment of ERAP and VAP,
which have a feature of a tax amnesty, the element of fraud is negated the moment
the Bureau accepts the offer of compromise or payment of taxes by the
taxpayer. The act of the revenue officers in finding justification under Section 6(B) of
the NIRC (Best Evidence Obtainable) is misplaced and unavailing because they were
not able to open the books of the company for the second time, after the routine
examination, issuance of termination letter and the availment of ERAP and
VAP. LMCEC thus maintained that unless there is a prior determination of fraud
supported by documents not yet incorporated in the docket of the case, petitioner
cannot just issue LAs without first terminating those previously issued. It
emphasized the fact that the BIR officers who filed and signed the AffidavitComplaint in this case were the same ones who appeared as complainants in an
earlier case filed against Camus for his alleged failure to obey summons in violation
of Section 5 punishable under Section 266 of the NIRC of 1997 (I.S. No. 00-956 of
the Office of the City Prosecutor of Quezon City). After preliminary investigation,
said case was dismissed for lack of probable cause in a Resolution issued by the
Investigating Prosecutor on May 2, 2001.[17]
LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN issued by
petitioner for having no basis in fact and law. However, until now the said protest
remains unresolved. As to the alleged informant who purportedly supplied the
confidential information, LMCEC believes that such person is fictitious and his true
identity and personality could not be produced. Hence, this case is another form of
harassment against the company as what had been found by the Office of the City
Prosecutor of Quezon City in I.S. No. 00-956. Said case and the present case both
have something to do with the audit/examination of LMCEC for taxable years 1997,
1998 and 1999 pursuant to LA No. 00009361.[18]
In the Joint Reply-Affidavit executed by the Bureaus revenue officers, petitioner
disagreed with the contention of LMCEC that the complaint filed is not criminal in
nature, pointing out that LMCEC and its officers Camus and Mendoza were being
charged for the criminal offenses defined and penalized under Sections 254
(Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Pay Tax) of the
NIRC. This finds support in Section 205 of the same Code which provides for
administrative (distraint, levy, fine, forfeiture, lien, etc.) and judicial (criminal or civil
action) remedies in order to enforce collection of taxes. Both remedies may be
pursued either independently or simultaneously.In this case, the BIR decided to
simultaneously pursue both remedies and thus aside from this criminal action, the
Bureau also initiated administrative proceedings against LMCEC. [19]
On the lack of control number in the assessment notice, petitioner explained that
such is a mere office requirement in the Assessment Service for the purpose of
internal control and monitoring; hence, the unnumbered assessment notices should
not be interpreted as irregular or anomalous. Petitioner stressed that LMCEC already
lost its right to file a protest letter after the lapse of the thirty (30)-day reglementary
period. LMCECs protest-letter dated December 12, 2002 to RDO Clavelina S. Nacar,
RD No. 40, Cubao,Quezon City was actually filed only on December 16, 2002, which
was disregarded by the petitioner for being filed out of time. Even assuming for the
sake of argument that the assessment notices were invalid, petitioner contended
that such could not affect the present criminal action, [20] citing the ruling in the
landmark case of Ungab v. Cusi, Jr.[21]
As to the Letter of Termination signed by Ruth Vivian G. Gandia of the Assessment
Division, Revenue Region No. 7, Quezon City, petitioner pointed out that LMCEC
failed to mention that the undated Certification issued by RDO Pablo C. Cabreros, Jr.
of RD No. 40, Cubao, Quezon City stated that the report of the 1997 Internal
Revenue taxes of LMCEC had already been submitted for review and approval of
higher authorities. LMCEC also cannot claim as excuse from the reopening of its
books of accounts the previous investigations and examinations. Under Section 235
(a), an exception was provided in the rule on once a year audit examination in case
of fraud, irregularity or mistakes, as determined by the Commissioner. Petitioner
explained that the distinction between a Regular Audit Examination and Tax Fraud
Audit Examination lies in the fact that the former is conducted by the district offices
of the Bureaus Regional Offices, the authority emanating from the Regional Director,
while the latter is conducted by the TFD of the National Office only when instances
of fraud had been determined by the petitioner. [22]
Petitioner further asserted that LMCECs claim that it was granted immunity from
audit when it availed of the VAP and ERAP programs is misleading. LMCEC failed to
state that its availment of ERAP under RR No. 2-99 is not a grant of absolute
immunity from audit and investigation, aside from the fact that said program was
only for income tax and did not cover VAT and withholding tax for the taxable year
1998. As for LMCECS availment of VAP in 1999 under RR No. 8-2001 dated August 1,
2001 as amended by RR No. 10-2001 dated September 3, 2001, the company failed
to state that it covers only income tax and VAT, and did not include withholding
tax. However, LMCEC is not actually entitled to the benefits of VAP under Section 1
(1.1 and 1.2) of RR No. 10-2001. As to the principle of estoppel invoked by LMCEC,
estoppel clearly does not lie against the BIR as this involved the exercise of an
inherent power by the government to collect taxes. [23]
Petitioner also pointed out that LMCECs assertion correlating this case with I.S. No.
00-956 is misleading because said case involves another violation and offense
(Sections 5 and 266 of the NIRC). Said case was filed by petitioner due to the failure
of LMCEC to submit or present its books of accounts and other accounting records
for examination despite the issuance of subpoena duces tecum against Camus in
his capacity as President of LMCEC. While indeed a Resolution was issued by Asst.
City Prosecutor Titus C. Borlas on May 2, 2001 dismissing the complaint, the same is
still on appeal and pending resolution by the DOJ. The determination of probable
cause in said case is confined to the issue of whether there was already a violation
of the NIRC by Camus in not complying with the subpoena duces tecum issued by
the BIR.[24]
Petitioner contended that precisely the reason for the issuance to the TFD of LA No.
00009361 by the Commissioner is because the latter agreed with the findings of the
investigating revenue officers that fraud exists in this case. In the conduct of their
investigation, the revenue officers observed the proper procedure under Revenue
Memorandum Order (RMO) No. 49-2000 wherein it is required that before the
issuance of a Letter of Authority against a particular taxpayer, a preliminary
investigation should first be conducted to determine if a prima facie case for tax
fraud exists. As to the allegedly unresolved protest filed on April 20, 2001 by LMCEC
over the PAN, this has been disregarded by the Bureau for being pro forma and
having been filed beyond the 15-day reglementary period. A subsequent letter
dated April 20, 2001 was filed with the TFD and signed by a certain Juan
Ventigan. However, this was disregarded and considered a mere scrap of paper
since the said signatory had not shown any prior authorization to represent
LMCEC. Even assuming said protest letter was validly filed on behalf of the
company, the issuance of a Formal Demand Letter and Assessment Notice through
constructive service on October 1, 2002 is deemed an implied denial of the said
protest. Lastly, the details regarding the informer being confidential, such
information is entitled to some degree of protection, including the identity of the
informant against LMCEC.[25]
In their Joint Rejoinder-Affidavit, [26] Camus and Mendoza reiterated their argument
that the identity of the alleged informant is crucial to determine if he/she is qualified
under Section 282 of the NIRC. Moreover, there was no assessment that has already
become final, the validity of its issuance and service has been put in issue being
anomalous, irregular and oppressive. It is contended that for criminal prosecution to
proceed before assessment, there must be a prima facie showing of a willful
attempt to evade taxes. As to LMCECs availment of the VAP and ERAP programs, the
certificate of immunity from audit issued to it by the BIR is plain and simple, but
petitioner is now saying it has the right to renege with impunity from its
undertaking. Though petitioner deems LMCEC not qualified to avail of the benefits
of VAP, it must be noted that if it is true that at the time the petitioner filed I.S. No.
00-956 sometime in January 2001 it had already in its custody that Confidential
Information No. 29-2000 dated July 7, 2000, these revenue officers could have
rightly filed the instant case and would not resort to filing said criminal complaint for
refusal to comply with a subpoena duces tecum.
On September 22, 2003, the Chief State Prosecutor issued a Resolution [27] finding no
sufficient evidence to establish probable cause against respondents LMCEC, Camus
and Mendoza. It was held that since the payments were made by LMCEC under
ERAP and VAP pursuant to the provisions of RR Nos. 2-99 and 8-2001 which were
offered to taxpayers by the BIR itself, the latter is now in estoppel to insist on the
criminal prosecution of the respondent taxpayer. The voluntary payments made
thereunder are in the nature of a tax amnesty. The unnumbered assessment notices
were found highly irregular and thus their validity is suspect; if the amounts
indicated therein were collected, it is uncertain how these will be accounted for and
if it would go to the coffers of the government or elsewhere. On the required prior
determination of fraud, the Chief State Prosecutor declared that the Office of the
City Prosecutor in I.S. No. 00-956 has already squarely ruled that (1) there was no
prior determination of fraud, (2) there was indiscriminate issuance of LAs, and (3)
the complaint was more of harassment. In view of such findings, any ensuing LA is
thus defective and allowing the collection on the assailed assessment notices would
already be in the context of a fishing expedition or witch-hunting. Consequently,
there is nothing to speak of regarding the finality of assessment notices in the
aggregate amount of P630,164,631.61.
Petitioner filed a motion for reconsideration which was denied by the Chief State
Prosecutor.[28]
Petitioner appealed to respondent Secretary of Justice but the latter denied its
petition for review under Resolution dated December 13, 2005.[29]
The Secretary of Justice found that petitioners claim that there is yet no finality as
to LMCECs payment of its 1997 taxes since the audit report was still pending review
by higher authorities, is unsubstantiated and misplaced. It was noted that the
Termination Letter issued by the Commissioner on June 1, 1999 is explicit that the
matter is considered closed. As for taxable year 1998, respondent Secretary stated
that the record shows that LMCEC paid VAT and withholding tax in the amount
of P61,635.40 and P38,404.55, respectively. This eventually gave rise to the
issuance of a certificate of immunity from audit for 1998 by the Office of the
Commissioner of Internal Revenue. For taxable year 1999, respondent Secretary
found that pursuant to earlier LA No. 38633 dated July 4, 2000, LMCECs 1999 tax
liabilities were still pending investigation for which reason LMCEC assailed the
subsequent issuance of LA No. 00009361 dated August 25, 2000 calling for a similar
investigation of its alleged 1999 tax deficiencies when no final determination has
yet been arrived on the earlier LA No. 38633. [30]
On the allegation of fraud, respondent Secretary ruled that petitioner failed to
establish the existence of the following circumstances indicating fraud in the
settlement of LMCECs tax liabilities: (1) there must be intentional and substantial
understatement of tax liability by the taxpayer; (2) there must be intentional and
substantial overstatement of deductions or exemptions; and (3) recurrence of the
foregoing circumstances. First, petitioner miserably failed to explain why the
assessment notices were unnumbered; second,the claim that the tax fraud
investigation was precipitated by an alleged informant has not been corroborated
nor was it clearly established, hence there is no other conclusion but that the
Bureau engaged in a fishing expedition; and furthermore, petitioners course of
action is contrary to Section 235 of the NIRC allowing only once in a given taxable
year such examination and inspection of the taxpayers books of accounts and other
accounting records. There was no convincing proof presented by petitioner to show
that the case of LMCEC falls under the exceptions provided in Section
235. Respondent Secretary duly considered the issuance of Certificate of Immunity
from Audit and Letter of Termination dated June 1, 1999 issued to LMCEC.[31]
Anent the earlier case filed against the same taxpayer (I.S. No. 00-956), the
Secretary of Justice found petitioner to have engaged in forum shopping in view of
the fact that while there is still pending an appeal from the Resolution of the City
Prosecutor of Quezon City in said case, petitioner hurriedly filed the instant case,
which not only involved the same parties but also similar substantial issues (the
joint complaint-affidavit also alleged the issuance of LA No. 00009361 dated August
25, 2000). Clearly, the evidence oflitis pendentia is present. Finally, respondent
Secretary noted that if indeed LMCEC committed fraud in the settlement of its tax
liabilities, then at the outset, it should have been discovered by the agents of
petitioner, and consequently petitioner should not have issued the Letter of
Termination and the Certificate of Immunity From Audit. Petitioner thus should have
been more circumspect in the issuance of said documents. [32]
Its motion for reconsideration having been denied, petitioner challenged the ruling
of respondent Secretary via a certiorari petition in the CA.
On October 31, 2006, the CA rendered the assailed decision [33] denying the petition
and concurred with the findings and conclusions of respondent Secretary. Petitioners
motion for reconsideration was likewise denied by the appellate court. [34] It appears
that entry of judgment was issued by the CA stating that its October 31,
2006 Decision attained finality on March 25, 2007.[35] However, the said entry of
judgment was set aside upon manifestation by the petitioner that it has filed a
petition for review before this Court subsequent to its receipt of the Resolution
dated March 6, 2007 denying petitioners motion for reconsideration on March 20,
2007.[36]
The petition is anchored on the following grounds:
I.
The Honorable Court of Appeals erroneously sustained the findings of the Secretary
of Justice who gravely abused his discretion by dismissing the complaint based on
grounds which are not even elements of the offenses charged.
II.
of Justice who gravely abused his discretion by dismissing petitioners evidence,
contrary to law.
III.
of Justice who gravely abused his discretion by inquiring into the validity of a Final
Assessment Notice which has become final, executory and demandable pursuant to
Section 228 of the Tax Code of 1997 for failure of private respondent to file a protest
against the same.[37]
The core issue to be resolved is whether LMCEC and its corporate officers may be
prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255
(Willful Failure to Supply Correct and Accurate Information and Pay Tax).
Petitioner filed the criminal complaint against the private respondents for violation
of the following provisions of the NIRC, as amended:
SEC. 254. Attempt to Evade or Defeat Tax. Any person who willfully attempts in
any manner to evade or defeat any tax imposed under this Code or the
payment thereof shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than Thirty thousand pesos
(P30,000) but not more than One hundred thousand pesos (P100,000) and suffer
imprisonment of not less than two (2) years but not more than four (4)
years: Provided, That the conviction or acquittal obtained under this Section shall
not be a bar to the filing of a civil suit for the collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax,
Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. Any
person required under this Code or by rules and regulations promulgated
thereunder to pay any tax, make a return, keep any record, or supply any correct
and accurate information, who willfully fails to pay such tax, make such return,
keep such record, or supply such correct and accurate information, or
withhold or remit taxes withheld, or refund excess taxes withheld on compensations
at the time or times required by law or rules and regulations shall, in addition to
other penalties provided by law, upon conviction thereof, be punished by a fine of
not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less
than one (1) year but not more than ten (10) years.
x x x x (Emphasis supplied.)
Respondent Secretary concurred with the Chief State Prosecutors conclusion that
there is insufficient evidence to establish probable cause to charge private
respondents under the above provisions, based on the following findings: (1) the tax
deficiencies of LMCEC for taxable years 1997, 1998 and 1999 have all been settled
or terminated, as in fact LMCEC was issued a Certificate of Immunity and Letter of
Termination, and availed of the ERAP and VAP programs; (2) there was no prior
determination of the existence of fraud; (3) the assessment notices are
unnumbered, hence irregular and suspect; (4) the books of accounts and other
accounting records may be subject to audit examination only once in a given
taxable year and there is no proof that the case falls under the exceptions provided
in Section 235 of the NIRC; and (5) petitioner committed forum shopping when it
filed the instant case even as the earlier criminal complaint (I.S. No. 00-956)
dismissed by the City Prosecutor of Quezon City was still pending appeal.
Petitioner argues that with the finality of the assessment due to failure of the
private respondents to challenge the same in accordance with Section 228 of the
NIRC, respondent Secretary has no jurisdiction and authority to inquire into its
validity. Respondent taxpayer is thereby allowed to do indirectly what it cannot do
directly to raise a collateral attack on the assessment when even a direct challenge
of the same is legally barred. The rationale for dismissing the complaint on the
ground of lack of control number in the assessment notice likewise betrays a lack of
awareness of tax laws and jurisprudence, such circumstance not being an element
of the offense. Worse, the final, conclusive and undisputable evidence detailing a
crime under our taxation laws is swept under the rug so easily on mere conspiracy
theories imputed on persons who are not even the subject of the complaint.
We grant the petition.
There is no dispute that prior to the filing of the complaint with the DOJ, the report
on the tax fraud investigation conducted on LMCEC disclosed that it made
substantial underdeclarations in its income tax returns for 1997, 1998 and
1999. Pursuant to RR No. 12-99,[38] a PAN was sent to and received by LMCEC on
February 22, 2001 wherein it was notified of the proposed assessment of deficiency
taxes amounting to P430,958,005.90 (income tax - P318,606,380.19 and VAT
- P112,351,625.71) covering taxable years 1997, 1998 and 1999. [39] In response to
said PAN, LMCEC sent a letter-protest to the TFD, which denied the same on April
12, 2001 for lack of legal and factual basis and also for having been filed beyond
the 15-day reglementary period.[40]
As mentioned in the PAN, the revenue officers were not given the opportunity to
examine LMCECs books of accounts and other accounting records because its
officers failed to comply with the subpoena duces tecum earlier issued, to verify its
alleged underdeclarations of income reported by the Bureaus informant under
Section 282 of the NIRC. Hence, a criminal complaint was filed by the Bureau
against private respondents for violation of Section 266 which provides:
SEC. 266. Failure to Obey Summons. Any person who, being duly summoned to
appear to testify, or to appear and produce books of accounts, records, memoranda,
or other papers, or to furnish information as required under the pertinent provisions
of this Code, neglects to appear or to produce such books of accounts, records,
memoranda, or other papers, or to furnish such information, shall, upon conviction,
be punished by a fine of not less than Five thousand pesos (P5,000) but not more
than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1)
year but not more than two (2) years.
It is clear that I.S. No. 00-956 involves a separate offense and hence litis
pendentia is not present considering that the outcome of I.S. No. 00-956 is not
determinative of the issue as to whether probable cause exists to charge the private
respondents with the crimes of attempt to evade or defeat tax and willful failure to
supply correct and accurate information and pay tax defined and penalized under
Sections 254 and 255, respectively. For the crime of tax evasion in particular,
compliance by the taxpayer with such subpoena, if any had been issued, is
irrelevant. As we held in Ungab v. Cusi, Jr.,[41] [t]he crime is complete when the
[taxpayer] has x x x knowingly and willfully filed [a] fraudulent [return] with intent
to evade and defeat x x x the tax. Thus, respondent Secretary erred in holding that
petitioner committed forum shopping when it filed the present criminal complaint
during the pendency of its appeal from the City Prosecutors dismissal of I.S. No. 00956 involving the act of disobedience to the summons in the course of the
preliminary investigation on LMCECs correct tax liabilities for taxable years 1997,
1998 and 1999.
In the Details of Discrepancies attached as Annex B of the PAN, [42] private

respondents were already notified that inasmuch as the revenue officers were not
given the opportunity to examine LMCECs books of accounts, accounting records
and other documents, said revenue officers gathered information from third
parties. Such procedure is authorized under Section 5 of the NIRC, which provides:
SEC. 5. Power of the Commissioner to Obtain Information, and to Summon,
Examine, and Take Testimony of Persons. In ascertaining the correctness of any
return, or in making a return when none has been made, or in determining the
liability of any person for any internal revenue tax, or in collecting any such liability,
or in evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record or other data which may be relevant or
material to such inquiry;
(B) To obtain on a regular basis from any person other than the person whose
internal revenue tax liability is subject to audit or investigation, or from any
office or officer of the national and local governments, government agencies and
instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned
or -controlled corporations, any information such as, but not limited to, costs and
volume of production, receipts or sales and gross incomes of taxpayers, and the
names, addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters of multinational
companies, joint accounts, associations, joint ventures or consortia and registered
partnerships, and their members;
(C) To summon the person liable for tax or required to file a return, or any officer or
employee of such person, or any person having possession, custody, or care of the
books of accounts and other accounting records containing entries relating to the
business of the person liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a time and place specified in
the summons and to produce such books, papers, records, or other data, and to
give testimony;
(D) To take such testimony of the person concerned, under oath, as may be relevant
or material to such inquiry; x x x
Private respondents assertions regarding the qualifications of the informer of the
Bureau deserve scant consideration. We have held that the lack of consent of the
taxpayer under investigation does not imply that the BIR obtained the information
from third parties illegally or that the information received is false or malicious. Nor
does the lack of consent preclude the BIR from assessing deficiency taxes on the
taxpayer based on the documents.[43] In the same vein, herein private respondents
cannot be allowed to escape criminal prosecution under Sections 254 and 255 of
the NIRC by mere imputation of a fictitious or disqualified informant under Section
282 simply because other than disclosure of the official registry number of the third
party informer, the Bureau insisted on maintaining the confidentiality of the identity
and personal circumstances of said informer.
Subsequently, petitioner sent to LMCEC by constructive service allowed under
Section 3 of RR No. 12-99, assessment notice and formal demand informing the said
taxpayer of the law and the facts on which the assessment is made, as required by
Section 228 of the NIRC. Respondent Secretary, however, fully concurred with
private respondents contention that the assessment notices were invalid for being
unnumbered and the tax liabilities therein stated have already been settled and/or
terminated.
We do not agree.
A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a
Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to
the PAN was found to be without merit. The Notice of Assessment shall inform the
[t]axpayer of this fact, and that the report of investigation submitted by the
Revenue Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the taxpayers deficiency tax or
taxes shall state the fact, the law, rules and regulations or jurisprudence on
which the assessment is based, otherwise the formal letter of demand and
the notice of assessment shall be void.[44]
As it is, the formality of a control number in the assessment notice is not a
requirement for its validity but rather the contents thereof which should inform the
taxpayer of the declaration of deficiency tax against said taxpayer. Both the formal
letter of demand and the notice of assessment shall be void if the former failed to
state the fact, the law, rules and regulations or jurisprudence on which the
assessment is based, which is a mandatory requirement under Section 228 of the
NIRC.
Section 228 of the NIRC provides that the taxpayer shall be informed in writing of
the law and the facts on which the assessment is made. Otherwise, the assessment
is void. To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was
enacted. Section 3.1.4 of the revenue regulation reads:
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
taxpayers 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.[45](Emphasis supplied.)
The Formal Letter of Demand dated August 7, 2002 contains not only a detailed
computation of LMCECs tax deficiencies but also details of the specified
discrepancies, explaining the legal and factual bases of the assessment. It also
reiterated that in the absence of accounting records and other documents
necessary for the proper determination of the companys internal revenue tax
liabilities, the investigating revenue officers resorted to the Best Evidence
Obtainable as provided in Section 6(B) of the NIRC (third party information) and in
accordance with the procedure laid down in RMC No. 23-2000 dated November 27,
2000. Annex A of the Formal Letter of Demand thus stated:
Thus, to verify the validity of the information previously provided by the informant,
the assigned revenue officers resorted to third party information. Pursuant to
Section 5(B) of the NIRC of 1997, access letters requesting for information and the
submission of certain documents (i.e., Certificate of Income Tax Withheld at Source
and/or Alphabetical List showing the income payments made to L.M. Camus
Engineering Corporation for the taxable years 1997 to 1999) were sent to the
various clients of the subject corporation, including but not limited to the following:
1. Ayala Land Inc.
2. Filinvest Alabang Inc.
3. D.M. Consunji, Inc.
4. SM Prime Holdings, Inc.
5. Alabang Commercial Corporation
6. Philam Properties Corporation
7. SM Investments, Inc.
8. Shoemart, Inc.
9. Philippine Securities Corporation
10. Makati Development Corporation
From the documents gathered and the data obtained therein, the
substantial underdeclaration as defined under Section 248(B) of the NIRC
of 1997 by your corporation of its income had been confirmed. x x x
x[46] (Emphasis supplied.)
In the same letter, Assistant Commissioner Percival T. Salazar informed private
respondents that the estimated tax liabilities arising from LMCECs underdeclaration
amounted
to P186,773,600.84
in
1997, P150,069,323.81
in
1998
and P163,220,111.13 in 1999. These figures confirmed that the non-declaration by
LMCEC for the taxable years 1997, 1998 and 1999 of an amount exceeding 30%
income[47] declared in its return is considered a substantial underdeclaration of
income, which constituted prima facieevidence of false or fraudulent return under
Section 248(B)[48] of the NIRC, as amended.[49]
On the alleged settlement of the assessed tax deficiencies by private respondents,
respondent Secretary found the latters claim as meritorious on the basis of the
Certificate of Immunity From Audit issued on December 6, 1999 pursuant to RR No.

2-99 and Letter of Termination dated June 1, 1999 issued by Revenue Region No. 7
Chief of Assessment Division Ruth Vivian G. Gandia. Petitioner, however, clarified
that the certificate of immunity from audit covered only income tax for the year
1997 and does not include VAT and withholding taxes, while the Letter of
Termination involved tax liabilities for taxable year 1997 (EWT, VAT and income
taxes) but which was submitted for review of higher authorities as per the
Certification of RD No. 40 District Officer Pablo C. Cabreros, Jr. [50] For 1999, private
respondents supposedly availed of the VAP pursuant to RR No. 8-2001.
RR No. 2-99 issued on February 7, 1999 explained in its Policy Statement that
considering the scarcity of financial and human resources as well as the time
constraints within which the Bureau has to clean the Bureaus backlog of unaudited
tax returns in order to keep updated and be focused with the most current accounts
in preparation for the full implementation of a computerized tax administration, the
said revenue regulation was issued providing for last priority in audit and
investigation of tax returns to accomplish the said objective without, however,
compromising the revenue collection that would have been generated from audit
and enforcement activities. The program named as Economic Recovery Assistance
Payment (ERAP) Program granted immunity from audit and investigation of income
tax, VAT and percentage tax returns for 1998. It expressly excluded withholding tax
returns (whether for income, VAT, or percentage tax purposes). Since such immunity
from audit and investigation does not preclude the collection of revenues generated
from audit and enforcement activities, it follows that the Bureau is likewise not
barred from collecting any tax deficiency discovered as a result of tax fraud
investigations. Respondent Secretarys opinion that RR No. 2-99 contains the feature
of a tax amnesty is thus misplaced.
Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It
also gives the government a chance to collect uncollected tax from tax evaders
without having to go through the tedious process of a tax case. [51] Even
assuming arguendo that the issuance of RR No. 2-99 is in the nature of tax
amnesty, it bears noting that a tax amnesty, much like a tax exemption, is never
favored nor presumed in law and if granted by statute, the terms of the amnesty
like that of a tax exemption must be construed strictly against the taxpayer and
liberally in favor of the taxing authority.[52]
For the same reason, the availment by LMCEC of VAP under RR No. 8-2001 as
amended by RR No. 10-2001, through payment supposedly made in October 29,
2001 before the said program ended on October 31, 2001, did not amount to
settlement of its assessed tax deficiencies for the period 1997 to 1999, nor
immunity from prosecution for filing fraudulent return and attempt to evade or
defeat tax. As correctly asserted by petitioner, from the express terms of the
aforesaid revenue regulations, LMCEC is not qualified to avail of the VAP granting
taxpayers the privilege of last priority in the audit and investigation of all internal
revenue taxes for the taxable year 2000 and all prior years under certain conditions,
considering that first, it was issued a PAN on February 19, 2001, and second, it was
the subject of investigation as a result of verified information filed by a Tax Informer
under Section 282 of the NIRC duly recorded in the BIR Official Registry as
Confidential Information (CI) No. 29-2000[53] even prior to the issuance of the PAN.
Section 1 of RR No. 8-2001 provides:
SECTION 1. COVERAGE. x x x
Any person, natural or juridical, including estates and trusts, liable to pay any of the
above-cited internal revenue taxes for the above specified period/s who, due to
inadvertence or otherwise, erroneously paid his internal revenue tax liabilities or
failed to file tax return/pay taxes may avail of the Voluntary Assessment Program
(VAP), except those falling under any of the following instances:
1.1 Those covered by a Preliminary Assessment Notice (PAN), Final
Assessment Notice (FAN), or Collection Letter issued on or before July 31,
2001; or
1.2 Persons under investigation as a result of verified information filed by
a Tax Informer under Section 282 of the Tax Code of 1997, duly processed
and recorded in the BIR Official Registry Book on or before July 31, 2001;
1.3 Tax fraud cases already filed and pending in courts for adjudication; and
Moreover, private respondents cannot invoke LMCECs availment of VAP to foreclose
any subsequent audit of its account books and other accounting records in view of
the strong finding of underdeclaration in LMCECs payment of correct income tax
liability by more than 30% as supported by the written report of the TFD detailing
the facts and the law on which such finding is based, pursuant to the tax fraud
investigation authorized by petitioner under LA No. 00009361. This conclusion finds
support in Section 2 of RR No. 8-2001 as amended by RR No. 10-2001 provides:
SEC. 2. TAXPAYERS BENEFIT FROM AVAILMENT OF THE VAP. A taxpayer who
has availed of the VAP shall not be audited except upon authorization and approval
of the Commissioner of Internal Revenue when there is strong evidence or finding of
understatement in the payment of taxpayers correct tax liability by more than thirty
percent (30%) as supported by a written report of the appropriate office detailing
the facts and the law on which such finding is based: Provided, however, that any
VAP payment should be allowed as tax credit against the deficiency tax due, if any,
in case the concerned taxpayer has been subjected to tax audit.
xxxx
Given the explicit conditions for the grant of immunity from audit under RR No. 299, RR No. 8-2001 and RR No. 10-2001, we hold that respondent Secretary gravely
erred in declaring that petitioner is now estopped from assessing any tax deficiency
against LMCEC after issuance of the aforementioned documents of immunity from
audit/investigation and settlement of tax liabilities. It is axiomatic that the State can
never be in estoppel, and this is particularly true in matters involving taxation. The
errors of certain administrative officers should never be allowed to jeopardize the

governments financial position.[54]
Respondent Secretarys other ground for assailing the course of action taken by
petitioner in proceeding with the audit and investigation of LMCEC -- the alleged
violation of the general rule in Section 235 of the NIRC allowing the examination and
inspection of taxpayers books of accounts and other accounting records only once
in a taxable year -- is likewise untenable. As correctly pointed out by petitioner, the
discovery of substantial underdeclarations of income by LMCEC for taxable years
1997, 1998 and 1999 upon verified information provided by an informer under
Section 282 of the NIRC, as well as the necessity of obtaining information from third
parties to ascertain the correctness of the return filed or evaluation of tax
compliance in collecting taxes (as a result of the disobedience to the summons
issued by the Bureau against the private respondents), are circumstances
warranting exception from the general rule in Section 235. [55]
As already stated, the substantial underdeclared income in the returns filed by
LMCEC for 1997, 1998 and 1999 in amounts equivalent to more than 30% (the
computation in the final assessment notice showed underdeclarations of almost
200%) constitutes prima facie evidence of fraudulent return under Section 248(B) of
the NIRC. Prior to the issuance of the preliminary and final notices of assessment,
the revenue officers conducted a preliminary investigation on the information and
documents showing substantial understatement of LMCECs tax liabilities which were
provided by the Informer, following the procedure under RMO No. 15-95. [56] Based
on the prima facie finding of the existence of fraud, petitioner issued LA No.
00009361 for the TFD to conduct a formal fraud investigation of LMCEC.
[57]
Consequently, respondent Secretarys ruling that the filing of criminal complaint
for violation of Sections 254 and 255 of the NIRC cannot prosper because of lack of
prior determination of the existence of fraud, is bereft of factual basis and
contradicted by the evidence on record.
Tax assessments by tax examiners are presumed correct and made in good faith,
and all presumptions are in favor of the correctness of a tax assessment unless
proven otherwise.[58] We have held that a taxpayers failure to file a petition for
review with the Court of Tax Appeals within the statutory period rendered the
disputed assessment final, executory and demandable, thereby precluding it from
interposing the defenses of legality or validity of the assessment and prescription of
the Governments right to assess. [59]Indeed, any objection against the assessment
should have been pursued following the avenue paved in Section 229 (now Section
228) of the NIRC on protests on assessments of internal revenue taxes. [60]
Records bear out that the assessment notice and Formal Letter of Demand
dated August 7, 2002 were duly served on LMCEC on October 1, 2002. Private
respondents did not file a motion for reconsideration of the said assessment notice
and formal demand; neither did they appeal to the Court of Tax Appeals. Section
228 of the NIRC[61] 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. No such administrative protest was filed by private respondents

seeking reconsideration of the August 7, 2002 assessment notice and formal letter
of demand. Private respondents cannot belatedly assail the said assessment, which
they allowed to lapse into finality, by raising issues as to its validity and correctness
during the preliminary investigation after the BIR has referred the matter for
prosecution under Sections 254 and 255 of the NIRC.
As we held in Marcos II v. Court of Appeals[62]:
It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau of
Internal Revenue, whose determinations and assessments are presumed correct and
made in good faith. The taxpayer has the duty of proving otherwise. In the
absence of proof of any irregularities in the performance of official duties,
an assessment will not be disturbed. Even an assessment based on
estimates is prima facie valid and lawful where it does not appear to have
been arrived at arbitrarily or capriciously. The burden of proof is upon the
complaining party to show clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the judicial affirmance of said
assessment. x x x.
Moreover, these objections to the assessments should have been raised,
considering the ample remedies afforded the taxpayer by the Tax
Code, with the Bureau of Internal Revenue and the Court of Tax
Appeals, as described earlier, and cannot be raised now via Petition for Certiorari,
under the pretext of grave abuse of discretion. The course of action taken by the
petitioner reflects his disregard or even repugnance of the established institutions
for governance in the scheme of a well-ordered society. The subject tax
assessments having become final, executory and enforceable, the same
can no longer be contested by means of a disguised protest. In the main,
Certiorari may not be used as a substitute for a lost appeal or remedy. This judicial
policy becomes more pronounced in view of the absence of sufficient attack against
the actuations of government. (Emphasis supplied.)
The determination of probable cause is part of the discretion granted to the
investigating prosecutor and ultimately, the Secretary of Justice. However, this
Court and the CA possess the power to review findings of prosecutors in preliminary
investigations. Although policy considerations call for the widest latitude of
deference to the prosecutors findings, courts should never shirk from exercising
their power, when the circumstances warrant, to determine whether the prosecutors
findings are supported by the facts, or by the law. In so doing, courts do not act as
prosecutors but as organs of the judiciary, exercising their mandate under the
Constitution, relevant statutes, and remedial rules to settle cases and controversies.
[63]
Clearly, the power of the Secretary of Justice to review does not preclude this
Court and the CA from intervening and exercising our own powers of review with
respect to the DOJs findings, such as in the exceptional case in which grave abuse
of discretion is committed, as when a clear sufficiency or insufficiency of evidence
to support a finding of probable cause is ignored. [64]
WHEREFORE, the petition is GRANTED. The Decision dated October 31, 2006 and
Resolution dated March 6, 2007 of the Court of Appeals in CA-G.R. SP No. 93387 are
hereby REVERSED and SET
ASIDE. The
Secretary
of
Justice
is
hereby DIRECTED to order the Chief State Prosecutor to file before the Regional
Trial Court of Quezon City, National Capital Judicial Region, the corresponding
Information against L. M. Camus Engineering Corporation, represented by its
President Luis M. Camus and Comptroller Lino D. Mendoza, for Violation of Sections
254 and 255 of the National Internal Revenue Code of 1997.
No costs.
SO ORDERED.
2. RCBC v. CIR, GR No. 168498, April 24, 2007
THIRD DIVISION
RIZAL COMMERCIAL G.R. No. 168498

BANKING CORPORATION,
Petitioner, Present:
Ynares-Santiago, J. (Chairperson),
- versus - Austria-Martinez,
Callejo, Sr.,
Chico-Nazario, and
Nachura, JJ.
COMMISSIONER OF INTERNAL
REVENUE, Promulgated:
Respondent.
April 24, 2007
x ---------------------------------------------------------------------------------------- x
RESOLUTION
YNARES-SANTIAGO, J.:
For resolution is petitioners Motion for Reconsideration of our Decision [1] dated June
16, 2006 affirming the Decision of the Court of Tax Appeals En Banc dated June 7,
2005 in C.T.A. EB No. 50, which affirmed the Resolutions of the Court of Tax Appeals
Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475,
denying petitioners Petition for Relief from Judgment and Motion for
Reconsideration, respectively.
Petitioner reiterates its claim that its former counsels failure to file petition for
review with the Court of Tax Appeals within the period set by Section 228 of the
National Internal Revenue Code of 1997 (NIRC) was excusable and raised the
following issues for resolution:
A.
THE DENIAL OF PETITIONERS PETITION FOR RELIEF FROM JUDGMENT WILL RESULT
IN THE DENIAL OF SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY TO
ESTABLISHED DECISIONS OF THIS HONORABLE COURT BECAUSE THE ASSESSMENT
SOUGHT TO BE CANCELLED HAS ALREADY PRESCRIBED A FACT NOT DENIED BY THE
RESPONDENT IN ITS ANSWER.
B.
CONTRARY TO THIS HONORABLE COURTS DECISION, AND FOLLOWING THE

LASCONA DECISION, AS WELL AS THE 2005 REVISED RULES OF THE COURT OF TAX
APPEALS, PETITIONER TIMELY FILED ITS PETITION FOR REVIEW BEFORE THE COURT
OF TAX APPEALS; THUS, THE COURT OF TAX APPEALS HAD JURISDICTION OVER THE
CASE.
C.
CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE,

THAT IS, A DEFICIENCY ASSESSMENT FOR DOCUMENTARY STAMP TAX ON SPECIAL
SAVINGS ACCOUNTS AND GROSS ONSHORE TAX, PETITIONER IN THE INTEREST OF
SUBSTANTIVE JUSTICE AND UNIFORMITY OF TAXATION, SHOULD BE ALLOWED TO
FULLY LITIGATE THE ISSUE BEFORE THE COURT OF TAX APPEALS. [2]
Petitioners motion for reconsideration is denied for lack of merit.
Other than the issue of prescription, which is raised herein for the first time, the
issues presented are a mere rehash of petitioners previous arguments, all of which
have been considered and found without merit in our Decision dated June 16, 2006.
Petitioner maintains that its counsels neglect in not filing the petition for review
within the reglementary period was excusable. It alleges that the counsels secretary
misplaced the Resolution hence the counsel was not aware of its issuance and that
it had become final and executory.
We are not persuaded.
In our Decision, we held that:
Relief cannot be granted on the flimsy excuse that the failure to appeal was due to
the neglect of petitioners counsel. Otherwise, all that a losing party would do to
salvage his case would be to invoke neglect or mistake of his counsel as a ground
for reversing or setting aside the adverse judgment, thereby putting no end to
litigation.
Negligence to be excusable must be one which ordinary diligence and prudence

could not have guarded against and by reason of which the rights of an aggrieved
party have probably been impaired. Petitioners former counsels omission could
hardly be characterized as excusable, much less unavoidable.
The Court has repeatedly admonished lawyers to adopt a system whereby they can
always receive promptly judicial notices and pleadings intended for
them. Apparently, petitioners counsel was not only remiss in complying with this
admonition but he also failed to check periodically, as an act of prudence and
diligence, the status of the pending case before the CTA Second Division. The fact
that counsel allegedly had not renewed the employment of his secretary, thereby
making the latter no longer attentive or focused on her work, did not relieve him of
his responsibilities to his client. It is a problem personal to him which should not in
any manner interfere with his professional commitments. [3]
Petitioner also argues that, in the interest of substantial justice, the instant case
should be re-opened considering that it was allegedly not accorded its day in court
when the Court of Tax Appeals dismissed its petition for review for late filing. It
claims that rules of procedure are intended to help secure, not override, substantial
justice.
Petitioners arguments fail to persuade us.
As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005:
If indeed there was negligence, this is obviously on the part of petitioners own
counsel whose prudence in handling the case fell short of that required under the
circumstances. He was well aware of the motion filed by the respondent for the
Court to resolve first the issue of this Courts jurisdiction on July 15, 2003, that a
hearing was conducted thereon on August 15, 2003 where both counsels were
present and at said hearing the motion was submitted for resolution. Petitioners
counsel apparently did not show enthusiasm in the case he was handling as he
should have been vigilant of the outcome of said motion and be prepared for the
necessary action to take whatever the outcome may have been. Such kind of
negligence cannot support petitioners claim for relief from judgment.
Besides, tax assessments by tax examiners are presumed correct and made in good
faith, and all presumptions are in favor of the correctness of a tax assessment
unless proven otherwise.[4] Also, petitioners failure to file a petition for review with
the Court of Tax Appeals within the statutory period rendered the disputed
assessment final, executory and demandable, thereby precluding it from interposing
the defenses of legality or validity of the assessment and prescription of the
Governments right to assess.[5]
The Court of Tax Appeals is a court of special jurisdiction and can only take
cognizance of such matters as are clearly within its jurisdiction. Section 7 of
Republic Act (R.A.) No. 9282, amending R.A. No. 1125, otherwise known as the Law
Creating the Court of Tax Appeals, provides:
Sec. 7. Jurisdiction. The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
relation thereto, or other matters arising under the National Internal Revenue Code
or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the
inaction shall be deemed a denial;
Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of
Tax Appeals[6] state:
RULE 4
Jurisdiction of the Court
xxxx
SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. The Court in
Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:

or other laws administered by the Bureau of Internal Revenue;
Internal Revenue Code or other applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the inaction of the Commissioner of
Internal Revenue within the one hundred eighty day-period under Section 228 of the
National Internal Revenue Code shall be deemed a denial for purposes of allowing
the taxpayer to appeal his case to the Court and does not necessarily constitute a
formal decision of the Commissioner of Internal Revenue on the tax case; Provided,
further, that should the taxpayer opt to await the final decision of the Commissioner
of Internal Revenue on the disputed assessments beyond the one hundred eighty
day-period abovementioned, the taxpayer may appeal such final decision to the
Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in
the case of claims for refund of taxes erroneously or illegally collected, the taxpayer
must file a petition for review with the Court prior to the expiration of the two-year
period under Section 229 of the National Internal Revenue Code;
xxxx
RULE 8
Procedure in Civil Cases
xxxx
SECTION 3. Who May Appeal; Period to File Petition. (a) A party adversely affected
by a decision, ruling or the inaction of the Commissioner of Internal Revenue on
disputed assessments or claims for refund of internal revenue taxes, or by a
decision or ruling of the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial
Court in the exercise of its original jurisdiction may appeal to the Court by petition
for review filed within thirty days after receipt of a copy of such decision or ruling, or
expiration of the period fixed by law for the Commissioner of Internal Revenue to
act on the disputed assessments. In case of inaction of the Commissioner of Internal
Revenue on claims for refund of internal revenue taxes erroneously or illegally
collected, the taxpayer must file a petition for review within the two-year period
prescribed by law from payment or collection of the taxes. (n)
From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has
been expanded to include not only decisions or rulings but inaction as well of the
Commissioner of Internal Revenue. The decisions, rulings or inaction of the
Commissioner are necessary in order to vest the Court of Tax Appeals with
jurisdiction to entertain the appeal, provided it is filed within 30 days after the
receipt of such decision or ruling, or within 30 days after the expiration of the 180day period fixed by law for the Commissioner to act on the disputed
assessments. This 30-day period within which to file an appeal is jurisdictional and
failure to comply therewith would bar the appeal and deprive the Court of Tax
Appeals of its jurisdiction to entertain and determine the correctness of the
assessments. Such period is not merely directory but mandatory and it is beyond
the power of the courts to extend the same. [7]
In case the Commissioner failed to act on the disputed assessment within the 180day period from date of submission of documents, a taxpayer can either: 1) file a
petition for review with the Court of Tax Appeals within 30 days after the expiration
of the 180-day period; or 2) await the final decision of the Commissioner on the
disputed assessments and appeal such final decision to the Court of Tax Appeals
within 30 days after receipt of a copy of such decision. However, these options are
mutually exclusive, and resort to one bars the application of the other.
In the instant case, the Commissioner failed to act on the disputed assessment
within 180 days from date of submission of documents. Thus, petitioner opted to file
a petition for review before the Court of Tax Appeals. Unfortunately, the petition for
review was filed out of time, i.e., it was filed more than 30 days after the lapse of
the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for
late filing. Petitioner did not file a motion for reconsideration or make an appeal;
hence, the disputed assessment became final, demandable and executory.
Based on the foregoing, petitioner can not now claim that the disputed assessment
is not yet final as it remained unacted upon by the Commissioner; that it can still
await the final decision of the Commissioner and thereafter appeal the same to the
Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing
the first option,i.e., filing a petition for review which was however filed out of time,
petitioner can not successfully resort to the second option, i.e., awaiting the final
decision of the Commissioner and appealing the same to the Court of Tax Appeals,
on the pretext that there is yet no final decision on the disputed assessment
because of the Commissioners inaction.
Lastly, we note that petitioner is raising the issue of prescription for the first time in
the instant motion for reconsideration. Although the same was raised in the petition
for review, it was dismissed for late filing. No motion for reconsideration was filed
hence
the
disputed
assessment
became
final,
demandable
and
executory. Thereafter, petitioner filed with the Court of Tax Appeals a petition for
relief from judgment. However, it failed to raise the issue of prescription
therein. After its petition for relief from judgment was denied by the Court of Tax
Appeals for lack of merit, petitioner filed a petition for review before this Court
without raising the issue of prescription. It is only in the instant motion for
reconsideration that petitioner raised the issue of prescription which is not
allowed. The rule is well-settled that points of law, theories, issues and arguments
not adequately brought to the attention of the lower court need not be considered
by the reviewing court as they cannot be raised for the first time on appeal, [8] much
more in a motion for reconsideration as in this case, because this would be offensive
to the basic rules of fair play, justice and due process. [9] This last ditch effort to shift
to a new theory and raise a new matter in the hope of a favorable result is a
pernicious practice that has consistently been rejected.
WHEREFORE, in view of the foregoing, petitioners motion for reconsideration

is DENIED.
SO ORDERED.
3. CIR v. Enron Subic Power Corporation, GR No. 166387, January 19, 2009
FIRST DIVISION
COMMISSIONER OF INTERNAL G.R. No. 166387

REVENUE,
Petitioner,
Present:
PUNO, C.J., Chairperson,
CARPIO,
- v e r s u s - CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.
ENRON SUBIC POWER

CORPORATION,
Respondent. Promulgated:
January 19, 2009

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
RESOLUTION
CORONA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
Commissioner of Internal Revenue (CIR) assails the November 24, 2004 decision [1] of
the Court of Appeals (CA) annulling the formal assessment notice issued by the CIR
against respondent Enron Subic Power Corporation (Enron) for failure to state the
legal and factual bases for such assessment.
Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority
as a freeport enterprise,[2] filed its annual income tax return for the year 1996 on
April 12, 1997. It indicated a net loss of P7,684,948. Subsequently, the Bureau of
Internal Revenue, through a preliminary five-day letter, [3] informed it of a proposed
assessment of an alleged P2,880,817.25 deficiency income tax.[4] Enron disputed
the proposed deficiency assessment in its first protest letter. [5]
On May 26, 1999, Enron received from the CIR a formal assessment
notice[6] requiring it to pay the alleged deficiency income tax of P2,880,817.25 for
the taxable year 1996. Enron protested this deficiency tax assessment. [7]
Due to the non-resolution of its protest within the 180-day period, Enron filed a
petition for review in the Court of Tax Appeals (CTA). It argued that the deficiency
tax assessment disregarded the provisions of Section 228 of the National Internal
Revenue Code (NIRC), as amended, [8] and Section 3.1.4 of Revenue Regulations (RR)
No. 12-99[9] by not providing the legal and factual bases of the assessment. Enron
likewise questioned the substantive validity of the assessment. [10]
In a decision dated September 12, 2001, the CTA granted Enrons petition and
ordered the cancellation of its deficiency tax assessment for the year 1996. The CTA
reasoned that the assessment notice sent to Enron failed to comply with the
requirements of a valid written notice under Section 228 of the NIRC and RR No. 1299. The CIRs motion for reconsideration of the CTA decision was denied in a
resolution dated November 12, 2001.
The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held
that the audit working papers did not substantially comply with Section 228 of the
NIRC and RR No. 12-99 because they failed to show the applicability of the cited law
to the facts of the assessment. The CIR filed a motion for reconsideration but this
was deemed abandoned when he filed a motion for extension to file a petition for
review in this Court.
The CIR now argues that respondent was informed of the legal and factual bases of
the deficiency assessment against it.
We adopt in toto the findings of fact of the CTA, as affirmed by the CA.
In Compagnie Financiere Sucres et Denrees v. CIR, [11] we held:
We reiterate the well-established doctrine that as a matter of practice and principle,
[we] will not set aside the conclusion reached by an agency, like the CTA, especially
if affirmed by the [CA]. By the very nature of its function, it has dedicated itself to
the study and consideration of tax problems and has necessarily developed an
expertise on the subject, unless there has been an abuse or improvident exercise of
authority on its part, which is not present here.
The CIR errs in insisting that the notice of assessment in question complied with the
requirements of the NIRC and RR No. 12-99.
A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a

Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to
the PAN was found to be without merit. The Notice of Assessment shall inform the
[t]axpayer of this fact, and that the report of investigation submitted by the
Revenue Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the taxpayers deficiency tax or
taxes shall state the fact, the law, rules and regulations or jurisprudence on
which the assessment is based, otherwise the formal letter of demand and
the notice of assessment shall be void. (emphasis supplied)[12]
Section 228 of the NIRC provides that the taxpayer shall be informed in writing of
the law and the facts on which the assessment is made. Otherwise, the assessment
is void. To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was
enacted. Section 3.1.4 of the revenue regulation reads:
authorized representative.The letter of demand calling for payment of the
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. xxx (emphasis supplied)
It is clear from the foregoing that a taxpayer must be informed in writing of the legal
and factual bases of the tax assessment made against him. The use of the word
shall in these legal provisions indicates the mandatory nature of the requirements
laid down therein. We note the CTAs findings:
In [this] case, [the CIR] merely issued a formal assessment and indicated therein the
supposed tax, surcharge, interest and compromise penalty due thereon. The
Revenue Officers of the [the CIR] in the issuance of the Final Assessment Notice did
not provide Enron with the written bases of the law and facts on which the subject
assessment is based. [The CIR] did not bother to explain how it arrived at such an
assessment. Moreso, he failed to mention the specific provision of the Tax Code or
rules and regulations which were not complied with by Enron. [13]
Both the CTA and the CA concluded that the deficiency tax assessment merely
itemized the deductions disallowed and included these in the gross income. It also
imposed the preferential rate of 5% on some items categorized by Enron as costs.
The legal and factual bases were, however, not indicated.
The CIR insists that an examination of the facts shows that Enron was properly
apprised of its tax deficiency. During the pre-assessment stage, the CIR advised
Enrons representative of the tax deficiency, informed it of the proposed tax
deficiency assessment through a preliminary five-day letter and furnished Enron a
copy of the audit working paper[14] allegedly showing in detail the legal and factual
bases of the assessment. The CIR argues that these steps sufficed to inform Enron
of the laws and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of

Enron, as well as the preliminary five-day letter, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases of the assessment. These
steps were mere perfunctory discharges of the CIRs duties in correctly assessing a
taxpayer.[15] The requirement for issuing a preliminary or final notice, as the case
may be, informing a taxpayer of the existence of a deficiency tax assessment is
markedly different from the requirement of what such notice must contain. Just
because the CIR issued an advice, a preliminary letter during the pre-assessment
stage and a final notice, in the order required by law, does not necessarily mean
that Enron was informed of the law and facts on which the deficiency tax
assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the
formal letter of demand and assessment notice. Thus, such cannot be presumed.
Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would
be rendered nugatory. The alleged factual bases in the advice, preliminary letter
and audit working papers did not suffice. There was no going around the mandate of
the law that the legal and factual bases of the assessment be stated in writing in
the formal letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the
assessment made by the CIR. This was changed in 1998 and the taxpayer must now
be informed not only of the law but also of the facts on which the assessment is
made.[16] Such amendment is in keeping with the constitutional principle that no
person shall be deprived of property without due process. [17] In view of the absence
of a fair opportunity for Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void. We reiterate our ruling
in Reyes v. Almanzor, et al.:[18]
Verily, taxes are the lifeblood of the Government and so should be collected without
unnecessary hindrance. However, such collection should be made in accordance
with law as any arbitrariness will negate the very reason for the Government itself.
WHEREFORE, the petition is hereby DENIED. The November 24, 2004 decision of
the Court of Appeals is AFFIRMED.
No costs.
SO ORDERED.
4. CIR v. United Salvage and Towage (Phils.), Inc., GR No. 197515, July 2, 2014
G.R. No. 197515
July 2, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
UNITED SALVAGE AND TOWAGE (PHILS.), INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Revised
Rules of Court which seeks to review, reverse and set aside the Decision 1 of the
Court of Tax Appeals En Banc (CTA En Banc), dated June 27, 2011, in the case
entitled Commissioner of Internal Revenue v. United Salvage and Towage (Phils.),
Inc. (USTP), docketed as C.T.A. EB No. 662. The facts as culled from the records:
Respondent is engaged in the business of sub-contracting work for service

contractors engaged in petroleum operations in the Philippines. 2 During the taxable
years in question, it had entered into various contracts and/or sub-contracts with
several petroleum service contractors, such as Shell Philippines Exploration, B.V.
and Alorn Production Philippines for the supply of service vessels. 3
In the course of respondents operations, petitioner found respondent liable for
deficiency income tax, withholding tax, value-added tax (VAT) and documentary
stamp tax (DST) for taxable years 1992,1994, 1997 and 1998. 4Particularly,
petitioner, through BIR officials, issued demand letters with attached assessment
notices for withholding tax on compensation (WTC) and expanded withholding tax
(EWT) for taxable years 1992, 1994 and 1998,5 detailed as follows:
Assessment Notice No.
Tax Covered
Period
Amount
25-1-000545-92
WTC
1992
P50,429.18
25-1-000546-92
EWT
1992
P14,079.45
034-14-000029-94
EWT
1994
P48,461.76
034-1-000080-98
EWT
1998
P22,437.016
On January 29, 1998 and October 24, 2001, USTP filed administrative protests
against the 1994 and 1998 EWT assessments, respectively. 7
On February 21, 2003, USTP appealed by way of Petition for Review before the Court
in action (which was thereafter raffled to the CTA-Special First Division) alleging,
among others, that the Notices of Assessment are bereft of any facts, law, rules and
regulations or jurisprudence; thus, the assessments are void and the right of the
government to assess and collect deficiency taxes from it has prescribed on account
of the failure to issue a valid notice of assessment within the applicable period. 8
During the pendency of the proceedings, USTP moved to withdraw the aforesaid
Petition because it availed of the benefits of the Tax Amnesty Program under
Republic Act (R.A.) No. 9480.9 Having complied with all the requirements therefor,
the CTA-Special First Division partially granted the Motion to Withdraw and declared
the issues on income tax, VAT and DST deficiencies closed and terminated in
accordance with our pronouncement in Philippine Banking Corporation v.
Commissioner of Internal Revenue.10 Consequently, the case was submitted for
decision covering the remaining issue on deficiency EWT and WTC, respectively, for
taxable years 1992, 1994 and 1998.11
The CTA-Special First Division held that the Preliminary Assessment Notices (PANs)
for deficiency EWT for taxable years 1994 and 1998 were not formally offered;
hence, pursuant to Section 34, Rule 132 of the Revised Rules of Court, the Court
shall neither consider the same as evidence nor rule on their validity. 12 As regards
the Final Assessment Notices (FANs) for deficiency EWT for taxable years 1994 and
1998, the CTA-Special First Division held that the same do not show the law and the
facts on which the assessments were based. 13 Said assessments were, therefore,
declared void for failure to comply with Section 228 of the 1997 National Internal
Revenue Code (Tax Code).14 From the foregoing, the only remaining valid
assessment is for taxable year 1992.15
Nevertheless, the CTA-Special First Division declared that the right of petitioner to
collect the deficiency EWT and WTC, respectively, for taxable year 1992 had already
lapsed pursuant to Section 203 of the Tax Code. 16 Thus, in ruling for USTP, the CTASpecial First Division cancelled Assessment Notice Nos. 25-1-00546-92 and 25-1000545-92, both dated January 9, 1996 and covering the period of 1992, as
declared in its Decision17 dated March 12, 2010, the dispositive portion of which
provides:
WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly,
Assessment Notice No. 25-1-00546-92 dated January 9, 1996 for deficiency
Expanded Withholding Tax and Assessment Notice No. 25-1-000545 dated January
9, 1996 for deficiency Withholding Tax on Compensation are hereby CANCELLED.
SO ORDERED.18
Dissatisfied, petitioner moved to reconsider the aforesaid ruling. However, in a
Resolution19 dated July 15, 2010, the CTA-Special First Division denied the same for
lack of merit.
On August 18, 2010, petitioner filed a Petition for Review with the CTA En Banc
praying that the Decision of the CTA-Special First Division, dated March 12, 2010,be
set aside.20
On June 27, 2011, the CTA En Banc promulgated a Decision which affirmed with
modification the Decision dated March 12, 2010 and the Resolution dated July 15,
2010 of the CTA-Special First Division, the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition is PARTLY GRANTED. The Decision
dated March 12, 2010 and the Resolution dated July 15, 2010 are AFFIRMED with
MODIFICATION upholding the 1998 EWT assessment. In addition to the basic EWT
deficiency of P14,496.79, USTP is ordered to pay surcharge, annual deficiency
interest, and annual delinquency interest from the date due until full payment
pursuant to Section 249 of the 1997 NIRC.
SO ORDERED.21
Hence, the instant petition raising the following issues:
1. Whether or not the Court of Tax Appeals is governed strictly by the
technical rules of evidence;
2. Whether or not the Expanded Withholding Tax Assessments issued by
petitioner against the respondent for taxable year 1994 was without any
factual and legal basis; and
3. Whether or not petitioners right to collect the creditable withholding tax

and expanded withholding tax for taxable year 1992 has already prescribed. 22
After careful review of the records and evidence presented before us, we find no
basis to overturn the decision of the CTA En Banc.
On this score, our ruling in Compagnie Financiere Sucres Et Denrees v. CIR, 23 is
enlightening, to wit:
We reiterate the well-established doctrine that as a matter of practice and principle,
[we] will not set aside the conclusion reached by an agency, like the CTA, especially
if affirmed by the [CA]. By the very nature of its function, it has dedicated itself to
the study and consideration of tax problems and has necessarily developed an
expertise on the subject, unless there has been an abuse or improvident exercise of
authority on its part, which is not present here. 24
Now, to the first issue.
Petitioner implores unto this Court that technical rules of evidence should not be
strictly applied in the interest of substantial justice, considering that the mandate of
the CTA explicitly provides that its proceedings shall not be governed by the
technical rules of evidence.25 Relying thereon, petitioner avers that while it failed to
formally offer the PANs of EWTs for taxable years 1994and 1998, their existence and
due execution were duly tackled during the presentation of petitioners witnesses,
Ruleo Badilles and Carmelita Lynne de Guzman (for taxable year 1994) and Susan
Salcedo-De Castro and Edna A. Ortalla (for taxable year 1998). 26 Petitioner further
claims that although the PANs were not marked as exhibits, their existence and
value were properly established, since the BIR records for taxable years 1994 and
1998 were forwarded by petitioner to the CTA in compliance with the latters
directive and were, in fact, made part of the CTA records. 27
Under Section 828 of Republic Act (R.A.) No. 1125, the CTA is categorically described
as a court of record.29 As such, it shall have the power to promulgate rules and
regulations for the conduct of its business, and as may be needed, for the
uniformity of decisions within its jurisdiction. 30 Moreover, as cases filed before it are
litigated de novo, party-litigants shall prove every minute aspect of their
cases.31 Thus, no evidentiary value can be given the pieces of evidence submitted
by the BIR, as the rules on documentary evidence require that these documents
must be formally offered before the CTA. 32 Pertinent is Section 34, Rule 132 of the
Revised Rules on Evidence which reads:
SEC. 34. Offer of evidence. The court shall consider no evidence which has not
been formally offered. The purpose for which the evidence is offered must be
specified.
Although in a long line of cases, we have relaxed the foregoing rule and allowed
evidence not formally offered to be admitted and considered by the trial court, we
exercised extreme caution in applying the exceptions to the rule, as pronounced in
Vda. de Oate v. Court of Appeals, 33 thus:
From the foregoing provision, it is clear that for evidence to be considered, the same
must be formally offered. Corollarily, the mere fact that a particular document is
identified and marked as an exhibit does not mean that it has already been offered
as part of the evidence of a party. In Interpacific Transit, Inc. v. Aviles[186 SCRA 385,
388-389 (1990)], we had the occasion to make a distinction between identification
of documentary evidence and its formal offer as an exhibit. We said that the first is
done in the course of the trial and is accompanied by the marking of the evidence
as an exhibit while the second is done only when the party rests its case and not
before. A party, therefore, may opt to formally offer his evidence if he believes that
it will advance his cause or not to do so at all. In the event he chooses to do the
latter, the trial court is not authorized by the Rules to consider the same.
However, in People v. Napat-a[179 SCRA 403 (1989)] citing People v. Mate[103
SCRA 484 (1980)], we relaxed the foregoing rule and allowed evidence not formally
offered to be admitted and considered by the trial court provided the following
requirements are present, viz.: first, the same must have been duly identified by
testimony duly recorded and, second, the same must have been incorporated in the
records of the case.34
The evidence may, therefore, be admitted provided the following requirements are
present: (1) the same must have been duly identified by testimony duly recorded;
and (2) the same must have been incorporated in the records of the case. Being an
exception, the same may only be applied when there is strict compliance with the
requisites mentioned above; otherwise, the general rule in Section 34 of Rule 132 of
the Rules of Court should prevail.35
In the case at bar, petitioner categorically admitted that it failed to formally offer
the PANs as evidence. Worse, it advanced no justifiable reason for such fatal
omission. Instead, it merely alleged that the existence and due execution of the
PANs were duly tackled by petitioners witnesses. We hold that such is not sufficient
to seek exception from the general rule requiring a formal offer of evidence, since
no evidence of positive identification of such PANs by petitioners witnesses was
presented. Hence, we agree with the CTA En Bancs observation that the 1994 and
1998 PANs for EWT deficiencies were not duly identified by testimony and were not
incorporated in the records of the case, as required by jurisprudence.
While we concur with petitioner that the CTA is not governed strictly by technical
rules of evidence, as rules of procedure are not ends in themselves but are primarily
intended as tools in the administration of justice, 36 the presentation of PANs as
evidence of the taxpayers liability is not mere procedural technicality. It is a means
by which a taxpayer is informed of his liability for deficiency taxes. It serves as basis
for the taxpayer to answer the notices, present his case and adduce supporting
evidence.37 More so, the same is the only means by which the CTA may ascertain
and verify the truth of respondent's claims. We are, therefore, constrained to apply
our ruling in Heirs of Pedro Pasag v. Spouses Parocha, 38 viz.:
x x x. 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. x x x. 39
Anent the second issue, petitioner claims that the EWT assessment issued for
taxable year 1994 has factual and legal basis because at the time the PAN and FAN
were issued by petitioner to respondent on January 19, 1998, the provisions of
Revenue Regulation No. 12-9940 which governs the issuance of assessments was not
yet operative. Hence, its compliance with Revenue Regulation No. 12-85 41 was
sufficient. In any case, petitioner argues that a scrutiny of the BIR records of
respondent for taxable year 1994 would show that the details of the factual finding
of EWT were itemized from the PAN issued by petitioner. 42
In order to determine whether the requirement for a valid assessment is duly
complied with, it is important to ascertain the governing law, rules and regulations
and jurisprudence at the time the assessment was issued. In the instant case, the
PANs and FANs pertaining to the deficiency EWT for taxable years 1994 and 1998,
respectively, were issued on January 19, 1998, when the Tax Code was already in
effect, as correctly found by the CTA En Banc:
The date of issuance of the notice of assessment determines which law applies- the
1997 NIRC or the old Tax Code. The case of Commissioner of Internal Revenue v.
Bank of Philippine Islands is instructive:
In merely notifying BPI of his findings, the CIR relied on the provisions of the former
Section 270 prior to its amendment by RA 8424 (also known as the Tax Reform Act
of 1997). In CIR v. Reyes, we held that:
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 CIR, who had simply relied upon the provisions of former Section
229 prior to its amendment by [RA] 8424, otherwise known as the Tax Reform Act of
1997.
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 1998to informing the taxpayer of not only the law, but also
of the facts on which an assessment would be made; otherwise, the assessment
itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued
against the estate. On April 22, 1998, the final estate tax assessment notice, as well
as demand letter, was also issued. During those dates, RA 8424 was already in
effect. The notice required under the old law was no longer sufficient under the new
law.(Emphasis ours.)
In the instant case, the 1997 NIRC covers the 1994 and 1998 EWT FANs because
there were issued on January 19, 1998 and September 21, 2001, respectively, at the
time of the effectivity of the 1997 NIRC. Clearly, the assessments are governed by
the law.43
Indeed, Section 228 of the Tax Code provides that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is made. Otherwise, the
assessment is void. To implement the aforesaid provision, Revenue Regulation No.
12-99was enacted by the BIR, of which Section 3.1.4 thereof reads:
authorized representative. The letter of demand calling for payment of the
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 44
It is clear from the foregoing that a taxpayer must be informed in writing of the legal
and factual bases of the tax assessment made against him. The use of the word
"shall" in these legal provisions indicates the mandatory nature of the requirements
laid down therein.
In the present case, a mere perusal of the FAN for the deficiency EWT for taxable
year 1994will show that other than a tabulation of the alleged deficiency taxes due,
no further detail regarding the assessment was provided by petitioner. Only the
resulting interest, surcharge and penalty were anchored with legal basis. 45 Petitioner
should have at least attached a detailed notice of discrepancy or stated an
explanation why the amount of P48,461.76 is collectible against respondent46 and
how the same was arrived at. Any short-cuts to the prescribed content of the
assessment or the process thereof should not be countenanced, in consonance with
the ruling in Commissioner of Internal Revenue v. Enron Subic Power
Corporation47 to wit:
The CIR insists that an examination of the facts shows that Enron was properly
apprised of its tax deficiency. During the pre-assessment stage, the CIR advised
Enrons representative of the tax deficiency, informed it of the proposed tax
deficiency assessment through a preliminary five-day letter and furnished Enron a

copy of the audit working paper allegedly showing in detail the legal and factual
bases of the assessment. The CIR argues that these steps sufficed to inform Enron
of the laws and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of
Enron, as well as the preliminary five-day letter, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases of the assessment. These
steps were mere perfunctory discharges of the CIRs duties incorrectly assessing a
taxpayer. The requirement for issuing a preliminary or final notice, as the case may
be, informing a taxpayer of the existence of a deficiency tax assessment is
markedly different from the requirement of what such notice must contain. Just
because the CIR issued an advice, a preliminary letter during the pre-assessment
stage and a final notice, in the order required by law, does not necessarily mean
that Enron was informed of the law and facts on which the deficiency tax
assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the
formal letter of demand and assessment notice. Thus, such cannot be presumed.
Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would
be rendered nugatory. The alleged "factual bases" in the advice, preliminary letter
and "audit working papers" did not suffice. There was no going around the mandate
of the law that the legal and factual bases of the assessment be stated in writing in
the formal letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the
assessment made by the CIR. This was changed in 1998 and the taxpayer must now
be informed not only of the law but also of the facts on which the assessment is
made. Such amendment is in keeping with the constitutional principle that no
person shall be deprived of property without due process. In view of the absence of
a fair opportunity for Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void. x x x. 48
In the same vein, we have held in Commissioner of Internal Revenue v.
Reyes,49 that:
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."50
Applying the aforequoted rulings to the case at bar, it is clear that the assailed
deficiency tax assessment for the EWT in 1994disregarded the provisions of Section
228 of the Tax Code, as amended, as well as Section 3.1.4 of Revenue Regulations
No. 12-99 by not providing the legal and factual bases of the assessment. Hence,
the formal letter of demand and the notice of assessment issued relative thereto are
void.
In any case, we find no basis in petitioners claim that Revenue Regulation No. 1299 is not applicable at the time the PAN and FAN for the deficiency EWT for taxable
year 1994 were issued. Considering that such regulation merely implements the
law, and does not create or take away vested rights, the same may be applied
retroactively, as held in Reyes:
x x x x.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of
no moment, considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the
provisions of the Tax Code. While it is desirable for the government authority or
administrative agency to have one immediately issued after a law is passed, the
absence of the regulation does not automatically mean that the law itself would
become inoperative.
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. Thus, the CIR should have required the assessment officers
of the Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law.
The old regulation governing the 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.
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 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. 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.
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.51
Indubitably, the disputed assessments for taxable year 1994 should have already
complied with the requirements laid down under Revenue Regulation No. 12-99.
Having failed so, the same produces no legal effect.
Notwithstanding the foregoing findings, we sustain the CTA En Bancs findings on
the deficiency EWT for taxable year 1998 considering that it complies with Section
228 of the Tax Code as well as Revenue Regulation No. 12-99, thus:
On the other hand, the 1998 EWT FAN reflected the following: a detailed factual
account why the basic EWT isP14,496.79 and the legal basis, Section 57 B of the
1997 NIRC supporting findings of EWT liability of P22,437.01. Thus, the EWT FAN for
1998 is duly issued in accordance with the law. 52
As to the last issue, petitioner avers that its right to collect the EWT for taxable year
1992 has not yet prescribed. It argues that while the final assessment notice and
demand letter on EWT for taxable year 1992 were all issued on January 9, 1996, the
five (5)-year prescriptive period to collect was interrupted when respondent filed its
request for reinvestigation on March 14, 1997 which was granted by petitioner on
January 22, 2001 through the issuance of Tax Verification Notice No. 00165498 on
even date.53 Thus, the period for tax collection should have begun to run from the
date of the reconsidered or modified assessment.54
This argument fails to persuade us.
The statute of limitations on assessment and collection of national internal revenue
taxes was shortened from five (5) years to three (3) years by virtue of Batas
Pambansa Blg. 700.55 Thus, petitioner has three (3) years from the date of actual
filing of the tax return to assess a national internal revenue tax or to commence
court proceedings for the collection thereof without an assessment. 56 However,
when it validly issues an assessment within the three (3)-year period, it has another
three (3) years within which to collect the tax due by distraint, levy, or court
proceeding.57 The assessment of the tax is deemed made and the three (3)-year
period for collection of the assessed tax begins to run on the date the assessment
notice had been released, mailed or sent to the taxpayer.58
On this matter, we note the findings of the CTA-Special First Division that no
evidence was formally offered to prove when respondent filed its returns and paid
the corresponding EWT and WTC for taxable year 1992. 59
Nevertheless, as correctly held by the CTA En Banc, the Preliminary Collection Letter
for deficiency taxes for taxable year 1992 was only issued on February 21, 2002,
despite the fact that the FANs for the deficiency EWT and WTC for taxable year 1992
was issued as early as January 9, 1996. Clearly, five (5) long years had already
lapsed, beyond the three (3)-year prescriptive period, before collection was pursued
by petitioner.
Further, while the request for reinvestigation was made on March 14, 1997, the
same was only acted upon by petitioner on January22, 2001, also beyond the three
(3) year statute of limitations reckoned from January 9, 1996, notwithstanding the
lack of impediment to rule upon such issue. We cannot countenance such inaction
by petitioner to the prejudice of respondent pursuant to our ruling in Commissioner
of Internal Revenue v. Philippine Global Communication, Inc., 60 to wit:
The assessment, in this case, was presumably issued on 14 April 1994 since the
respondent did not dispute the CIRs claim. Therefore, the BIR had until 13 April
1997. However, as there was no Warrant of Distraint and/or Levy served on the
respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of
the BIR to collect the tax due based on this assessment was when it filed its Answer
in CTA Case No. 6568 on 9 January 2003, which was several years beyond the threeyear prescriptive period. Thus, the CIR is now prescribed from collecting the
assessed tax.61
Here, petitioner had ample time to make a factually and legally well-founded
assessment and implement collection pursuant thereto.1wphi1 Whatever
examination that petitioner may have conducted cannot possibly outlast the entire
three (3)-year prescriptive period provided by law to collect the assessed tax. Thus,
there is no reason to suspend the running of the statute of limitations in this case.
Moreover, in Bank of the Philippine Islands v. CIR, citing earlier jurisprudence, we
held that the request for reinvestigation should be granted or at least acted upon in
due course before the suspension of the statute of limitations may set in, thus:
In BPI v. Commissioner of Internal Revenue, the Court emphasized the rule that the
CIR must first grant the request for reinvestigation as a requirement for the
suspension of the statute of limitations. The Court said:
In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested
for a thorough reinvestigation of the assessment against him and placed at the
disposal of the Collector of Internal Revenue all the evidences he had for such
purpose; yet, the Collector ignored the request, and the records and documents
were not at all examined. Considering the given facts, this Court pronounced that
x x x The act of requesting a reinvestigation alone does not suspend the period. The
request should first be granted, in order to effect suspension. (Collector v. Suyoc
Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the Collector gave
appellee until April 1, 1949, within which to submit his evidence, which the latter did
one day before. There were no impediments on the part of the Collector to file the
collection case from April 1, 1949
In Republic of the Philippines v. Acebedo, this Court similarly found that
x x x T]he defendant, after receiving the assessment notice of September 24, 1949,
asked for a reinvestigation thereof on October 11, 1949 (Exh. "A"). There is no
evidence that this request was considered or acted upon. In fact, on October 23,
1950 the then Collector of Internal Revenue issued a warrant of distraint and levy
for the full amount of the assessment (Exh. "D"), but there was follow-up of this
warrant. Consequently, the request for reinvestigation did not suspend the running
of the period for filing an action for collection.[Emphasis in the original] 62 With
respect to petitioners argument that respondents act of elevating its protest to the
CTA has fortified the continuing interruption of petitioners prescriptive period to
collect under Section 223 of the Tax Code, 63 the same is flawed at best because
respondent was merely exercising its right to resort to the proper Court, and does
not in any way deter petitioners right to collect taxes from respondent under
existing laws.
On the strength of the foregoing observations, we ought to reiterate our earlier

teachings that "in balancing the scales between the power of the State to tax and
its inherent right to prosecute perceived transgressors of the law on one side, and
the constitutional rights of a citizen to due process of law and the equal protection
of the laws on the other, the scales must tilt in favor of the individual, for a citizens
right is amply protected by the Bill of Rights under the Constitution." 64 Thus, while
"taxes are the lifeblood of the government," the power to tax has its limits, in spite
of all its plenitude.65 Even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure. 66
After all, the statute of limitations on the collection of taxes was also enacted to
benefit and protect the taxpayers, as elucidated in the case of Philippine Global
Communication, Inc.,67 thus:
x x x The report submitted by the tax commission clearly states that these
provisions on prescription should be enacted to benefit and protect taxpayers:
Under the former law, the right of the Government to collect the tax does not
prescribe.1wphi1 However, in fairness to the taxpayer, the Government should be
estopped from collecting the tax where it failed to make the necessary investigation
and assessment within 5 years after the filing of the return and where it failed to
collect the tax within 5 years from the date of assessment thereof. Just as the
government is interested in the stability of its collections, so also are the taxpayers
entitled to an assurance that they will not be subjected to further investigation for
tax purposes after the expiration of a reasonable period of time. (Vol. II, Report of
the Tax Commission of the Philippines, pp. 321-322). 68
WHEREFORE, the petition is DENIED. The June 27, 2011 Decision of the Court of Tax
Appeals En Banc in C.T.A. EB No. 662 is hereby AFFIRMED.
SO ORDERED.
5. CIR v. First Express Pawnshop Company, Inc., GR No. 172045-46, June 16, 2009
FIRST DIVISION
REVENUE,
Petitioner,
- versus -
FIRST EXPRESS PAWNSHOP

COMPANY, INC.,
Respondent.
G.R. Nos. 172045-46

Present:
CARPIO,
CORONA,
LEONARDO-DE CASTRO, and
BERSAMIN, JJ.
Promulgated:
June 16, 2009
x--------------------------------------------------x
DECISION
CARPIO, J.:
The Case
The Commissioner of Internal Revenue (petitioner) filed this Petition for Review [1] to
reverse the Court of Tax Appeals Decision [2] dated 24 March 2006 in the
consolidated cases of C.T.A. EB Nos. 60 and 62. In the assailed decision, the Court of
Tax Appeals (CTA) En Banc partially reconsidered the CTA First Divisions
Decision[3] dated 24 September 2004.
The Facts
On 28 December 2001, petitioner, through Acting Regional Director Ruperto P.
Somera of Revenue Region 6 Manila, issued the following assessment notices
against First Express Pawnshop Company, Inc. (respondent):
a. Assessment No. 31-1-98[4] for deficiency income tax
of P20,712.58 with compromise penalty of P3,000;
b. Assessment No. 31-14-000053-98[5] for deficiency value-added
tax (VAT) of P601,220.18 with compromise penalty
of P16,000;
c.
Assessment
No.
31-14-000053-98[6] for
deficiency
documentary stamp tax (DST) of P12,328.45 on deposit on
subscription with compromise penalty ofP2,000; and
d. Assessment
No.
31-1-000053-98[7] for
deficiency
DST
of P62,128.87 on pawn tickets with compromise penalty
of P8,500.
Respondent received the assessment notices on 3 January 2002. On 1 February

2002, respondent filed its written protest on the above assessments. Since
petitioner did not act on the protest during the 180-day period, [8] respondent filed a
petition before the CTA on 28 August 2002. [9]
Respondent contended that petitioner did not consider the supporting documents
on the interest expenses and donations which resulted in the deficiency income tax.
[10]
Respondent maintained that pawnshops are not lending investors whose services
are subject to VAT, hence it was not liable for deficiency VAT. [11] Respondent also
alleged that no deficiency DST was due because Section 180 [12] of the National
Internal Revenue Code (Tax Code) does not cover any document or transaction
which relates to respondent. Respondent also argued that the issuance of a pawn
ticket did not constitute a pledge under Section 195 [13] of the Tax Code.[14]
In its Answer filed before the CTA, petitioner alleged that the assessment was valid
and correct and the taxpayer had the burden of proof to impugn its validity or
correctness. Petitioner maintained that respondent is subject to 10% VAT based on
its gross receipts pursuant to Republic Act No. 7716, or the Expanded Value-Added
Tax Law (EVAT). Petitioner also cited BIR Ruling No. 221-91 which provides that
pawnshop tickets are subject to DST. [15]
On 1 July 2003, respondent paid P27,744.88 as deficiency income tax inclusive of
interest.[16]
After trial on the merits, the CTA First Division ruled, thus:
IN VIEW OF ALL THE FOREGOING, the instant petition is
hereby PARTIALLY GRANTED. Assessment No. 31-1-000053-98 for
deficiency documentary stamp tax in the amount of Sixty-Two
Thousand One Hundred Twenty-Eight Pesos and 87/100 (P62,128.87)
and Assessment No. 31-14-000053-98 for deficiency documentary
stamp tax on deposits on subscription in the amount of Twelve
Thousand Three Hundred Twenty-Eight Pesos and 45/100 (P12,328.45)
are CANCELLED and SET ASIDE. However, Assessment No. 31-14000053-98 is herebyAFFIRMED except the imposition of compromise
penalty in the absence of showing that petitioner consented
thereto (UST vs. Collector, 104 SCRA 1062; Exquisite Pawnshop
Jewelry, Inc. vs. Jaime B. Santiago, et al., supra).
Accordingly petitioner is ORDERED to PAY the deficiency value added
tax in the amount of Six Hundred One Thousand Two Hundred Twenty
Pesos and 18/100 (P601,220.18) inclusive of deficiency interest for the
year 1998. In addition, petitioner is ORDERED to PAY 25% surcharge
and 20% delinquency interest per annum from February 12, 2002 until
fully paid pursuant to Sections 248 and 249 of the 1997 Tax Code.
SO ORDERED.[17] (Boldfacing in the original)
Both parties filed their Motions for Reconsideration which were denied by the CTA
First Division for lack of merit. Thereafter, both parties filed their respective Petitions
for Review under Section 11 of Republic Act No. 9282 (RA 9282) with the CTA En
Banc.[18]
On 24 March 2006, the CTA En Banc promulgated a Decision affirming respondents
liability to pay the VAT and ordering it to pay DST on its pawnshop tickets. However,
the CTA En Banc found that respondents deposit on subscription was not subject to
DST.[19]
Aggrieved by the CTA En Bancs Decision which ruled that respondents deposit on
subscription was not subject to DST, petitioner elevated the case before this Court.
The Ruling of the Court of Tax Appeals
On the taxability of deposit on subscription, the CTA, citing First Southern
Philippines Enterprises, Inc. v. Commissioner of Internal Revenue,[20] pointed out that
deposit on subscription is not subject to DST in the absence of proof that an
equivalent amount of shares was subscribed or issued in consideration for the
deposit. Expressed otherwise, deposit on stock subscription is not subject to DST if:
(1) there is no agreement to subscribe; (2) there are no shares issued or any
additional subscription in the restructuring plan; and (3) there is no proof that the
issued shares can be considered as issued certificates of stock. [21]
The CTA ruled that Section 175[22] of the Tax Code contemplates a subscription
agreement. The CTA explained that there can be subscription only with reference to
shares of stock which have been unissued, in the following cases: (a) the original
issuance from authorized capital stock at the time of incorporation; (b) the opening,
during the life of the corporation, of the portion of the original authorized capital
stock previously unissued; or (c) the increase of authorized capital stock achieved
through a formal amendment of the articles of incorporation and registration of the
articles of incorporation with the Securities and Exchange Commission. [23]
The CTA held that in this case, there was no subscription or any contract for the
acquisition of unissued stock for P800,000 in the taxable year assessed. The
General Information Sheet (GIS) of respondent showed only a capital structure
of P500,000 as Subscribed Capital Stock and P250,000 as Paid-up Capital Stock and
did not include the assessed amount. Mere reliance on the presumption that the
assessment was correct and done in good faith was unavailing vis--vis the evidence
presented by respondent. Thus, the CTA ruled that the assessment for deficiency
DST on deposit on subscription has not become final. [24]
The Issue
Petitioner submits this sole issue for our consideration: whether the CTA erred on a
question of law in disregarding the rule on finality of assessments prescribed under
Section 228 of the Tax Code. Corollarily, petitioner raises the issue on whether
respondent is liable to pay P12,328.45 as DST on deposit on subscription of capital

stock.
The Ruling of the Court
Petitioner contends that the CTA erred in disregarding the rule on the finality of
assessments prescribed under Section 228 of the Tax Code. [25] Petitioner asserts that
even if respondent filed a protest, it did not offer evidence to prove its claim that
the deposit on subscription was an advance made by respondents stockholders.
[26]
Petitioner alleges that respondents failure to submit supporting documents within
60 days from the filing of its protest as required under Section 228 of the Tax Code
caused the assessment ofP12,328.45 for deposit on subscription to become final
and unassailable.[27]
Petitioner alleges that revenue officers are afforded the presumption of regularity in
the performance of their official functions, since they have the distinct opportunity,
aside from competence, to peruse records of the assessments. Petitioner invokes
the principle that by reason of the expertise of administrative agencies over matters
falling under their jurisdiction, they are in a better position to pass judgment
thereon; thus, their findings of fact are generally accorded great respect, if not
finality, by the courts. Hence, without the supporting documents to establish the
non-inclusion from DST of the deposit on subscription, petitioners assessment
pursuant to Section 228 of the Tax Code had become final and unassailable. [28]
Respondent, citing Standard Chartered Bank-Philippine Branches v. Commissioner
of Internal Revenue,[29] asserts that the submission of all the relevant supporting
documents within the 60-day period from filing of the protest is directory.
Respondent claims that petitioner requested for additional documents in petitioners
letter dated 12 March 2002, to wit: (1) loan agreement from lender banks; (2)
official receipts of interest payments issued to respondent; (3) documentary
evidence to substantiate donations claimed; and (4) proof of payment of DST on
subscription.[30] It must be noted that the only document requested in connection
with respondents DST assessment on deposit on subscription is proof of DST
payment. However, respondent could not produce any proof of DST payment
because it was not required to pay the same 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. [31] Respondent insists that
petitioner could have issued a subpoena requiring respondent to submit other
documents to determine if the latter is liable for DST on deposit on subscription
pursuant to Section 5(c) of the Tax Code. [32]
Respondent argues that deposit on future subscription is not subject to DST under
Section 175 of the Tax Code. Respondent explains:
It must be noted that deposits on subscription represent advances
made by the stockholders and are in the nature of liabilities for which
stocks may be issued in the future. Absent any express agreement
between the stockholders and petitioner to convert said
advances/deposits to capital stock, either through a subscription
agreement or any other document, these deposits remain as liabilities
owed by respondent to its stockholders. For these deposits to be

subject to DST, it is necessary that a conversion/subscription
agreement be made by First Express and its stockholders. Absent such
conversion, no DST can be imposed on said deposits under Section 175
of the Tax Code.[33] (Underscoring in the original)
Respondent contends that by presenting its GIS and financial statements, it had
already sufficiently proved that the amount sought to be taxed is deposit on future
subscription, which is not subject to DST. [34] Respondent claims that it cannot be
required to submit proof of DST payment on subscription because such payment is
non-existent. Thus, the burden of proving that there was an agreement to subscribe
and that certificates of stock were issued for the deposit on subscription rests on
petitioner and his examiners. Respondent states that absent any proof, the
deficiency assessment has no basis and should be cancelled. [35]
On the Taxability of Deposit on Stock Subscription
DST is a tax on documents, instruments, loan agreements, and papers evidencing
the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto.DST is actually an excise tax because it is imposed on the
transaction rather than on the document. [36] DST is also levied on the exercise by
persons of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of specific
instruments.[37] The Tax Code provisions on DST relating to shares or certificates of
stock state:
Section 175. Stamp Tax on Original Issue of Shares of Stock. - On every
original issue, whether on organization, reorganization or for any lawful
purpose, of shares of stock by any association, company or
corporation, there shall be collected a documentary stamp tax of Two
pesos (P2.00) on each Two hundred pesos (P200), or fractional part
thereof, of the par value, of such shares of stock: Provided, That in the
case of the original issue of shares of 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, 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 Transfer of Due-bills, Certificates of Obligation, or
Shares or Certificates of Stock. - On all 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 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 the holder in
any manner to the benefit of such due-bills, certificates of obligation or
stock, or 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 centavos
(P1.50) on each Two hundred pesos (P200), or fractional part thereof,

of the par value of such due-bill, certificate of obligation or
stock: Provided, That only one tax shall be collected on each sale or
transfer of stock or securities from one person to another, regardless of
whether or not a certificate of stock or obligation is issued, indorsed, or
delivered 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
twenty-five percent (25%) of the documentary stamp tax paid upon the
original issue of said stock.[39]
In Section 175 of the Tax Code, DST is imposed on the original issue of shares of
stock. The DST, as an excise tax, is levied upon the privilege, the opportunity and
the facility of issuing shares of stock. In Commissioner of Internal Revenue v.
Construction Resources of Asia, Inc.,[40] this Court explained that the DST attaches
upon acceptance of the stockholders subscription in the corporations capital stock
regardless of actual or constructive delivery of the certificates of stock.
Citing Philippine Consolidated Coconut Ind., Inc. v. Collector of Internal Revenue,
[41]
the Court held:
The documentary stamp tax under this provision of the law may be
levied only once, that is upon the original issue of the certificate. The
crucial point therefore, in the case before Us is the proper
interpretation of the word issue. In other words, when is the certificate
of stock deemed issued for the purpose of imposing the documentary
stamp tax? Is it at the time the certificates of stock are printed, at the
time they are filled up (in whose name the stocks represented in the
certificate appear as certified by the proper officials of the
corporation), at the time they are released by the corporation, or at
the time they are in the possession (actual or constructive) of the
stockholders owning them?
xxx
Ordinarily, when a corporation issues a certificate of stock
(representing the ownership of stocks in the corporation to fully paid
subscription) the certificate of stock can be utilized for the exercise of
the attributes of ownership over the stocks mentioned on its face. The
stocks can be alienated; the dividends or fruits derived therefrom can
be enjoyed, and they can be conveyed, pledged or encumbered. The
certificate as issued by the corporation, irrespective of whether or not
it is in the actual or constructive possession of the stockholder, is
considered issued because it is with value and hence the documentary
stamp tax must be paid as imposed by Section 212 of the National
Internal Revenue Code, as amended.
In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell,
memoranda of sales, deliveries or transfer of shares or certificates of stock in any
association, company, or 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 the holder in any manner to the
benefit of such certificates of stock, or to secure the future payment of money, or
for the future transfer of certificates of stock. InCompagnie Financiere Sucres et
Denrees v. Commissioner of Internal Revenue, this Court held that under Section
176 of the Tax Code, sales to secure the future transfer of due-bills, certificates of
obligation or certificates of stock are subject to documentary stamp tax. [42]
Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines on the
corporate stock documentary stamp tax program. RMO 08-98 states that:
1. All existing corporations shall file the Corporation Stock DST
Declaration, and the DST Return, if applicable when DST is still
due on the subscribed share issued by the corporation, on or
before the tenth day of the month following publication of this Order.
xxx
3. All existing corporations with authorization for increased capital
stock shall file their Corporate Stock DST Declaration, together with
the DST Return, if applicable when DST is due on subscriptions
made after the authorization, on or before the tenth day of the
month following the date of authorization. (Boldfacing supplied)
RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 47-97), also
states that what is being taxed is the privilege of issuing shares of stock, and,
therefore, the taxes accrue at the time the shares are issued. RMC 47-97 also
defines issuance as the point in which the stockholder acquires and may exercise
attributes of ownership over the stocks.
As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a
subscription agreement in order for a taxpayer to be liable to pay the DST. A
subscription contract is defined as any contract for the acquisition of unissued
stocks in an existing corporation or a corporation still to be formed. [43] A stock
subscription is a contract by which the subscriber agrees to take a certain number
of shares of the capital stock of a corporation, paying for the same or expressly or
impliedly promising to pay for the same.[44]
In this case, respondents Stockholders Equity section of its Balance Sheet as of 31
December 1998[45] shows:
STOCKHOLDERS EQUITY
1998
1997
Authorized Capital Stock
P 2,000,000.00
P 2,000,000.00
Paid-up Capital Stock
250,000.00
250,000.00
Deposit on Subscription
800,000.00
Retained Earnings
62,820.34
209,607.20
Net Income
(858,498.38)
(146,786.86)
TOTAL
P 254,321.96
P 312,820.34
The GIS submitted to the Securities and Exchange Commission on 31 March 1999
shows the following Capital Structure:[46]
B. Financial Profile
1. Capital Structure :
AUTHORIZED - P2,000,000.00
SUBSCRIBED - 500,000.00
PAID-UP - 250,000.00
These entries were explained by Miguel Rosario, Jr. (Rosario), respondents external
auditor, during the hearing before the CTA on 11 June 2003. Rosario testified in this
wise:
Atty. Napiza
Q. Mr. Rosario, I refer you to the balance sheet of First Express for the
year 1998 particularly the entry of deposit on subscription in the
amount of P800 thousand, will you please tell us what is (sic) this entry
represents?
Mr. Rosario Jr.
A. This amount of P800 thousand represents the case given by
the stockholders to the company but does not necessarily
made (sic) payment to subscribed portion.
Atty. Napiza
Q. What is (sic) that payment stands for?
Mr. Rosario Jr.
A. This payment stands as (sic) for the deposit for future
subscription.
Atty. Napiza
Q. Would you know if First Express issued corresponding shares
pertinent to the amount being deposited?
Mr. Rosario Jr.
A. No.
Atty. Napiza
Q. What do you mean by no? Did they or they did not?
Mr. Rosario Jr.
A. They did not issue any shares because that is not the
payment of subscription. That is just a mere deposit.
Atty. Napiza
Q. Would you know, Mr. Rosario, how much is the Subscribed Capital of
First Express Pawnshop?
Mr. Rosario Jr.

A. The Subscribed Capital of First Express Pawnshop Company, Inc. for
the year 1998 is P500 thousand.
Atty. Napiza
Q. How about the Paid Up Capital?
Mr. Rosario Jr.
A. The Paid Up Capital is P250 thousand.
Atty. Napiza
Q. Are (sic) all those figures appear in the balance sheet?
Mr. Rosario Jr.
A. The Paid Up Capital appeared here but the Subscribed Portion was
not stated. (Boldfacing supplied)
Based on Rosarios testimony and respondents financial statements as of 1998,
there was no agreement to subscribe to the unissued shares. Here, the deposit on
stock subscription refers to an amount of money received by the corporation as a
deposit with the possibility of applying the same as payment for the future issuance
of capital stock.[47] InCommissioner of Internal Revenue v. Construction Resources of
Asia, Inc.,[48] we held:
We are firmly convinced that the Government stands to lose nothing in
imposing the documentary stamp tax only on those stock certificates
duly issued, or wherein the stockholders can freely exercise the
attributes of ownership and with value at the time they are originally
issued. As regards those certificates of stocks temporarily
subject to suspensive conditions they shall be liable for said
tax only when released from said conditions, for then and only
then shall they truly acquire any practical value for their
owners. (Boldfacing supplied)
Clearly, the deposit on stock subscription as reflected in respondents Balance Sheet
as of 1998 is not a subscription agreement subject to the payment of DST. There is
noP800,000 worth of subscribed capital stock that is reflected in respondents GIS.
The deposit on stock subscription is merely an amount of money received by a
corporation with a view of applying the same as payment for additional issuance of
shares in the future, an event which may or may not happen. The person making a
deposit on stock subscription does not have the standing of a stockholder and he is
not entitled to dividends, voting rights or other prerogatives and attributes of a
stockholder. Hence, respondent is not liable for the payment of DST on its deposit
on subscription for the reason that there is yet no subscription that creates rights
and obligations between the subscriber and the corporation.
On the Finality of Assessment as Prescribed
under Section 228 of the Tax Code

Section 228 of the Tax Code provides:
SEC. 228. Protesting of Assessment. - When the Commissioner or
his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings: Provided,
however, That a preassessment notice shall not be required in the
following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on
the face of the return; or
(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 Code[49] 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 P800,000 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 petitioners 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.
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.
Section 228 states that if the protest is not acted upon within 180 days from
submission of documents, the taxpayer adversely affected by the inaction may
appeal to the CTA within 30 days from the lapse of the 180-day period. Respondent,
having submitted its supporting documents on the same day the protest was filed,
had until 31 July 2002 to wait for petitioners reply to its protest. On 28 August 2002
or within 30 days after the lapse of the 180-day period counted from the filing of the
protest as the supporting documents were simultaneously filed, respondent filed a
petition before the CTA.
Respondent has complied with the requisites in disputing an assessment pursuant
to Section 228 of the Tax Code. Hence, the tax assessment cannot be considered as
final, executory and demandable. Further, respondents deposit on subscription is
not subject to the payment of DST. Consequently, respondent is not liable to pay the
deficiency DST ofP12,328.45.
WHEREFORE, we DENY the petition. We AFFIRM the Court of Tax Appeals Decision
dated 24 March 2006 in the consolidated cases of C.T.A. EB Nos. 60 and 62.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
6. Lascona Land Co., Inc. v. CIR, GR No. 171251, March 5, 2012

Republic of the Philippines
Supreme Court
Manila
THIRD DIVISION
LASCONA LAND CO., INC.,
G.R. No. 171251
Petitioner,
Present:
VELASCO, JR., J., Chairperson,

PERALTA,
- versus -
ABAD,
VILLARAMA, JR.,* and
MENDOZA, JJ.
Promulgated:
COMMISSIONER
REVENUE,
OF
INTERNAL
March 5, 2012
Respondent.
x----------------------------------------------------------------------------------------x
DECISION
PERALTA, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking the reversal of the Decision [1] dated October 25, 2005 and
Resolution[2]dated January 20, 2006 of the Court of Appeals (CA) in CA-G.R. SP No.
58061 which set aside the Decision[3] dated January 4, 2000 and Resolution[4] dated
March 3, 2000 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5777 and
declared Assessment Notice No. 0000047-93-407 dated March 27, 1998 to be final,
executory and demandable.
The facts, as culled from the records, are as follows:
On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment
Notice No. 0000047-93-407[5] against Lascona Land Co., Inc. (Lascona) informing the
latter of its alleged deficiency income tax for the year 1993 in the amount
of P753,266.56.
Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by
Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal
Revenue, Revenue Region No. 8, Makati City, in his Letter[6] dated March 3, 1999,
which reads, thus:
xxxx
Subject: LASCONA LAND CO., INC.

1993 Deficiency Income Tax
Madam,
Anent the 1993 tax case of subject taxpayer, please be informed that while we
agree with the arguments advanced in your letter protest, we regret, however,
that we cannot give due course to your request to cancel or set aside the
assessment notice issued to your client for the reason that the case was
not elevated to the Court of Tax Appeals as mandated by the provisions of
the last paragraph of Section 228 of the Tax Code. By virtue thereof, the said
assessment notice has become final, executory and demandable.
In view of the foregoing, please advise your client to pay its 1993 deficiency income
tax liability in the amount of P753,266.56.
x x x x (Emphasis ours)
On April 12, 1999, Lascona appealed the decision before the CTA and was docketed
as C.T.A. Case No. 5777. Lascona alleged that the Regional Director erred in ruling
that the failure to appeal to the CTA within thirty (30) days from the lapse of the
180-day period rendered the assessment final and executory.
The CIR, however, maintained that Lascona's failure to timely file an appeal with the
CTA after the lapse of the 180-day reglementary period provided under Section 228
of the National Internal Revenue Code (NIRC) resulted to the finality of the
assessment.
On January 4, 2000, the CTA, in its Decision, [7] nullified the subject assessment. It
held that in cases of inaction by the CIR on the protested assessment, Section 228
of the NIRC provided two options for the taxpayer: (1) appeal to the CTA within
thirty (30) days from the lapse of the one hundred eighty (180)-day period, or (2)
wait until the Commissioner decides on his protest before he elevates the case.
The CIR moved for reconsideration. It argued that in declaring the subject
assessment as final, executory and demandable, it did so pursuant to Section 3
(3.1.5) of Revenue Regulations No. 12-99 dated September 6, 1999 which reads,
thus:
If the Commissioner or his duly authorized representative fails to act on the

taxpayer's protest within one hundred eighty (180) days from date of submission,
by the taxpayer, of the required documents in support of his protest, the taxpayer
may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the
said 180-day period; otherwise, the assessment shall become final, executory and
demandable.
On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of
merit.[8] The CTA held that Revenue Regulations No. 12-99 must conform to Section
228 of the NIRC. It pointed out that the former spoke of an assessment becoming
final, executory and demandable by reason of the inaction by the Commissioner,
while the latter referred to decisions becoming final, executory and demandable
should the taxpayer adversely affected by the decision fail to appeal before the CTA
within the prescribed period.Finally, it emphasized that in cases of discrepancy,
Section 228 of the NIRC must prevail over the revenue regulations.
Dissatisfied, the CIR filed an appeal before the CA. [9]
In the disputed Decision dated October 25, 2005, the Court of Appeals granted the
CIR's petition and set aside the Decision dated January 4, 2000 of the CTA and its
Resolution dated March 3, 2000. It further declared that the subject Assessment
Notice No. 0000047-93-407 dated March 27, 1998 as final, executory and
demandable.
Lascona moved for reconsideration, but was denied for lack of merit.
Thus, the instant petition, raising the following issues:
I
THE HONORABLE COURT HAS, IN THE REVISED RULES OF COURT OF TAX APPEALS
WHICH IT RECENTLY PROMULGATED, RULED THAT AN APPEAL FROM THE INACTION
OF RESPONDENT COMMISSIONER IS NOT MANDATORY.
II
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE ASSESSMENT
HAS BECOME FINAL AND DEMANDABLE BECAUSE, ALLEGEDLY, THE WORD DECISION
IN THE LAST PARAGRAPH OF SECTION 228 CANNOT BE STRICTLY CONSTRUED AS
REFERRING ONLY TO THE DECISION PER SE OF THE COMMISSIONER, BUT SHOULD
ALSO BE CONSIDERED SYNONYMOUS WITH AN ASSESSMENT WHICH HAS BEEN
PROTESTED, BUT THE PROTEST ON WHICH HAS NOT BEEN ACTED UPON BY THE
COMMISSIONER.[10]
In a nutshell, the core issue to be resolved is: Whether the subject assessment has
become final, executory and demandable due to the failure of petitioner to file an
appeal before the CTA within thirty (30) days from the lapse of the One Hundred
Eighty (180)-day period pursuant to Section 228 of the NIRC.
Petitioner Lascona, invoking Section 3, [11] Rule 4 of the Revised Rules of the Court of
Tax Appeals, maintains that in case of inaction by the CIR on the protested
assessment, it has the option to either: (1) appeal to the CTA within 30 days from
the lapse of the 180-day period; or (2) await the final decision of the Commissioner
on the disputed assessment even beyond the 180-day period in which case, the
taxpayer may appeal such final decision within 30 days from the receipt of the said
decision. Corollarily, petitioner posits that when the Commissioner failed to act on
its protest within the 180-day period, it had the option to await for the final decision
of the Commissioner on the protest, which it did.
The petition is meritorious.
Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case of

the inaction of the Commissioner on the protested assessment, to wit:
SEC. 228. Protesting of Assessment. x x x
xxxx
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 (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. (Emphasis supplied).
Respondent, however, insists that in case of the inaction by the Commissioner on

the protested assessment within the 180-day reglementary period, petitioner should
have appealed the inaction to the CTA. Respondent maintains that due to Lascona's
failure to file an appeal with the CTA after the lapse of the 180-day period, the
assessment became final and executory.
We do not agree.
In RCBC v. CIR,[12] the Court has held that in case the Commissioner failed to act on
the disputed assessment within the 180-day period from date of submission of
documents, a taxpayer can either: (1) file a petition for review with the Court of Tax
Appeals within 30 days after the expiration of the 180-day period; or (2) await the
final decision of the Commissioner on the disputed assessments and appeal such
final decision to the Court of Tax Appeals within 30 days after receipt of a copy of
such decision.[13]
This is consistent with Section 3 A (2), Rule 4 of the Revised Rules of the Court of
Tax Appeals,[14] to wit:
SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in Divisions
shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:

or other laws administered by the Bureau of Internal Revenue;

Internal Revenue Code or other applicable law provides a specific period for
action: Provided, that in case of disputed assessments, the inaction of the
Commissioner of Internal Revenue within the one hundred eighty dayperiod under Section 228 of the National Internal revenue Code shall be
deemed a denial for purposes of allowing the taxpayer to appeal his case
to the Court and does not necessarily constitute a formal decision of the
Commissioner of Internal Revenue on the tax case; Provided, further, that
should the taxpayer opt to await the final decision of the Commissioner of
Internal Revenue on the disputed assessments beyond the one hundred
eighty day-period abovementioned, the taxpayer may appeal such final
decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided,
still further, that in the case of claims for refund of taxes erroneously or illegally
collected, the taxpayer must file a petition for review with the Court prior to the
expiration of the two-year period under Section 229 of the National Internal
Revenue Code;
(Emphasis ours)
In arguing that the assessment became final and executory by the sole reason that
petitioner failed to appeal the inaction of the Commissioner within 30 days after the
180-day reglementary period, respondent, in effect, limited the remedy of Lascona,
as a taxpayer, under Section 228 of the NIRC to just one, that is - to appeal the
inaction of the Commissioner on its protested assessment after the lapse of the
180-day period. This is incorrect.
As early as the case of CIR v. Villa,[15] it was already established that the word
"decisions" in paragraph 1, Section 7 of Republic Act No. 1125, quoted above, has
been interpreted to mean the decisions of the Commissioner of Internal Revenue on
the protest of the taxpayer against the assessments. Definitely, said word does not
signify the assessment itself. We quote what this Court said aptly in a previous case:
In the first place, we believe the respondent court erred in holding that the
assessment in question is the respondent Collector's decision or ruling appealable
to it, and that consequently, the period of thirty days prescribed by section 11 of
Republic Act No. 1125 within which petitioner should have appealed to the
respondent court must be counted from its receipt of said assessment. Where a
taxpayer questions an assessment and asks the Collector to reconsider or
cancel the same because he (the taxpayer) believes he is not liable
therefor, the assessment becomes a "disputed assessment" that the
Collector must decide, and the taxpayer can appeal to the Court of Tax
Appeals only upon receipt of the decision of the Collector on the disputed
assessment, . . . [16]
Therefore, as in Section 228, when the law provided for the remedy to appeal the
inaction of the CIR, it did not intend to limit it to a single remedy of filing of an
appeal after the lapse of the 180-day prescribed period. Precisely, when a taxpayer
protested an assessment, he naturally expects the CIR to decide either positively or
negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final
decision of the CIR on the protested assessment. More so, because the law and
jurisprudence have always contemplated a scenario where the CIR will decide on
the protested assessment.
It must be emphasized, however, that in case of the inaction of the CIR on the
protested assessment, while we reiterate the taxpayer has two options, either: (1)
file a petition for review with the CTA within 30 days after the expiration of the 180day period; or (2) await the final decision of the Commissioner on the disputed
assessment and appeal such final decision to the CTA within 30 days after the
receipt of a copy of such decision, these options are mutually exclusive and
resort to one bars the application of the other.
Accordingly, considering that Lascona opted to await the final decision of the
Commissioner on the protested assessment, it then has the right to appeal such
final decision to the Court by filing a petition for review within thirty days after
receipt of a copy of such decision or ruling, even after the expiration of the 180-day
period fixed by law for the Commissioner of Internal Revenue to act on the disputed
assessments.[17] Thus, Lascona, when it filed an appeal on April 12, 1999 before the
CTA, after its receipt of the Letter[18] dated March 3, 1999 on March 12, 1999, the
appeal was timely made as it was filed within 30 days after receipt of the copy of
the decision.
Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its
inaction on the protested assessment. It is imperative that the taxpayers are
informed of its action in order that the taxpayer should then at least be able to take
recourse to the tax court at the opportune time. As correctly pointed out by the tax
court:
x x x to adopt the interpretation of the respondent will not only sanction

inefficiency, but will likewise condone the Bureau's inaction. This is especially true in
the instant case when despite the fact that respondent found petitioner's arguments
to be in order, the assessment will become final, executory and demandable for
petitioner's failure to appeal before us within the thirty (30) day period. [19]
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved. [20] Thus, even as we
concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the
prescribed procedure.[21]
WHEREFORE, the petition is GRANTED. The Decision dated October 25, 2005 and
the Resolution dated January 20, 2006 of the Court of Appeals in CA-G.R. SP No.
58061 are REVERSED and SET ASIDE. Accordingly, the Decision dated January 4,
2000 of the Court of Tax Appeals in C.T.A. Case No. 5777 and its Resolution dated
March 3, 2000 are REINSTATED.
SO ORDERED.
7. Allied Banking Corporation v. CIR, GR No. 175097

Supreme Court
Manila
SECOND DIVISION
ALLIED BANKING
CORPORATION,
Petitioner,
G.R. No. 175097

Present:
- versus -
CARPIO, J., Chairperson,

BRION,
DEL CASTILLO,
ABAD, and
PEREZ, JJ.
COMMISSIONER OF
INTERNAL REVENUE,
Promulgated:
Respondent.
February 5, 2010
x--------------------------------------------------------x
DECISION
DEL CASTILLO, J.:

The key to effective communication is clarity.
The Commissioner of Internal Revenue (CIR) as well as his duly authorized

representative must indicate clearly and unequivocally to the taxpayer whether an
action constitutes a final determination on a disputed assessment. [1] Words must be
carefully chosen in order to avoid any confusion that could adversely affect the
rights and interest of the taxpayer.
Assailed in this Petition for Review on Certiorari[2] under Section 12 of Republic Act
(RA) No. 9282,[3] in relation to Rule 45 of the Rules of Court, are the August 23, 2006
Decision[4] of the Court of Tax Appeals (CTA) and its October 17, 2006
Resolution[5] denying petitioners Motion for Reconsideration.
Factual Antecedents
On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary
Assessment Notice (PAN) to petitioner Allied Banking Corporation for deficiency
Documentary Stamp Tax (DST) in the amount of P12,050,595.60 and Gross Receipts
Tax (GRT) in the amount of P38,995,296.76 on industry issue for the taxable year
2001.[6] Petitioner received the PAN onMay 18, 2004 and filed a protest against it
on May 27, 2004.[7]
On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices
to petitioner, which partly reads as follows: [8]
It is requested that the above deficiency tax be paid immediately upon receipt
hereof, inclusive of penalties incident to delinquency. This is our final decision based
on investigation. If you disagree, you may appeal the final decision within thirty (30)
days from receipt hereof, otherwise said deficiency tax assessment shall become
final, executory and demandable.
Petitioner received the Formal Letter of Demand with Assessment Notices on August
30, 2004.[9]
Proceedings before the CTA First Division
On September 29, 2004, petitioner filed a Petition for Review [10] with the CTA which
was raffled to its First Division and docketed as CTA Case No. 7062. [11]
On December 7, 2004, respondent CIR filed his Answer. [12] On July 28, 2005, he filed
a Motion to Dismiss[13] on the ground that petitioner failed to file an administrative
protest on the Formal Letter of Demand with Assessment Notices. Petitioner
opposed the Motion to Dismiss on August 18, 2005.[14]
On October 12, 2005, the First Division of the CTA rendered a Resolution [15] granting
respondents Motion to Dismiss. It ruled:
Clearly, it is neither the assessment nor the formal demand letter itself that is
appealable to this Court. It is the decision of the Commissioner of Internal Revenue
on the disputed assessment that can be appealed to this Court (Commissioner of
Internal Revenue vs. Villa, 22 SCRA 3). As correctly pointed out by respondent, a
disputed assessment is one wherein the taxpayer or his duly authorized
representative filed an administrative protest against the formal letter of demand

and assessment notice within thirty (30) days from date [of] receipt thereof. In this
case, petitioner failed to file an administrative protest on the formal letter of
demand with the corresponding assessment notices. Hence, the assessments did
not become disputed assessments as subject to the Courts review under Republic
Act No. 9282. (See also Republic v. Liam Tian Teng Sons & Co., Inc., 16 SCRA 584.)
WHEREFORE, the Motion to Dismiss is GRANTED. The Petition for Review is
hereby DISMISSED for lack of jurisdiction.
SO ORDERED.[16]
Aggrieved, petitioner moved for reconsideration but the motion was denied by the
First Division in its Resolution dated February 1, 2006.[17]
Proceedings before the CTA En Banc
On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc.[18] The
case was docketed as CTA EB No. 167.
Finding no reversible error in the Resolutions dated October 12, 2005 and February
1, 2006 of the CTA First Division, the CTA En Banc denied the Petition for
Review[19]as well as petitioners Motion for Reconsideration. [20]
The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an
administrative protest in order for the CTA to acquire jurisdiction. It emphasized that
an administrative protest is an integral part of the remedies given to a taxpayer in
challenging the legality or validity of an assessment. According to the CTA En
Banc, although there are exceptions to the doctrine of exhaustion of administrative
remedies, the instant case does not fall in any of the exceptions.
Issue
Hence, the present recourse, where petitioner raises the lone issue of whether the
Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of
the CIR appealable to the CTA under RA 9282.
Our Ruling
The petition is meritorious.
Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate
jurisdiction to review by appeal decisions of the CIR in cases involving disputed
assessments
The CTA, being a court of special jurisdiction, can take cognizance only of
matters that are clearly within its jurisdiction. [21] Section 7 of RA 9282 provides:

(1) Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue;
inaction shall be deemed a denial; (Emphasis supplied)
xxxx
The word decisions in the above quoted provision of RA 9282 has been interpreted
to mean the decisions of the CIR on the protest of the taxpayer against the
assessments.[22] Corollary thereto, Section 228 of the National Internal Revenue
Code (NIRC) provides for the procedure for protesting an assessment. It states:
SECTION 228. Protesting of Assessment. When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed, he shall first
notify the taxpayer of his findings: Provided, however, That a preassessment notice
shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
(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 taxpayers 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.
In the instant case, petitioner timely filed a protest after receiving the PAN. In
response thereto, the BIR issued a Formal Letter of Demand with Assessment
Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was
to dispute the assessments by filing an administrative protest within 30 days from
receipt thereof. Petitioner, however, did not protest the final assessment
notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply
the rules, the dismissal of the Petition for Review by the CTA was proper.
The case is an exception to the
rule on exhaustion of administrative remedies
However, a careful reading of the Formal Letter of Demand with Assessment Notices
leads us to agree with petitioner that the instant case is an exception to the rule on
exhaustion of administrative remedies, i.e., estoppel on the part of the
administrative agency concerned.
In the case of Vda. De Tan v. Veterans Backpay Commission,[23] the respondent
contended that before filing a petition with the court, petitioner should have first
exhausted all administrative remedies by appealing to the Office of the
President. However, we ruled that respondent was estopped from invoking the rule
on exhaustion of administrative remedies considering that in its Resolution, it said,
The opinions promulgated by the Secretary of Justice are advisory in nature, which
may either be accepted or ignored by the office seeking the opinion, and any
aggrieved party has the court for recourse. The statement of the respondent in said
case led the petitioner to conclude that only a final judicial ruling in her favor would
be accepted by the Commission.
Similarly, in this case, we find the CIR estopped from claiming that the filing of the
Petition for Review was premature because petitioner failed to exhaust all
administrative remedies.
The Formal Letter of Demand with Assessment Notices reads:
Based on your letter-protest dated May 26, 2004, you alleged the following:
1.
That the said assessment has already prescribed in accordance with the
provisions of Section 203 of the Tax Code.
2.
That since the exemption of FCDUs from all taxes found in the Old Tax
Code has been deleted, the wording of Section 28(A)(7)(b) discloses that there are
no other taxes imposable upon FCDUs aside from the 10% Final Income Tax.
Contrary to your allegation, the assessments covering GRT and DST for taxable year
2001 has not prescribed for [sic] simply because no returns were filed, thus, the
three year prescriptive period has not lapsed.
With the implementation of the CTRP, the phrase exempt from all taxes was
deleted. Please refer to Section 27(D)(3) and 28(A)(7) of the new Tax
Code. Accordingly, you were assessed for deficiency gross receipts tax on onshore
income from foreign currency transactions in accordance with the rates provided
under Section 121 of the said Tax Code. Likewise, deficiency documentary stamp
taxes was [sic] also assessed on Loan Agreements, Bills Purchased, Certificate of
Deposits and related transactions pursuant to Sections 180 and 181 of NIRC, as
amended.
The 25% surcharge and 20% interest have been imposed pursuant to the provision
of Section 248(A) and 249(b), respectively, of the National Internal Revenue Code,
as amended.
It is requested that the above deficiency tax be paid immediately upon receipt
hereof, inclusive of penalties incident to delinquency. This is our final decision
based on investigation. If you disagree, you may appeal this final decision
within thirty (30) days from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and demandable. [24] (Emphasis
supplied)
It appears from the foregoing demand letter that the CIR has already made a final
decision on the matter and that the remedy of petitioner is to appeal the final
decision within 30 days.
In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue, [25] we
considered the language used and the tenor of the letter sent to the taxpayer as the
final decision of the CIR.
In this case, records show that petitioner disputed the PAN but not the Formal Letter
of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for
not filing a protest against the Formal Letter of Demand with Assessment Notices
since the language used and the tenor of the demand letter indicate that it is the
final decision of the respondent on the matter. We have time and again reminded
the CIR to indicate, in a clear and unequivocal language, whether his action on a
disputed assessment constitutes his final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the tax court
accrues.[26] Viewed in the light of the foregoing, respondent is now estopped from
claiming that he did not intend the Formal Letter of Demand with Assessment
Notices to be a final decision.
Moreover, we cannot ignore the fact that in the Formal Letter of Demand with
Assessment Notices, respondent used the word appeal instead of protest,
reinvestigation, or reconsideration. Although there was no direct reference for
petitioner to bring the matter directly to the CTA, it cannot be denied that the word
appeal under prevailing tax laws refers to the filing of a Petition for Review with the
CTA. As aptly pointed out by petitioner, under Section 228 of the NIRC, the terms
protest, reinvestigation and reconsideration refer to the administrative remedies a
taxpayer may take before the CIR, while the term appeal refers to the remedy
available to the taxpayer before the CTA. Section 9 of RA 9282, amending Section
11 of RA 1125,[27] likewise uses the term appeal when referring to the action a
taxpayer must take when adversely affected by a decision, ruling, or inaction of the
CIR. As we see it then, petitioner in appealing the Formal Letter of Demand with
Assessment Notices to the CTA merely took the cue from respondent. Besides, any
doubt in the interpretation or use of the word appeal in the Formal Letter of Demand
with Assessment Notices should be resolved in favor of petitioner, and not the
respondent who caused the confusion.
To be clear, we are not disregarding the rules of procedure under Section 228 of the
NIRC, as implemented by Section 3 of BIR Revenue Regulations No. 12-99. [28] It is
the Formal Letter of Demand and Assessment Notice that must be administratively
protested or disputed within 30 days, and not the PAN. Neither are we deviating
from our pronouncement in St. Stephens Chinese Girls School v. Collector of Internal
Revenue,[29] that the counting of the 30 days within which to institute an appeal in
the CTA commences from the date of receipt of the decision of the CIR on the
disputed assessment, not from the date the assessment was issued.
What we are saying in this particular case is that, the Formal Letter of Demand with
Assessment Notices which was not administratively protested by the petitioner can
be considered a final decision of the CIR appealable to the CTA because the words
used, specifically the words final decision and appeal, taken together led petitioner
to believe that the Formal Letter of Demand with Assessment Notices was in fact
the final decision of the CIR on the letter-protest it filed and that the available
remedy was to appeal the same to the CTA.
We note, however, that during the pendency of the instant case, petitioner availed
of the provisions of Revenue Regulations No. 30-2002 and its implementing
Revenue Memorandum Order by submitting an offer of compromise for the
settlement of the GRT, DST and VAT for the period 1998-2003, as evidenced by a
Certificate of Availment dated November 21, 2007.[30]Accordingly, there is no reason
to reinstate the Petition for Review in CTA Case No. 7062.
WHEREFORE, the petition is hereby GRANTED. The assailed August 23,
2006 Decision and the October 17, 2006 Resolution of the Court of Tax Appeals
are REVERSED andSET ASIDE. The Petition for Review in CTA Case No. 7062 is
hereby DISMISSED based solely on the Bureau of Internal Revenues acceptance of
petitioners offer of compromise for the settlement of the gross receipts tax,
documentary stamp tax and value added tax, for the years 1998-2003.
SO ORDERED.
8. CIR v. Hambrecht & Quist Philippines, Inc., GR No. 169225, November 17, 2010
Supreme Court
Manila
FIRST DIVISION
COMMISSIONER
REVENUE,
Petitioner,
OF
INTERNAL
- versus -
G.R. No. 169225

Present:
CORONA, C.J.,
Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
PERALTA,* and
PEREZ, JJ.
HAMBRECHT
&
QUIST
Promulgated:
PHILIPPINES, INC.,
Respondent.
November 17, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking
to set aside the Decision[1] dated August 12, 2005 of the Court of Tax Appeals
(CTA) En Banc in C.T.A. E.B. No. 73 (C.T.A. Case No. 6362), entitled Commissioner of
Internal Revenue vs. Hambrecht & Quist Philippines, Inc., which affirmed the
Decision[2] dated September 24, 2004 of the CTA Original Division in C.T.A. Case No.
6362 canceling the assessment issued against respondent for deficiency income
and expanded withholding tax for the year 1989 for failure of petitioner
Commissioner of Internal Revenue (CIR) to enforce collection within the period

allowed by law.
The CTA summarized the pertinent facts of this case, as follows:
In a letter dated February 15, 1993, respondent informed the Bureau of Internal
Revenue (BIR), through its West-Makati District Office of its change of business
address from the 2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the
22nd Floor PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets, Makati City.
Said letter was duly received by the BIR-West Makati on February 18, 1993.
On November 4, 1993, respondent received a tracer letter or follow-up letter dated
October 11, 1993 issued by the Accounts Receivable/Billing Division of the BIRs
National Office and signed by then Assistant Chief Mr. Manuel B. Mina, demanding
for payment of alleged deficiency income and expanded withholding taxes for the
taxable year 1989 amounting to P2,936,560.87.
On December 3, 1993, respondent, through its external auditors, filed with the same
Accounts Receivable/Billing Division of the BIRs National Office, its protest letter
against the alleged deficiency tax assessments for 1989 as indicated in the said
tracer letter dated October 11, 1993.
The alleged deficiency income tax assessment apparently resulted from an
adjustment made to respondents taxable income for the year 1989, on account of
the disallowance of certain items of expense, namely, professional fees paid,
donations, repairs and maintenance, salaries and wages, and management fees.
The latter item of expense, the management fees, made up the bulk of the
disallowance, the examiner alleging, among others, that petitioner failed to withhold
the appropriate tax thereon. This is also the same basis for the imposition of the
deficiency withholding tax assessment on the management fees. Revenue
Regulations No. 6-85 (EWT Regulations) does not impose or prescribe EWT on
management fees paid to a non-resident.
On November 7, 2001, nearly eight (8) years later, respondents external auditors
received a letter from herein petitioner Commissioner of Internal Revenue dated
October 27, 2001. The letter advised the respondent that petitioner had rendered a
final decision denying its protest on the ground that the protest against the disputed
tax assessment was allegedly filed beyond the 30-day reglementary period
prescribed in then Section 229 of the National Internal Revenue Code.
On December 6, 2001, respondent filed a Petition for Review docketed as CTA Case
No. 6362 before the then Court of Tax Appeals, pursuant to Section 7 of Republic Act
No. 1125, otherwise known as an Act Creating the Court of Tax Appeals and Section
228 of the NIRC, to appeal the final decision of the Commissioner of Internal
Revenue denying its protest against the deficiency income and withholding tax
assessments issued for taxable year 1989.[3]
In a Decision dated September 24, 2004, the CTA Original Division held that the
subject assessment notice sent by registered mail on January 8, 1993 to
respondents former place of business was valid and binding since respondent only
gave formal notice of its change of address on February 18, 1993. Thus, the
assessment had become final and unappealable for failure of respondent to file a
protest within the 30-day period provided by law. However, the CTA (a) held that the
CIR failed to collect the assessed taxes within the prescriptive period; and (b)
directed the cancellation and withdrawal of Assessment Notice No. 001543-89-5668.
Petitioners Motion for Reconsideration and Supplemental Motion for Reconsideration
of said Decision filed on October 14, 2004 and November 22, 2004, respectively,
were denied for lack of merit.
Undaunted, the CIR filed a Petition for Review with the CTA En Banc but this was
denied in a Decision dated August 12, 2005, the dispositive portion reads:
WHEREFORE, the Petition for Review is DENIED DUE COURSE and the case is
accordingly DISMISSED for lack of merit.[4]
Hence, the instant Petition wherein the following issues are raised:
I
WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO RULE THAT
THE GOVERNMENTS RIGHT TO COLLECT THE TAX HAS PRESCRIBED.
II
WHETHER OR NOT THE PERIOD TO COLLECT THE ASSESSMENT HAS PRESCRIBED. [5]
The petition is without merit.
Anent the first issue, petitioner argues that the CTA had no jurisdiction over the
case since the CTA itself had ruled that the assessment had become final and
unappealable.Citing Protectors Services, Inc. v. Court of Appeals,[6] the CIR argued
that, after the lapse of the 30-day period to protest, respondent may no longer
dispute the correctness of the assessment and its appeal to the CTA should be
dismissed. The CIR took issue with the CTAs pronouncement that it had jurisdiction
to decide other matters related to the tax assessment such as the issue on the right
to collect the same since the CIR maintains that when the law says that the CTA has
jurisdiction over other matters, it presupposes that the tax assessment has not
become final and unappealable.
We cannot countenance the CIRs assertion with regard to this point. The jurisdiction
of the CTA is governed by Section 7 of Republic Act No. 1125, as amended, and the
term other matters referred to by the CIR in its argument can be found in number
(1) of the aforementioned provision, to wit:
Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National
Internal Revenue Code or other law as part of law administered by the
Bureau of Internal Revenue. (Emphasis supplied.)
Plainly, the assailed CTA En Banc Decision was correct in declaring that there was
nothing in the foregoing provision upon which petitioners theory with regard to the
parameters of the term other matters can be supported or even deduced. What is
rather clearly apparent, however, is that the term other matters is limited only by
the qualifying phrase that follows it.
Thus, on the strength of such observation, we have previously ruled that the
appellate jurisdiction of the CTA is not limited to cases which involve decisions of
the CIR on matters relating to assessments or refunds. The second part of the
provision covers other cases that arise out of the National Internal Revenue Code
(NIRC) or related laws administered by the Bureau of Internal Revenue (BIR). [7]
In the case at bar, the issue at hand is whether or not the BIRs right to collect taxes
had already prescribed and that is a subject matter falling under Section 223(c) of
the 1986 NIRC, the law applicable at the time the disputed assessment was
made. To quote Section 223(c):
Any internal revenue tax which has been assessed within the period of limitation
above-prescribed may be collected by distraint or levy or by a proceeding in
court within three years following the assessment of the tax. (Emphases
supplied.)
In connection therewith, Section 3 of the 1986 NIRC states that the collection of
taxes is one of the duties of the BIR, to wit:
Sec. 3. Powers and duties of Bureau. - The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges and the enforcement of all
forfeitures, penalties, and fines connected therewith including the execution of
judgments in all cases decided in its favor by the Court of Tax Appeals and the
ordinary courts. Said Bureau shall also give effect to and administer the supervisory
and police power conferred to it by this Code or other laws. (Emphasis supplied.)
Thus, from the foregoing, the issue of prescription of the BIRs right to collect taxes
may be considered as covered by the term other matters over which the CTA has
appellate jurisdiction.
Furthermore, the phraseology of Section 7, number (1), denotes an intent to view
the CTAs jurisdiction over disputed assessments and over other matters arising
under the NIRC or other laws administered by the BIR as separate and independent
of each other. This runs counter to petitioners theory that the latter is qualified by
the status of the former, i.e., an other matter must not be a final and unappealable
tax assessment or, alternatively, must be a disputed assessment.
Likewise, the first paragraph of Section 11 of Republic Act No. 1125,
as amended by Republic Act No. 9282, [8] belies petitioners assertion as the provision
is explicit that, for as long as a party is adversely affected by any decision, ruling or
inaction of petitioner, said party may file an appeal with the CTA within 30 days
from receipt of such decision or ruling. The wording of the provision does not take
into account the CIRs restrictive interpretation as it clearly provides that the mere
existence of an adverse decision, ruling or inaction along with the timely filing of an
appeal operates to validate the exercise of jurisdiction by the CTA.
To be sure, the fact that an assessment has become final for failure of the taxpayer
to file a protest within the time allowed only means that the validity or correctness
of the assessment may no longer be questioned on appeal. However, the validity of
the assessment itself is a separate and distinct issue from the issue of whether the
right of the CIR to collect the validly assessed tax has prescribed. This issue of
prescription, being a matter provided for by the NIRC, is well within the jurisdiction
of the CTA to decide.
With respect to the second issue, the CIR insists that its right to collect the tax
deficiency it assessed on respondent is not barred by prescription since the
prescriptive period thereof was allegedly suspended by respondents request for
reinvestigation.
Based on the facts of this case, we find that the CIRs contention is without
basis. The pertinent provision of the 1986 NIRC is Section 224, to wit:
Section 224. Suspension of running of statute. The running of the statute of
limitations provided in Sections 203 and 223 on the making of assessment and the
beginning of distraint or levy or a proceeding in court for collection, in respect of
any deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty days thereafter; when the taxpayer requests
for a re-investigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected: Provided, That, if the taxpayer informs
the Commissioner of any change in address, the statute will not be suspended;
when the warrant of distraint and levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with sufficient discretion,
and no property could be located; and when the taxpayer is out of the Philippines.
(Emphasis supplied.)
The plain and unambiguous wording of the said provision dictates that two
requisites must concur before the period to enforce collection may be suspended:
(a) that the taxpayer requests for reinvestigation, and (b) that petitioner grants
such request.
On this point, we have previously held that:
The above section is plainly worded. In order to suspend the running of the
prescriptive periods for assessment and collection, the
request
for
[9]
reinvestigation must be granted by the CIR. (Emphasis supplied.)
Consequently, the mere filing of a protest letter which is not granted does not
operate to suspend the running of the period to collect taxes. In the case at bar, the
records show that respondent filed a request for reinvestigation on December 3,
1993, however, there is no indication that petitioner acted upon respondents
protest. As the CTA Original Division in C.T.A. Case No. 6362 succinctly pointed out
in its Decision, to wit:
It is evident that the respondent did not conduct a reinvestigation, the protest
having been dismissed on the ground that the assessment has become final and
executory. There is nothing in the record that would show what action was taken in
connection with the protest of the petitioner. In fact, petitioner did not hear
anything from the respondent nor received any communication from the respondent
relative to its protest, not until eight years later when the final decision of the
Commissioner was issued (TSN, March 7, 2002, p. 24). In other words, the
request for reinvestigation was not granted. x x x.[10] (Emphasis supplied.)
Since the CIR failed to disprove the aforementioned findings of fact of the CTA which
are borne by substantial evidence on record, this Court is constrained to uphold
them as binding and true. This is in consonance with our oft-cited ruling that
instructs this Court to not lightly set aside the conclusions reached by the CTA,
which, by the very nature of its functions, is dedicated exclusively to the resolution
of tax problems and has accordingly developed an expertise on the subject unless
there has been an abuse or improvident exercise of authority. [11]
Indeed, it is contradictory for the CIR to argue that respondents December 3, 1993
protest which contained a request for reinvestigation was filed beyond the
reglementary period but still claim that the same request for reinvestigation was
implicitly granted by virtue of its October 27, 2001 letter. We find no cogent reason
to reverse the CTA when it ruled that the prescriptive period for the CIRs right to
collect was not suspended under the circumstances of this case.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Tax
Appeals (CTA) En Banc dated August 12, 2005 is AFFIRMED. No costs.
SO ORDERED.
9. Adamson v. Court of Appeals, GR No. 120935, May 21, 2009
FIRST DIVISION
LUCAS G. ADAMSON, THERESE G.R. No. 120935

JUNE D. ADAMSON, and SARA
S. DE LOS REYES, in their capacities
as President, Treasurer and Secretary
of Adamson Management Corporation,
Petitioners,
- versus COURT OF APPEALS and
LIWAYWAY VINZONS-CHATO,
in her capacity as Commissioner
of the Bureau of Internal Revenue,
Respondents.
x-- - - - - - - - - - - - - - - - - - - - - - - - x
COMMISSIONER OF G.R. No. 124557
INTERNAL REVENUE,
Petitioner,
Present:
-versus- PUNO, C.J., Chairperson,
CARPIO,
CORONA,
COURT OF APPEALS, COURT LEONARDO-DE CASTRO, and
OF TAX APPEALS, ADAMSON BERSAMIN, JJ.
MANAGEMENT CORPORATION,
LUCAS G. ADAMSON, THERESE
JUNE D. ADAMSON, and SARA Promulgated:
S. DE LOS REYES,
Respondents. May 21, 2009
x--------------------------------------------------x
DECISION
PUNO, C.J.:
Before the Court are the consolidated cases of G.R. No. 120935 and G.R. No.
124557.
G.R. No. 120935 involves a petition for review on certiorari filed by petitioners
LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES
(private respondents), in their respective capacities as president, treasurer and
secretary of Adamson Management Corporation (AMC) against then Commissioner
of Internal Revenue Liwayway Vinzons-Chato (COMMISSIONER), under Rule 45 of the

Revised Rules of Court. They seek to review and reverse the Decision promulgated
onMarch 21, 1995 and Resolution issued on July 6, 1995 of the Court of Appeals in
CA-G.R. SP No. 35488 (Liwayway Vinzons-Chato, et al. v. Hon. Judge Erna FalloranAliposa, et al.).
G.R. No. 124557 is a petition for review on certiorari filed by the Commissioner,
assailing the Decision dated March 29, 1996 of the Court of Appeals in CA-G.R. SP
No. 35520, titled Commissioner of Internal Revenue v. Court of Tax Appeals,
Adamson Management Corporation, Lucas G. Adamson, Therese June D. Adamson
and Sara S. de los Reyes. In the said Decision, the Court of Appeals upheld the
Resolution promulgated on September 19, 1994 by the Court of Tax Appeals (CTA) in
C.T.A. Case No. 5075 (Adamson Management Corporation, Lucas G. Adamson,
Therese Adamson and Sara de los Reyes v. Commissioner of Internal Revenue).
The facts, as culled from the findings of the appellate court, follow:
On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares of stock in
Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares were
valued at P7,789,995.00.[1] On June 22, 1990, P159,363.21 was paid as capital gains
tax for the transaction.
On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870 common
shares of stock in AAI for P17,718,360.00. AMC paid the capital gains tax
ofP352,242.96.
On October 15, 1993, the Commissioner issued a Notice of Taxpayer to AMC, Lucas
G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them of
deficiencies on their payment of capital gains tax and Value Added Tax (VAT). The
notice contained a schedule for preliminary conference.
The events preceding G.R. No. 120935 are the following:
On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ)
her Affidavit of Complaint[2] against AMC, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes for violation of Sections 45 (a) and (d) [3], and
110[4], in relation to Section 100[5], as penalized under Section 255, [6] and for
violation of Section 253[7], in relation to Section 252 (b) and (d) of the National
Internal Revenue Code (NIRC).[8]
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed
with the DOJ a motion to suspend proceedings on the ground of prejudicial question,
pendency of a civil case with the Supreme Court, and pendency of their letterrequest for re-investigation with the Commissioner. After the preliminary
investigation, State Prosecutor Alfredo P. Agcaoili found probable cause. The Motion
for Reconsideration against the findings of probable cause was denied by the
prosecutor.
On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes were charged before the Regional Trial Court (RTC) of Makati, Branch 150 in
Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to Dismiss or Suspend
the Proceedings. They invoked the grounds that there was yet no final assessment
of their tax liability, and there were still pending relevant Supreme Court
and CTA cases. Initially, the trial court denied the motion. A Motion for
Reconsideration was however filed, this time assailing the trial courts lack of
jurisdiction over the nature of the subject cases. On August 8, 1994, the trial court
granted the Motion. It ruled that the complaints for tax evasion filed by the
Commissioner should be regarded as a decision of the Commissioner regarding the
tax liabilities of Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes, and appealable to the CTA. It further held that the said cases cannot proceed
independently of the assessment case pending before the CTA, which has
jurisdiction to determine the civil and criminal tax liability of the respondents
therein.
On October 10, 1994, the Commissioner filed a Petition for Review with the Court of
Appeals assailing the trial courts dismissal of the criminal cases. She averred that it
was not a condition prerequisite that a formal assessment should first be given to
the private respondents before she may file the aforesaid criminal complaints
against them. She argued that the criminal complaints for tax evasion may proceed
independently from the assessment cases pending before the CTA.
On March 21, 1995, the Court of Appeals reversed the trial courts decision and
reinstated the criminal complaints. The appellate court held that, in a criminal
prosecution for tax evasion, assessment of tax deficiency is not required
because the offense of tax evasion is complete or consummated when the
offender has knowingly and willfully filed a fraudulent return with intent
to evade the tax.[9] It ruled that private respondents filed false and
fraudulent returns with intent to evade taxes, and acting thereupon,
petitioner filed an Affidavit of Complaint with the Department of Justice,
without an accompanying assessment of the tax deficiency of private
respondents, in order to commence criminal action against the latter for
tax evasion.[10]
Private respondents filed a Motion for Reconsideration, but the trial court denied the
motion on July 6, 1995. Thus, they filed the petition in G.R. No. 120935, raising the
following issues:
1.
WHETHER OR NOT THE RESPONDENT HONORABLE COURT OF APPEALS
ERRED IN APPLYING THE DOCTRINE IN UNGAB V. CUSI (Nos. L-41919-24, May 30,
1980, 97 SCRA 877) TO THE CASE AT BAR.
2.
WHETHER OR NOT AN ASSESSMENT IS REQUIRED UNDER THE SECOND
CATEGORY OF THE OFFENSE IN SECTION 253 OF THE NIRC.
3.
WHETHER OR NOT THERE WAS A VALID ASSESSMENT MADE BY THE
COMMISSIONER IN THE CASE AT BAR.
4.
WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT SERVES AS
AN IMPLIED ASSESSMENT ON THE TAX LIABILITY OF THE TAXPAYER.
5.
WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION FOR
TAX EVASION IN THE TRIAL COURT IS PREMATURE BECAUSE THERE IS YET NO BASIS
FOR THE CRIMINAL CHARGE OF WILLFULL INTENT TO EVADE THE PAYMENT OF A
TAX.
6.
WHETHER OR NOT THE DOCTRINES LAID DOWN IN THE CASES OF
YABES V. FLOJO (No. L-46954, July 20, 1982, 115 SCRA 286) AND CIR V. UNION
SHIPPING CORP. (G.R. No. 66160, May 21, 1990, 185 SCRA 547) ARE APPLICABLE TO
THE CASE AT BAR.
7.
WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION
OVER THE DISPUTE ON WHAT CONSTITUTES THE PROPER TAXES DUE FROM THE
TAXPAYER.
In parallel circumstances, the following events preceded G.R. No. 124557:
On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara
S. de los Reyes filed a letter request for re-investigation with the Commissioner of
the Examiners Findings earlier issued by the Bureau of Internal Revenue (BIR),
which pointed out the tax deficiencies.
On March 15, 1994 before the Commissioner could act on their letter-request, AMC,
Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a
Petition for Review with the CTA. They assailed the Commissioners finding of tax
evasion against them. The Commissioner moved to dismiss the petition, on the
ground that it was premature, as she had not yet issued a formal assessment of the
tax liability of therein petitioners. On September 19, 1994, the CTA denied the
Motion to Dismiss. It considered the criminal complaint filed by the Commissioner
with the DOJ as an implied formal assessment, and the filing of the criminal
informations with the RTC as a denial of petitioners protest regarding the tax
deficiency.
The Commissioner repaired to the Court of Appeals on the ground that
the CTA acted with grave abuse of discretion. She contended that, with regard to
the protest provided under Section 229 of the NIRC, there must first be a formal
assessment issued by the Commissioner, and it must be in accord with Section 6 of
Revenue Regulation No. 12-85. She maintained that she had not yet issued a formal
assessment of tax liability, and the tax deficiency amounts mentioned in her
criminal complaint with the DOJ were given only to show the difference between the
tax returns filed and the audit findings of the revenue examiner.
The Court of Appeals sustained the CTAs denial of the Commissioners Motion to
Dismiss. Thus, the Commissioner filed the petition for review under G.R. No.
124557, raising the following issues:
1.
WHETHER OR NOT THE INSTANT PETITION SHOULD BE DISMISSED FOR
FAILURE TO COMPLY WITH THE MANDATORY REQUIREMENT OF A CERTIFICATION
UNDER OATH AGAINST FORUM SHOPPING;
2.
WHETHER OR NOT THE CRIMINAL CASE FOR TAX EVASION IN THE CASE
AT BAR CAN PROCEED WITHOUT AN ASSESSMENT;
3.
WHETHER OR NOT THE COMPLAINT FILED WITH THE DEPARTMENT OF
JUSTICE CAN BE CONSTRUED AS AN IMPLIED ASSESSMENT; and
4.
WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO
ACT ON PRIVATE RESPONDENTS PETITION FOR REVIEW FILED WITH THE SAID
COURT.
The issues in G.R. No. 124557 and G.R. No. 120935 can be compressed into
three:
1.
WHETHER THE COMMISSIONER HAS ALREADY RENDERED AN
ASSESSMENT (FORMAL OR OTHERWISE) OF THE TAX LIABILITY OF AMC,
LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS
REYES;
2.
WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX
EVASION TO PROCEED AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE
D. ADAMSON AND SARA S. DE LOS REYES; and
3.
WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO
TAKE COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL ASPECTS OF
THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D.
ADAMSON AND SARA S. DE LOS REYES.
The case of CIR v. Pascor Realty, et al.[11] is relevant. In this case, then BIR
Commissioner Jose U. Ong authorized revenue officers to examine the books of
accounts and other accounting records of Pascor Realty and Development
Corporation (PRDC) for 1986, 1987 and 1988. This resulted in a recommendation for
the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35
for the years 1986 and 1987, respectively.
On March 1, 1995, the Commissioner filed a criminal complaint before the DOJ
against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging
evasion of taxes in the total amount of P10,513,671.00. Private respondents filed an
Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment
and tax liability.
The Commissioner denied the urgent request for reconsideration/reinvestigation
because she had not yet issued a formal assessment.
Private respondents then elevated the Decision of the Commissioner to the CTA on a
petition for review. The Commissioner filed a Motion to Dismiss the petition on the
ground that the CTA has no jurisdiction over the subject matter of the petition, as
there was yet no formal assessment issued against the petitioners. The CTA denied
the said motion to dismiss and ordered the Commissioner to file an answer within
thirty (30) days. The Commissioner did not file an answer nor did she move to
reconsider the resolution.Instead, the Commissioner filed a petition for review of the
CTA decision with the Court of Appeals. The Court of Appeals upheld the CTA order.
However, this Court reversed the Court of Appeals decision and the CTA order, and
ordered the dismissal of the petition. We held:
An assessment contains not only a computation of tax liabilities, but also a demand
for payment within a prescribed period. It also signals the time when penalties and
interests begin to accrue against the taxpayer. To enable the taxpayer to determine
his remedies thereon, due process requires that it must be served on and received
by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers
stating the tax liabilities of a taxpayer and attached to a criminal complaint
for tax evasion, cannot be deemed an assessment that can be questioned before
the Court of Tax Appeals.
Neither the NIRC nor the revenue regulations governing the protest of
assessments[12] provide a specific definition or form of an assessment. However, the
NIRC defines the specific functions and effects of an assessment. To consider the
affidavit attached to the Complaint as a proper assessment is to subvert the nature
of an assessment and to set a bad precedent that will prejudice innocent taxpayers.
True, as pointed out by the private respondents, an assessment informs the
taxpayer that he or she has tax liabilities. But not all documents coming from the
BIR containing a computation of the tax liability can be deemed assessments.
To start with, an assessment must be sent to and received by a taxpayer, and must
demand payment of the taxes described therein within a specific period. Thus, the
NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer
fails to pay the deficiency tax within the time prescribed for its payment in the
notice of assessment. Likewise, an interest of 20 percent per annum, or such higher
rate as may be prescribed by rules and regulations, is to be collected from the date
prescribed for its payment until the full payment. [13]
The issuance of an assessment is vital in determining the period of limitation
regarding its proper issuance and the period within which to protest it. Section
203[14] of the NIRC provides that internal revenue taxes must be assessed within
three years from the last day within which to file the return. Section 222,[15] on the
other hand, specifies a period of ten years in case a fraudulent return with intent to
evade was submitted or in case of failure to file a return. Also, Section 228[16] of the
same law states that said assessment may be protested only within thirty days from
receipt thereof. Necessarily, the taxpayer must be certain that a specific document
constitutes an assessment. Otherwise, confusion would arise regarding the period
within which to make an assessment or to protest the same, or whether interest and
penalty may accrue thereon.
It should also be stressed that the said document is a notice duly sent to the
taxpayer. Indeed, an assessment is deemed made only when the collector of
internal revenue releases, mails or sends such notice to the taxpayer. [17]
In the present case, the revenue officers Affidavit merely contained a computation
of respondents tax liability. It did not state a demand or a period for
payment. Worse, it was addressed to the justice secretary, not to the taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply
understood to mean:
A notice to the effect that the amount therein stated is due as tax and a demand for
payment thereof.[18]
Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for
the proper presentation of tax rolls. [19]
Even these definitions fail to advance private respondents case. That the BIR
examiners Joint Affidavit attached to the Criminal Complaint contained some details
of the tax liabilities of private respondents does not ipso facto make it an
assessment. The purpose of the Joint Affidavit was merely to support and
substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be
a notice of the tax due and a demand to the private respondents for payment
thereof.
The fact that the Complaint itself was specifically directed and sent to the
Department of Justice and not to private respondents shows that the intent of the
commissioner was to file a criminal complaint for tax evasion, not to issue an
assessment. Although the revenue officers recommended the issuance of an
assessment, the commissioner opted instead to file a criminal case
for tax evasion. What private respondents received was a notice from the DOJ that a
criminal case for tax evasion had been filed against them, not a notice that the
Bureau of Internal Revenue had made an assessment.
Private respondents maintain that the filing of a criminal complaint must be
preceded by an assessment. This is incorrect, because Section 222 of the NIRC
specifically states that in cases where a false or fraudulent return is submitted or in
cases of failure to file a return such as this case, proceedings in court may be
commenced without an assessment. Furthermore, Section 205 of the same Code
clearly mandates that the civil and criminal aspects of the case may be pursued
simultaneously. In Ungab v. Cusi,[20] petitioner therein sought the dismissal of the
criminal Complaints for being premature, since his protest to the CTA had not yet
been resolved. The Court held that such protests could not stop or suspend the
criminal action which was independent of the resolution of the protest in the
CTA. This was because the commissioner of internal revenue had, in
such tax evasion cases, discretion on whether to issue an assessment or to file a
criminal case against the taxpayer or to do both.
Private respondents insist that Section 222 should be read in relation to Section 255
of the NIRC,[21] which penalizes failure to file a return. They add that a tax
assessment should precede a criminal indictment. We disagree. To reiterate, said
Section 222 states that an assessment is not necessary before a criminal charge
can be filed. This is the general rule. Private respondents failed to show that they
are entitled to an exception. Moreover, the criminal charge need only be supported
by a prima facie showing of failure to file a required return. This fact need not be
proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a
complaint. Before an assessment is issued, there is, by practice, a pre-assessment
notice sent to the taxpayer. The taxpayer is then given a chance to submit position
papers and documents to prove that the assessment is unwarranted. If the
commissioner is unsatisfied, an assessment signed by him or her is then sent to the
taxpayer informing the latter specifically and clearly that an assessment has been
made against him or her. In contrast, the criminal charge need not go through all
these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is
notified that a criminal case had been filed against him, not that the commissioner
has issued an assessment. It must be stressed that a criminal complaint is instituted
not to demand payment, but to penalize the taxpayer for violation of the Tax Code.
In the cases at bar, the Commissioner denied that she issued a formal assessment
of the tax liability of AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S.
de los Reyes. She admits though that she wrote the recommendation
letter[22] addressed to the Secretary of the DOJ recommending the filing of criminal
complaints against AMC and the aforecited persons for fraudulent returns and tax
evasion.
The first issue is whether the Commissioners recommendation letter can be
considered as a formal assessment of private respondents tax liability.
In the context in which it is used in the NIRC, an assessment is a written notice and
demand made by the BIR on the taxpayer for the settlement of a due tax liability
that is there definitely set and fixed. A written communication containing a
computation by a revenue officer of the tax liability of a taxpayer and giving him an
opportunity to contest or disprove the BIR examiners findings is not an assessment
since it is yet indefinite.[23]
We rule that the recommendation letter of the Commissioner cannot be considered
a formal assessment. Even a cursory perusal of the said letter would reveal three
key points:
1.
It was not addressed to the taxpayers.
2.
There was no demand made on the taxpayers to pay the tax liability, nor a
period for payment set therein.
3.
The letter was never mailed or sent to the taxpayers by the Commissioner.
In fine, the said recommendation letter served merely as the prima facie basis for
filing criminal informations that the taxpayers had violated Section 45 (a) and (d),
and 110, in relation to Section 100, as penalized under Section 255, and for
violation of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code.[24]
The next issue is whether the filing of the criminal complaints against the private
respondents by the DOJ is premature for lack of a formal assessment.
Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:
Sec. 269. Exceptions as to period of limitation of assessment and collection of

taxes.-(a) In the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the tax may be assessed, or a proceeding in court after the
collection of such tax may be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action for collection thereof
The law is clear. When fraudulent tax returns are involved as in the cases at bar, a
proceeding in court after the collection of such tax may be begun without
assessment.Here, the private respondents had already filed the capital gains tax
return and the VAT returns, and paid the taxes they have declared due
therefrom. Upon investigation of the examiners of the BIR, there was a preliminary
finding of gross discrepancy in the computation of the capital gains taxes due from
the sale of two lots of AAI shares, first to APAC and then to APAC Philippines,
Limited. The examiners also found that the VAT had not been paid for VAT-liable sale
of services for the third and fourth quarters of 1990.Arguably, the gross disparity in
the taxes due and the amounts actually declared by the private respondents
constitutes badges of fraud.
Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at bar. In this
seminal case, this Court ruled that there was no need for precise computation and
formal assessment in order for criminal complaints to be filed against him. It quoted
Mertens Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a criminal prosecution for willful
attempt to defeat and evade the income tax. A crime is complete when the violator
has knowingly and willfully filed a fraudulent return, with intent to evade and defeat
the tax. The perpetration of the crime is grounded upon knowledge on the part of
the taxpayer that he has made an inaccurate return, and the governments failure to
discover the error and promptly to assess has no connections with the commission
of the crime.
This hoary principle still underlies Section 269 and related provisions of the present
Tax Code.
We now go to the issue of whether the CTA has no jurisdiction to take cognizance of
both the criminal and civil cases here at bar.
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as
amended, the rulings of the Commissioner are appealable to the CTA, thus:
SEC. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws or part of law administered by the Bureau of Internal
Revenue;
Republic Act No. 8424, titled An Act Amending the National Internal Revenue Code,
As Amended, And For Other Purposes, later expanded the jurisdiction of the
Commissioner and, correspondingly, that of the CTA, thus:
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases.
The power to interpret the provisions of this Code and other tax laws shall be under
the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other matters arising
under this Code or other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals.
The latest statute dealing with the jurisdiction of the CTA is Republic Act No. 9282.
[26]
It provides:
SEC. 7. Section 7 of the same Act is hereby amended to read as follows:
relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;
inaction shall be deemed a denial;
(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction;
xxx
(b) Jurisdiction over cases involving criminal offenses as herein provided:
(1) Exclusive original jurisdiction over all criminal offenses arising from violations of
the National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of
Customs: Provided, however, That offenses or felonies mentioned in this paragraph
where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is less than One million pesos (P1,000,000.00) or where there is no
specified amount claimed shall be tried by the regular courts and the jurisdiction of
the CTA shall be appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be simultaneously
instituted with, and jointly determined in the same proceeding by the CTA, the filing
of the criminal action being deemed to necessarily carry with it the filing of the civil
action, and no right to reserve the filling of such civil action separately from the
criminal action will be recognized.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax cases originally decided by them, in their respected territorial
jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts in their respective jurisdiction.
(c) Jurisdiction over tax collection cases as herein provided:
(1) Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provided, however, That
collection cases where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried
by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.
(2) Exclusive appellate jurisdiction in tax collection cases:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them, in their respective
territorial jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax collection cases
originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective jurisdiction.
These laws have expanded the jurisdiction of the CTA. However, they did not
change the jurisdiction of the CTA to entertain an appeal only from a final decision
or assessment of the Commissioner, or in cases where the Commissioner has not
acted within the period prescribed by the NIRC. In the cases at bar, the
Commissioner has not issued an assessment of the tax liability of private
respondents.
Finally, we hold that contrary to private respondents stance, the doctrines laid down
in CIR v. Union Shipping Co. and Yabes v. Flojo are not applicable to the cases
at bar. In these earlier cases, the Commissioner already rendered an assessment of
the tax liabilities of the delinquent taxpayers, for which reason the Court ruled that
the filing of the civil suit for collection of the taxes due was a final denial of the
taxpayers request for reconsideration of the tax assessment.
IN VIEW WHEREOF, premises considered, judgment is rendered:
1.
In G.R. No. 120935, AFFIRMING the CA decision dated March 21, 1995,
which set aside the Regional Trial Courts Order dated August 8, 1994, and
REINSTATING Criminal Case Nos. 94-1842 to 94-1846 for further proceedings before
the trial court; and
2.
In G.R. No. 124557, REVERSING and SETTING ASIDE the Decision of the
Court of Appeals dated March 29, 1996, and ORDERING the dismissal of C.T.A. Case
No. 5075.
No costs.
SO ORDERED.
10. People v. Gloria Kintanar, CTA EB Crim No. 006, December 3, 2010 (CTA Case)
XXXX
11. Judy Anne Santos v. People of the Phils. and BIR, GR No. 173176, August 26,
2008
THIRD DIVISION
JUDY ANNE L. SANTOS,
Petitioner,
G.R. No. 173176

Present:
- versus-
YNARES-SANTIAGO, J.
Chairperson,
AUSTRIA-MARTINEZ,
CORONA,*
CHICO-NAZARIO, and
REYES, JJ.
PEOPLE OF THE PHILIPPINESand

Promulgated:
BUREAU
OF
INTERNAL
REVENUE,
Respondents.
August 26, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Revised
Rules of Court filed by petitioner Judy Anne L. Santos (Santos) seeking the reversal
and setting aside of the Resolution, [2] dated 19 June 2006, of the Court of Tax
Appeals (CTA) en banc in C.T.A. EB. CRIM. No. 001 which denied petitioners Motion
for Extension of Time to File Petition for Review. Petitioner intended to file the
Petition for Review with the CTA en banc to appeal the Resolutions dated 23
February 2006[3]and 11 May 2006[4] of the CTA First Division in C.T.A. Crim. Case No.
0-012 denying, respectively, her Motion to Quash the Information filed against her
for violation of Section 255, in relation to Sections 254 and 248(B) of the National
Internal Revenue Code (NIRC), as amended; and her Motion for Reconsideration.
There is no controversy as to the facts that gave rise to the present Petition.
On 19 May 2005, then Bureau of Internal Revenue (BIR) Commissioner Guillermo
L. Parayno, Jr. wrote to the Department of Justice (DOJ) Secretary Raul M. Gonzales a
letter[5] regarding the possible filing of criminal charges against petitioner. BIR
Commissioner Parayno began his letter with the following statement:
I have the honor to refer to you for preliminary investigation and filing of an
information in court if evidence so warrants, the herein attached Joint Affidavit
of RODERICK C. ABAD, STIMSON P. CUREG, VILMA V. CARONAN, RHODORA
L. DELOS REYES under Group Supervisor TEODORA V. PURINO, of the National
Investigation Division, BIR National Office Building, BIR Road, Diliman, Quezon City,
recommending the criminal prosecution of MS. JUDY ANNE LUMAGUI
SANTOS for substantial underdeclaration of income, which constitutes
as prima facie evidence of false or fraudulent return under Section 248(B) of
the NIRC and punishable under Sections 254 and 255 of the Tax Code.
In said letter, BIR Commissioner Parayno summarized the findings of the
investigating BIR officers that petitioner, in her Annual Income Tax Return for
taxable year 2002 filed with the BIR, declared an income of P8,033,332.70 derived
from her talent fees solely from ABS-CBN; initial documents gathered from the BIR
offices and those given by petitioners accountant and third parties, however,
confirmed that petitioner received in 2002 income in the amount of at
least P14,796,234.70, not only from ABS-CBN, but also from other sources, such as
movies and product endorsements; the estimated tax liability arising from
petitioners underdeclaration amounted to P1,718,925.52, including incremental
penalties; the non-declaration by petitioner of an amount equivalent to at least
84.18% of the income declared in her return was considered a
substantialunderdeclaration of income, which constituted prima facie evidence of
false or fraudulent return under Section 248(B) [6] of the NIRC, as amended; and
petitioners failure to account as part of her income the professional fees she
received from sources other than ABS-CBN and her underdeclaration of the income
she received from ABS-CBN amounted to manifest violations of Sections 254 [7] and
255,[8] as well as Section 248(B) of the NIRC, as amended.
After an exchange of affidavits and other pleadings by the parties, Prosecution
Attorney
Olivia Laroza-Torrevillas issued
a
Resolution[9] dated 21
October
2005 finding probable cause and recommending the filing of a criminal information
against petitioner for violation of Section 255 in relation to Sections 254 and 248(B)
of the NIRC, as amended. The said Resolution was approved by Chief State
Prosecutor Jovencito R. Zuno.
Pursuant to the 21 October 2005 DOJ Resolution, an Information [10] for violation of
Section 255 in relation to Sections 254 and 248(B) of the NIRC, as amended, was
filed with the CTA on 3 November 2005 and docketed as C.T.A. Crim. Case No. 0012. However, the CTA First Division, after noting several discrepancies in the
Information filed, required the State Prosecutor to clarify and explain the same, and
to submit the original copies of the parties affidavits, memoranda, and all other
evidence on record.[11]
Consequently, Prosecution Attorney Torrevillas, on behalf of respondent People,
submitted on 1 December 2005 a Compliance with Ex Parte Motion to Admit
Attached Information.[12] Prosecution Attorney Torrevillas moved that the documents
submitted be admitted as part of the record of the case and the first Information be
substituted
by
the
attached
second
Information. The
second
[13]
Information
addressed the discrepancies noted by the CTA in the first Information,
by now reading thus:
The undersigned Prosecution Attorney of the Department of Justice hereby
accuses JUDY ANNE SANTOS y Lumagui of the offense of violation of Section
255, of Republic Act No. 8424, otherwise known as the Tax Reform Act of 1997, as
amended, committed as follows:
That on or about the 15th day of April, 2003, at Quezon City, Philippines, and within
the jurisdiction of this Honorable Court, the above-named accused did then and
there, willfully, unlawfully, and feloniously file a false and fraudulent income tax
return for taxable year 2002 by indicating therein a gross income of P8,033,332.70
when in truth and in fact her correct income for taxable year 2002
is P16,396,234.70 or a gross underdeclaration/difference of P8,362,902 resulting to
an income tax deficiency ofP1,395,116.24 excluding interest and penalties thereon
of P1,319,500.94 or a total income tax deficiency of P2,714,617.18 to the damage
and prejudice of the government of the same amount.[]
In a Resolution[14] dated 8 December 2005, the CTA First Division granted the
Peoples Ex Parte Motion and admitted the second Information.
The CTA First Division then issued on 9 December 2005 a warrant for the arrest of
petitioner.[15] The tax court lifted and recalled the warrant of arrest on 21 December
2005 after petitioner voluntarily appeared and submitted herself to its jurisdiction
and filed the required bail bond in the amount of P20,000.00.[16]
On 10 January 2006, petitioner filed with the CTA First Division a Motion to
Quash[17] the Information filed in C.T.A. Crim. Case No. 0-012 on the following
grounds:
1. The facts alleged in the INFORMATION do not constitute an offense;
2. The officer who filed the information had no authority to do so;
3. The Honorable Court of Tax Appeals has no jurisdiction over the subject matter of
the case; and
4. The information is void ab initio, being violative of due process, and the equal
protection of the laws.
In a Resolution[18] dated 23 February 2006, the CTA
Motion to Quash and accordingly scheduled
2006 at9:00 a.m. Petitioner filed a Motion
Reinvestigation,[19] which was again denied by
Resolution[20] dated 11 May 2006.
First Division denied petitioners

her arraignment on 2 March
for Reconsideration and/or
the CTA First Division in a
Petitioner received a copy of the 11 May 2006 Resolution of the CTA First Division
on 17 May 2006. On 1 June 2006, petitioner filed with the CTA en banc a Motion for
Extension of Time to File Petition for Review, docketed as C.T.A. EB. CRIM. No.
001. She filed her Petition for Review with the CTA en banc on 16 June
2006. However, in its Resolution[21] dated 19 June 2006, the CTA en banc denied
petitioners Motion for Extension of Time to File Petition for Review, ratiocinating
that:
In the case before Us, the petitioner is asking for an extension of time to file her
Petition for Review to appeal the denial of her motion to quash in C.T.A. Crim. Case
No. 0-012. As stated above, a resolution denying a motion to quash is not a proper
subject of an appeal to the Court En Banc under Section 11 of R.A. No. 9282
because a ruling denying a motion to quash is only an interlocutory order, as such,
it cannot be made the subject of an appeal pursuant to said law and the Rules of
Court. Section 1 of Rule 41 of the Rules of Court provides that no appeal may be
taken from an interlocutory order and Section 1 (i) of Rule 50 provides for the
dismissal of an appeal on the ground that the order or judgment appealed from is
not appealable. Time and again, the Supreme Court had ruled that the remedy of
the accused in case of denial of a motion to quash is for the accused to enter a plea,
go to trial and after an adverse decision is rendered, to appeal therefrom in the
manner authorized by law.
Since a denial of a Motion to Quash is not appealable, granting petitioners Motion
for Extension of Time to File Petition for Review will only be an exercise in futility
considering that the dismissal of the Petition for Review that will be filed by way of
appeal is mandated both by law and jurisprudence. [22]
Ultimately, the CTA en banc decreed:
WHEREFORE, premises considered, petitioners Motion for Extension of Time to File
Petition for Review filed on June 1, 2006 is hereby DENIED for lack of merit.[23]
Now comes petitioner before this Court raising the sole issue of:
WHETHER A RESOLUTION OF A CTA DIVISION DENYING A MOTION TO QUASH IS A
PROPER SUBJECT OF AN APPEAL TO THE CTA EN BANC UNDER SECTION 11 OF
REPUBLIC ACT NO. 9282, AMENDING SECTION 18 OF REPUBLIC ACT NO. 1125.[24]
Section 18 of Republic Act No. 1125,[25] as amended by Republic Act No. 9282,
[26]
provides:
SEC. 18. Appeal to the Court of Tax Appeals En Banc. No civil proceedings involving
matters arising under the National Internal Revenue Code, the Tariff and Customs
Code or the Local Government Code shall be maintained, except as herein provided,
until and unless an appeal has been previously filed with the CTA and disposed of in
accordance with the provisions of this Act.
A party adversely affected by a resolution of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA en banc.
Petitioners primary argument is that a resolution of a CTA Division denying a motion
to quash is a proper subject of an appeal to the CTA en banc under Section 18 of
Republic Act No. 1125, as amended, because the law does not say that only a
resolution that constitutes a final disposition of a case may be appealed to the
CTA en banc. If the interpretation of the law by the CTA en banc prevails, a
procedural void is created leaving the parties, such as petitioner, without any
remedy involving erroneous resolutions of a CTA Division.
The Court finds no merit in the petitioners assertion.
The petition for review under Section 18 of Republic Act No. 1125, as
amended, may be new to the CTA, but it is actually a mode of appeal long
available in courts of general jurisdiction.
Petitioner is invoking a very narrow and literal reading of Section 18 of Republic Act
No. 1125, as amended.
Indeed, the filing of a petition for review with the CTA en banc from a decision,
resolution, or order of a CTA Division is a remedy newly made available in
proceedings before the CTA, necessarily adopted to conform to and address the
changes in the CTA.
There was no need for such rule under Republic Act No. 1125, prior to its
amendment, since the CTA then was composed only of one Presiding Judge and two
Associate Judges.[27] Any two Judges constituted a quorum and the concurrence of
two Judges was necessary to promulgate any decision thereof. [28]
The amendments introduced by Republic Act No. 9282 to Republic Act No. 1125
elevated the rank of the CTA to a collegiate court, with the same rank as the Court
of Appeals, and increased the number of its members to one Presiding Justice and
five Associate Justices.[29] The CTA is now allowed to sit en banc or in two Divisions
with each Division consisting of three Justices. Four Justices shall constitute a
quorum for sessions en banc, and the affirmative votes of four members of the
Court en banc are necessary for the rendition of a decision or resolution; while two
Justices shall constitute a quorum for sessions of a Division and the affirmative
votes of two members of the Division shall be necessary for the rendition of a
decision or resolution.[30]
In A.M. No. 05-11-07-CTA, the Revised CTA Rules, this Court delineated the
jurisdiction of the CTA en banc[31] and in Divisions.[32] Section 2, Rule 4 of the Revised
CTA Rules recognizes the exclusive appellate jurisdiction of the CTA en banc to
review by appeal the following decisions, resolutions, or orders of the CTA Division:
SEC. 2. Cases within the jurisdiction of the Court en banc. The Court en banc shall
exercise exclusive appellate jurisdiction to review by appeal the following:
(a) Decisions or resolutions on motions for reconsideration or new trial of the Court
in Divisions in the exercise of its exclusive appellate jurisdiction over:
(1) Cases arising from administrative agencies Bureau of Internal Revenue, Bureau
of Customs, Department of Finance, Department of Trade and Industry, Department
of Agriculture;
(2) Local tax cases decided by the Regional Trial Courts in the exercise of their
original jurisdiction; and
(3) Tax collection cases decided by the Regional Trial Courts in the exercise of their
original jurisdiction involving final and executory assessments for taxes, fees,
charges and penalties, where the principal amount of taxes and penalties claimed is
less than one million pesos;
xxxx
(f) Decisions, resolutions or orders on motions for reconsideration or new trial of the
Court in Division in the exercise of its exclusive original jurisdiction over cases
involving criminal offenses arising from violations of the National Internal Revenue
Code or the Tariff and Customs Code and other laws administered by the Bureau of
Internal Revenue or Bureau of Customs.
(g) Decisions, resolutions or order on motions for reconsideration or new trial of the
Court in Division in the exercise of its exclusive appellate jurisdiction over criminal
offenses mentioned in the preceding subparagraph; x x x.
Although the filing of a petition for review with the CTA en banc from a decision,
resolution, or order of the CTA Division, was newly made available to the CTA, such
mode of appeal has long been available in Philippine courts of general
jurisdiction. Hence, the Revised CTA Rules no longer elaborated on it but merely
referred to existing rules of procedure on petitions for review and appeals, to wit:
RULE 7
PROCEDURE IN THE COURT OF TAX APPEALS
SEC. 1. Applicability of the Rules of the Court of Appeals. The procedure in the
Court en banc or in Divisions in original and in appealed cases shall be the same as
those in petitions for review and appeals before the Court of Appeals pursuant to
the applicable provisions of Rules 42, 43, 44 and 46 of the Rules of Court,
except as otherwise provided for in these Rules.
RULE 8
PROCEDURE IN CIVIL CASES
xxxx
SEC. 4. Where to appeal; mode of appeal.
xxxx
(b) An appeal from a decision or resolution of the Court in Division on a motion for
reconsideration or new trial shall be taken to the Court by petition for review as
provided in Rule 43 of the Rules of Court. The Court en banc shall act on the
appeal.
xxxx
RULE 9
PROCEDURE IN CRIMINAL CASES
SEC. 1. Review of cases in the Court. The review of criminal cases in the Court en
banc or in Division shall be governed by the applicable provisions of Rule 124 of the
Rules of Court.
xxxx
SEC. 9. Appeal; period to appeal.
xxxx
(b) An appeal to the Court en banc in criminal cases decided by the Court in Division
shall be taken by filing a petition for review as provided in Rule 43 of the Rules of
Court within fifteen days from receipt of a copy of the decision or resolution
appealed from. The Court may, for good cause, extend the time for filing of the
petition for review for an additional period not exceeding fifteen days. (Emphasis
ours.)
Given the foregoing, 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.
General rule: The denial of a motion to quash is an interlocutory order
which is not the proper subject of an appeal or a petition for certiorari.
According to Section 1, Rule 41 of the Revised Rules of Court, governing appeals

from the Regional Trial Courts (RTCs) to the Court of Appeals, an appeal may be
taken only from a judgment or final order that completely disposes of the case or of
a matter therein when declared by the Rules to be appealable. Said provision, thus,
explicitly states that no appeal may be taken from an interlocutory order. [33]
The Court distinguishes final judgments and orders from interlocutory orders in this
wise:
Section 2, Rule 41 of the Revised Rules of Court provides that "(o)nly final
judgments or orders shall be subject to appeal." Interlocutory or incidental
judgments or orders do not stay the progress of an action nor are they subject of
appeal "until final judgment or order is rendered for one party or the other." The test
to determine whether an order or judgment is interlocutory or final is this: "Does it
leave something to be done in the trial court with respect to the merits of the case?
If it does, it is interlocutory; if it does not, it is final. A court order is final in character
if it puts an end to the particular matter resolved or settles definitely the matter
therein disposed of, such that no further questions can come before the court
except the execution of the order. The term "final" judgment or order signifies a
judgment or an order which disposes of the cause as to all the parties, reserving no
further questions or directions for future determination. The order or judgment may
validly refer to the entire controversy or to some definite and separate branch
thereof. "In the absence of a statutory definition, a final judgment, order or decree
has been held to be x x x one that finally disposes of, adjudicates, or determines the
rights, or some right or rights of the parties, either on the entire controversy or on
some definite and separate branch thereof, and which concludes them until it is
reversed or set aside." The central point to consider is, therefore, the effects of the
order on the rights of the parties. A court order, on the other hand, is merely
interlocutory in character if it is provisional and leaves substantial proceeding to be
had in connection with its subject. The word "interlocutory" refers to "something
intervening between the commencement and the end of a suit which decides some
point or matter but is not a final decision of the whole controversy." [34]
In other words, after a final order or judgment, the court should have nothing more
to do in respect of the relative rights of the parties to the case. Conversely, an order
that does not finally dispose of the case and does not end the Court's task of
adjudicating the parties' contentions in determining their rights and liabilities as
regards each other, but obviously indicates that other things remain to be done by
the Court, is interlocutory.[35]
The rationale for barring the appeal of an interlocutory order was extensively
discussed in Matute v. Court of Appeals,[36] thus:
It is settled that an "interlocutory order or decree made in the progress of a case is
always under the control of the court until the final decision of the suit, and may be
modified or rescinded upon sufficient grounds shown at any time before final
judgment . . ." Of similar import is the ruling of this Court declaring that "it is
rudimentary that such (interlocutory) orders are subject to change in the discretion
of the court." Moreover, one of the inherent powers of the court is "To amend and
control its process and orders so as to make them conformable to law and justice. In
the language of Chief Justice Moran, paraphrasing the ruling in Veluz vs. Justice of
the Peace of Sariaya, since judges are human, susceptible to mistakes, and are
bound to administer justice in accordance with law, they are given the inherent
power of amending their orders or judgments so as to make them conformable to
law and justice, and they can do so before they lose their jurisdiction of the case,
that is before the time to appeal has expired and no appeal has been perfected. And
in the abovecited Veluz case, this Court held that If the trial court should discover or
be convinced that it had committed an error in its judgment, or had done an
injustice, before the same has become final, it may, upon its own motion or upon a
motion of the parties, correct such error in order to do justice between the
parties. . . . It would seem to be the very height of absurdity to prohibit a trial judge
from correcting an error, mistake, or injustice which is called to his attention before
he has lost control of his judgment. Corollarily, it has also been held that a judge of
first instance is not legally prevented from revoking the interlocutory order of
another judge in the very litigation subsequently assigned to him for judicial action.
Another recognized reason of the law in permitting appeal only from a final order or
judgment, and not from an interlocutory or incidental one, is to avoid multiplicity of
appeals in a single action, which must necessarily suspend the hearing and decision
on the merits of the case during the pendency of the appeal. If such appeal were
allowed, the trial on the merits of the case would necessarily be delayed for a
considerable length of time, and compel the adverse party to incur unnecessary
expenses, for one of the parties may interpose as many appeals as incidental
questions may be raised by him, and interlocutory orders rendered or issued by the
lower court.[37]
There is no dispute that a court order denying a motion to quash is
interlocutory. The denial of the motion to quash means that the criminal information
remains pending with the court, which must proceed with the trial to determine
whether the accused is guilty of the crime charged therein. Equally settled is the
rule that an order denying a motion to quash, being interlocutory, is not
immediately appealable,[38] nor can it be the subject of a petition for certiorari. Such
order may only be reviewed in the ordinary course of law by an appeal from the
judgment after trial.[39]
The Court cannot agree in petitioners contention that there would exist a procedural
void following the denial of her Motion to Quash by the CTA First Division in its
Resolutions dated 23 February 2006 and 11 May 2006, leaving her helpless. The
remedy of an accused from the denial of his or her motion to quash has already
been clearly laid down as follows:
An order denying a Motion to Acquit (like an order denying a motion to quash) is
interlocutory and not a final order. It is, therefore, not appealable. Neither can it be
the subject of a petition for certiorari. Such order of denial may only be reviewed, in
the ordinary course of law, by an appeal from the judgment, after trial. As stated
in Collins vs. Wolfe, and reiterated in Mill vs. Yatco, the accused, after the denial of
his motion to quash, should have proceeded with the trial of the case in the court
below, and if final judgment is rendered against him, he could then appeal, and,
upon such appeal, present the questions which he sought to be decided by the
appellate court in a petition for certiorari.
In Acharon vs. Purisima, the procedure was well defined, thus:
Moreover, when the motion to quash filed by Acharon to nullify the criminal cases
filed against him was denied by the Municipal Court of General Santos his remedy
was not to file a petition for certiorari but to go to trial without prejudice on his part
to reiterate the special defenses he had invoked in his motion and, if, after trial on
the merits, an adverse decision is rendered, to appeal therefrom in the manner
authorized by law. This is the procedure that he should have followed as authorized
by law and precedents. Instead, he took the usual step of filing a writ
of certiorari before the Court of First Instance which in our opinion is unwarranted it
being contrary to the usual course of law. [40]
Hence, the CTA en banc herein did not err in denying petitioners Motion for
Extension of Time to File Petition for Review, when such Petition for Review is the
wrong remedy to assail an interlocutory order denying her Motion to Quash.
While the general rule proscribes the appeal of an interlocutory order, there are also
recognized exceptions to the same. The general rule is not absolute. Where special
circumstances clearly demonstrate the inadequacy of an appeal, then the special
civil action of certiorari or prohibition may exceptionally be allowed. [41] This Court
recognizes that under certain situations, recourse to extraordinary legal remedies,
such as a petition for certiorari, is considered proper to question the denial of a
motion to quash (or any other interlocutory order) in the interest of a more
enlightened and substantial justice; [42] or to promote public welfare and public
policy;[43] or when the cases have attracted nationwide attention, making it essential
to proceed with dispatch in the consideration thereof; [44] or when the order was
rendered with grave abuse of discretion. [45] Certiorariis an appropriate remedy to
assail an interlocutory order (1) when the tribunal issued such order without or in
excess of jurisdiction or with grave abuse of discretion; and (2) when the assailed
interlocutory order is patently erroneous, and the remedy of appeal would not afford
adequate and expeditious relief.[46]
Recourse to a petition for certiorari to assail an interlocutory order is now expressly
recognized in the ultimate paragraph of Section 1, Rule 41 of the Revised Rules of
Court on the subject of appeal, which states:
In all the above instances where the judgment or final order is not appealable, the
aggrieved party may file an appropriate special civil action under Rule 65.
As to whether the CTA en banc, under its expanded jurisdiction in Republic Act No.
9282, has been granted jurisdiction over special civil actions for certiorari is not
raised as an issue in the Petition at bar, thus, precluding the Court from making a
definitive pronouncement thereon. However, even if such an issue is answered in
the negative, it would not substantially affect the ruling of this Court herein, for a
party whose motion to quash had been denied may still seek recourse, under
exceptional
and
meritorious
circumstances, via a
special
civil
action
for certiorari with this Court, refuting petitioners assertion of a procedural void.
The CTA First Division did not commit grave abuse of discretion in denying
petitioners Motion to Quash.
Assuming that the CTA en banc, as an exception to the general rule, allowed and
treated petitioners Petition for Review in C.T.A. EB. CRIM. No. 001 as a special civil
action for certiorari, [47] it would still be dismissible for lack of merit.
An act of a court or tribunal may only be considered as committed in grave abuse of
discretion when the same was performed in a capricious or whimsical exercise of
judgment, which is equivalent to lack of jurisdiction. The abuse of discretion must
be so patent and gross as to amount to an evasion of positive duty or to a virtual
refusal to perform a duty enjoined by law or to act at all in contemplation of law, as
where the power is exercised in an arbitrary and despotic manner by reason of
passion or personal hostility. In this connection, it is only upon showing that the
court acted without or in excess of jurisdiction or with grave abuse of discretion
that an interlocutory order such as that involved in this case may be impugned. Be
that as it may, it must be emphasized that this practice is applied only under certain
exceptional circumstances to prevent unnecessary delay in the administration of
justice and so as not to unduly burden the courts. [48]
Certiorari is not available to correct errors of procedure or mistakes in the judges
findings and conclusions of law and fact. It is only in the presence of extraordinary
circumstances evincing a patent disregard of justice and fair play where resort to a
petition for certiorari is proper. A party must not be allowed to delay litigation by the
sheer expediency of filing a petition for certiorari under Rule 65 of the Revised Rules
of Court based on scant allegations of grave abuse. [49]
A writ of certiorari is not intended to correct every controversial interlocutory
ruling: it is resorted to only to correct a grave abuse of discretion or a whimsical
exercise of judgment equivalent to lack of jurisdiction. Its function is limited to
keeping an inferior court within its jurisdiction and to relieve persons from arbitrary
acts acts which courts or judges have no power or authority in law to perform. It is
not designed to correct erroneous findings and conclusions made by the courts. [50]
The Petition for Review which petitioner intended to file before the CTA en
banc relied on two grounds: (1) the lack of authority of Prosecuting
Attorney Torrevillas to file the Information; and (2) the filing of the said Information
in violation of petitioners constitutional rights to due process and equal protection of
the laws.
Anent the first ground, petitioner argues that the Information was filed without the
approval of the BIR Commissioner in violation of Section 220 of NIRC, as amended,
which provides:
SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil
and criminal actions and proceedings instituted in behalf of the Government under
the authority of this Code or other law enforced by the Bureau of Internal Revenue
shall be brought in the name of the Government of the Philippines and shall be
conducted by legal officers of the Bureau of Internal Revenue but no civil or criminal
action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture
under this Code shall be filed in court without the approval of the Commissioner.
Petitioners argument must fail in light of BIR Commissioner Paraynos letter dated 19
May 2005 to DOJ Secretary Gonzales referring for preliminary investigation and
filing of an information in court if evidence so warrants, the findings of the BIR
officers recommending the criminal prosecution of petitioner. In said letter, BIR
Commissioner Paraynoalready gave his prior approval to the filing of an information
in court should the DOJ, based on the evidence submitted, find probable cause
against petitioner during the preliminary investigation. Section 220 of the NIRC, as
amended, simply requires that the BIR Commissioner approve the institution of civil
or criminal action against a tax law violator, but it does not describe in what form
such approval must be given. In this case, BIR Commissioner Paraynos letter of 19
May 2005 already states his express approval of the filing of an information against
petitioner and his signature need not appear on the Resolution of the State
Prosecutor or the Information itself.
Still on the purported lack of authority of Prosecution Attorney Torrevillas to file the
Information, petitioner asserts that it is the City Prosecutor under the Quezon City
Charter, who has the authority to investigate and prosecute offenses allegedly
committed within the jurisdiction of Quezon City, such as petitioners case.
The Court is not persuaded. Under Republic Act No. 537, the Revised Charter
of Quezon City, the City Prosecutor shall have the following duties relating to the
investigation and prosecution of criminal offenses:
SEC. 28. The City Attorney - His assistants - His duties.
xxxx
(g) He shall also have charge of the prosecution of all crimes, misdemeanors, and
violations of city ordinances, in the Court of First Instance and the municipal courts
of the city, and shall discharge all the duties in respect to the criminal prosecutions
enjoined by law upon provincial fiscals.
(h) He shall cause to be investigated all charges of crimes, misdemeanors, and
violations of ordinances and have the necessary information or complaints prepared
or made against the persons accused. He or any of his assistants may conduct such
investigations by taking oral evidence of reputable witnesses, and for this purpose
may issue subpoena, summon witnesses to appear and testify under oath before
him, and the attendance or evidence of an absent or recalcitrant witness may be
enforced by application to the municipal court or the Court of First Instance. No
witness summoned to testify under this section shall be under obligation to give any
testimony which tend to incriminate himself.
Evident from the foregoing is that the City Prosecutor has the power to investigate
crimes, misdemeanors, and violations of ordinances committed within the territorial
jurisdiction of the city, and which can be prosecuted before the trial courts of the
said city. The charge against petitioner, however, is already within the exclusive
original jurisdiction of the CTA, [51] as the Information states that her
gross underdeclaration resulted in an income tax deficiency of P1,395,116.24,
excluding interest and penalties. The City Prosecutor does not have the authority to
appear before the CTA, which is now of the same rank as the Court of Appeals.
In contrast, the DOJ is the principal law agency of the Philippine government which
shall be both its legal counsel and prosecution arm. [52] It has the power to
investigate the commission of crimes, prosecute offenders and administer the
probation and correction system.[53] Under the DOJ is the Office of the State
Prosecutor whose functions are described as follows:
Sec. 8. Office of the Chief State Prosecutor. - The Office of the Chief State Prosecutor
shall have the following functions:
(1) Assist the Secretary in the performance of powers and functions of the
Department relative to its role as the prosecution arm of the government;
(2) Implement the provisions of laws, executive orders and rules, and carry out the
policies, plans, programs and projects of the Department relative to the
investigation and prosecution of criminal cases;
(3) Assist the Secretary in exercising supervision and control over the National
Prosecution Service as constituted under P.D. No. 1275 and/or otherwise hereinafter
provided; and
(4) Perform such other functions as may be provided by law or assigned by the
Secretary.[54]
As explained by CTA First Division in its Resolution dated 11 May 2006:
[T]he power or authority of the Chief State Prosecutor Jovencito Zuo, Jr. and his
deputies in the Department of Justice to prosecute cases is national in scope; and
the Special Prosecutors authority to sign and file informations in court proceeds
from the exercise of said persons authority to conduct preliminary investigations. [55]
Moreover, there is nothing in the Revised Quezon City Charter which would suggest
that the power of the City Prosecutor to investigate and prosecute crimes,
misdemeanors, and violations of ordinances committed within the territorial
jurisdiction of the city is to the exclusion of the State Prosecutors. In fact, the Office
of the State Prosecutor exercises control and supervision over City Prosecutors
under Executive Order No. 292, otherwise known as the Administrative Code of
1987.
As regards petitioners second ground in her intended Petition for Review with the
CTA en banc, she asserts that she has been denied due process and equal
protection of the laws when similar charges for violation of the NIRC, as amended,
against Regina Encarnacion A. Velasquez (Velasquez) were dismissed by the DOJ in

its Resolution dated 10 August 2005 in I.S. No. 2005-330 for the reason that
Velasquezs tax liability was not yet fully determined when the charges were filed.
The Court is unconvinced.
First, a motion to quash should be based on a defect in the information which is
evident on its face.[56] The same cannot be said herein. The Information against
petitioner appears valid on its face; and that it was filed in violation of her
constitutional rights to due process and equal protection of the laws is not evident
on the face thereof. As pointed out by the CTA First Division in its 11 May
2006 Resolution, the more appropriate recourse petitioner should have taken, given
the dismissal of similar charges against Velasquez, was to appeal the Resolution
dated 21 October 2005 of the Office of the State Prosecutor recommending the
filing of an information against her with the DOJ Secretary.[57]
Second, petitioner cannot claim denial of due process when she was given the
opportunity to file her affidavits and other pleadings and submit evidence before
the DOJ during the preliminary investigation of her case and before the Information
was filed against her. Due process is merely an opportunity to be heard. In addition,
preliminary investigation conducted by the DOJ is merely inquisitorial. It is not a trial
of the case on the merits. Its sole purpose is to determine whether a crime has
been committed and whether the respondent therein is probably guilty of the
crime. It is not the occasion for the full and exhaustive display of the parties
evidence. Hence, if the investigating prosecutor is already satisfied that he can
reasonably determine the existence of probable cause based on the parties
evidence thus presented, he may terminate the proceedings and resolve the case.
[58]
Third, petitioner cannot likewise aver that she has been denied equal protection of
the laws.
The equal protection clause exists to prevent undue favor or privilege. It is intended
to eliminate discrimination and oppression based on inequality. Recognizing the
existence of real differences among men, the equal protection clause does not
demand absolute equality. It merely requires that all persons shall be treated alike,
under like circumstances and conditions, both as to the privileges conferred and
liabilities enforced.[59]
Petitioner was not able to duly establish to the satisfaction of this Court that she
and Velasquez were indeed similarly situated, i.e., that they committed identical
acts for which they were charged with the violation of the same provisions of the
NIRC; and that they presented similar arguments and evidence in their defense yet, they were treated differently.
Furthermore, that the Prosecution Attorney dismissed what were supposedly similar
charges against Velasquez did not compel Prosecution Attorney Torrevillas to rule
the same way on the charges against petitioner. In People v. Dela Piedra,[60] this
Court explained that:
The prosecution of one guilty person while others equally guilty are not prosecuted,
however, is not, by itself, a denial of the equal protection of the laws. Where the
official action purports to be in conformity to the statutory classification, an
erroneous or mistaken performance of the statutory duty, although a violation of the
statute, is not without more a denial of the equal protection of the laws. The
unlawful administration by officers of a statute fair on its face, resulting in its
unequal application to those who are entitled to be treated alike, is not a denial of
equal protection unless there is shown to be present in it an element of intentional
or purposeful discrimination. This may appear on the face of the action taken with
respect to a particular class or person, or it may only be shown by extrinsic
evidence showing a discriminatory design over another not to be inferred from the
action itself. But a discriminatory purpose is not presumed, there must be a
showing of clear and intentional discrimination. Appellant has failed to show
that, in charging appellant in court, that there was a clear and intentional
discrimination on the part of the prosecuting officials.
The discretion of who to prosecute depends on the prosecutions sound assessment
whether the evidence before it can justify a reasonable belief that a person has
committed an offense.The presumption is that the prosecuting officers
regularly performed their duties, and this presumption can be overcome
only by proof to the contrary, not by mere speculation. Indeed, appellant
has not presented any evidence to overcome this presumption. The mere allegation
that appellant, a Cebuana, was charged with the commission of a crime, while
a Zamboanguea, the guilty party in appellants eyes, was not, is insufficient to
support a conclusion that the prosecution officers denied appellant equal protection
of the laws.
There is also common sense practicality in sustaining appellants prosecution.
While all persons accused of crime are to be treated on a basis of equality
before the law, it does not follow that they are to be protected in the
commission of crime. It would be unconscionable, for instance, to excuse a
defendant guilty of murder because others have murdered with impunity. The
remedy for unequal enforcement of the law in such instances does not lie
in the exoneration of the guilty at the expense of society x x x. Protection of
the law will be extended to all persons equally in the pursuit of their lawful
occupations, but no person has the right to demand protection of the law in the
commission of a crime.
Likewise, [i]f the failure of prosecutors to enforce the criminal laws as to some
persons should be converted into a defense for others charged with crime, the
result would be that the trial of the district attorney for nonfeasance would become
an issue in the trial of many persons charged with heinous crimes and the
enforcement of law would suffer a complete breakdown.(Emphasis ours.)
In the case at bar, no evidence of a clear and intentional discrimination against
petitioner was shown, whether by Prosecution Attorney Torrevillas in recommending
the filing of Information against petitioner or by the CTA First Division in denying
petitioners Motion to Quash. The only basis for petitioners claim of denial of equal
protection of the laws was the dismissal of the charges against Velasquez while
those against her were not.
And lastly, the Resolutions of the CTA First Division dated 23 February 2006 and 11
May 2006 directly addressed the arguments raised by petitioner in her Motion to
Quash and Motion for Reconsideration, respectively, and explained the reasons for
the denial of both Motions. There is nothing to sustain a finding that these
Resolutions were rendered capriciously, whimsically, or arbitrarily, as to constitute
grave abuse of discretion amounting to lack or excess of jurisdiction.
In sum, the CTA en banc did not err in denying petitioners Motion for Extension of
Time to File Petition for Review. Petitioner cannot file a Petition for Review with the
CTA en banc to appeal the Resolution of the CTA First Division denying her Motion to
Quash. The Resolution is interlocutory and, thus, unappealable. Even if her Petition
for Review is to be treated as a petition for certiorari, it is dismissible for lack of
merit.
WHEREFORE, premises considered, the
hereby DENIED. Costs against petitioner.
instant
Petition
for
Review
is
SO ORDERED.
12. CIR v. Kudos Metal Corporation, GR No. 178087, May 5, 2010

Supreme Court
Manila
SECOND DIVISION
REVENUE,
Petitioner,
- versus -
G.R. No. 178087

Present:
BRION,
DEL CASTILLO,
ABAD, and
PEREZ, JJ.
KUDOS METAL CORPORATION,

Promulgated:
Respondent.
May 5, 2010
x------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:

The prescriptive period on when to assess taxes benefits both the government and
the taxpayer.[1] Exceptions extending the period to assess must, therefore, be
strictly construed.
This Petition for Review on Certiorari seeks to set aside the Decision[2] dated March
30, 2007 of the Court of Tax Appeals (CTA) affirming the cancellation of the
assessment notices for having been issued beyond the prescriptive period and the
Resolution[3] dated May 18, 2007 denying the motion for reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax
Return (ITR) for the taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal
Revenue (BIR) served upon respondent three Notices of Presentation of
Records. Respondent failed to comply with these notices, hence, the BIR issued
a Subpeona Duces Tecum dated September 21, 2006, receipt of which was
acknowledged by respondents President, Mr. Chan Ching Bio, in a letter
dated October 20, 2000.
A review and audit of respondents records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondents accountant, executed a
Waiver of the Defense of Prescription, [4] which was notarized on January 22, 2002,
received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax
Fraud Division on February 4, 2002, and accepted by the Assistant Commissioner of
the Enforcement Service, Percival T. Salazar (Salazar).
This was followed by a second Waiver of Defense of Prescription [5] executed
by Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR
Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner
Salazar.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable
year 1998 against the respondent. This was followed by a Formal Letter of Demand
with Assessment Notices for taxable year 1998, dated September 26, 2003 which
was received by respondent on November 12, 2003.
Respondent challenged the assessments by filing its Protest on Various Tax
Assessments on December 3, 2003 and its Legal Arguments and Documents in
Support of Protests against Various Assessments on February 2, 2004.
On June 22, 2004, the BIR rendered a final Decision [6] on the matter, requesting the
immediate payment of the following tax liabilities:
Kind of Tax Amount
Income Tax P 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total P25,624,048.76
Ruling of the Court of Tax Appeals, Second Division
Believing that the governments right to assess taxes had prescribed, respondent
filed on August 27, 2004 a Petition for Review[7] with the CTA. Petitioner in turn filed
his Answer.[8]
On April 11, 2005, respondent filed an Urgent Motion for Preferential Resolution of
the Issue on Prescription.[9]
On October 4, 2005, the CTA Second Division issued a Resolution [10] canceling the
assessment notices issued against respondent for having been issued beyond the
prescriptive period. It found the first Waiver of the Statute of Limitations incomplete
and defective for failure to comply with the provisions of Revenue Memorandum
Order (RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue official authorized to sign the
waiver, as the tax case involves more than P1,000,000.00. In this regard, only the
Commissioner is authorized to enter into agreement with the petitioner in extending
the period of assessment;
Secondly, the waiver failed to indicate the date of acceptance. Such date of
acceptance is necessary to determine whether the acceptance was made within the
prescriptive period;
Third, the fact of receipt by the taxpayer of his file copy was not indicated on the
original copy. The requirement to furnish the taxpayer with a copy of the waiver is
not only to give notice of the existence of the document but also of the acceptance
by the BIR and the perfection of the agreement.
The subject waiver is therefore incomplete and defective. As such, the three-year
prescriptive period was not tolled or extended and continued to run. x x x[11]
Petitioner moved for reconsideration but the CTA Second Division denied the motion
in a Resolution[12] dated April 18, 2006.
Ruling of the Court of Tax Appeals, En Banc
On appeal, the CTA En Banc affirmed the cancellation of the assessment
notices. Although it ruled that the Assistant Commissioner was authorized to sign
the waiver pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it
found that the first waiver was still invalid based on the second and third grounds
stated by the CTA Second Division. Pertinent portions of the Decision read as
follows:
While the Court En Banc agrees with the second and third grounds for invalidating
the first waiver, it finds that the Assistant Commissioner of the Enforcement Service
is authorized to sign the waiver pursuant to RDAO No. 05-01, which provides in part
as follows:
A.
For National Office cases
Designated Revenue Official

1. Assistant Commissioner (ACIR), For tax fraud and policy
Enforcement Service cases
2. ACIR, Large Taxpayers Service For large taxpayers cases
other than those cases falling under Subsection B hereof
3. ACIR, Legal Service For cases pending
verification and awaiting
resolution of certain legal issues prior to prescription and for issuance/compliance
of Subpoena Duces Tecum
4. ACIR, Assessment Service (AS) For cases which are
pending in or subject to
review or approval by the ACIR, AS
Based on the foregoing, the Assistant Commissioner, Enforcement Service is
authorized to sign waivers in tax fraud cases. A perusal of the records reveals that
the investigation of the subject deficiency taxes in this case was conducted by the
National Investigation Division of the BIR, which was formerly named the Tax Fraud
Division. Thus, the subject assessment is a tax fraud case.
Nevertheless, the first waiver is still invalid based on the second and third grounds
stated by the Court in Division. Hence, it did not extend the prescriptive period to
assess.
Moreover, assuming arguendo that the first waiver is valid, the second waiver is
invalid for violating Section 222(b) of the 1997 Tax Code which mandates that the
period agreed upon in a waiver of the statute can still be extended by subsequent
written agreement, provided that it is executed prior to the expiration of the first
period agreed upon. As previously discussed, the exceptions to the law on
prescription must be strictly construed.
In the case at bar, the period agreed upon in the subject first waiver expired
on December 31, 2002. The second waiver in the instant case which was supposed
to extend the period to assess to December 31, 2003 was executed on February 18,
2003 and was notarized on February 19, 2003. Clearly, the second waiver was
executed after the expiration of the first period agreed upon. Consequently, the
same could not have tolled the 3-year prescriptive period to assess. [13]
Petitioner sought reconsideration but the same was unavailing.
Issue
Hence, the present recourse where petitioner interposes that:

THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENTS
RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT PRESCRIBED. [14]
Petitioners Arguments
Petitioner argues that the governments right to assess taxes is not barred by
prescription as the two waivers executed by respondent, through its accountant,
effectively tolled or extended the period within which the assessment can be
made. In disputing the conclusion of the CTA that the waivers are invalid, petitioner
claims that respondent is estopped from adopting a position contrary to what it has
previously taken. Petitioner insists that by acquiescing to the audit during the period
specified in the waivers, respondent led the government to believe that the delay in
the process would not be utilized against it. Thus, respondent may no longer
repudiate the validity of the waivers and raise the issue of prescription.
Respondents Arguments
Respondent maintains that prescription had set in due to the invalidity of the
waivers executed by Pasco, who executed the same without any written authority
from it, in clear violation of RDAO No. 5-01. As to the doctrine of estoppel by
acquiescence relied upon by petitioner, respondent counters that the principle of
equity comes into play only when the law is doubtful, which is not present in the
instant case.
Our Ruling
The petition is bereft of merit.
Section 203[15] of the National Internal Revenue Code of 1997 (NIRC) mandates the
government to assess internal revenue taxes within three years from the last day
prescribed by law for the filing of the tax return or the actual date of filing of such
return, whichever comes later. Hence, an assessment notice issued after the threeyear prescriptive period is no longer valid and effective. Exceptions however are
provided under Section 222[16] of the NIRC.
The waivers executed by respondents accountant did not extend the
period within which the assessment can be made
Petitioner does not deny that the assessment notices were issued beyond the threeyear prescriptive period, but claims that the period was extended by the two
waivers executed by respondents accountant.
We do not agree.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may
only be extended upon a written agreement between the CIR and the taxpayer
executed before the expiration of the three-year period. RMO 20-90[17] issued on
April 4, 1990 and RDAO 05-01[18] issued on August 2, 2001 lay down the procedure
for the proper execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase but
not after ______ 19 ___, which indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular three-year period of prescription, should be
filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any of its
responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating
that the BIR has accepted and agreed to the waiver. The date of such acceptance by
the BIR should be indicated. However, before signing the waiver, the CIR or the
revenue official authorized by him must make sure that the waiver is in the
prescribed form, duly notarized, and executed by the taxpayer or his duly
authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau
should be before the expiration of the period of prescription or before the lapse of
the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to
the docket of the case, the second copy for the taxpayer and the third copy for the
Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy
must be indicated in the original copy to show that the taxpayer was notified of the
acceptance of the BIR and the perfection of the agreement. [19]
A perusal of the waivers executed by respondents accountant reveals the following
infirmities:
1.
The waivers were executed without the notarized written authority
of Pasco to sign the waiver in behalf of respondent.
2.
The waivers failed to indicate the date of acceptance.
3.
The fact of receipt by the respondent of its file copy was not indicated in
the original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the BIR beyond the threeyear period and are void.
Estoppel does not apply in this case

We find no merit in petitioners claim that respondent is now estopped from claiming
prescription since by executing the waivers, it was the one which asked for
additional time to submit the required documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company, [20] the
doctrine of estoppel prevented the taxpayer from raising the defense of prescription
against the efforts of the government to collect the assessed tax. However, it must
be stressed that in the said case, estoppel was applied as an exception to the
statute of limitations on collection of taxes and not on the assessment of taxes, as
the BIR was able to make an assessment within the prescribed period. More
important, there was a finding that the taxpayer made several requests or positive
acts to convince the government to postpone the collection of taxes, viz:
It appears that the first assessment made against respondent based on its second
final return filed on November 28, 1946 was made on February 11, 1947. Upon
receipt of this assessment respondent requested for at least one year within which
to pay the amount assessed although it reserved its right to question the
correctness of the assessment before actual payment. Petitioner granted an
extension of only three months. When it failed to pay the tax within the period
extended, petitioner sent respondent a letter on November 28, 1950 demanding
payment of the tax as assessed, and upon receipt of the letter respondent asked for
a reinvestigation and reconsideration of the assessment. When this request was
denied, respondent again requested for a reconsideration on April 25, 1952, which
was denied on May 6, 1953, which denial was appealed to the Conference Staff. The
appeal was heard by the Conference Staff from September 2, 1953 to July 16, 1955,
and as a result of these various negotiations, the assessment was finally reduced
on July 26, 1955. This is the ruling which is now being questioned after a protracted
negotiation on the ground that the collection of the tax has already prescribed.
It is obvious from the foregoing that petitioner refrained from collecting the tax by
distraint or levy or by proceeding in court within the 5-year period from the filing of
the second amended final return due to the several requests of respondent for
extension to which petitioner yielded to give it every opportunity to prove its claim
regarding the correctness of the assessment. Because of such requests, several
reinvestigations were made and a hearing was even held by the Conference Staff
organized in the collection office to consider claims of such nature which, as the
record shows, lasted for several months. After inducing petitioner to delay collection
as he in fact did, it is most unfair for respondent to now take advantage of such
desistance to elude his deficiency income tax liability to the prejudice of the
Government invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the running
of the period of limitation for in such case there is need of a written agreement to
extend the period between the Collector and the taxpayer, there are cases however
where a taxpayer may be prevented from setting up the defense of prescription
even if he has not previously waived it in writing as when by his repeated requests
or positive acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no
harassment or injustice is meant by the Government. And when such situation

comes to pass there are authorities that hold, based on weighty reasons, that such
an attitude or behavior should not be countenanced if only to protect the interest of
the Government.
This case has no precedent in this jurisdiction for it is the first time that such has
risen, but there are several precedents that may be invoked in American
jurisprudence. As Mr. Justice Cardozo has said: The applicable principle is
fundamental and unquestioned. He who prevents a thing from being done may not
avail himself of the nonperformance which he has himself occasioned, for the law
says to him in effect this is your own act, and therefore you are not damnified. (R. H.
Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, The tax could have been
collected, but the government withheld action at the specific request of the plaintiff.
The plaintiff is now estopped and should not be permitted to raise the defense of
the Statute of Limitations. [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp. 588].[21]
Conversely, in this case, the assessments were issued beyond the prescribed
period. Also, there is no showing that respondent made any request to persuade the
BIR to postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the
statute of limitations on the assessment of taxes considering that there is a detailed
procedure for the proper execution of the waiver, which the BIR must strictly
follow. As we have often said, the doctrine of estoppel is predicated on, and has its
origin in, equity which, broadly defined, is justice according to natural law and right.
[22]
As such, the doctrine of estoppel cannot give validity to an act that is prohibited
by law or one that is against public policy. [23] It should be resorted to solely as a
means of preventing injustice and should not be permitted to defeat the
administration of the law, or to accomplish a wrong or secure an undue advantage,
or to extend beyond them requirements of the transactions in which they originate.
[24]
Simply put, the doctrine of estoppel must be sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to
comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated
earlier, the BIR failed to verify whether a notarized written authority was given by
the respondent to its accountant, and to indicate the date of acceptance and the
receipt by the respondent of the waivers.Having caused the defects in the waivers,
the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To
stress, a waiver of the statute of limitations, being a derogation of the taxpayers
right to security against prolonged and unscrupulous investigations, must be
carefully and strictly construed.[25]
As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR use this
as an excuse for issuing the assessments beyond the three-year period because
with or without the required documents, the CIR has the power to make
assessments based on the best evidence obtainable. [26]
WHEREFORE, the petition is DENIED. The assailed Decision dated March 30,
2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are
hereby AFFIRMED.
SO ORDERED.
13. CIR v. MERALCO, GR No. 181459, June 9, 2014

G.R. No. 181459
June 9, 2014
COMMISSIONER
OF
INTERNAL
vs.
MANILA ELECTRIC COMPANY (MERALCO), Respondent.
REVENUE, Petitioner,
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Revised
Rules of Court which seeks to annul and set aside the Decision 1 of the Court of Tax
Appeals, dated October 15, 2007, and its Resolution 2 dated January 9, 2008 denying
petitioner's Motion for Reconsideration in the case entitled Commissioner of Internal
Revenue v. Manila Electric Company (MERALCO), docketed as C.T.A EB No. 262.
The facts of this case are uncontroverted.
On July 6, 1998, respondent Manila Electric Company (MERALCO) obtained a loan
from Norddeutsche Landesbank Girozentrale (NORD/LB) Singapore Branch in the
amount of USD120,000,000.00 with ING Barings South East Asia Limited (ING
Barings) as the Arranger. 3 On September 4, 2000, respondent MERALCO executed
another loan agreement with NORD/LB Singapore Branch for a loan facility in the
amount of USD100,000,000.00 with Citicorp International Limited as Agent. 4
Under the foregoing loan agreements, the income received by NORD/LB, by way of
respondent MERALCOs interest payments, shall be paid in full without deductions,
as respondent MERALCO shall bear the obligation of paying/remitting to the BIR the
corresponding ten percent (10%) final withholding tax. 5 Pursuant thereto,
respondent MERALCO paid/remitted to the Bureau of Internal Revenue (BIR) the said
withholding tax on its interest payments to NORD/LB Singapore Branch, covering
the period from January 1999 to September 2003 in the aggregate sum
of P264,120,181.44.6
However, sometime in 2001, respondent MERALCO discovered that NORD/LB
Singapore Branch is a foreign government-owned financing institution of
Germany.7 Thus, on December 20, 2001, respondent MERALCO filed a request for a
BIR Ruling with petitioner Commissioner of Internal Revenue (CIR) with regard to the
tax exempt status of NORD/LB Singapore Branch, in accordance with Section 32(B)
(7)(a) of the 1997 National Internal Revenue Code (Tax Code), as amended. 8
On October 7, 2003, the BIR issued Ruling No. DA-342-2003 declaring that the
interest payments made to NORD/LB Singapore Branch are exempt from the ten
percent (10%) final withholding tax, since it is a financing institution owned and
controlled by the foreign government of Germany. 9
Consequently, on July 13, 2004, relying on the aforesaid BIR Ruling, respondent
MERALCO filed with petitioner a claim for tax refund or issuance of tax credit
certificate in the aggregate amount of P264,120,181.44, representing the
erroneously paid or overpaid final withholding tax on interest payments made to
NORD/LB Singapore Branch.10
On November 5, 2004, respondent MERALCO received a letter from petitioner
denying its claim for tax refund on the basis that the same had already prescribed
under Section 204 of the Tax Code, which gives a taxpayer/claimant a period of two
(2) years from the date of payment of tax to file a claim for refund before the BIR. 11
Aggrieved, respondent MERALCO filed a Petition for Review with the Court of Tax
Appeals (CTA) on December 6, 2004. 12 After trial on the merits, the CTA-First Division
rendered a Decision partially granting respondent MERALCOs Petition for Review in
the following wise:
IN VIEW OF THE FOREGOING, petitioners claim in the amount of TWO HUNDRED
TWENTY-FOUR MILLION SEVEN HUNDRED SIXTY THOUSAND NINE HUNDRED
TWENTY-SIX PESOS & SIXTY-FIVE CENTAVOS (P224,760,926.65) representing
erroneously paid and remitted final income taxes for the period January 1999 to July
2002 is hereby DENIED on the ground of prescription. However, petitioners claim in
the amount of THIRTY-NINE MILLION THREE HUNDRED FIFTY NINETHOUSAND TWO
HUNDRED FIFTY-FOUR PESOS & SEVENTY-NINE CENTAVOS (P39,359,254.79) is
hereby GRANTED.
Accordingly, respondent is ORDERED TO REFUND or ISSUE A TAX CREDIT
CERTIFICATE to petitioner in the amount of THIRTYNINE MILLION THREE HUNDRED
FIFTY-NINE THOUSAND TWO HUNDRED FIFTY-FOUR PESOS & SEVENTY-NINE
CENTAVOS (P39,359,254.79) representing the final withholding taxes erroneously
paid and remitted for the period December 2002 to September 2003.
SO ORDERED.13
On November 2, 2006, petitioner filed its Motion for Reconsideration with the CTAFirst Division, while on November 7, 2006, respondent MERALCO filed its Partial
Motion for Reconsideration.14 Finding no justifiable reason to overturn its Decision,
the CTA-First Division denied both the petitioners Motion for Reconsideration and
respondent MERALCOs Partial Motion for Reconsideration in a Resolution dated
January 11, 2007.15
Unyielding to the Decision of the CTA, both petitioner and respondent MERALCO
filed their respective Petitions for Review before the Court of Tax Appeals En Banc
(CTA En Banc) docketed as C.T.A. EB Nos. 264 and 262, respectively. 16 In a
Resolution dated May 9, 2007, the CTA En Banc ordered the consolidation of both
cases in accordance with Section 1, Rule 31 of the Revised Rules of Court and gave
due course thereto, requiring both parties to submit their respective consolidated
memoranda.17 Only petitioner filed its Consolidated Memorandum on July 2, 2007. 18
In its Decision19 dated October 15, 2007, the CTA En Banc denied both petitions and
upheld in toto the Decision of the CTA-First Division, the dispositive portion of which
states:
In the light of the laws and jurisprudence on the matter, We see no reason to
reverse the assailed Decision dated October 16, 2006 and Resolution dated January
11, 2007 of the First Division.
WHEREFORE, premises considered, both petitions are hereby DISMISSED.
SO ORDERED.20
In the same vein, the motions for reconsideration filed by the respective parties
were also denied in a Resolution21dated January 9, 2008.
Hence, the instant petition.
The sole issue presented before us is whether or not respondent MERALCO is
entitled to a tax refund/credit relative to its payment of final withholding taxes on
interest payments made to NORD/LB from January 1999 to September 2003.
Petitioner maintains that respondent MERALCO is not entitled to a tax refund/credit,
considering that its testimonial and documentary evidence failed to categorically
establish that NORD/LB is owned and controlled by the Federal Republic of
Germany; hence, exempted from final withholding taxes on income derived from
investments in the Philippines. 22
On the other hand, respondent MERALCO claims that the evidence it presented in
trial, consisting of the testimony of Mr. German F. Martinez, Jr., Vice-President and
Head of Tax and Tariff of MERALCO, which was affirmed by a certification issued by
the Embassy of the Federal Republic of Germany, dated March 27, 2002, through its
Mr. Lars Leymann, clearly defined the status of NORD/LB as one being owned by
various German States.23Respondent MERALCO further argues that in the Joint
Stipulation of Facts, petitioner admitted the fact that NORD/LB is a financial
institution owned and controlled by a foreign government. 24
Petitioners argument fails to persuade.
After a careful scrutiny of the records and evidence presented before us, we find
that respondent MERALCO has discharged the requisite burden of proof in
establishing the factual basis for its claim for tax refund.
First, as correctly decided by the CTA En Banc, the certification issued by the
Embassy of the Federal Republic of Germany, dated March 27, 2002, explicitly
states that NORD/LB is owned by the State of Lower Saxony, Saxony-Anhalt and
Mecklenburg-Western Pomerania, and serves as a regional bank for the said states
which offers support in the public sector financing, to wit:
x x x x.
Regarding your letter dated March 1, 2002, I can confirm the following:
NORD/LB is owned by the State (Land)of Lower Saxony to the extent of 40%, by the
States of [Saxony-]Anhalt and Mecklenburg-Western Pomerania to the extent of 10%
each. The Lower Saxony Savings Bank and Central Savings Bank Association have a
share of [26.66%]. The Savings Bank Association Saxony-Anhalt and the Savings
Bank Association Mecklenburg-Western Pomerania have a share of [6.66%] each.
As the regional bank for Lower Saxony, Saxony-Anhalt and MecklenburgWestern
Pomerania, NORD/LB offers support in public sector financing. It fulfills as
Girozentrale the function of a central bank for the savings bank in these three states
(Lander).
x x x25
Given that the same was issued by the Embassy of the Federal Republic of Germany
in the regular performance of their official functions, and the due execution and
authenticity thereof was not disputed when it was presented in trial, the same may
be admitted as proof of the facts stated therein. Further, it is worthy to note that the
Embassy of the Federal Republic of Germany was in the best position to confirm
such information, being the representative of the Federal Republic of Germany here
in the Philippines.
To bolster this, respondent MERALCO presented as witness its Vice-President and
Head of Tax and Tariff, German F. Martinez, Jr., who testified on and identified the
existence of such certification. In this regard, we concur with the CTA En Banc that
absent any strong evidence to disprove the truthfulness of such certification, there
is no basis to controvert the findings of the CTA-First Division, to wit:
The foregoing documentary and testimonial evidence were given probative value as
the First Division ruled that there was no strong evidence to disprove the
truthfulness of the said pieces of evidence, considering that the CIR did not present
any rebuttal evidence to prove otherwise. The weight of evidence is not a question
of mathematics, but depends on its effects in inducing belief, under all of the facts
and circumstances proved. The probative weight of any document or any
testimonial evidence must be evaluated not in isolation but in conjunction with
other evidence, testimonial, admissions, judicial notice, and presumptions, adduced
or given judicial cognizance of, and if the totality of the evidence presented by both
parties supports the claimants claim, then he is entitled to a favorable judgment.
(Donato C. Cruz Trading Corp. v. Court of Appeals, 347 SCRA 13). 26
Consequently, such certification was used by petitioner as basis in issuing BIR
Ruling No. DA-342-2003, which categorically declared that the interest income
remitted by respondent MERALCO to NORD/LB Singapore Branch is not subject to
Philippine income tax, and accordingly, not subject to ten percent (10%) withholding
tax.1wphi1 Contrary to petitioners view, therefore, the same constitutes a
compelling basis for establishing the tax exempt status of NORD/LB, as was held in
Miguel J. Ossorio Pension Foundation, Incorporated v. Court of Appeals, 27 which may
be applied by analogy to the present case, to wit:
Similarly, in BIR Ruling [UN-450-95], Citytrust wrote the BIR to request for a ruling
exempting it from the payment of withholding tax on the sale of the land by various
BIR-approved trustees and tax-exempt private employees' retirement benefit trust
funds represented by Citytrust. The BIR ruled that the private employees benefit
trust funds, which included petitioner, have met the requirements of the law and
the regulations and, therefore, qualify as reasonable retirement benefit plans within
the contemplation of Republic Act No. 4917 (now Sec. 28 [b] [7] [A], Tax Code). The
income from the trust fund investments is, therefore, exempt from the payment of
income tax and, consequently, from the payment of the creditable withholding tax
on the sale of their real property.
Thus, the documents issued and certified by Citytrust showing that money from the
Employees' Trust Fund was invested in the MBP lot cannot simply be brushed aside
by the BIR as self-serving, in the light of previous cases holding that Citytrust was
indeed handling the money of the Employees' Trust Fund. These documents,
together with the notarized Memorandum of Agreement, clearly establish that
petitioner, on behalf of the Employees' Trust Fund, indeed invested in the purchase
of the MBP lot. Thus, the Employees' Trust Fund owns 49.59% of the MBP lot.
Since petitioner has proven that the income from the sale of the MBP lot came from
an investment by the Employees' Trust Fund, petitioner, as trustee of the
Employees' Trust Fund, is entitled to claim the tax refund ofP3,037,500 which was
erroneously paid in the sale of the MBP lot. 28
Second, in the parties Joint Stipulation of Facts, petitioner admitted the issuance of
the aforesaid BIR Ruling and did not contest it as one of the admitted documentary
evidence in Court. A judicial admission binds the person who makes the same, and
absent any showing that this was made thru palpable mistake, no amount of
rationalization can offset it.29 In Camitan v. Fidelity Investment Corporation,30 we
sustained the judicial admission of petitioners counsel for failure to prove the
existence of palpable mistake, thus:
x x x. A judicial admission is an admission, verbal or written, made by a party in the
course of the proceedings in the same case, which dispenses with the need for
proof with respect to the matter or fact admitted. It may be contradicted only by a
showing that it was made through palpable mistake or that no such admission was
made.
xxxx
Upon examination of the said exhibits on record, it appears that the alleged
discrepancies are more imagined than real. Had these purported discrepancies been
that evident during the preliminary conference, it would have been easy for
petitioners' counsel to object to the authenticity of the owner's duplicate copy of the
TCT presented by Fidelity. As shown in the transcript of the proceedings, there was
ample opportunity for petitioners' counsel to examine the document, retract his
admission, and point out the alleged discrepancies. But he chose not to contest the
document. Thus, it cannot be said that the admission of the petitioners' counsel was
made through palpable mistake.31
Based on the foregoing, we are of the considered view that respondent MERALCO
has shown clear and convincing evidence that NORD/LB is owned, controlled or
enjoying refinancing from the Federal Republic of Germany, a foreign government,
pursuant to Section 32(B)(7)(a) of the Tax Code, as amended, which provides that:
Section 32. Gross Income.
x x x x.
(B) Exclusions from Gross Income. The following items shall not be included in
gross income and shall be exempt from taxation under this title:
xxxx
(7) Miscellaneous Items.
(a) Income Derived by Foreign Government. Income derived from investments in
the Philippines in loans, stocks, bonds or other domestic securities, or from interest
on deposits in banks in the Philippines by (i) foreign governments, (ii) financing
institutions owned, controlled, or enjoying refinancing from foreign governments,
and (iii) international or regional financial institutions established by foreign
governments.
x x x x.32
Notwithstanding the foregoing, however, we uphold the ruling of the CTA En Banc
that the claim for tax refund in the aggregate amount of Thirty-Nine Million Three
Hundred Fifty-Nine Thousand Two Hundred Fifty-Four Pesos and Seventy-Nine
Centavos (P39,359,254.79) pertaining to the period from January 1999 to July2002
must fail since the same has already prescribed under Section 229 of the Tax Code,
to wit:
Section 229. Recovery of Tax Erroneously or Illegally Collected. No suit or
proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, of any
sum alleged to have been excessively or in any manner wrongfully collected without
authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the Commissioner
may, even without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment appears clearly to
have been erroneously paid.33
As can be gleaned from the foregoing, the prescriptive period provided is
mandatory regardless of any supervening cause that may arise after payment. It
should be pointed out further that while the prescriptive period of two (2) years
commences to run from the time that the refund is ascertained, the propriety
thereof is determined by law (in this case, from the date of payment of tax), and not
upon the discovery by the taxpayer of the erroneous or excessive payment of taxes.
The issuance by the BIR of the Ruling declaring the tax-exempt status of NORD/LB, if
at all, is merely confirmatory in nature. As aptly held by the CTA-First Division, there
is no basis that the subject exemption was provided and ascertained only through
BIR Ruling No. DA-342-2003, since said ruling is not the operative act from which an
entitlement of refund is determined.34 In other words, the BIR is tasked only to
confirm what is provided under the Tax Code on the matter of tax exemptions as
well as the period within which to file a claim for refund.
In this regard, petitioner is misguided when it relied upon the six (6)-year
prescriptive period for initiating an action on the ground of quasi contract or solutio
indebiti under Article 1145 of the New Civil Code. There is solutio indebiti where: (1)
payment is made when there exists no binding relation between the payor, who has
no duty to pay, and the person who received the payment; and (2) the payment is
made through mistake, and not through liberality or some other cause. 35 Here, there
is a binding relation between petitioner as the taxing authority in this jurisdiction
and respondent MERALCO which is bound under the law to act as a withholding
agent of NORD/LB Singapore Branch, the taxpayer. Hence, the first element of
solutio indebitiis lacking. Moreover, such legal precept is inapplicable to the present
case since the Tax Code, a special law, explicitly provides for a mandatory period for
claiming a refund for taxes erroneously paid.
Tax refunds are based on the general premise that taxes have either been
erroneously or excessively paid. Though the Tax Code recognizes the right of
taxpayers to request the return of such excess/erroneous payments from the
government, they must do so within a prescribed period. Further, "a taxpayer must
prove not only his entitlement to a refund, but also his compliance with the
procedural due process as non-observance of the prescriptive periods within which
to file the administrative and the judicial claims would result in the denial of his
claim."36 In the case at bar, respondent MERALCO had ample opportunity to verify
on the tax-exempt status of NORD/LB for purposes of claiming tax refund. Even
assuming that respondent MERALCO could not have emphatically known the status
of NORD/LB, its supposition of the same was already confirmed by the BIR Ruling
which was issued on October 7, 2003. Nevertheless, it only filed its claim for tax
refund on July 13, 2004, or ten (10) months from the issuance of the aforesaid
Ruling. We agree with the CTA-First Division, therefore, that respondent MERALCO's
claim for refund in the amount of Two Hundred Twenty-Four Million Seven Hundred
Sixty Thousand Nine Hundred Twenty-Six Pesos and Sixty-Five Centavos
(P224,760,926.65) representing erroneously paid and remitted final income taxes

for the period January 1999 to July 2002 should be denied on the ground of
prescription.
Finally, we ought to remind petitioner that the arguments it raised in support of its
position have already been thoroughly discussed both by the CTA-First Division and
the CTA En Banc. Oft repeated is the rule that the Court will not lightly set aside the
conclusions reached by the CT A which, by the very nature of its function of being
dedicated exclusively to the resolution of tax problems, has accordingly developed
an expertise on the subject, unless there has been an abuse or improvident exercise
of authority.37 This Court recognizes that the CTA's findings can only be disturbed on
appeal if they are not supported by substantial evidence, or there is a showing of
gross error or abuse on the part of the Tax Court. 38 In the absence of any clear and
convincing proof to the contrary, this Court must presume that the CT A rendered a
decision which is valid in every respect. 39 It has been a long-standing policy and
practice of the Court to respect the conclusions of quasi-judicial agencies such as
the CT A, a highly specialized body specifically created for the purpose of reviewing
tax cases.40
WHEREFORE, the petition is DENIED. The October 15, 2007 Decision and January 9,
2008 Resolution of the Court of Tax Appeals in C.T.A. EB No. 262 are hereby
AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
14. CIR v. Aichi Forging Company of Asia, Inc., GR No. 184823, October 6, 2010

Supreme Court
Manila
FIRST DIVISION
REVENUE,
Petitioner,
G.R. No. 184823
Present:
- versus -
CORONA, C. J., Chairperson,

VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.
AICHI FORGING COMPANY OF

ASIA, INC.,
Promulgated:
Respondent.
October 6, 2010
x------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:
A taxpayer is entitled to a refund either by authority of a statute expressly granting
such right, privilege, or incentive in his favor, or under the principle of solutio
indebiti requiring the return of taxes erroneously or illegally collected. In both cases,
a taxpayer must prove not only his entitlement to a refund but also his compliance
with the procedural due process as non-observance of the prescriptive periods
within which to file the administrative and the judicial claims would result in the
denial of his claim.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to
set aside the July 30, 2008 Decision [1] and the October 6, 2008 Resolution [2] of the
Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and
existing under the laws of the Republic of the Philippines, is engaged in the
manufacturing, producing, and processing of steel and its by-products. [3] It is
registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT)
entity[4] and its products, close impression die steel forgings and tool and dies, are
registered with the Board of Investments (BOI) as a pioneer status. [5]
On September 30, 2004, respondent filed a claim for refund/credit of input VAT for
the period July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82
with the petitioner Commissioner of Internal Revenue (CIR), through the Department
of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center.
[6]
Proceedings before the Second Division of the CTA
On even date, respondent filed a Petition for Review [7] with the CTA for the
refund/credit of the same input VAT. The case was docketed as CTA Case No. 7065
and was raffled to the Second Division of the CTA.
In the Petition for Review, respondent alleged that for the period July 1, 2002 to
September 30, 2002, it generated and recorded zero-rated sales in the amount
of P131,791,399.00,[8]which was paid pursuant to Section 106(A) (2) (a) (1), (2) and
(3) of the National Internal Revenue Code of 1997 (NIRC); [9] that for the said period,
it incurred and paid input VAT amounting to P3,912,088.14 from purchases and
importation attributable to its zero-rated sales; [10] and that in its application for
refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center, it only claimed the amount of P3,891,123.82.[11]
In response, petitioner filed his Answer [12] raising the following special and
affirmative defenses, to wit:
4.
Petitioners alleged
investigation by the Bureau;
claim
for
refund
is
subject
to
administrative
5.
Petitioner must prove that it paid VAT input taxes for the period in
question;
6.
Petitioner must prove that its sales are export sales contemplated under
Sections 106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;
7.
Petitioner must prove that the claim was filed within the two (2) year
period prescribed in Section 229 of the Tax Code;
8.
In an action for refund, the burden of proof is on the taxpayer to establish
its right to refund, and failure to sustain the burden is fatal to the claim for refund;
and
9.
Claims for refund are construed strictly against the claimant for the same
partake of the nature of exemption from taxation.[13]
Trial ensued, after which, on January 4, 2008, the Second Division of the CTA
rendered a Decision partially granting respondents claim for refund/credit. Pertinent
portions of the Decision read:
For a VAT registered entity whose sales are zero-rated, to validly claim a refund,
Section 112 (A) of the NIRC of 1997, as amended, provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not
been applied against output tax: x x x
Pursuant to the above provision, petitioner must comply with the following
requisites: (1) the taxpayer is engaged in sales which are zero-rated or effectively
zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two
years after the close of the taxable quarter when such sales were made; and (4) the
creditable input tax due or paid must be attributable to such sales, except the
transitional input tax, to the extent that such input tax has not been applied against
the output tax.
The Court finds that the first three requirements have been complied [with] by
petitioner.
With regard to the first requisite, the evidence presented by petitioner, such as the
Sales Invoices (Exhibits II to II-262, JJ to JJ-431, KK to KK-394 and LL) shows that it is
engaged in sales which are zero-rated.
The second requisite has likewise been complied with. The Certificate of
Registration with OCN 1RC0000148499 (Exhibit C) with the BIR proves that
petitioner is a registered VAT taxpayer.
In compliance with the third requisite, petitioner filed its administrative claim for
refund on September 30, 2004 (Exhibit N) and the present Petition for Review on
September 30, 2004, both within the two (2) year prescriptive period from the close
of the taxable quarter when the sales were made, which is from September 30,
2002.
As regards, the fourth requirement, the Court finds that there are some documents
and claims of petitioner that are baseless and have not been satisfactorily
substantiated.
xxxx
In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of
a tax credit certificate representing unutilized excess input VAT payments for the
period July 1, 2002 to September 30, 2002, which are attributable to its zero-rated
sales for the same period, but in the reduced amount of P3,239,119.25, computed
as follows:
Amount of Claimed Input VAT
Less:
Exceptions as found by the
ICPA
Net Creditable Input VAT
Less:
Output VAT Due
Excess Creditable Input VAT
P 3,891,123.8
2
41,020.37
P 3,850,103.4
5
610,984.20
P 3,239,119.2
5
WHEREFORE, premises considered, the present Petition for Review is PARTIALLY

GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX
CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE
MILLION TWO HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND
25/100 PESOS (P3,239,119.25), representing the unutilized input VAT incurred for
the months of July to September 2002.
SO ORDERED.[14]
Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial
Reconsideration,[15] insisting that the administrative and the judicial claims were
filed beyond the two-year period to claim a tax refund/credit provided for under
Sections 112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a
leap year, the filing of the claim for tax refund/credit on September 30, 2004 was
beyond the two-year period, which expired on September 29, 2004. [16] He cited as
basis Article 13 of the Civil Code,[17] which provides that when the law speaks of a
year, it is equivalent to 365 days. In addition, petitioner argued that the
simultaneous filing of the administrative and the judicial claims contravenes
Sections 112 and 229 of the NIRC. [18] According to the petitioner, a prior filing of an
administrative claim is a condition precedent [19] before a judicial claim can be
filed. He explained that the rationale of such requirement rests not only on the
doctrine of exhaustion of administrative remedies but also on the fact that the CTA
is an appellate body which exercises the power of judicial review over
administrative actions of the BIR. [20]
The Second Division of the CTA, however, denied petitioners Motion for Partial
Reconsideration for lack of merit. Petitioner thus elevated the matter to the CTA En
Banc via a Petition for Review.[21]
Ruling of the CTA En Banc
On July 30, 2008, the CTA En Banc affirmed the Second Divisions Decision allowing
the partial tax refund/credit in favor of respondent. However, as to the reckoning
point for counting the two-year period, the CTA En Banc ruled:
Petitioner argues that the administrative and judicial claims were filed beyond
period allowed by law and hence, the honorable Court has no jurisdiction over
same. In addition, petitioner further contends that respondent's filing of
administrative and judicial [claims] effectively eliminates the authority of
honorable Court to exercise jurisdiction over the judicial claim.
the
the
the
the
We are not persuaded.

Section 114 of the 1997 NIRC, and We quote, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(A) In General. Every person liable to pay the value-added tax imposed under this
Title shall file a quarterly return of the amount of his gross sales or receipts within
twenty-five (25) days following the close of each taxable quarter prescribed for each
taxpayer: Provided, however, That VAT-registered persons shall pay the value-added
tax on a monthly basis.
[x x x x ]
Based on the above-stated provision, a taxpayer has twenty five (25) days from the
close of each taxable quarter within which to file a quarterly return of the amount of
his gross sales or receipts. In the case at bar, the taxable quarter involved was for
the period of July 1, 2002 to September 30, 2002. Applying Section 114 of the 1997
NIRC, respondent has until October 25, 2002 within which to file its quarterly return
for its gross sales or receipts [with] which it complied when it filed its VAT Quarterly
Return on October 20, 2002.
In relation to this, the reckoning of the two-year period provided under Section 229
of the 1997 NIRC should start from the payment of tax subject claim for refund. As
stated above, respondent filed its VAT Return for the taxable third quarter of 2002
on October 20, 2002. Thus, respondent's administrative and judicial claims for
refund filed on September 30, 2004 were filed on time because AICHI has
untilOctober 20, 2004 within which to file its claim for refund.
In addition, We do not agree with the petitioner's contention that the 1997 NIRC
requires the previous filing of an administrative claim for refund prior to the judicial
claim. This should not be the case as the law does not prohibit the simultaneous
filing of the administrative and judicial claims for refund. What is controlling is that
both claims for refund must be filed within the two-year prescriptive period.
In sum, the Court En Banc finds no cogent justification to disturb the findings and
conclusion spelled out in the assailed January 4, 2008 Decision and March 13, 2008
Resolution of the CTA Second Division. What the instant petition seeks is for the
Court En Banc to view and appreciate the evidence in their own perspective of
things, which unfortunately had already been considered and passed upon.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and
DISMISSED for lack of merit. Accordingly, the January 4, 2008 Decision and March
13, 2008 Resolution of the CTA Second Division in CTA Case No. 7065 entitled, AICHI
Forging Company of Asia, Inc. petitioner vs. Commissioner of Internal Revenue,
respondent are hereby AFFIRMED in toto.
SO ORDERED.[22]
Petitioner sought reconsideration but the CTA En Banc denied[23] his Motion for
Reconsideration.
Issue
Hence, the present recourse where petitioner interposes the issue of whether
respondents judicial and administrative claims for tax refund/credit were filed
within the two-yearprescriptive period provided in Sections 112(A) and 229 of
the NIRC.[24]
Petitioners Arguments
Petitioner maintains that respondents administrative and judicial claims for tax
refund/credit were filed in violation of Sections 112(A) and 229 of the NIRC. [25] He
posits that pursuant to Article 13 of the Civil Code, [26] since the year 2004 was a
leap year, the filing of the claim for tax refund/credit on September 30, 2004 was
beyond the two-year period, which expired onSeptember 29, 2004. [27]
Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of
the NIRC in determining the start of the two-year period as the said provision
pertains to the compliance requirements in the payment of VAT. [28] He asserts that it
is Section 112, paragraph (A), of the same Code that should apply because it
specifically provides for the period within which a claim for tax refund/ credit should
be made.[29]
Petitioner likewise puts in issue the fact that the administrative claim with the BIR
and the judicial claim with the CTA were filed on the same day. [30] He opines that the
simultaneous filing of the administrative and the judicial claims contravenes Section
229 of the NIRC, which requires the prior filing of an administrative claim. [31] He
insists that such procedural requirement is based on the doctrine of exhaustion of
administrative remedies and the fact that the CTA is an appellate body exercising
judicial review over administrative actions of the CIR. [32]
Respondents Arguments
For its part, respondent claims that it is entitled to a refund/credit of its unutilized
input VAT for the period July 1, 2002 to September 30, 2002 as a matter of right
because it has substantially complied with all the requirements provided by law.
[33]
Respondent likewise defends the CTA En Banc in applying Section 114(A) of the
NIRC in computing the prescriptive period for the claim for tax
refund/credit. Respondent believes that Section 112(A) of the NIRC must be read
together with Section 114(A) of the same Code. [34]
As to the alleged simultaneous filing of its administrative and judicial claims,
respondent contends that it first filed an administrative claim with the One-Stop
Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF before it filed a
judicial claim with the CTA. [35] To prove this, respondent points out that its Claimant
Information Sheet No. 49702[36] and BIR Form No. 1914 for the third quarter of 2002,
[37]
which were filed with the DOF, were attached as Annexes M and N, respectively,
to the Petition for Review filed with the CTA. [38] Respondent further contends that the
non-observance of the 120-day period given to the CIR to act on the claim for tax
refund/credit in Section 112(D) is not fatal because what is important is that both
claims are filed within the two-year prescriptive period. [39] In support thereof,
respondent cites Commissioner of Internal Revenue v. Victorias Milling Co., Inc.
[40]
where it was ruled that [i]f, however, the [CIR] takes time in deciding the claim,
and the period of two years is about to end, the suit or proceeding must be started
in the [CTA] before the end of the two-year period without awaiting the decision of
the [CIR].[41] Lastly, respondent argues that even if the period had already lapsed, it
may be suspended for reasons of equity considering that it is not a jurisdictional
requirement.[42]
Our Ruling
The petition has merit.
Unutilized input VAT must be claimed within two years after the close of
the taxable quarter when the sales were made
In computing the two-year prescriptive period for claiming a refund/credit of
unutilized input VAT, the Second Division of the CTA applied Section 112(A) of the
NIRC, which states:
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose
close of the taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax: Provided, however, That in the
case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been
duly accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in
zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods
or properties or services, and the amount of creditable input tax due or paid cannot
be directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales. (Emphasis supplied.)
The CTA En Banc, on the other hand, took into consideration Sections 114 and 229
of the NIRC, which read:
SEC. 114. Return and Payment of Value-Added Tax.
(A) In General. Every person liable to pay the value-added tax imposed under this
Title shall file a quarterly return of the amount of his gross sales or receipts
within twenty-five (25) days following the close of each taxable quarter
prescribed for each taxpayer: Provided, however, That VAT-registered persons
shall pay the value-added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236,
shall file a return and pay the tax due thereon within twenty-five (25) days from the
date of cancellation of registration: Provided, That only one consolidated return shall
be filed by the taxpayer for his principal place of business or head office and all
branches.
xxxx
SEC. 229. Recovery of tax erroneously or illegally collected.

No suit or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the
tax, penalty or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of
two (2) years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid. (Emphasis supplied.)
Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a
claim for refund/credit of unutilized input VAT should start from the date of payment
of tax and not from the close of the taxable quarter when the sales were made. [43]
The pivotal question of when to reckon the running of the two-year prescriptive
period, however, has already been resolved in Commissioner of Internal Revenue v.
Mirant Pagbilao Corporation,[44] where we ruled that Section 112(A) of the NIRC is
the applicable provision in determining the start of the two-year period for claiming
a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC
are inapplicable as both provisions apply only to instances of erroneous payment or
illegal collection of internal revenue taxes.[45] We explained that:
The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain
terms that unutilized input VAT payments not otherwise used for any
internal revenue tax due the taxpayer must be claimed within two years
reckoned from the close of the taxable quarter when the relevant sales
were made pertaining to the input VAT regardless of whether said tax was
paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted
Sec. 112 (A), [P]rescriptive period commences from the close of the taxable quarter
when the sales were made and not from the time the input VAT was paid nor from
the time the official receipt was issued. Thus, when a zero-rated VAT taxpayer pays
its input VAT a year after the pertinent transaction, said taxpayer only has a year to
file a claim for refund or tax credit of the unutilized creditable input VAT. The
reckoning frame would always be the end of the quarter when the pertinent sales or
transaction was made, regardless when the input VAT was paid. Be that as it may,
and given that the last creditable input VAT due for the period covering the progress
billing of September 6, 1996 is the third quarter of 1996 ending on September 30,
1996, any claim for unutilized creditable input VAT refund or tax credit for said
quarter prescribed two years after September 30, 1996 or, to be precise, on
September 30, 1998. Consequently, MPCs claim for refund or tax credit filed
on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under

Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of
the NIRC which, for the purpose of refund, prescribes a different starting point for
the two-year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229
respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or
Credit Taxes. The Commissioner may
xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed
without authority, refund the value of internal revenue stamps when they are
returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value
upon proof of destruction. No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax or penalty: Provided,
however, That a return filed showing an overpayment shall be considered as a
written claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding
shall be maintained in any court for the recovery of any national internal revenue
tax hereafter alleged to have been erroneously or illegally assessed or collected, or
of any penalty claimed to have been collected without authority, of any sum alleged
to have been excessively or in any manner wrongfully collected without authority,
or of any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the
tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the Commissioner
may, even without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment appears clearly to
have been erroneously paid.
Notably, the above provisions also set a two-year prescriptive period, reckoned from
date of payment of the tax or penalty, for the filing of a claim of refund or tax credit.
Notably too, both provisions apply only to instances of erroneous payment
or illegal collection of internal revenue taxes.
MPCs creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax
which can be shifted or passed on to the buyer, transferee, or lessee of the goods,
properties, or services of the taxpayer. The fact that the subsequent sale or
transaction involves a wholly-tax exempt client, resulting in a zero-rated or
effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of
its right to a refund for any unutilized creditable input VAT, albeit the erroneous,
illegal, or wrongful payment angle does not enter the equation.
xxxx
Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC,
providing a two-year prescriptive period reckoned from the close of the
taxable quarter when the relevant sales or transactions were made
pertaining to the creditable input VAT, applies to the instant case, and not
to the other actions which refer to erroneous payment of taxes.
[46]
(Emphasis supplied.)
In view of the foregoing, we find that the CTA En Banc erroneously applied Sections
114(A) and 229 of the NIRC in computing the two-year prescriptive period for
claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is
the pertinent provision for the refund/credit of input VAT. Thus, the two-year period
should be reckoned from the close of the taxable quarter when the sales were
made.
The administrative claim was timely filed
Bearing this in mind, we shall now proceed to determine whether the administrative
claim was timely filed.
Relying on Article 13 of the Civil Code, [47] which provides that a year is equivalent to
365 days, and taking into account the fact that the year 2004 was a leap year,
petitioner submits that the two-year period to file a claim for tax refund/ credit for
the period July 1, 2002 to September 30, 2002 expired on September 29, 2004.[48]
We do not agree.
In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,[49] we said
that as between the Civil Code, which provides that a year is equivalent to 365
days, and theAdministrative Code of 1987, which states that a year is composed of
12 calendar months, it is the latter that must prevail following the legal maxim, Lex
posteriori derogat priori.[50] Thus:
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the computation of
legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a
regular year or a leap year. Under the Administrative Code of 1987, however, a year
is composed of 12 calendar months. Needless to state, under the Administrative
Code of 1987, the number of days is irrelevant.
There obviously exists a manifest incompatibility in the manner of

computing legal periods under the Civil Code and the Administrative Code of
1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law, governs the computation
of legal periods. Lex posteriori derogat priori.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this
case, the two-year prescriptive period (reckoned from the time respondent filed its
final adjusted return on April 14, 1998) consisted of 24 calendar months, computed
as follows:
Year
1 1st calendar
month
2nd calendar month
3rd calendar month
4th calendar month
5th calendar month
April 15, 1998 to May 14, 1998
May 15, 1998 to June 14, 1998

June 15, 1998 to July 14, 1998
July 15, 1998 to August 14, 1998
August 15, 1998 to September 14,
1998
th
6 calendar month
September 15, 1998 to October
14, 1998
7th calendar month
October 15, 1998 to November 14,
1998
8th calendar month
November 15, 1998 to December
14, 1998
9th calendar month
December 15, 1998 to January 14,
1999
10th calendar month January 15, 1999 to February 14,
1999
th
11 calendar month February 15, 1999 to March 14,
1999
12th calendar month March 15, 1999 to April 14, 1999
Year 2 13th calendar April 15, 1999 to May 14, 1999
month
14th calendar month May 15, 1999 to June 14, 1999
15th calendar month June 15, 1999 to July 14, 1999
16th calendar month July 15, 1999 to August 14, 1999
17th calendar month August 15, 1999 to September 14,
1999
th
18 calendar month September 15, 1999 to October
14, 1999
19th calendar month October 15, 1999 to November 14,
1999
20th calendar month November 15, 1999 to December
14, 1999
21st calendar month December 15, 1999 to January 14,
2000
22nd calendar month January 15, 2000 to February 14,
2000
rd
23 calendar month February 15, 2000 to March 14,
2000
24th calendar month
March 15, 2000 to April 14, 2000
We therefore hold that respondent's petition (filed on April 14, 2000) was filed on
the last day of the 24th calendar month from the day respondent filed its final
adjusted return. Hence, it was filed within the reglementary period. [51]
Applying this to the present case, the two-year period to file a claim for tax
refund/credit for the period July 1, 2002 to September 30, 2002 expired on
September 30, 2004. Hence, respondents administrative claim was timely filed.
The filing of the judicial claim was premature
However, notwithstanding the timely filing of the administrative claim, we
are constrained to deny respondents claim for tax refund/credit for having been
filed in violation of Section 112(D) of the NIRC, which provides that:
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of
submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from
the receipt of the decision denying the claim or after the expiration of the
one hundred twenty day-period, appeal the decision or the unacted claim
with the Court of Tax Appeals. (Emphasis supplied.)
Section 112(D) of the NIRC clearly provides that the CIR has 120 days, from the date
of the submission of the complete documents in support of the application [for tax
refund/credit], within which to grant or deny the claim. In case of full or partial
denial by the CIR, the taxpayers recourse is to file an appeal before the CTA within
30 days from receipt of the decision of the CIR.However, if after the 120-day period
the CIR fails to act on the application for tax refund/credit, the remedy of the
taxpayer is to appeal the inaction of the CIR to CTA within 30 days.
In this case, the administrative and the judicial claims were simultaneously filed on
September 30, 2004. Obviously, respondent did not wait for the decision of the CIR
or the lapse of the 120-day period. For this reason, we find the filing of the judicial
claim with the CTA premature.
Respondents assertion that the non-observance of the 120-day period is not fatal to
the filing of a judicial claim as long as both the administrative and the judicial claims
are filed within the two-year prescriptive period [52] has no legal basis.
There is nothing in Section 112 of the NIRC to support respondents view. Subsection
(A) of the said provision states that any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to
such sales. The phrase within two (2) years x x x apply for the issuance of a tax
credit certificate or refund refers to applications for refund/credit filed with the CIR
and not to appeals made to the CTA. This is apparent in the first paragraph of
subsection (D) of the same provision, which states that the CIR has 120 days from
the submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B) within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory
Section 112(D) of the NIRC, which already provides for a specific period within which
a taxpayer should appeal the decision or inaction of the CIR. The second paragraph
of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued
by the CIR before the lapse of the 120-day period; and (2) when no decision is made
after the 120-day period. In both instances, the taxpayer has 30 days within which
to file an appeal with the CTA. As we see it then, the 120-day period is crucial in
filing an appeal with the CTA.
With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.
[53]
relied upon by respondent, we find the same inapplicable as the tax provision
involved in that case is Section 306, now Section 229 of the NIRC. And as already
discussed, Section 229 does not apply to refunds/credits of input VAT, such as the
instant case.
In fine, the premature filing of respondents claim for refund/credit of input VAT
before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the
CTA.
WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision
and the October 6, 2008 Resolution of the Court of Tax Appeals are
hereby REVERSED andSET ASIDE. The Court of Tax Appeals Second Division is
DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.
SO ORDERED.
15. CIR v. Mindanao II Geothermal Partnership, GR No. 191498, January 25, 2014
G.R. No. 191498
January 15, 2014
COMMISSIONER
OF
INTERNAL
REVENUE, Petitioner,
vs.
MINDANAO II GEOTHERMAL PARTNERSHIP, Respondent.
DECISION
SERENO, CJ:
This Rule 45 Petition1 requires this Court to address the question of timeliness with
respect to petitioner's administrative and judicial claims for refund and credit of
accumulated unutilized input Value Added Tax (VAT) under Section 112(A) and
Section 112(D) of the 1997 Tax Code. Petitioner Mindanao II Geothermal Partnership
(Mindanao II) assails the Decision2 and Resolution3 of the Court of Tax Appeals En
Banc (CTA En Banc) in CTA En Banc Case No. 448, affirming the Decision in CTA
Case No. 7507 of the CTA Second Division. 4 The latter ordered the refund or
issuance of a tax credit certificate in the amount of P6,791,845.24 representing
unutilized input VAT incurred for the second, third, and fourth quarters of taxable
year 2004 in favor of herein respondent, Mindanao II.
FACTS
Mindanao II is a partnership registered with the Securities and Exchange
Commission.5 It is engaged in the business of power generation and sale of
electricity to the National Power Corporation (NAPOCOR) 6 and is accredited by the
Department of Energy.7
Mindanao II filed its Quarterly VAT Returns for the second, third and fourth quarters
of taxable year 2004 on the following dates: 8
Date filed
Quarter
Taxable Year
12 July 2005
2nd
2004
22 October 2004
12 July 2005
3rd
2004
25 January 2005
12 July 2005
4th
2004
Original
Amended
26 July 2004
On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue (BIR) an
application for the refund or credit of accumulated unutilized creditable input
taxes.9 In support of the administrative claim for refund or credit, Mindanao II
alleged, among others, that it is registered with the BIR as a value-added
taxpayer10 and all its sales are zero-rated under the EPIRA law. 11 It further stated
that for the second, third, and fourth quarters of taxable year 2004, it paid input
VAT in the aggregate amount of P7,167,005.84, which were directly attributable to
the zero-rated sales. The input taxes had not been applied against output tax.
Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal
Revenue (CIR) had a period of 120 days, or until 3 February 2006, to act on the
claim. The administrative claim, however, remained unresolved on 3 February 2006.
Under the same provision, Mindanao II could treat the inaction of the CIR as a denial
of its claim, in which case, the former would have 30 days to file an appeal to the
CTA, that is, on 5 March 2006. Mindanao II, however, did not file an appeal within
the 30-day period.
Apparently, Mindanao II believed that a judicial claim must be filed within the twoyear prescriptive period provided under Section 112(A) and that such time frame
was to be reckoned from the filing of its Quarterly VAT Returns for the second, third,
and fourth quarters of taxable year 2004, that is, from 26 July 2004, 22 October
2004, and 25 January 2005, respectively. Thus, on 21 July 2006, Mindanao II,
claiming inaction on the part of the CIR and that the two-year prescriptive period
was about to expire, filed a Petition for Review with the CTA docketed as CTA Case
No. 6133.12
On 8 June 2007, while the application for refund or credit of unutilized input VAT of
Mindanao II was pending before the CTA Second Division, this Court promulgated
Atlas Consolidated Mining and Development Corporation v. CIR 13 (Atlas). Atlas held
that the two-year prescriptive period for the filing of a claim for an input VAT refund
or credit is to be reckoned from the date of filing of the corresponding quarterly VAT
return and payment of the tax.
On 12 August 2008, the CTA Second Division rendered a Decision 14 ordering the CIR
to grant a refund or a tax credit certificate, but only in the reduced amount
of P6,791,845.24, representing unutilized input VAT incurred for the second, third
and fourth quarters of taxable year 2004.15
In support of its ruling, the CTA Second Division held that Mindanao II complied with
the twin requisites for VAT zero-rating under the EPIRA law: first, it is a generation
company, and second, it derived sales from power generation. It also ruled that
Mindanao II satisfied the requirements for the grant of a refund/credit under Section
112 of the Tax Code: (1) there must be zero-rated or effectively zero-rated sales; (2)
input taxes must have been incurred or paid; (3) the creditable input tax due or paid
must be attributable to zero-rated sales or effectively zero-rated sales; (4) the input
VAT payments must not have been applied against any output liability; and (5) the
claim must be filed within the two-year prescriptive period. 16
As to the second requisite, however, the input tax claim to the extent
of P375,160.60 corresponding to purchases of services from Mitsubishi Corporation
was disallowed, since it was not substantiated by official receipts. 17
As regards to the fifth requirement in section 112 of the Tax Code, the tax court,
citing Atlas, counted from 26 July 2004, 22 October 2004, and 25 January 2005 the
dates when Mindanao II filed its Quarterly VAT Returns for the second, third, and
fourth quarters of taxable year 2004, respectively and determined that both the
administrative claim filed on 6 October 2005 and the judicial claim filed on 21 July
2006 fell within the two-year prescriptive period. 18
On 1 September 2008, the CIR filed a Motion for Partial Reconsideration, 19 pointing
out that prescription had already set in, since the appeal to the CTA was filed only
on 21 July 2006, which was way beyond the last day to appeal 5 March 2006. 20 As
legal basis for this argument, the CIR relied on Section 112(D) of the 1997 Tax
Code.21
Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant Pagbilao
Corporation (Mirant).22 Mirant fixed the reckoning date of the two-year prescriptive
period for the application for refund or credit of unutilized input VAT at the close of
the taxable quarter when the relevant sales were made , as stated in Section
112(A).23
On 3 December 2008, the CTA Second Division denied the CIRs Motion for Partial
Reconsideration.24 The tax court stood by its reliance on Atlas 25 and on its finding
that both the administrative and judicial claims of Mindanao II were timely filed. 26
On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a Petition for
Review.27 Apart from the contention that the judicial claim of Mindanao II was filed
beyond the 30-day period fixed by Section 112(D) of the 1997 Tax Code, 28 the CIR
argued that Mindanao II erroneously fixed 26 July 2004, the date when the return for
the second quarter was filed, as the date from which to reckon the two-year
prescriptive period for filing an application for refund or credit of unutilized input
VAT under Section 112(A). As the two-year prescriptive period ended on 30 June
2006, the Petition for Review of Mindanao II was filed out of time on 21 July
2006.29 The CIR invoked the recently promulgated Mirant to support this theory.
On 11 November 2009, the CTA En Banc rendered its Decision denying the CIRs
Petition for Review.30 On the question whether the application for refund was timely
filed, it held that the CTA Second Division correctly applied the Atlas ruling. 31 It
reasoned that Atlas remained to be the controlling doctrine. Mirant was a new
doctrine and, as such, the latter should not apply retroactively to Mindanao II who
had relied on the old doctrine of Atlas and had acted on the faith thereof. 32
As to the issue of compliance with the 30-day period for appeal to the CTA, the CTA
En Banc held that this was a requirement only when the CIR actually denies the
taxpayers claim. But in cases of CIR inaction, the 30-day period is not a mandatory
requirement; the judicial claim is seasonably filed as long as it is filed after the lapse
of the 120-day waiting period but within two years from the date of filing of the
return.33
The CIR filed a Motion for Partial Reconsideration 34 of the Decision, but it was denied
for lack of merit.35
Dissatisfied, the CIR filed this Rule 45 Petition, raising the following arguments in
support of its appeal:
I.
THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF THE CASE.
II.
THE COURT A QUOS RELIANCE ON THE RULING IN ATLAS IS MISPLACED. 36
ISSUES
The resolution of this case hinges on the question of compliance with the following
time requirements for the grant of a claim for refund or credit of unutilized input
VAT: (1) the two-year prescriptive period for filing an application for refund or credit
of unutilized input VAT; and (2) the 120+30 day period for filing an appeal with the
CTA.
THE COURTS RULING
We deny Mindanao IIs claim for refund or credit of unutilized input VAT on the
ground that its judicial claims were filed out of time, even as we hold that its
application for refund was filed on time.
I.
MINDANAO
IIS
REFUND WAS FILED ON TIME
APPLICATION
FOR
We find no error in the conclusion of the tax courts that the application for refund or
credit of unutilized input VAT was timely filed. The problem lies with their bases for
the conclusion as to: (1) what should be filed within the prescriptive period; and (2)
the date from which to reckon the prescriptive period.
We thus take a different route to reach the same conclusion, initially focusing our
discussion on what should be filed within the two-year prescriptive period.
A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive Period
Section 112(A) provides:
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose
tax credit certificate or refund of creditable input tax due or paid attributable to
been applied against output tax: Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties
or services, and the amount of creditable input tax due or paid cannot be directly
and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
Both the CTA Second Division and CTA En Banc decisions held that the phrase
"apply for the issuance of a tax credit certificate or refund" in Section 112(A) is
construed to refer to both the administrative claim filed with the CIR and the judicial
claim filed with the CTA. This view, however, has no legal basis.
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi),
we dispelled the misconception that both the administrative and judicial claims
must be filed within the two-year prescriptive period: 37
There is nothing in Section 112 of the NIRC to support respondents view.
Subsection (A) of the said provision states that "any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such
sales." The phrase "within two (2) years x x x apply for the issuance of a tax credit
certificate or refund" refers to applications for refund/credit filed with the CIR and
not to appeals made to the CTA. This is apparent in the first paragraph of subsection
(D) of the same provision, which states that the CIR has "120 days from the
submission of complete documents in support of the application filed in accordance
with Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory
Section 112 (D) of the NIRC, which already provides for a specific period within
which a taxpayer should appeal the decision or inaction of the CIR. The second
paragraph of Section 112 (D) of the NIRC envisions two scenarios: (1) when a
decision is issued by the CIR before the lapse of the 120-day period; and (2) when
no decision is made after the 120-day period. In both instances, the taxpayer has 30
days within which to file an appeal with the CTA. As we see it then, the 120-day
period is crucial in filing an appeal with the CTA. (Emphasis supplied)
The message of Aichi is clear: it is only the administrative claim that must be filed
within the two-year prescriptive period; the judicial claim need not fall within the
two-year prescriptive period.
Having disposed of this question, we proceed to the date for reckoning the
prescriptive period under Section 112(A).
B. Reckoning Date is the Close of the Taxable Quarter When the Relevant Sales Were
Made.
The other flaw in the reasoning of the tax courts is their reliance on the Atlas ruling,
which fixed the reckoning point to the date of filing the return and payment of the
tax.
The CIRs Stand
The CIRs stand is that Atlas is not applicable to the case at hand as it involves
Section 230 of the 1977 Tax Code, which contemplates recovery of tax payments
erroneously or illegally collected. On the other hand, this case deals with claims for
tax refund or credit of unutilized input VAT for the second, third, and fourth quarters
of 2004, which are covered by Section 112 of the 1977 Tax Code. 38
The CIR further contends that Mindanao II cannot claim good faith reliance on the
Atlas doctrine since the case was decided only on 8 June 2007, two years after
Mindanao II filed its claim for refund or credit with the CIR and one year after it filed
a Petition for Review with the CTA on 21 July 2006. 39
In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that should
apply to this case despite the fact that the latter was promulgated on 12 September
2008, after Mindanao II had filed its administrative claim in 2005. 40 It argues that
Mirant can be applied retroactively to this case, since the decision merely interprets
Section 112, a provision that was already effective when Mindanao II filed its claims
for tax refund or credit.
The Taxpayers Defense
On the other hand, Mindanao II counters that Atlas, decided by the Third Division of
this Court, could not have been superseded by Mirant, a Second Division Decision of
this Court. A doctrine laid down by the Supreme Court in a Division may be modified
or reversed only through a decision of the Court sitting en banc. 41
Mindanao II further contends that when it filed its Petition for Review, the prevailing
rule in the CTA reckons the two-year prescriptive period from the date of the filing of
the VAT return.42 Finally, after building its case on Atlas, Mindanao II assails the CIRs
reliance on the Mirant doctrine stating that it cannot be applied retroactively to this
case, lest it violate the rock-solid rule that a judicial ruling cannot be given
retroactive effect if it will impair vested rights. 43
Section 112(A) is the Applicable Rule
The issue posed is not novel. In the recent case of Commissioner of Internal
Revenue v. San Roque Power Corporation 44 (San Roque), this Court resolved the
threshold question of when to reckon the two-year prescriptive period for filing an
administrative claim for refund or credit of unutilized input VAT under the 1997 Tax
Code in view of our pronouncements in Atlas and Mirant. In that case, we delineated
the scope and effectivity of the Atlas and Mirant doctrines as follows:
The Atlas doctrine, which held that claims for refund or credit of input VAT must
comply with the two-year prescriptive period under Section 229, should be effective
only from its promulgation on 8 June 2007 until its abandonment on 12 September
2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year
prescriptive period from the date of payment of the output VAT. Prior to the Atlas
doctrine, the two-year prescriptive period for claiming refund or credit of input VAT
should be governed by Section 112(A) following the verba legis rule. The Mirant
ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus
applying Section 112(A) in computing the two-year prescriptive period in claiming
refund or credit of input VAT. (Emphases supplied)
Furthermore, San Roque distinguished between Section 112 and Section 229 of the
1997 Tax Code:
The input VAT is not "excessively" collected as understood under Section 229
because at the time the input VAT is collected the amount paid is correct and
proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered seller
of goods, properties or services used as input by another VAT-registered person in
the sale of his own goods, properties, or services. This tax liability is true even if the
seller passes on the input VAT to the buyer as part of the purchase price. The
second VAT-registered person, who is not legally liable for the input VAT, is the one
who applies the input VAT as credit for his own output VAT. If the input VAT is in fact
"excessively" collected as understood under Section 229, then it is the first VATregistered person the taxpayer who is legally liable and who is deemed to have
legally paid for the input VAT who can ask for a tax refund or credit under Section
229 as an ordinary refund or credit outside of the VAT System. In such event, the
second VAT-registered taxpayer will have no input VAT to offset against his own
output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and
Section 112(A), the input VAT is not "excessively" collected as understood under
Section 229. At the time of payment of the input VAT the amount paid is the correct
and proper amount. Under the VAT System, there is no claim or issue that the input
VAT is "excessively" collected, that is, that the input VAT paid is more than what is
legally due. The person legally liable for the input VAT cannot claim that he overpaid
the input VAT by the mere existence of an "excess" input VAT. The term "excess"
input VAT simply means that the input VAT available as credit exceeds the output
VAT, not that the input VAT is excessively collected because it is more than what is
legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for
refund or credit of the input VAT as "excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two
years from the date of payment of the tax "erroneously, . . . illegally, . . . excessively
or in any manner wrongfully collected." The prescriptive period is reckoned from the
date the person liable for the tax pays the tax. Thus, if the input VAT is in fact
"excessively" collected, that is, the person liable for the tax actually pays more than
what is legally due, the taxpayer must file a judicial claim for refund within two
years from his date of payment. Only the person legally liable to pay the tax can file
the judicial claim for refund. The person to whom the tax is passed on as part of the
purchase price has no personality to file the judicial claim under Section 229.
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial
claim for "excess" input VAT is two years from the close of the taxable quarter when
the sale was made by the person legally liable to pay the output VAT. This
prescriptive period has no relation to the date of payment of the "excess" input VAT.
The "excess" input VAT may have been paid for more than two years but this does
not bar the filing of a judicial claim for "excess" VAT under Section 112(A), which has
a different reckoning period from Section 229. Moreover, the person claiming the
refund or credit of the input VAT is not the person who legally paid the input VAT.
Such person seeking the VAT refund or credit does not claim that the input VAT was
"excessively" collected from him, or that he paid an input VAT that is more than
what is legally due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the
taxpayer in the chain of transactions. For simplicity and efficiency in tax collection,
the VAT is imposed not just on the value added by the taxpayer, but on the entire
selling price of his goods, properties or services. However, the taxpayer is allowed a
refund or credit on the VAT previously paid by those who sold him the inputs for his
goods, properties, or services. The net effect is that the taxpayer pays the VAT only
on the value that he adds to the goods, properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output
VAT. The only exception is when the taxpayer is expressly "zero-rated or effectively
zero-rated" under the law, like companies generating power through renewable
sources of energy. Thus, a non zero-rated VAT-registered taxpayer who has no
output VAT because he has no sales cannot claim a tax refund or credit of his
unused input VAT under the VAT System. Even if the taxpayer has sales but his input
VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess"
input VAT under the VAT System. He can only carry-over and apply his "excess"
input VAT against his future output VAT. If such "excess" input VAT is an
"excessively" collected tax, the taxpayer should be able to seek a refund or credit
for such "excess" input VAT whether or not he has output VAT. The VAT System does
not allow such refund or credit. Such "excess" input VAT is not an "excessively"
collected tax under Section 229. The "excess" input VAT is a correctly and properly
collected tax. However, such "excess" input VAT can be applied against the output
VAT because the VAT is a tax imposed only on the value added by the taxpayer. If
the input VAT is in fact "excessively" collected under Section 229, then it is the
person legally liable to pay the input VAT, not the person to whom the tax was
passed on as part of the purchase price and claiming credit for the input VAT under
the VAT System, who can file the judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an
"excessively" collected tax under Section 229 may lead taxpayers to file a claim for
refund or credit for such "excess" input VAT under Section 229 as an ordinary tax
refund or credit outside of the VAT System. Under Section 229, mere payment of a
tax beyond what is legally due can be claimed as a refund or credit. There is no
requirement under Section 229 for an output VAT or subsequent sale of goods,
properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited
is a tax that is "erroneously . . . illegally, . . . excessively or in any manner
wrongfully collected." In short, there must be a wrongful payment because what is

paid, or part of it, is not legally due. As the Court held in Mirant, Section 229 should
"apply only to instances of erroneous payment or illegal collection of internal
revenue taxes." Erroneous or wrongful payment includes excessive payment
because they all refer to payment of taxes not legally due. Under the VAT System,
there is no claim or issue that the "excess" input VAT is "excessively or in any
manner wrongfully collected." In fact, if the "excess" input VAT is an "excessively"
collected tax under Section 229, then the taxpayer claiming to apply such
"excessively" collected input VAT to offset his output VAT may have no legal basis to
make such offsetting. The person legally liable to pay the input VAT can claim a
refund or credit for such "excessively" collected tax, and thus there will no longer be
any "excess" input VAT. This will upend the present VAT System as we know it. 45
Two things are clear from the above quoted San Roque disquisitions. First, when it
comes to recovery of unutilized input VAT, Section 112, and not Section 229 of the
1997 Tax Code, is the governing law. Second, prior to 8 June 2007, the applicable
rule is neither Atlas nor Mirant, but Section 112(A).
We present the rules laid down by San Roque in determining the proper reckoning
date of the two-year prescriptive period through the following timeline:
Thus, the task at hand is to determine the applicable period for this case.
In this case, Mindanao II filed its administrative claims for refund or credit for the
second, third and fourth quarters of 2004 on 6 October 2005. The case thus falls
within the first period as indicated in the above timeline. In other words, it is
covered by the rule prior to the advent of either Atlas or Mirant.
Accordingly, the proper reckoning date in this case, as provided by Section 112(A) of
the 1997 Tax Code, is the close of the taxable quarter when the relevant sales were
made.
C. The Administrative Claims Were Timely Filed
We sum up our conclusions so far: (1) it is only the administrative claim that must
be filed within the two-year prescriptive period; and (2) the two-year prescriptive
period begins to run from the close of the taxable quarter when the relevant sales
were made.
Bearing these in mind, we now proceed to determine whether Mindanao II's
administrative claims for the second, third, and fourth quarters of 2004 were timely
filed.
Second Quarter
Since the zero-rated sales were made in the second quarter of 2004, the date of
reckoning the two-year prescriptive period is the close of the second quarter, which
is on 30 June 2004. Applying Section 112(A), Mindanao II had two years from 30
June 2004, or until 30 June 2006 to file an administrative claim with the CIR.
Mindanao II filed its administrative claim on 6 October 2005, which is within the twoyear prescriptive period. The administrative claim for the second quarter of 2004
was thus timely filed. For clarity, we present the rules laid down by San Roque in
determining the proper reckoning date of the two-year prescriptive period through
the following timeline:
Third Quarter
As regards the claim for the third quarter of 2004, the two-year prescriptive period
started to run on 30 September 2004, the close of the taxable quarter. It ended on
30 September 2006, pursuant to Section 112(A) of the 1997 Tax Code. Mindanao II
filed its administrative claim on 6 October 2005. Thus, since the administrative
claim was filed well within the two-year prescriptive period, the administrative claim
for the third quarter of 2004 was timely filed. (See timeline below)
Fourth Quarter
Here, the two-year prescriptive period is counted starting from the close of the
fourth quarter which is on 31 December 2004. The last day of the prescriptive
period for filing an application for tax refund/credit with the CIR was on 31
December 2006. Mindanao II filed its administrative claim with the CIR on 6 October
2005. Hence, the claims were filed on time, pursuant to Section 112(A) of the 1997
Tax Code. (See timeline below)
II.
MINDANAO IIS JUDICIAL CLAIMS WERE FILED OUT OF TIME
Notwithstanding the timely filing of the administrative claims, we find that the CTA
En Banc erred in holding that Mindanao IIs judicial claims were timely filed.
A. 30-Day Period Also Applies to Appeals from Inaction
Section 112(D) of the 1997 Tax Code states the time requirements for filing a
judicial claim for refund or tax credit of input VAT:
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the application filed in
accordance with Subsection (A) and (B) hereof. In case of full or partial denial of the
claim for tax refund or tax credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or
after the expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals. (Emphases supplied)
Section 112(D) speaks of two periods: the period of 120 days, which serves as a
waiting period to give time for the CIR to act on the administrative claim for refund
or credit, and the period of 30 days, which refers to the period for interposing an
appeal with the CTA. It is with the 30-day period that there is an issue in this case.
The CTA En Bancs holding is that, since the word "or" a disjunctive term that
signifies dissociation and independence of one thing from another is used in
Section 112(D), the taxpayer is given two options: 1) file an appeal within 30 days
from the CIRs denial of the administrative claim; or 2) file an appeal with the CTA
after expiration of the 120-day period, in which case the 30-day appeal period does
not apply. The judicial claim is seasonably filed so long as it is filed after the lapse of
the 120-day waiting period but before the lapse of the two-year prescriptive period
under Section 112(A).46
We do not agree.
The 30-day period applies not only to instances of actual denial by the CIR of the
claim for refund or tax credit, but to cases of inaction by the CIR as well. This is the
correct interpretation of the law, as held in San Roque: 47
Section 112(C)48 also expressly grants the taxpayer a 30-day period to appeal to the
CTA the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty dayperiod, appeal the decision or the unacted claim with the Court of Tax Appeals.
This law is clear, plain, and unequivocal. Following the well-settled verba legis
doctrine, this law should be applied exactly as worded since it is clear, plain, and
unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision
of the Commissioner to the CTA within 30 days from receipt of the Commissioner's
decision, or if the Commissioner does not act on the taxpayer's claim within the
120-day period, the taxpayer may appeal to the CTA within 30 days from the
expiration of the 120-day period. (Emphasis supplied)
The San Roque pronouncement is clear. The taxpayer can file the appeal in one of
two ways: (1) file the judicial claim within thirty days after the Commissioner denies
the claim within the 120-day period, or (2) file the judicial claim within thirty days
from the expiration of the 120-day period if the Commissioner does not act within
the 120-day period.
B. The Judicial Claim Was Belatedly Filed
In this case, the facts are not up for debate. Mindanao II filed its administrative
claim for refund or credit for the second, third, and fourth quarters of 2004 on 6
October 2005. The CIR, therefore, had a period of 120 days, or until 3 February
2006, to act on the claim. The CIR, however, failed to do so. Mindanao II then could
treat the inaction as a denial and appeal it to the CTA within 30 days from 3
February 2006, or until 5 March 2006.
Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days
after the lapse of the 30-day period on 5 March 2006. The judicial claim was
therefore filed late. (See timeline below.)
C. The 30-Day Period to Appeal is Mandatory and Jurisdictional
However, what is up for debate is the nature of the 30-day time requirement. The
CIR posits that it is mandatory. Mindanao II contends that the requirement of judicial
recourse within 30 days is only directory and permissive, as indicated by the use of
the word "may" in Section 112(D).49
The answer is found in San Roque. There, we declared that the 30-day period to
appeal is both mandatory and jurisdictional:
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the
CTA the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty dayperiod, appeal the decision or the unacted claim with the Court of Tax Appeals.
(Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis
doctrine, this law should be applied exactly as worded since it is clear, plain, and
unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision
of the Commissioner to the CTA within 30 days from receipt of the Commissioner's
decision, or if the Commissioner does not act on the taxpayer's claim within the
120-day period, the taxpayer may appeal to the CTA within 30 days from the
expiration of the 120-day period.
xxxx
Section 112(A) and (C) must be interpreted according to its clear, plain, and
unequivocal language. The taxpayer can file his administrative claim for refund or
credit at anytime within the two-year prescriptive period. If he files his claim on the
last day of the two-year prescriptive period, his claim is still filed on time. The
Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that
day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not
only the plain meaning but also the only logical interpretation of Section 112(A) and
(C).
xxxx
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days
from receipt of the decision denying the claim or after the expiration of the one
hundred twenty-day period, appeal the decision or the unacted claim with the Court
of Tax Appeals," the law does not make the 120+30 day periods optional just
because the law uses the word " may." The word "may" simply means that the
taxpayer may or may not appeal the decision of the Commissioner within 30 days
from receipt of the decision, or within 30 days from the expiration of the 120-day
period. x x x.50
D. Exception to the mandatory and jurisdictional nature of the 120+30 day period
not applicable
Nevertheless, San Roque provides an exception to the mandatory and jurisdictional

nature of the 120+30 day period BIR Ruling No. DA-489-03 dated 10 December
2003. The BIR ruling declares that the "taxpayer-claimant need not wait for the
lapse of the 120-day period before it could seek judicial relief with the CTA by way
of Petition for Review."
Although Mindanao II has not invoked the BIR ruling, we deem it prudent as well as
necessary to dwell on this issue to determine whether this case falls under the
exception.
For this question, we come back to San Roque, which provides that BIR Ruling No.
DA-489-03 is a general interpretative rule; thus, taxpayers can rely on it from the
time of its issuance on 10 December 2003 until its reversal by this Court in Aichi on
6 October 2010, when the 120+30 day periods were held to be mandatory and
jurisdictional. The Court reasoned as follows:
Taxpayers should not be prejudiced by an erroneous interpretation by the
Commissioner, particularly on a difficult question of law. The abandonment of the
Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive
periods for input VAT tax refund or credit is a difficult question of law. The
abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers
similarly situated, being made to return the tax refund or credit they received or
could have received under Atlas prior to its abandonment. This Court is applying
Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the
reversal by this Court of a general interpretative rule issued by the Commissioner,
like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively. x x x.
xxxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative
rule applicable to all taxpayers or a specific ruling applicable only to a particular
taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response
to a query made, not by a particular taxpayer, but by a government agency tasked
with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax
Credit and Drawback Center of the Department of Finance . This government
agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-48903. Thus, while this government agency mentions in its query to the Commissioner
the administrative claim of Lazi Bay Resources Development, Inc., the agency was
in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay
Resources Development, Inc., where the taxpayer did not wait for the lapse of the
120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all
taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where
this Court held that the 120+30 day periods are mandatory and jurisdictional. 51
Thus, in San Roque, the Court applied this exception to Taganito Mining Corporation
(Taganito), one of the taxpayers in San Roque. Taganito filed its judicial claim on 14
February 2007, after the BIR ruling took effect on 10 December 2003 and before the
promulgation of Mirant. The Court stated:
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after
the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can
claim that in filing its judicial claim prematurely without waiting for the 120-day
period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can
claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial
claim from the vice of prematurity.52
San Roque was also careful to point out that the BIR ruling does not retroactively
apply to premature judicial claims filed before the issuance of the BIR ruling:
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four
reasons: first, it is admittedly an erroneous interpretation of the law; second, prior
to its issuance, the BIR held that the 120-day period was mandatory and
jurisdictional, which is the correct interpretation of the law; third, prior to its
issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial
claim prematurely; and fourth, a claim for tax refund or credit, like a claim for tax
exemption, is strictly construed against the taxpayer. 53
Thus, San Roque held that taxpayer San Roque Power Corporation, could not seek
refuge in the BIR ruling as it jumped the gun when it filed its judicial claim on 10
April 2003, prior to the issuance of the BIR ruling on 10 December
2003.1wphi1 The Court stated:
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed
its judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No.
DA-489-03 on 10 December 2003. To repeat, San Roque cannot claim that it was
misled by the BIR into filing its judicial claim prematurely because BIR Ruling No.
DA-489-03 was issued only after San Roque filed its judicial claim. At the time San
Roque filed its judicial claim, the law as applied and administered by the BIR was
that the Commissioner had 120 days to act on administrative claims. This was in
fact the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03.
Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-489-03 or RMC
49-03, whether in this Court, the CTA, or before the Commissioner. 54
San Roque likewise ruled out the application of the BIR ruling to cases of late filing.
The Court held that the BIR ruling, as an exception to the mandatory and
jurisdictional nature of the 120+30 day periods, is limited to premature filing and
does not extend to late filing of a judicial claim. Thus, the Court found that since
Philex Mining Corporation, the other party in the consolidated case San Roque, filed
its claim 426 days after the lapse of the 30-day period, it could not avail itself of the
benefit of the BIR ruling:
Philexs situation is not a case of premature filing of its judicial claim but of late
filing, indeed
Very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim,
which means non-exhaustion of the 120-day period for the Commissioner to act on
an administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03
because Philex did not file its judicial claim prematurely but filed it long after the
lapse of the 30-day period following the expiration of the 120-day period. In fact,
Philex filed its judicial claim 426 days after the lapse of the 30-day period. 55
We sum up the rules established by San Roque on the mandatory and jurisdictional
nature of the 30-day period to appeal through the following timeline:
Bearing in mind the foregoing rules for the timely filing of a judicial claim for refund
or credit of unutilized input VAT, we rule on the present case of Mindanao II as
follows:
We find that Mindanao IIs situation is similar to that of Philex in San Roque.
As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July
2006. This was after the issuance of BIR Ruling No. DA-489-03 on 10 December
2003, but before its reversal on 5 October 2010. However, while the BIR ruling was
in effect when Mindanao II filed its judicial claim, the rule cannot be properly
invoked. The BIR ruling, as discussed earlier, contemplates premature filing. The
situation of Mindanao II is one of late filing. To repeat, its judicial claim was filed on
21 July 2006 long after 5 March 2006, the last day of the 30-day period for appeal.
In fact, it filed its judicial claim 138 days after the lapse of the 30-day period. (See
timeline below)
E. Undersigned dissented in San Roque to the retroactive application of the

mandatory and jurisdictional nature of the 120+30 day period.
It is worthy to note that in San Roque, this ponente registered her dissent to the
retroactive application of the mandatory and jurisdictional nature of the 120+30
day period provided under Section 112(D) of the Tax Code which, in her view, is
unfair to taxpayers. It has been the view of this ponente that the mandatory nature
of 120+30 day period must be completely applied prospectively or, at the earliest,
only upon the finality of Aichi in order to create stability and consistency in our tax
laws. Nevertheless, this ponente is mindful of the fact that judicial precedents
cannot be ignored. Hence, the majority view expressed in San Roque must be
applied.
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT
OF INPUT VAT
The lessons of this case may be summed up as follows:
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the two-year
prescriptive period. (Aichi) 2. The proper reckoning date for the two-year
prescriptive period is the close of the taxable quarter when the relevant sales
were made. (San Roque)
3. The only other rule is the Atlas ruling, which applied only from 8 June 2007
to 12 September 2008. Atlas states that the two-year prescriptive period for
filing a claim for tax refund or credit of unutilized input VAT payments should
be counted from the date of filing of the VAT return and payment of the tax.
(San Roque)
B. 120+30 Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the judicial
claim within thirty days after the Commissioner denies the claim within the
120-day period, or (2) file the judicial claim within thirty days from the
expiration of the 120-day period if the Commissioner does not act within the
120-day period.
2. The 30-day period always applies, whether there is a denial or inaction on
the part of the CIR.
3. As a general rule, the 3 0-day period to appeal is both mandatory and
jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed only if filed
between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling
No. DA-489-03 was in force. (San Roque)
SUMMARY AND CONCLUSION
In sum, our finding is that the three administrative claims for the refund or credit of
unutilized input VAT were all timely filed, while the corresponding judicial claims
were belatedly filed.
The foregoing considered, the CT A lost jurisdiction over Mindanao Ils claims for
refund or credit.1wphi1 The CTA EB erred in granting these claims.
WHEREFORE, we GRANT the Petition. The assailed Court of Tax Appeals En Banc
Decision dated 11 November 2009 and Resolution dated 3 March 2010 of the in CTA
EB Case No. 448 (CTA Case No. 7507) are hereby REVERSED and SET ASIDE. A new
ruling is entered DENYING respondent s claim for a tax refund or credit
ofP6,791,845.24.
SO ORDERED.
16. Miramar Fish Company Inc. v. CIR, GR No. 185432, June 4, 2014
G.R. No. 185432
June 4, 2014
MIRAMAR
FISH
COMPANY,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
INC., Petitioner,
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking to reverse and set aside the 18 November 2008 Decision 1 of the
Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 375 affirming in toto the 22
October 2007 Decision and the 19 February 2008 Resolution of the Second Division
of the CTA (CTA in Division) in C.T.A. Case No." 6905, which denied due course and
dismissed petitioner's claim for the issuance of a tax credit certificate (TCC) in its
favor representing the alleged unutilized and/or unapplied input Value Added Tax
(VAT) on purchases of goods and services attributable to zero-rated sales in the
amount ofP12,741,136.81 for taxable years 2002 and 2003.
The Facts
The undisputed factual antecedents of the case, as stipulated by the parties, 2 are as
follows:
Petitioner is a corporation duly organized and existing under and by virtue of the
laws of the Republic of the Philippines, with principal office located at Brgy. Recodo,
Zamboanga City. It is registered with the Bureau of Internal Revenue (BIR) as a VAT
taxpayer in accordance with Section 236 of the National Internal Revenue Code
(NIRC) of 1997, as amended, with VAT Registration No. 01-930-001570-V and Tax
Identification No. (TIN) 005-847-661. On the other hand, respondent is the duly
appointed Commissioner of Internal Revenue empowered to perform the duties of
said office including, among others, the power to decide, approve and grant refunds
or tax credits of erroneously or excessively paid taxes.
On 4 June 2002, petitioner was registered with the Board of Investments (BOI) as a
new export producer of canned tuna and canned pet food with non-pioneer status,
having been issued BOI Certificate of Registration No. EP 2002-077.
Petitioner filed its Quarterly VAT Returns (BIR Form No. 2550Q) for taxable year
2002 with the BIR on the following dates:
Particular Quarter
Date of
Return
Filing
First Quarter
25 April 2002
Second Quarter
8 July 2002
Third Quarter
22 October 2002
Fourth Quarter
27 January 2003
of
Quarterly
VAT
The administrative claim for refund in the form of a TCC of petitioners alleged
unutilized input VAT in the amount ofP6,751,751.65 for taxable year 2002 was filed
with the BIR on 24 February 2003.3
Petitioner filed its Quarterly VAT Returns (BIR Form No. 2550Q) for taxable year
2003 with the BIR on the following dates:
Particular Quarter
Date of
Return
Filing
First Quarter
10 April 2003
Second Quarter
16 July 2003
Third Quarter
17 October 2003
Fourth Quarter
26 January 2004
of
Quarterly
VAT
Its administrative claim for refund in the form of a TCC of the alleged unutilized
input VAT in the amount ofP5,895,912.38 for taxable year 2003 was thereafter filed
on 15 March 2004.4
Subsequently, an administrative claim for the refund or issuance of a TCC in the
aggregate amount ofP12,741,136.81 allegedly representing unutilized or unapplied
VAT input taxes attributable to petitioners zero rated transactions or its export sales
for taxable years 2002 and 2003, was filed on 25 March 2004. 5
Consequently, since no final action has been taken by respondent on petitioners

various administrative claims, the latter filed a Petition for Review before the CTA on
30 March 2004 docketed as C.T.A. Case No. 6905.
The Ruling of the CTA in Division
In a Decision dated 22 October 2007, 6 the CTA in Division denied due course and
dismissed petitioners claim for the issuance of a TCC on the sole ground that the
sales invoices presented in support thereof did not comply with the invoicing
requirements provided for under Section 113 7 of the NIRC of 1997, as amended, and
Section 4.108-1 of Revenue Regulations (RR) No. 7-95. 8 The court a quo explained
that petitioners failure to indicate that it is a VAT-registered entity and/or to imprint
the word "zero rated" on the subject invoices or receipts were fatal to its claim;
hence, it was left with no other recourse but to deny petitioners claim. Having
rendered such ruling, the CTA in Division decided not to pass upon other incidental
issues raised before it for being moot.9
On 19 February 2008, the CTA in Division denied petitioners Motion for
Reconsideration for lack of merit.
Aggrieved, respondent appealed to the CTA En Banc by filing a Petition for Review
under Section 18 of Republic Act (RA) No. 1125, as amended by RA No. 9282, on 2
April 2008, docketed as C.T.A. EB No. 375.
The Ruling of the CTA En Banc
The CTA En Banc ruled in its 18 November 2008 Decision, 10 that the contentions
raised by petitioner are mere reiterations of its arguments contained in its Motion
for Reconsideration of the 22 October 2007 Decision in C.T.A. Case No. 6905. Simply
put, it dismissed the petition and affirmed in its entirety the subject Decision and
Resolution of the CTA in Division considering that it found no cogent reason and
justification to disturb the findings and conclusion spelled out therein.
Consequently, this Petition for Review wherein petitioner seeks the reversal of the
aforementioned Decision for being not in accord with the law and the applicable
Decisions of this Court, constituting a departure from the accepted and usual course
of judicial proceedings as to call for an exercise of the power of supervision, based
on the following grounds:
A. PETITIONER HAS COMPLIEDWITH THE STATUTORY REQUIREMENTS FOR
CLAIMING A REFUND OF EXCESS AND UNUTILIZED INPUT VAT UNDER SECTION
112(A), IN RELATION TO SECTION 106(A)(2)(A)(1), TAX CODE. COMPLIANCE
WITH THE INVOICING REQUIREMENTS UNDER THE TAX CODE AND RR NO. 795 IS NOT A CONDITION PRECEDENT FOR CLAIMING A REFUND OF EXCESS
AND UNUTULIZED INPUT VAT UNDER SECTION 106(A)(2)(A)(1), IN RELATION
TO SECTION 112(A) OF THE TAX CODE.
B. THERE IS NOTHING IN THE TAX CODE AND IN RR NO. 7-95 WHICH STATES
THAT FAILURE TO COMPLY WITH THE BIRS INVOICING REQUIREMENTS WILL
NULLIFY THE VAT ZERO-RATING OF AN EXPORT SALE UNDER SECTION 106(A)

(2)(A)(1) OF THE TAX CODE.
C. BASED ON THE SUPREME COURTS RULING IN INTEL CASE, FAILURE TO
INDICATE THE WORDS "TIN-V" AND "ZERORATED" ON THE INVOICES
COVERING EXPORT SALES IS NOT FATAL TO A TAXPAYERS CLAIM FOR REFUND
OF EXCESS INPUT VAT UNDER SECTION 112(A), IN RELATION TO SECTION
106(A)(2)(A)(1) OF THE TAX CODE.
D. REVENUE MEMORANDUM CIRCULAR NO. 42-03 IS INVALID BECAUSE IT
OVERRIDES THE CLEAR PROVISION OF THE TAX CODE.11
The Issue
The issue for this Courts consideration is whether or not petitioner is entitled to a
TCC in the amount ofP12,741,136.81 allegedly representing its excess and
unutilized input VAT for the taxable years 2002 and 2003, in accordance with the
provisions of the NIRC of 1997, as amended, other pertinent laws, and applicable
jurisprudential proclamations.
Our Ruling
In view of the recent pronouncements made in the consolidated cases of
Commissioner of Internal Revenue v. San Roque Power Corporation, 12 which has
finally settled the issue on proper observance of the prescriptive periods in claiming
for refund of creditable input tax due or paid attributable to any zero-rated or
effectively zero-rated sales, we find a need for this Court to review the factual
findings of the CTA in order to attain a complete determination of the issue
presented.
At the outset, this Court is not unaware that in a petition for review on certiorari
under Rule 45 of the Rules of Court, only questions of law may be raised. 13 The
Court is not a trier of facts and does not normally undertake the re-examination of
the evidence presented by the contending parties during the trial of the case
considering that the findings of facts of the [CTA] are conclusive and binding on the
Court14 and they carry even more weight when the [CTA En Banc] affirms the
factual findings of the trial court. 15 However, this Court had recognized several
exceptions to this rule,16 including instances when the appellate court manifestly
overlooked relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.
Records of this case reveal that the CTA in Division in C.T.A. Case No. 6905 merely
focused on the strict compliance with the invoicing and accounting requirements set
forth under Sections 113 and 237 of the NIRC of 1997, as amended, in relation to
Section 4.108-1 of Revenue Regulations (RR) No. 7-95. These same findings were
adopted and affirmed in toto by the CTA En Banc in the assailed 18 November 2008
Decision.17
While the invoicing requirements is a valid issue, we find it imperative to first and
foremost determine whether or not the CTA properly acquired jurisdiction over
petitioners claim covering taxable years 2002 and 2003, taking into consideration
the timeliness of the filing of its judicial claim pursuant to Section 112 of the NIRC of
1997, as amended, and consistent with the pronouncements made in the San Roque
case. Clearly, the claim of petitioner for the TCC can proceed only upon compliance
with the jurisdictional requirement.
Section 7 of RA No. 1125, 18 which was thereafter amended by RA No. 9282, 19 clearly
defined the appellate jurisdiction of the CTA:
Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided.
(1) Decisions of the Collector of Internal Revenue in cases involving disputed
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue;20(Emphasis supplied)
xxxx
Relative thereto, Section 11 of the same law prescribes how the said appeal should
be taken, to wit:
Section 11. Who may appeal; effect of appeal. Any person, association or
corporation adversely affected by a decision or ruling of the Collector of Internal
Revenue, the Collector of Customs or any provincial or city Board of Assessment
Appeals may file an appeal in the Court of Tax Appeals within thirty days after the
receipt of such decision or ruling.21 (Emphasis and underscoring supplied)
xxxx
The timeliness in the administrative and judicial claims can be found in Section 112
of the NIRC of 1997, as amended. It reads:
SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-rated or Effectively Zero-rated Sales. Any VAT registered person, whose
tax credit certificate or refund of creditable input tax due or paid at tributable to
been applied against output tax: x x x
xxxx
(D)22 Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the application filed in
accordance with Subsections (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one hundred
twenty-day period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
x x x x (Emphasis and underscoring supplied)
As earlier stated, the proper interpretation of the above-quoted provision was finally
settled in the San Roque case 23 by this Court sitting En Banc. The relevant portions
of the discussion pertinent to the focal issue in the present case are quoted
hereunder as follows:
To repeat, a claim for tax refund or credit, like a claim for tax refund exemption, is
construed strictly against the taxpayer. One of the conditions for a judicial claim of
refund or credit under the VAT System is compliance with the 120+30 day
mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day
periods is necessary for such a claim to prosper, whether before, during, or after the
effectivity of the Atlas doctrine, except for the period from the issuance of BIR
Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi
doctrine was adopted, which again reinstated the 120+30 day periods as
mandatory and jurisdictional.24(Emphasis supplied)
In Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue, 25 the
Second Division of this Court, in applying therein the ruling in the San Roque case,
provided a Summary of Rules on Prescriptive Periods Involving VAT as a guide for all
parties concerned, to wit:
We summarize the rules on the determination of the prescriptive period for filing a
tax refund or credit of unutilized input VAT as provided in Section 112 of the 1997
Tax Code, as follows:
(1) An administrative claim must be filed with the CIR within two years after
the close of the taxable quarter when the zero-rated or effectively zero-rated
sales were made.
(2) The CIR has 120 days from the date of submission of complete documents
in support of the administrative claim within which to decide whether to grant
a refund or issue a tax credit certificate. The 120-day period may extend
beyond the two-year period from the filing of the administrative claim if the
claim is filed in the later part of the two year period. If the 120-day period
expires without any decision from the CIR, then the administrative claim may
be considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30 days from the receipt
of the CIRs decision denying the administrative claim or from the expiration
of the 120-day period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the
time of its issuance on 10 December 2003 up to its reversal by this Court in
Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional
120+30 day periods.26 (Emphasis supplied)
Certainly, it is evident from the foregoing jurisprudential pronouncements that a
taxpayer-claimant only had a limited period of thirty (30) days from the expiration of
the 120-day period of inaction of the Commissioner of Internal Revenue (CIR) to file
its judicial claim with the CTA, with the exception of claims made during the
effectivity of BIR Ruling No. DA-489-03 (from 10 December 2003 to 5 October
2010).27 Failure to do so, the judicial claim shall prescribe or be considered as filed
out of time.
Applying the foregoing discussion in the case at bench, although it appears that
petitioner has indeed complied with the required two-year period within which to file
a refund/tax credit claim with the BIR by filing its administrative claims on 24
February 2003 and 25 March 2004 (within the period from the close of the taxable
quarters for the years 2002 and 2003, respectively, when the relevant sales or
purchases were made), this Court finds that petitioners corresponding judicial claim
insofar as to the four quarters of taxable year 2002 was filed beyond the 30-day
period, detailed hereunder as follows:
Filing date of
the
Taxable
year
administrative
(close
claim
of
taxable
(within the 2quarters)
year
period)
Last day of the 120-day

period
under
Section
112(D)
from
the date of submission
of
complete
documents
in
support
of
its
application
Last day of
the
30-day
period
to
judicially
appeal
said inaction
Filing
date of
the
Petition
for
Review
Taxable
year
2002
1st
Quarter
(31
March
2002)
2nd
Quarter
24
February
(30 June 2002)
24 June 2003
200328
3rd
Quarter
(30 September
2002)
4th
Quarter
(31 December
2002)
30
24 July 2003 March
2004
Taxable
2003
22
August 30
2004
March
year
23 July 2004
25
March
1st
Quarter
(31
March
2003)
2nd
Quarter
(30 June 2003)
3rd
Quarter 200429
(30 September
2003)
4th
Quarter
(31 December
2003)
2004
Section 112(D) specifically states that in case of failure on the part of the
respondent to act on the application within the 120-day period prescribed by law,
petitioner only has thirty (30) days after the expiration of the 120-day period to
appeal the unacted claim with the CTA. Since petitioners judicial claim for the
aforementioned quarters for taxable year 2002 was filed before the CTA only on 30
March 2004,30 which was way beyond the mandatory 120+30 days to seek judicial
recourse, such non-compliance with the mandatory period of thirty (30) days is fatal
to its refund claim on the ground of prescription.
Distinctly, in its attempt to justify the timeliness of its judicial claim covering taxable
year 2002, petitioner made it appear in its Letter dated 25 March 2004 that there
has been an amendment on its administrative claim covering taxable year 2002. It
explained:
We wish to make it clear that this letter, insofar as the 2002 claim is concerned,
amends the original claim for refund or issuance of TCC filed on February 24, 2003.
Please note that the difference between the amount claimed in the original
administrative claim filed (P6,751,751.65) and that claimed in this letter
(P6,845,224.42) is in view of the fact that the original claim merely took into
consideration the amount which, at that time, could be supported by the "Summary
Name of Suppliers, Invoices and Official Receipts". As abovementioned, the amount
for 2002 subject of the instant claim is based on the figures reflected in the VAT
returns filed for 2002.31
(Emphasis supplied)
However, we are not persuaded by such allegation considering that while there was
a supposed difference in the amounts being claimed for refund in the Letter of
Request for VAT Claim dated 24 February 2003 and in the Letter dated 25 March
2004, a scrutiny of the subject letters reveals that both rely on the figures reflected
in the VAT returns filed for 2002. Contrary to petitioners assertion, the Transmittal
Receipt attached to the 24 February 2003 Letter visibly shows that it has
simultaneously submitted various documents in support of its 2002 claim, including
a copy of the VAT return for 2002. 32 Thus, this Court cannot consider the subsequent
Letter dated 25 March 2004 to have amended the previous one covering its refund
claim for taxable year 2002. For this reason, failure of petitioner to observe the 30day period under Section 112 of the NIRC of 1997, as amended, through its belated
filing of the Petition for Review before the CTA warrants a dismissal with prejudice
for lack of jurisdiction.
On the other hand, this Court has allowed the amendment of petitioners refund
claim covering taxable year 2003 contained in the 25 March 2004 Letter since there
was a statement therein that there were amended quarterly VAT returns filed on 12
March 2004.33 Such undisputed factual allegation is considered a valid justification
in amending its earlier administrative letter dated 15 March 2004. The aforesaid
rationalization is not without any legal basis as can be gleaned from the declaration
in the San Roque case, wherein the High Court considered the administrative claims
for refund of San Roque properly amended by reason of the amended quarterly VAT
returns.34 As a result, the 120+30 day prescriptive periods to seek judicial recourse
for petitioners refund claim involving taxable year 2003 shall commence only on 25
March 2004, and not on 15 March 2004.
Parenthetically, even if it is shown that petitioner did not strictly comply with the
mandatory 120+30 day prescriptive periods 35 under Section 112 of the NIRC of
1997, as amended, its administrative claim covering taxable year 2003 falls within
the effectivity of BIR Ruling No. DA-489-03 (10 December 2003 to 5 October 2010),
being an exception thereto. Hence, there is no more need for petitioner to wait for
the 120-day period to expire before it can file its appropriate judicial claim before
the CTA. Accordingly, the CTA indeed acquired jurisdiction over petitioners refund
claim for taxable year 2003.
It must be emphasized that jurisdiction over the subject matter or nature of an
action is fundamental for a court to act on a given controversy, 36 and is conferred
only by law and not by the consent or waiver upon a court which, otherwise, would
have no jurisdiction over the subject matter or nature of an action. Lack of
jurisdiction of the court over an action or the subject matter of an action cannot be
cured by the silence, acquiescence, or even by express consent of the parties. 37 If
the court has no jurisdiction over the nature of an action, its only jurisdiction is to
dismiss the case. The court could not decide the case on the merits. 38
Having ruled on the jurisdictional aspect of this case, we next discuss the
significance of strict compliance with the invoicing requirements under existing laws
and prevailing jurisprudence in order to be entitled to a refund claim of excess
and/or unutilized input VAT.
This is not novel.
It is worth mentioning that the High Court already ruled on the significance of
imprinting the word "zero-rated" for zero-rated sales covered by its receipts or
invoices, pursuant to Section 4.108-1 of Revenue Regulations No. 7-95. 39 Thus, in
Panasonic Communications Imaging Corporation of the Philippines v. Commissioner
of Internal Revenue,40 the Second Division of this Court enunciated:
But when petitioner Panasonic made the export sales subject of this case, i.e., from
April 1998 to March 1999, the rule that applied was Section 4.108-1 of RR 7-95,
otherwise known as the Consolidated Value-Added Tax Regulations, which the
Secretary of Finance issued on December 9, 1995 and took effect on January 1,

1996. It already required the printing of the word "zero-rated" on the invoices
covering zero-rated sales.1wphi1 When R.A. 9337 amended the 1997 NIRC on
November 1, 2005, it made this particular revenue regulation a part of the tax code.
This conversion from regulation to law did not diminish the binding force of such
regulation with respect to acts committed prior to the enactment of that law.
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the
Secretary of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158)
for the efficient enforcement of the tax code and of course its amendments. The
requirement is reasonable and is in accord with the efficient collection of VAT from
the covered sales of goods and services. As aptly explained by the CTAs First
Division, the appearance of the word "zero-rated" on the face of invoices covering
zero-rated sales prevents buyers from falsely claiming input VAT from their
purchases when no VAT was actually paid. If, absent such word, a successful claim
for input VAT is made, the government would be refunding money it did not collect.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales
that are subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable
to submit the proper invoices, petitioner Panasonic has been unable to substantiate
its claim for refund.
xxxx
This Court held that, since the "BIR authority to print" is not one of the items
required to be indicated on the invoices or receipts, the BIR erred in denying the
claim for refund. Here, however, the ground for denial of petitioner Panasonics
claim for tax refundthe absence of the word zero-rated on its invoicesis one
which is specifically and precisely included in the above enumeration.
Consequently, the BIR correctly denied Panasonics claim for tax refund. 41 (Emphasis
supplied)
For emphasis, the settled rule is that absence or non-printing of the word "zerorated" in petitioners invoices is fatal to its claim for the refund and/or tax credit
representing its unutilized input VAT attributable to its zero-rated sales.
Equally essential herein, Section 113 of the NIRC of 1997, as amended, categorically
provides that a VAT-registered entity, like petitioner, shall issue a duly registered
VAT invoice or official receipt, which must contain "a statement that the seller is a
VAT-registered person." Therefore, as correctly articulated by the CTA En Banc,
compliance with the aforesaid invoicing requirements is mandatory. Thus:
It bears stressing that the law and regulations are explicit in emphasizing strict
compliance with the invoicing requirements because for the same transactions the
output VAT of the seller becomes the input VAT of the purchaser. Pursuant to
Sections 106(D)(1) and 108(C) of the NIRC of 1997, as amended, in relation to
Section 110 of the same Code, the output or input tax on the sale or purchase of
goods is determined by the total amount indicated in the invoice, while the output
or input tax on the sale or purchases of services is determined by the total amount
indicated in the official receipt. Since petitioner is engaged in the sale of goods,
specifically, canned tuna and canned pet food (Joint Stipulation of Facts and Issues,
par. 3), its output tax, if any, will be determined by the total amount indicated in the
invoices. Thus, as required by Section 113 of the NIRC of 1997, as amended,
petitioners sales invoices must indicate that it is a VAT-registered person, which in
this case was not complied with by petitioner. 42 (Emphasis supplied)
At this juncture, and to settle strictness in compliance, we go to the textbook lesson
that if the language of the law is clear, explicit and unequivocal, it admits no room
for interpretation but merely application. A statute clear and unambiguous on its
face need not be interpreted; stated otherwise, the rule is that only statutes with an
ambiguous or doubtful meaning may be the subject of statutory construction. 43 The
provisions of Sections 113 and 237 of the NIRC of 1997, as amended, and Section
4.108-1 of RR No. 7-95, are clear in enumerating the invoicing requirements
necessary to be shown in order to qualify as duly registered receipts or sales or
commercial invoices issued by VAT-registered entities, such as petitioner herein, for
the purpose of claiming for refund of creditable input tax due or paid attributable to
any zero-rated or effectively zero-rates sales. Absent compliance, the unavoidable
result is immediate denial of the claim.
By way of reiteration, the CTA has no jurisdiction over petitioner's judicial appeal
covering its refund claim for taxable year 2002 on the ground of prescription,
consistent with the ruling in the San Roque case. While as to its refund claim for
taxable year 2003, the same shall likewise be denied for failure of petitioner to
comply with the mandatory invoicing requirements provided for under Section 113
of the NIRC of 1997, as amended, and Section 4.108-1 of RR No. 7-95.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
17. United Airlines Inc. v. CIR, GR No. 178788, September 29, 2010
THIRD DIVISION
UNITED AIRLINES, INC.,
G.R. No. 178788
Petitioner,
Present:
CARPIO MORALES, J.,

Chairperson,
BRION,
- versus -
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.
Promulgated:
COMMISSIONER
REVENUE,
OF
INTERNAL
September 29, 2010
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, of the Decision [1] dated July 5, 2007 of the Court of Tax
AppealsEn Banc (CTA En Banc) in C.T.A. EB No. 227 denying petitioners claim for tax
refund of P5.03 million.
The undisputed facts are as follows:
Petitioner United Airlines, Inc. is a foreign corporation organized and existing under
the laws of the State of Delaware, U.S.A., engaged in the international airline
business.
Petitioner used to be an online international carrier of passenger and cargo, i.e., it
used to operate passenger and cargo flights originating in the Philippines. Upon
cessation of its passenger flights in and out of the Philippines beginning February
21, 1998, petitioner appointed a sales agent in the Philippines -- Aerotel Ltd. Corp.,
an independent general sales agent acting as such for several international airline
companies.[2] Petitioner continued operating cargo flights from the Philippines until
January 31, 2001.[3]
On April 12, 2002, petitioner filed with respondent Commissioner a claim for income
tax refund, pursuant to Section 28(A)(3)(a) [4] of the National Internal Revenue Code
of 1997 (NIRC) in relation to Article 4(7) [5] of the Convention between the
Government of the Republic of the Philippines and the Government of the United
States of America with respect to Income Taxes (RP-US Tax Treaty). Petitioner sought
to refund the total amount of P15,916,680.69 pertaining to income taxes paid on
gross passenger and cargo revenues for the taxable years 1999 to 2001, which
included the amount of P5,028,813.23 allegedly representing income taxes paid in
1999 on passenger revenue from tickets sold in the Philippines, the uplifts of which
did not originate in the Philippines. Citing the change in definition of Gross
Philippine Billings (GPB) in the NIRC, petitioner argued that since it no longer
operated passenger flights originating from the Philippines beginning February 21,
1998, its passenger revenue for 1999, 2000 and 2001 cannot be considered as
income from sources within the Philippines, and hence should not be subject to
Philippine income tax under Article 9[6] of the RP-US Tax Treaty.[7]
As no resolution on its claim for refund had yet been made by the respondent and in
view of the two (2)-year prescriptive period (from the time of filing the Final
Adjustment Return for the taxable year 1999) which was about to expire on April 15,
2002, petitioner filed on said date a petition for review with the Court of Tax Appeals
(CTA).[8]
Petitioner asserted that under the new definition of GPB under the 1997 NIRC and
Article 4(7) of the RP-US Tax Treaty, Philippine tax authorities have jurisdiction to tax
only the gross revenue derived by US air and shipping carriers from outgoing traffic
in the Philippines. Since the Bureau of Internal Revenue (BIR) erroneously imposed
and collected income tax in 1999 based on petitioners gross passenger revenue, as
beginning 1998 petitioner no longer flew passenger flights to and from the
Philippines, petitioner is entitled to a refund of such erroneously collected income
tax in the amount of P5,028,813.23.[9]
In its Decision[10] dated May 18, 2006, the CTAs First Division [11] ruled that no excess
or erroneously paid tax may be refunded to petitioner because the income tax on
GPB under Section 28(A)(3)(a) of the NIRC applies as well to gross revenue from
carriage of cargoes originating from the Philippines. It agreed that petitioner cannot
be taxed on its 1999 passenger revenue from flights originating outside the
Philippines. However, in reporting a cargo revenue of P740.33 million in 1999, it was
found that petitioner deducted two (2) items from its gross cargo revenue of P2.84
billion: P141.79 million as commission and P1.98 billion as other incentives of its
agent. These deductions were erroneous because the gross revenue referred to in
Section 28(A)(3)(a) of the NIRC was total revenue before any deduction of
commission and incentives. Petitioners gross cargo revenue in 1999, beingP2.84
billion, the GPB tax thereon was P42.54 million and not P11.1 million, the amount
petitioner paid for the reported net cargo revenue of P740.33 million. The CTA First
Division further noted that petitioner even underpaid its taxes on cargo revenue
by P31.43 million, which amount was much higher than the P5.03 million it asked to
be refunded.
A motion for reconsideration was filed by petitioner but the First Division denied the
same. It held that petitioners claim for tax refund was not offset with its tax liability;
that petitioners tax deficiency was due to erroneous deductions from its gross cargo
revenue; that it did not make an assessment against petitioner; and that it merely
determined if petitioner was entitled to a refund based on the undisputed facts and
whether petitioner had paid the correct amount of tax. [12]
Petitioner elevated the case to the CTA En Banc which affirmed the decision of the
First Division.
Hence, this petition anchored on the following grounds:
I.
THE CTA EN BANC GROSSLY ERRED IN DENYING THE PETITIONERS CLAIM
FOR REFUND OF ERRONEOUSLY PAID INCOME TAX ON GROSS PHILIPPINE BILLINGS
[GPB] BASED ON ITS FINDING THAT PETITIONERS UNDERPAYMENT OF [P31.43
MILLION] GPB TAX ON CARGO REVENUES IS A LOT HIGHER THAN THE GPB TAX OF
[P5.03 MILLION] ON PASSENGER REVENUES, WHICH IS THE SUBJECT OF THE
INSTANT CLAIM FOR REFUND. THE DENIAL OF PETITIONERS CLAIM ON SUCH
GROUND CLEARLY AMOUNTS TO AN OFF-SETTING OF TAX LIABILITIES, CONTRARY TO
WELL-SETTLED JURISPRUDENCE.
II.
THE DECISION OF THE CTA EN BANC VIOLATED PETITIONERS RIGHT TO DUE
PROCESS.
III. THE CTA EN BANC ACTED IN EXCESS OF ITS JURISDICTION BY DENYING
PETITIONERS CLAIM FOR REFUND OF ERRONEOUSLY PAID INCOME TAX ON GROSS
PHILIPPINE BILLINGS BASED ON ITS FINDING THAT PETITIONER UNDERPAID GPB TAX
ON CARGO REVENUES IN THE AMOUNT OF [P31.43 MILLION] FOR THE TAXABLE
YEAR 1999.
IV. THE CTA EN BANC HAS NO AUTHORITY UNDER THE LAW TO MAKE ANY
ASSESSMENTS FOR DEFICIENCY TAXES. THE AUTHORITY TO MAKE ASSESSMENTS
FOR DEFICIENCY NATIONAL INTERNAL REVENUE TAXES IS VESTED BY THE 1997 NIRC
UPON RESPONDENT.
V.
ANY ASSESSMENT AGAINST PETITIONER FOR DEFICIENCY INCOME TAX FOR THE
TAXABLE YEAR 1999 IS ALREADY BARRED BY PRESCRIPTION. [13]
The main issue to be resolved is whether the petitioner is entitled to a refund of the
amount of P5,028,813.23 it paid as income tax on its passenger revenues in 1999.
Petitioner argues that its claim for refund of erroneously paid GPB tax on off-line
passenger revenues cannot be denied based on the finding of the CTA that
petitioner allegedly underpaid the GPB tax on cargo revenues by P31,431,171.09,
which underpayment is allegedly higher than the GPB tax of P5,028,813.23 on
passenger revenues, the amount of the instant claim. The denial of petitioners claim
for refund on such ground is tantamount to an offsetting of petitioners claim for
refund of erroneously paid GPB against its alleged tax liability. Petitioner thus cites
the well-entrenched rule in taxation cases that internal revenue taxes cannot be the
subject of set-off or compensation. [14]
According to petitioner, the offsetting of the liabilities is very clear in the instant
case because the amount of petitioners claim for refund of erroneously paid GPB tax
ofP5,028,813.23 for the taxable year 1999 is being offset against petitioners alleged
deficiency GPB tax liability on cargo revenues for the same year, which was not
even the subject of an investigation nor any valid assessment issued by respondent
against the petitioner. Under Section 228[15] of the NIRC, 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. This administrative process of issuing an
assessment is part of procedural due process enshrined in the 1987
Constitution. Records do not show that petitioner has been assessed by the BIR for
any deficiency GBP tax for 1999, nor was there any finding or investigation being
conducted by respondent of any liability of petitioner for GPB tax for the said
taxable period. Clearly, petitioners right to due process was violated. [16]
Petitioner further argues that the CTA acted in excess of its jurisdiction because the
exclusive appellate jurisdiction of the CTA covers only decisions or inactions of the
respondent in cases involving disputed assessments. The CTA has effectively
assessed petitioner with a P31.43 million tax deficiency when it concluded that
petitioner underpaid its GPB tax on cargo revenue. Since respondent did not issue
an assessment for any deficiency tax, the alleged deficiency tax on its cargo
revenue in 1999 cannot be considered a disputed assessment that may be passed
upon by the CTA. Petitioner stresses that the authority to issue an assessment for
deficiency internal revenue taxes is vested by law on respondent, not with the CTA.
[17]
Lastly, petitioner argues that any assessment against it for deficiency income tax
for taxable year 1999 is barred by prescription. Petitioner claims that the
prescriptive period within which an assessment for deficiency income tax may be
made has prescribed on April 17, 2003, three (3) years after it filed its 1999 tax
return.[18]
Respondent Commissioner maintains that the CTA acted within its jurisdiction in
denying petitioners claim for tax refund. It points out that the objective of the CTAs
determination of whether petitioner correctly paid its GPB tax for the taxable year
1999 was to ascertain the latters entitlement to the claimed refund and not for the
purpose of imposing any deficiency tax. Hence, petitioners arguments regarding the
propriety of the CTAs determination of its deficiency tax on its GPB for gross cargo
revenues for 1999 are clearly misplaced.[19]
The petition has no merit.
As correctly pointed out by petitioner, inasmuch as it ceased operating passenger
flights to or from the Philippines in 1998, it is not taxable under Section 28(A)(3)(a)
of the NIRC for gross passenger revenues. This much was also found by the
CTA. In South African Airways v. Commissioner of Internal Revenue,[20] we ruled that
the correct interpretation of the said provisions is that, if an international air carrier
maintains flights to and from the Philippines, it shall be taxed at the rate of 2% of its
GPB, while international air carriers that do not have flights to and from the
Philippines but nonetheless earn income from other activities in the country will be
taxed at the rate of 32% of such income.
Here, the subject of claim for tax refund is the tax paid on passenger revenue for
taxable year 1999 at the time when petitioner was still operating cargo flights
originating from the Philippines although it had ceased passenger flight
operations. The CTA found that petitioner had underpaid its GPB tax for 1999
because petitioner had made deductions from its gross cargo revenues in the
income tax return it filed for the taxable year 1999, the amount of underpayment
even greater than the refund sought for erroneously paid GPB tax on passenger
revenues for the same taxable period. Hence, the CTA ruled petitioner is not entitled
to a tax refund.
Petitioners arguments regarding the propriety of such determination by the CTA are
misplaced.
Under Section 72 of the NIRC, the CTA can make a valid finding that petitioner made
erroneous deductions on its gross cargo revenue; that because of the erroneous
deductions, petitioner reported a lower cargo revenue and paid a lower income tax
thereon; and that petitioner's underpayment of the income tax on cargo revenue is
even higher than the income tax it paid on passenger revenue subject of the claim
for refund, such that the refund cannot be granted.
Section 72 of the NIRC reads:
SEC. 72. Suit to Recover Tax Based on False or Fraudulent Returns. - When
an assessment is made in case of any list, statement or return, which in the opinion
of the Commissioner was false or fraudulent or contained any understatement or
undervaluation, no tax collected under such assessment shall be recovered by any
suit, unless it is proved that the said list, statement or return was not false nor
fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith
regarding annual depreciation of oil or gas wells and mines.
In the afore-cited case of South African Airways, this Court rejected similar
arguments on the denial of claim for tax refund, as follows:
Precisely, petitioner questions the offsetting of its payment of the tax
under Sec. 28(A)(3)(a) with their liability under Sec. 28(A)(1), considering
that there has not yet been any assessment of their obligation under the
latter provision. Petitioner argues that such offsetting is in the nature of legal
compensation, which cannot be applied under the circumstances present in this
case.
Article 1279 of the Civil Code contains the elements of legal compensation, to wit:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
And we ruled in Philex Mining Corporation v. Commissioner of Internal Revenue,
thus:
In several instances prior to the instant case, we have already made the
pronouncement that taxes cannot be subject to compensation for the simple reason
that the government and the taxpayer are not creditors and debtors of each other.
There is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the Government in its
sovereign capacity. We find no cogent reason to deviate from the aforementioned
distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, we
categorically held that taxes cannot be subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes against the
claims that the taxpayer may have against the government. A person cannot refuse
to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines,
Inc. v. Commission on Audit, which reiterated that:
. . . a taxpayer may not offset taxes due from the claims that he may have against
the government. Taxes cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each other and
a claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off.
Verily, petitioners argument is correct that the offsetting of its tax refund with its
alleged tax deficiency is unavailing under Art. 1279 of the Civil Code.
Commissioner of Internal Revenue v. Court of Tax Appeals, however,
granted the offsetting of a tax refund with a tax deficiency in this wise:
Further, it is also worth noting that the Court of Tax Appeals erred in denying
petitioners supplemental motion for reconsideration alleging bringing to said courts
attention the existence of the deficiency income and business tax assessment
against Citytrust. The fact of such deficiency assessment is intimately related to and
inextricably intertwined with the right of respondent bank to claim for a tax refund
for the same year. To award such refund despite the existence of that deficiency
assessment is an absurdity and a polarity in conceptual effects. Herein private
respondent cannot be entitled to refund and at the same time be liable for a tax
deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the tax return is
valid, that is, the facts stated therein are true and correct. The deficiency
assessment, although not yet final, created a doubt as to and constitutes
a challenge against the truth and accuracy of the facts stated in said
return which, by itself and without unquestionable evidence, cannot be
the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of
1977, which was the applicable law when the claim of Citytrust was filed, provides
that (w)hen an assessment is made in case of any list, statement, or return, which
in the opinion of the Commissioner of Internal Revenue was false or fraudulent or
contained any understatement or undervaluation, no tax collected under such
assessment shall be recovered by any suits unless it is proved that the said list,
statement, or return was not false nor fraudulent and did not contain any
understatement or undervaluation; but this provision shall not apply to statements
or returns made or to be made in good faith regarding annual depreciation of oil or
gas wells and mines.
Moreover, to grant the refund without determination of the proper
assessment and the tax due would inevitably result in multiplicity of
proceedings or suits. If the deficiency assessment should subsequently be
upheld, the Government will be forced to institute anew a proceeding for the
recovery of erroneously refunded taxes which recourse must be filed within the
prescriptive period of ten years after discovery of the falsity, fraud or omission in
the false or fraudulent return involved. This would necessarily require and entail
additional efforts and expenses on the part of the Government, impose a burden on
and a drain of government funds, and impede or delay the collection of muchneeded revenue for governmental operations.
Thus, to avoid multiplicity of suits and unnecessary difficulties or
expenses, it is both logically necessary and legally appropriate that the
issue of the deficiency tax assessment against Citytrust be resolved jointly
with its claim for tax refund, to determine once and for all in a single
proceeding the true and correct amount of tax due or refundable.
In fact, as the Court of Tax Appeals itself has heretofore conceded, it would be only
just and fair that the taxpayer and the Government alike be given equal
opportunities to avail of remedies under the law to defeat each others claim and to
determine all matters of dispute between them in one single case. It is important to
note that in determining whether or not petitioner is entitled to the refund of the
amount paid, it would [be] necessary to determine how much the Government is
entitled to collect as taxes. This would necessarily include the determination of the
correct liability of the taxpayer and, certainly, a determination of this case would
constitute res judicata on both parties as to all the matters subject thereof or
necessarily involved therein. (Emphasis supplied.)
Sec. 82, Chapter IX of the 1977 Tax Code is now Sec. 72, Chapter XI of the 1997
NIRC. The above pronouncements are, therefore, still applicable today.
Here, petitioners similar tax refund claim assumes that the tax return that
it filed was correct. Given, however, the finding of the CTA that petitioner,
although not liable under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under
Sec. 28(A)(1), the correctness of the return filed by petitioner is now put
in doubt. As such, we cannot grant the prayer for a refund. [21] (Additional
emphasis supplied.)
In the case at bar, the CTA explained that it merely determined whether petitioner is
entitled to a refund based on the facts. On the assumption that petitioner filed a
correct return, it had the right to file a claim for refund of GPB tax on passenger
revenues it paid in 1999 when it was not operating passenger flights to and from
the Philippines. However, upon examination by the CTA, petitioners return was
found erroneous as it understated its gross cargo revenue for the same taxable year
due to deductions of two (2) items consisting of commission and other incentives of
its agent. Having underpaid the GPB tax due on its cargo revenues for 1999,
petitioner is not entitled to a refund of its GPB tax on its passenger revenue, the
amount of the former being even much higher (P31.43 million) than the tax refund
sought (P5.2 million). The CTA therefore correctly denied the claim for tax refund
after determining the proper assessment and the tax due. Obviously, the matter of
prescription raised by petitioner is a non-issue. The prescriptive periods under
Sections 203[22] and 222[23] of the NIRC find no application in this case.
We must emphasize that tax refunds, like tax exemptions, are construed strictly
against the taxpayer and liberally in favor of the taxing authority. [24] In any event,
petitioner has not discharged its burden of proof in establishing the factual basis for
its claim for a refund and we find no reason to disturb the ruling of the CTA. It has
been a long-standing policy and practice of the Court to respect the conclusions of
quasi-judicial agencies such as the CTA, a highly specialized body specifically
created for the purpose of reviewing tax cases. [25]
WHEREFORE, we DENY the petition for lack of merit and AFFIRM the Decision
dated July 5, 2007 of the Court of Tax Appeals En Banc in C.T.A. EB No. 227.
With costs against the petitioner.
SO ORDERED.
18. Smart Communications Inc. v. Mun. of Malvar, GR No. 204429, February 18,
2014
G.R. No. 204429
February 18, 2014
SMART
COMMUNICATIONS,
vs.
MUNICIPALITY OF MALVAR, BATANGAS, Respondent.
INC., Petitioner,
DECISION
CARPIO, J.:
The Case
This petition for review1 challenges the 26 June 2012 Decision 2 and 13 November
2012 Resolution3 of the Court of Tax. Appeals (CTA) En Banc.
Th e CTA En Banc affirmed the 17 December 2010 Decision 4 and 7 April 2011
Resolution5 of the CTA First Division, which in turn affirmed the 2 December 2008
Decision6 and 21 May 2009 Order7 of the Regional Trial Court of Tanauan City,
Batangas, Branch 6. The trial court declared void the assessment imposed by
respondent Municipality of Malvar, Batangas against petitioner Smart
Communications, Inc. for its telecommunications tower for 2001 to July 2003 and
directed respondent to assess petitioner only for the period starting 1 October 2003.
The Facts
Petitioner Smart Communications, Inc. (Smart) is a domestic corporation engaged in
the business of providing telecommunications services to the general public while
respondent Municipality of Malvar, Batangas (Municipality) is a local government
unit created by law.
In the course of its business, Smart constructed a telecommunications tower within
the territorial jurisdiction of the Municipality. The construction of the tower was for
the purpose of receiving and transmitting cellular communications within the
covered area.
On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled
"An Ordinance Regulating the Establishment of Special Projects."
On 24 August 2004, Smart received from the Permit and Licensing Division of the
Office of the Mayor of the Municipality an assessment letter with a schedule of
payment for the total amount of P389,950.00 for Smarts telecommunications
tower. The letter reads as follows:
This is to formally submit to your good office your schedule of payments in the
Municipal Treasury of the Local Government Unit of Malvar, province of Batangas
which corresponds to the tower of your company built in the premises of the
municipality, to wit:
TOTAL PROJECT COST:
PHP 11,000,000.00
For the Year 2001-2003

50% of 1% of the total project cost
Php55,000.00
Add: 45% surcharge
24,750.00
Php79,750.00
Multiply by 3 yrs. (2001, 2002, 2003)
Php239,250.00
For the year 2004

1% of the total project cost
Php110,000.00
37% surcharge
40,700.00
==========
Php150,700.00
TOTAL
Php389,950.00
Hoping that you will give this matter your preferential attention. 8
Due to the alleged arrears in the payment of the assessment, the Municipality also
caused the posting of a closure notice on the telecommunications tower.
On 9 September 2004, Smart filed a protest, claiming lack of due process in the
issuance of the assessment and closure notice. In the same protest, Smart
challenged the validity of Ordinance No. 18 on which the assessment was based.
In a letter dated 28 September 2004, the Municipality denied Smarts protest.
On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City,
Batangas, Branch 6, an "Appeal/Petition" assailing the validity of Ordinance No. 18.
The case was docketed as SP Civil Case No. 04-11-1920.
On 2 December 2008, the trial court rendered a Decision partly granting Smarts
Appeal/Petition. The trial court confined its resolution of the case to the validity of
the assessment, and did not rule on the legality of Ordinance No. 18. The trial court
held that the assessment covering the period from 2001 to July 2003 was void since
Ordinance No. 18 was approved only on 30 July 2003. However, the trial court
declared valid the assessment starting 1 October 2003, citing Article 4 of the Civil
Code of the Philippines,9 in relation to the provisions of Ordinance No. 18 and
Section 166 of Republic Act No. 7160 or the Local Government Code of 1991
(LGC).10 The dispositive portion of the trial courts Decision reads:
WHEREFORE, in light of the foregoing, the Petition is partly GRANTED. The
assessment dated August 24, 2004 against petitioner is hereby declared null and
void insofar as the assessment made from year 2001 to July 2003 and respondent is
hereby prohibited from assessing and collecting, from petitioner, fees during the
said period and the Municipal Government of Malvar, Batangas is directed to assess
Smart Communications, Inc. only for the period starting October 1, 2003.
No costs.
SO ORDERED.11
The trial court denied the motion for reconsideration in its Order of 21 May 2009.
On 8 July 2009, Smart filed a petition for review with the CTA First Division, docketed
as CTA AC No. 58.
On 17 December 2010, the CTA First Division denied the petition for review. The
dispositive portion of the decision reads:
WHEREFORE, the Petition for Review is hereby DENIED, for lack of merit.
Accordingly, the assailed Decision dated December 2, 2008 and the Order dated
May 21, 2009 of Branch 6 of the Regional Trial Court of Tanauan City, Batangas in
SP. Civil Case No. 04-11-1920 entitled "Smart Communications, Inc. vs. Municipality
of Malvar, Batangas" are AFFIRMED.
SO ORDERED.12
On 7 April 2011, the CTA First Division issued a Resolution denying the motion for
reconsideration.
Smart filed a petition for review with the CTA En Banc, which affirmed the CTA First
Divisions decision and resolution. The dispositive portion of the CTA En Bancs 26
June 2012 decision reads:
WHEREFORE, premises considered, the present Petition for Review is hereby
DISMISSED for lack of merit.1wphi1
Accordingly, the assailed Decision dated December 17, 2010 and Resolution dated
April 7, 2011 are hereby AFFIRMED.
SO ORDERED.13
The CTA En Banc denied the motion for reconsideration.
Hence, this petition.
The Ruling of the CTA En Banc
The CTA En Banc dismissed the petition on the ground of lack of jurisdiction. The
CTA En Banc declared that it is a court of special jurisdiction and as such, it can take
cognizance only of such matters as are clearly within its jurisdiction. Citing Section
7(a), paragraph 3, of Republic Act No. 9282, the CTA En Banc held that the CTA has
exclusive appellate jurisdiction to review on appeal, decisions, orders or resolutions
of the Regional Trial Courts in local tax cases originally resolved by them in the
exercise of their original or appellate jurisdiction. However, the same provision does
not confer on the CTA jurisdiction to resolve cases where the constitutionality of a
law or rule is challenged.
The Issues
The petition raises the following arguments:
1. The [CTA En Banc Decision and Resolution] should be reversed and set
aside for being contrary to law and jurisprudence considering that the CTA En
Banc should have exercised its jurisdiction and declared the Ordinance as
illegal.
aside for being contrary to law and jurisprudence considering that the
doctrine of exhaustion of administrative remedies does not apply in [this
case].
aside for being contrary to law and jurisprudence considering that the
respondent has no authority to impose the so-called "fees" on the basis of the
void ordinance.14
The Ruling of the Court
The Court denies the petition.
On whether the CTA has jurisdiction over the present case
Smart contends that the CTA erred in dismissing the case for lack of jurisdiction.
Smart maintains that the CTA has jurisdiction over the present case considering the
"unique" factual circumstances involved.
The CTA refuses to take cognizance of this case since it challenges the
constitutionality of Ordinance No. 18, which is outside the province of the CTA.
Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic Act
No. 9282, created the Court of Tax Appeals. Section 7, paragraph (a), sub-paragraph
(3)15 of the law vests the CTA with the exclusive appellate jurisdiction over
"decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction."
The question now is whether the trial court resolved a local tax case in order to fall
within the ambit of the CTAs appellate jurisdiction This question, in turn, depends
ultimately on whether the fees imposed under Ordinance No. 18 are in fact taxes.
Smart argues that the "fees" in Ordinance No. 18 are actually taxes since they are
not regulatory, but revenue-raising. Citing Philippine Airlines, Inc. v. Edu, 16 Smart
contends that the designation of "fees" in Ordinance No. 18 is not controlling.
The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
Section 5, Article X of the 1987 Constitution provides that "each local government
unit shall have the power to create its own sources of revenues and to levy taxes,
fees, and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local government."
Consistent with this constitutional mandate, the LGC grants the taxing powers to
each local government unit. Specifically, Section 142 of the LGC grants
municipalities the power to levy taxes, fees, and charges not otherwise levied by
provinces. Section 143 of the LGC provides for the scale of taxes on business that
may be imposed by municipalities17 while Section 14718 of the same law provides for
the fees and charges that may be imposed by municipalities on business and
occupation.
The LGC defines the term "charges" as referring to pecuniary liability, as rents or
fees against persons or property, while the term "fee" means "a charge fixed by law
or ordinance for the regulation or inspection of a business or activity." 19
In this case, the Municipality issued Ordinance No. 18, which is entitled "An
Ordinance Regulating the Establishment of Special Projects," to regulate the
"placing, stringing, attaching, installing, repair and construction of all gas mains,
electric, telegraph and telephone wires, conduits, meters and other apparatus, and
provide for the correction, condemnation or removal of the same when found to be
dangerous, defective or otherwise hazardous to the welfare of the inhabitant[s]." 20 It
was also envisioned to address the foreseen "environmental depredation" to be
brought about by these "special projects" to the Municipality. 21 Pursuant to these
objectives, the Municipality imposed fees on various structures, which included
telecommunications towers.
As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is
to regulate the "placing, stringing, attaching, installing, repair and construction of
all gas mains, electric, telegraph and telephone wires, conduits, meters and other
apparatus" listed therein, which included Smarts telecommunications tower.
Clearly, the purpose of the assailed Ordinance is to regulate the enumerated
activities particularly related to the construction and maintenance of various
structures. The fees in Ordinance No. 18 are not impositions on the building or
structure itself; rather, they are impositions on the activity subject of government
regulation, such as the installation and construction of the structures. 22
Since the main purpose of Ordinance No. 18 is to regulate certain construction
activities of the identified special projects, which included "cell sites" or
telecommunications towers, the fees imposed in Ordinance No. 18 are primarily
regulatory in nature, and not primarily revenue-raising. While the fees may
contribute to the revenues of the Municipality, this effect is merely incidental. Thus,
the fees imposed in Ordinance No. 18 are not taxes.
In Progressive Development Corporation v. Quezon City, 23 the Court declared that "if
the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact
that incidentally revenue is also obtained does not make the imposition a tax."
In Victorias Milling Co., Inc. v. Municipality of Victorias, 24 the Court reiterated that
the purpose and effect of the imposition determine whether it is a tax or a fee, and
that the lack of any standards for such imposition gives the presumption that the
same is a tax.
We accordingly say that the designation given by the municipal authorities does not
decide whether the imposition is properly a license tax or a license fee. The
determining factors are the purpose and effect of the imposition as may be
apparent from the provisions of the ordinance. Thus, "[w]hen no police inspection,
supervision, or regulation is provided, nor any standard set for the applicant to
establish, or that he agrees to attain or maintain, but any and all persons engaged
in the business designated, without qualification or hindrance, may come, and a
license on payment of the stipulated sum will issue, to do business, subject to no
prescribed rule of conduct and under no guardian eye, but according to the
unrestrained judgment or fancy of the applicant and licensee, the presumption is
strong that the power of taxation, and not the police power, is being exercised."
Contrary to Smarts contention, Ordinance No. 18 expressly provides for the
standards which Smart must satisfy prior to the issuance of the specified permits,
clearly indicating that the fees are regulatory in nature.
These requirements are as follows:
SECTION 5. Requirements and Procedures in Securing Preliminary Development
Permit.
The following documents shall be submitted to the SB Secretary in triplicate:
a) zoning clearance
b) Vicinity Map
c) Site Plan
d) Evidence of ownership
e) Certificate true copy of NTC Provisional Authority in case of Cellsites,
telephone or telegraph line, ERB in case of gasoline station, power plant, and
other concerned national agencies
f) Conversion order from DAR is located within agricultural zone.
g) Radiation Protection Evaluation.

h) Written consent from subdivision association or the residence of the area
concerned if the special projects is located within the residential zone.
i) Barangay Council Resolution endorsing the special projects.
SECTION 6. Requirement for Final Development Permit Upon the expiration of 180
days and the proponents of special projects shall apply for final [development
permit] and they are require[d] to submit the following:
a) evaluation from the committee where the Vice Mayor refers the special
project
b) Certification that all local fees have been paid.
Considering that the fees in Ordinance No. 18 are not in the nature of local taxes,
and Smart is questioning the constitutionality of the ordinance, the CTA correctly
dismissed the petition for lack of jurisdiction. Likewise, Section 187 of the
LGC,25 which outlines the procedure for questioning the constitutionality of a tax
ordinance, is inapplicable, rendering unnecessary the resolution of the issue on nonexhaustion of administrative remedies.
On whether the imposition of the fees in Ordinance No. 18 is ultra vire Smart argues
that the Municipality exceeded its power to impose taxes and fees as provided in
Book II, Title One, Chapter 2, Article II of the LGC. Smart maintains that the mayors
permit fees in Ordinance No. 18 (equivalent to 1% of the project cost) are not
among those expressly enumerated in the LGC.
As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition
does not appear in the enumeration of taxes under Section 143 of the LGC.
Moreover, even if the fees do not appear in Section 143 or any other provision in the
LGC, the Municipality is empowered to impose taxes, fees and charges, not
specifically enumerated in the LGC or taxed under the Tax Code or other applicable
law. Section 186 of the LGC, granting local government units wide latitude in
imposing fees, expressly provides:
Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units
may exercise the power to levy taxes, fees or charges on any base or subject not
otherwise specifically enumerated herein or taxed under the provisions of the
National Internal Revenue Code, as amended, or other applicable laws: Provided,
That the taxes, fees, or charges shall not be unjust, excessive, oppressive,
confiscatory or contrary to declared national policy: Provided, further, That the
ordinance levying such taxes, fees or charges shall not be enacted without any prior
public hearing conducted for the purpose.
Smart further argues that the Municipality is encroaching on the regulatory powers
of the National Telecommunications Commission (NTC). Smart cites Section 5(g) of
Republic Act No. 7925 which provides that the National Telecommunications
Commission (NTC), in the exercise of its regulatory powers, shall impose such fees
and charges as may be necessary to cover reasonable costs and expenses for the
regulation and supervision of the operations of telecommunications entities. Thus,
Smart alleges that the regulation of telecommunications entities and all aspects of
its operations is specifically lodged by law on the NTC.
To repeat, Ordinance No. 18 aims to regulate the "placing, stringing, attaching,
installing, repair and construction of all gas mains, electric, telegraph and telephone
wires, conduits, meters and other apparatus" within the Municipality. The fees are
not imposed to regulate the administrative, technical, financial, or marketing
operations of telecommunications entities, such as Smarts; rather, to regulate the
installation and maintenance of physical structures Smarts cell sites or
telecommunications tower. The regulation of the installation and maintenance of
such physical structures is an exercise of the police power of the Municipality.
Clearly, the Municipality does not encroach on NTCs regulatory powers.
The Court likewise rejects Smarts contention that the power to fix the fees for the
issuance of development permits and locational clearances is exercised by the
Housing and Land Use Regulatory Board (HLURB). Suffice it to state that the HLURB
itself recognizes the local government units power to collect fees related to land
use and development. Significantly, the HLURB issued locational guidelines
governing telecommunications infrastructure.1wphi1Guideline No. VI relates to the
collection of locational clearance fees either by the HLURB or the concerned local
government unit, to wit:
VI. Fees
The Housing and Land Use Regulatory Board in the performance of its functions
shall collect the locational clearance fee based on the revised schedule of fees
under the special use project as per Resolution No. 622, series of 1998 or by the
concerned LGUs subject to EO 72.26
On whether Ordinance No. 18 is valid and constitutional
Smart contends that Ordinance No. 18 violates Sections 130(b)(3) 27 and 186 of the
LGC since the fees are unjust, excessive, oppressive and confiscatory. Aside from
this bare allegation, Smart did not present any evidence substantiating its claims. In
Victorias Milling Co., Inc. v. Municipality of Victorias, 28 the Court rejected the
argument that the fees imposed by respondent therein are excessive for lack of
evidence supporting such claim, to wit:
An ordinance carries with it the presumption of validity. The question of
reasonableness though is open to judicial inquiry. Much should be left thus to the
discretion of municipal authorities. Courts will go slow in writing off an ordinance as
unreasonable unless the amount is so excessive as to be prohibitive, arbitrary,
unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is
that factors relevant to such an inquiry are the municipal conditions as a whole and
the nature of the business made subject to imposition.
Plaintiff, has however not sufficiently proven that, taking these factors together, the
license taxes are unreasonable. The presumption of validity subsists. For, plaintiff
has limited itself to insisting that the amounts levied exceed the cost of regulation
and the municipality has adequate funds for the alleged purposes as evidenced by
the municipalitys cash surplus for the fiscal year ending 1956.
On the constitutionality issue, Smart merely pleaded for the declaration of
unconstitutionality of Ordinance No. 18 in the Prayer of the Petition, without any
argument or evidence to support its plea. Nowhere in the body of the Petition was
this issue specifically raised and discussed. Significantly, Smart failed to cite any
constitutional provision allegedly violated by respondent when it issued Ordinance
No. 18.
Settled is the rule that every law, in this case an ordinance, is presumed valid. To
strike down a law as unconstitutional, Smart has the burden to prove a clear and
unequivocal breach of the Constitution, which Smart miserably failed to do. In
Lawyers Against Monopoly and Poverty (LAMP) v. Secretary of Budget and
Management,29 the Court held, thus:
To justify the nullification of the law or its implementation, there must be a clear and
unequivocal, not a doubtful, breach of the Constitution. In case of doubt in the
sufficiency of proof establishing unconstitutionality, the Court must sustain
legislation because "to invalidate [a law] based on xx x baseless supposition is an
affront to the wisdom not only of the legislature that passed it but also of the
executive which approved it." This presumption of constitutionality can be overcome
only by the clearest showing that there was indeed an infraction of the Constitution,
and only when such a conclusion is reached by the required majority may the Court
pronounce, in the discharge of the duty it cannot escape, that the challenged act
must be struck down.
WHEREFORE, the Court DENIES the petition.
SO ORDERED.
19. City of Manila v. SM Mart Inc., GR No. 175723, February 4, 2014

G.R. No. 175723
February 4, 2014
THE CITY OF MANILA, represented by MAYOR JOSE L. ATIENZA, JR., and MS.
LIBERTY M. TOLEDO, in her capacity as the City Treasurer of
Manila, Petitioners,
vs.
HON. CARIDAD H. GRECIA-CUERDO, in her capacity as Presiding Judge of
the Regional Trial Court, Branch 112, Pasay City; SM MART, INC.; SM PRIME
HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE, INC.; ACE

HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES, PHILS.,
INC.; JOLLIMART PHILS., CORP.; SURPLUS MARKETING CORPORATION and
SIGNATURE LINES, Respondents.
DECISION
PERALTA, J.:
Before the Court is a special civil action for certiorari under Rule 65 of the Rules of
Court seeking to reverse and set aside the Resolutions 1 dated April 6, 2006 and
November 29, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 87948.
The antecedents of the case, as summarized by the CA, are as follows:
The record shows that petitioner City of Manila, through its treasurer, petitioner
Liberty Toledo, assessed taxes for the taxable period from January to December
2002 against private respondents SM Mart, Inc., SM Prime Holdings, Inc., Star
Appliances Center, Supervalue, Inc., Ace Hardware Philippines, Inc., Watsons
Personal Care Stores Phils., Inc., Jollimart Philippines Corp., Surplus Marketing Corp.
and Signature Lines. In addition to the taxes purportedly due from private
respondents pursuant to Section 14, 15, 16, 17 of the Revised Revenue Code of
Manila (RRCM), said assessment covered the local business taxes petitioners were
authorized to collect under Section 21 of the same Code. Because payment of the
taxes assessed was a precondition for the issuance of their business permits,
private respondents were constrained to pay the P19,316,458.77 assessment under
protest.
On January 24, 2004, private respondents filed [with the Regional Trial Court of
Pasay City] the complaint denominated as one for "Refund or Recovery of Illegally
and/or Erroneously-Collected Local Business Tax, Prohibition with Prayer to Issue
TRO and Writ of Preliminary Injunction"
which was docketed as Civil Case No. 04-0019-CFM before public respondent's sala
[at Branch 112]. In the amended complaint they filed on February 16, 2004, private
respondents alleged that, in relation to Section 21 thereof, Sections 14, 15, 16, 17,
18, 19 and 20 of the RRCM were violative of the limitations and guidelines under
Section 143 (h) of Republic Act. No. 7160 [Local Government Code] on double
taxation. They further averred that petitioner city's Ordinance No. 8011 which
amended pertinent portions of the RRCM had already been declared to be illegal
and unconstitutional by the Department of Justice. 2
In its Order3 dated July 9, 2004, the RTC granted private respondents' application for
a writ of preliminary injunction.
Petitioners filed a Motion for Reconsideration 4 but the RTC denied it in its
Order5 dated October 15, 2004.
Petitioners then filed a special civil action for certiorari with the CA assailing the July
9, 2004 and October 15, 2004 Orders of the RTC. 6
In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners' petition
for certiorari holding that it has no jurisdiction over the said petition. The CA ruled
that since appellate jurisdiction over private respondents' complaint for tax refund,
which was filed with the RTC, is vested in the Court of Tax Appeals (CTA), pursuant
to its expanded jurisdiction under Republic Act No. 9282 (RA 9282), it follows that a
petition for certiorari seeking nullification of an interlocutory order issued in the said
case should, likewise, be filed with the CTA.
Petitioners filed a Motion for Reconsideration, 7 but the CA denied it in its Resolution
dated November 29, 2006.
Hence, the present petition raising the following issues:
I- Whether or not the Honorable Court of Appeals gravely erred in dismissing
the case for lack of jurisdiction.
II- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction in enjoining by issuing a
Writ of Injunction the petitioners, their agents and/or authorized
representatives from implementing Section 21 of the Revised Revenue Code
of Manila, as amended, against private respondents.
III- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction in issuing the Writ of
Injunction despite failure of private respondents to make a written claim for
tax credit or refund with the City Treasurer of Manila.
IV- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction considering that under
Section 21 of the Manila Revenue Code, as amended, they are mere
collecting agents of the City Government.
V- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction in issuing the Writ of
Injunction because petitioner City of Manila and its constituents would result
to greater damage and prejudice thereof. (sic) 8
Without first resolving the above issues, this Court finds that the instant petition
should be denied for being moot and academic.
Upon perusal of the original records of the instant case, this Court discovered that a
Decision9 in the main case had already been rendered by the RTC on August 13,
2007, the dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT in favor
of the plaintiff and against the defendant to grant a tax refund or credit for taxes
paid pursuant to Section 21 of the Revenue Code of the City of Manila as amended
for the year 2002 in the following amounts:
To plaintiff SM Mart, Inc.
P 11,462,525.02
To plaintiff SM Prime Holdings, Inc.
3,118,104.63
To plaintiff Star Appliances Center
2,152,316.54
To plaintiff Supervalue, Inc.
1,362,750.34
To plaintiff Ace Hardware Phils., Inc.
419,689.04
To plaintiff Watsons Personal Care Health
231,453.62
To plaintiff Jollimart Phils., Corp.
140,908.54
To plaintiff Surplus Marketing Corp.
220,204.70
To plaintiff Signature Mktg. Corp.
94,906.34
TOTAL:
P 19,316,458.77
Stores Phils., Inc.
Defendants are further enjoined from collecting taxes under Section 21, Revenue
Code of Manila from herein plaintiff.
SO ORDERED.10
The parties did not inform the Court but based on the records, the above Decision
had already become final and executory per the Certificate of Finality 11 issued by
the same trial court on October 20, 2008. In fact, a Writ of Execution 12 was issued by
the RTC on November 25, 2009. In view of the foregoing, it clearly appears that the
issues raised in the present petition, which merely involve the incident on the
preliminary injunction issued by the RTC, have already become moot and academic
considering that the trial court, in its decision on the merits in the main case, has
already ruled in favor of respondents and that the same decision is now final and
executory. Well entrenched is the rule that where the issues have become moot and
academic, there is no justiciable controversy, thereby rendering the resolution of
the same of no practical use or value.13
In any case, the Court finds it necessary to resolve the issue on jurisdiction raised
by petitioners owing to its significance and for future guidance of both bench and
bar. It is a settled principle that courts will decide a question otherwise moot and
academic if it is capable of repetition, yet evading review. 14
However, before proceeding, to resolve the question on jurisdiction, the Court
deems it proper to likewise address a procedural error which petitioners committed.
Petitioners availed of the wrong remedy when they filed the instant special civil
action for certiorari under Rule 65 of the Rules of Court in assailing the Resolutions
of the CA which dismissed their petition filed with the said court and their motion for
reconsideration of such dismissal. There is no dispute that the assailed Resolutions

of the CA are in the nature of a final order as they disposed of the petition
completely. It is settled that in cases where an assailed judgment or order is
considered final, the remedy of the aggrieved party is appeal. Hence, in the instant
case, petitioner should have filed a petition for review on certiorari under Rule 45,
which is a continuation of the appellate process over the original case. 15
Petitioners should be reminded of the equally-settled rule that a special civil action
for certiorari under Rule 65 is an original or independent action based on grave
abuse of discretion amounting to lack or excess of jurisdiction and it will lie only if
there is no appeal or any other plain, speedy, and adequate remedy in the ordinary
course of law.16As such, it cannot be a substitute for a lost appeal. 17
Nonetheless, in accordance with the liberal spirit pervading the Rules of Court and
in the interest of substantial justice, this Court has, before, treated a petition for
certiorari as a petition for review on certiorari, particularly (1) if the petition for
certiorari was filed within the reglementary period within which to file a petition for
review on certiorari; (2) when errors of judgment are averred; and (3) when there is
sufficient reason to justify the relaxation of the rules. 18 Considering that the present
petition was filed within the 15-day reglementary period for filing a petition for
review on certiorari under Rule 45, that an error of judgment is averred, and
because of the significance of the issue on jurisdiction, the Court deems it proper
and justified to relax the rules and, thus, treat the instant petition for certiorari as a
petition for review on certiorari.
Having disposed of the procedural aspect, we now turn to the central issue in this
case. The basic question posed before this Court is whether or not the CTA has
jurisdiction over a special civil action for certiorari assailing an interlocutory order
issued by the RTC in a local tax case.
This Court rules in the affirmative.
On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the
CTA and giving to the said court jurisdiction over the following:
(1) Decisions of the Collector of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by
the Bureau of Internal Revenue;
(2) Decisions of the Commissioner of Customs in cases involving liability for
customs duties, fees or other money charges; seizure, detention or release of
property affected fines, forfeitures or other penalties imposed in relation
thereto; or other matters arising under the Customs Law or other law or part
of law administered by the Bureau of Customs; and
(3) Decisions of provincial or City Boards of Assessment Appeals in cases
involving the assessment and taxation of real property or other matters
arising under the Assessment Law, including rules and regulations relative
thereto.
On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282)
amending RA 1125 by expanding the jurisdiction of the CTA, enlarging its
membership and elevating its rank to the level of a collegiate court with special
jurisdiction. Pertinent portions of the amendatory act provides thus:
Sec. 7. Jurisdiction. - The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the
Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relations thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be
deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local
tax cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability
for customs duties, fees or other money charges, seizure, detention or
release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or
other laws administered by the Bureau of Customs;
5. Decisions of the Central Board of Assessment Appeals in the
exercise of its appellate jurisdiction over cases involving the
assessment and taxation of real property originally decided by the
provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to
him automatically for review from decisions of the Commissioner of
Customs which are adverse to the Government under Section 2315 of
the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and

302, respectively, of the Tariff and Customs Code, and safeguard
measures under Republic Act No. 8800, where either party may appeal
the decision to impose or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein provided:
1. Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs
Code and other laws administered by the Bureau of Internal Revenue
or the Bureau of Customs: Provided, however, That offenses or felonies
mentioned in this paragraph where the principal amount of taxes and
fees, exclusive of charges and penalties, claimed is less than One
million pesos (P1,000,000.00) or where there is no specified amount
claimed shall be tried by the regular Courts and the jurisdiction of the
CTA shall be appellate. Any provision of law or the Rules of Court to the
contrary notwithstanding, the criminal action and the corresponding
civil action for the recovery of civil liability for taxes and penalties shall
at all times be simultaneously instituted with, and jointly determined in
the same proceeding by the CTA, the filing of the criminal action being
deemed to necessarily carry with it the filing of the civil action, and no
right to reserve the filing of such civil action separately from the
criminal action will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax cases originally decided by them, in their respected territorial
jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts in their respective jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:
1. Exclusive original jurisdiction in tax collection cases involving final
and executory assessments for taxes, fees, charges and penalties:
Provides, however, that collection cases where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is less than
One million pesos (P1,000,000.00) shall be tried by the proper
Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them, in their respective
territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the Exercise of their appellate jurisdiction over tax collection cases
originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective jurisdiction. 19
A perusal of the above provisions would show that, while it is clearly stated that the
CTA has exclusive appellate jurisdiction over decisions, orders or resolutions of the
RTCs in local tax cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction, there is no categorical statement under RA 1125 as
well as the amendatory RA 9282, which provides that th e CTA has jurisdiction over
petitions for certiorari assailing interlocutory orders issued by the RTC in local tax
cases filed before it.
The prevailing doctrine is that the authority to issue writs of certiorari involves the
exercise of original jurisdiction which must be expressly conferred by the
Constitution or by law and cannot be implied from the mere existence of appellate
jurisdiction.20 Thus, in the cases of Pimentel v. COMELEC,21 Garcia v. De
Jesus,22 Veloria v. COMELEC,23 Department of Agrarian Reform Adjudication Board v.
Lubrica,24 and Garcia v. Sandiganbayan,25 this Court has ruled against the
jurisdiction of courts or tribunals over petitions for certiorari on the ground that
there is no law which expressly gives these tribunals such power. 26 It must be
observed, however, that with the exception of Garcia v. Sandiganbayan, 27 these
rulings pertain not to regular courts but to tribunals exercising quasi-judicial powers.
With respect to the Sandiganbayan, Republic Act No. 8249 28 now provides that the
special criminal court has exclusive original jurisdiction over petitions for the
issuance of the writs of mandamus, prohibition, certiorari, habeas corpus,
injunctions, and other ancillary writs and processes in aid of its appellate
jurisdiction.
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power
to the Supreme Court, in the exercise of its original jurisdiction, to issue writs of
certiorari, prohibition and mandamus. With respect to the Court of Appeals, Section
9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in the
exercise of its original jurisdiction, the power to issue, among others, a writ of
certiorari,whether or not in aid of its appellate jurisdiction. As to Regional Trial
Courts, the power to issue a writ of certiorari, in the exercise of their original
jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power, with
respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law and that judicial power includes the duty
of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted
that the power of the CTA includes that of determining whether or not there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the RTC in issuing an interlocutory order in cases falling within the exclusive
appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional
mandate, is vested with jurisdiction to issue writs of certiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of certiorari. In
transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There
is no perceivable reason why the transfer should only be considered as partial, not
total.
Consistent with the above pronouncement, this Court has held as early as the case
of J.M. Tuason & Co., Inc. v. Jaramillo, et al. 29 that "if a case may be appealed to a
particular court or judicial tribunal or body, then said court or judicial tribunal or
body has jurisdiction to issue the extraordinary writ of certiorari, in aid of its
appellate jurisdiction."30 This principle was affirmed in De Jesus v. Court of
Appeals,31 where the Court stated that "a court may issue a writ of certiorari in aid
of its appellate jurisdiction if said court has jurisdiction to review, by appeal or writ
of error, the final orders or decisions of the lower court." 32 The rulings in J.M. Tuason
and De Jesus were reiterated in the more recent cases of Galang, Jr. v.
Geronimo33 and Bulilis v. Nuez.34
Furthermore, Section 6, Rule 135 of the present Rules of Court provides that when
by law, jurisdiction is conferred on a court or judicial officer, all auxiliary writs,
processes and other means necessary to carry it into effect may be employed by
such court or officer.
If this Court were to sustain petitioners' contention that jurisdiction over their
certiorari petition lies with the CA, this Court would be confirming the exercise by
two judicial bodies, the CA and the CTA, of jurisdiction over basically the same
subject matter precisely the split-jurisdiction situation which is anathema to the
orderly administration of justice.35 The Court cannot accept that such was the
legislative motive, especially considering that the law expressly confers on the CTA,
the tribunal with the specialized competence over tax and tariff matters, the role of
judicial review over local tax cases without mention of any other court that may
exercise such power. Thus, the Court agrees with the ruling of the CA that since
appellate jurisdiction over private respondents' complaint for tax refund is vested in
the CTA, it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the same
court. To rule otherwise would lead to an absurd situation where one court decides
an appeal in the main case while another court rules on an incident in the very
same case.
Stated differently, it would be somewhat incongruent with the pronounced judicial
abhorrence to split jurisdiction to conclude that the intention of the law is to divide
the authority over a local tax case filed with the RTC by giving to the CA or this
Court jurisdiction to issue a writ of certiorari against interlocutory orders of the RTC
but giving to the CTA the jurisdiction over the appeal from the decision of the trial
court in the same case. It is more in consonance with logic and legal soundness to
conclude that the grant of appellate jurisdiction to the CTA over tax cases filed in
and decided by the RTC carries with it the power to issue a writ of certiorari when
necessary in aid of such appellate jurisdiction. The supervisory power or jurisdiction
of the CTA to issue a writ of certiorari in aid of its appellate jurisdiction should coexist with, and be a complement to, its appellate jurisdiction to review, by appeal,
the final orders and decisions of the RTC, in order to have complete supervision over
the acts of the latter.36
A grant of appellate jurisdiction implies that there is included in it the power
necessary to exercise it effectively, to make all orders that will preserve the subject
of the action, and to give effect to the final determination of the appeal. It carries
with it the power to protect that jurisdiction and to make the decisions of the court
thereunder effective. The court, in aid of its appellate jurisdiction, has authority to
control all auxiliary and incidental matters necessary to the efficient and proper
exercise of that jurisdiction.1wphi1 For this purpose, it may, when necessary,
prohibit or restrain the performance of any act which might interfere with the proper
exercise of its rightful jurisdiction in cases pending before it. 37
Lastly, it would not be amiss to point out that a court which is endowed with a
particular jurisdiction should have powers which are necessary to enable it to act
effectively within such jurisdiction. These should be regarded as powers which are
inherent in its jurisdiction and the court must possess them in order to enforce its
rules of practice and to suppress any abuses of its process and to defeat any
attempted thwarting of such process.
In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as
the CA and shall possess all the inherent powers of a court of justice.
Indeed, courts possess certain inherent powers which may be said to be implied
from a general grant of jurisdiction, in addition to those expressly conferred on
them. These inherent powers are such powers as are necessary for the ordinary and
efficient exercise of jurisdiction; or are essential to the existence, dignity and
functions of the courts, as well as to the due administration of justice; or are directly
appropriate, convenient and suitable to the execution of their granted powers; and
include the power to maintain the court's jurisdiction and render it effective in
behalf of the litigants.38
Thus, this Court has held that "while a court may be expressly granted the
incidental powers necessary to effectuate its jurisdiction, a grant of jurisdiction, in
the absence of prohibitive legislation, implies the necessary and usual incidental
powers essential to effectuate it, and, subject to existing laws and constitutional
provisions, every regularly constituted court has power to do all things that are
reasonably necessary for the administration of justice within the scope of its
jurisdiction and for the enforcement of its judgments and mandates." 39 Hence,
demands, matters or questions ancillary or incidental to, or growing out of, the main
action, and coming within the above principles, may be taken cognizance of by the
court and determined, since such jurisdiction is in aid of its authority over the
principal matter, even though the court may thus be called on to consider and
decide matters which, as original causes of action, would not be within its
cognizance.40
Based on the foregoing disquisitions, it can be reasonably concluded that the

authority of the CTA to take cognizance of petitions for certiorari questioning
interlocutory orders issued by the RTC in a local tax case is included in the powers
granted by the Constitution as well as inherent in the exercise of its appellate
jurisdiction.
Finally, it would bear to point out that this Court is not abandoning the rule that,
insofar as quasi-judicial tribunals are concerned, the authority to issue writs of
certiorari must still be expressly conferred by the Constitution or by law and cannot
be implied from the mere existence of their appellate jurisdiction. This doctrine
remains as it applies only to quasi-judicial bodies.
WHEREFORE, the petition is DENIED.
SO ORDERED.
20. St. Paul College of San Rafael v. CIR, CTA Case No. 8217, November 9, 2011
XXXXX
21. Commissioner of Customs v. Marina Sales, Inc., GR No. 183868, November 22,
2010
SECOND DIVISION
COMMISSIONER OFCUSTOMS,
G.R. No. 183868
Petitioner,
Present:

DE CASTRO,*
- versus -
PERALTA,
ABAD, and
MENDOZA, JJ.
MARINA SALES, INC.,

Respondent.
Promulgated:
November 22, 2010
X -------------------------------------------------------------------------------------- X
DECISION
MENDOZA, J.:
In this petition for review on certiorari[1] under Rule 45, the Commissioner of
Customs (Commissioner), represented
by
the
Office
of
the
Solicitor
General (OSG), assails the April 11, 2008 Resolution [2] of the Court of Tax Appeals En
Banc (CTA-En Banc), in C.T.A. E.B. No. 333, dismissing his petition for review for his
failure to file a motion for reconsideration before the Court of Tax Appeals
Division (CTA-Division).
Respondent Marina Sales, Inc. (Marina) is engaged in the manufacture of
Sunquick juice concentrates. It was appointed by CO-RO Food A/S of Denmark,
maker of Sunquick Juice Concentrates, to be its manufacturing arm in
the Philippines. As such, Marina usually imports raw materials into the country for
the purpose. In the past, the Bureau of Customs (BOC) assessed said type of
importations under Tariff Heading H.S. 2106.90 10 with a 1% import duty rate. [3]
On March 6, 2003, Marinas importation, labeled as Import Entry No. C-33771-03,
arrived at the Manila International Container Port (MICP) on board the vessel APL Iris
V-111.Said Import Entry No. C-33771-03 consisted of a 1 x 20 container STC with a
total of 80 drums: (a) 56 drums of 225 kilograms Sunquick Orange Concentrate; and
(b) 24 drums of 225 kilograms of Sunquick Lemon Concentrate. [4] It was supported
by the following documents: (a) Bill of Lading No. APLU 800452452 dated February
2, 2003;[5] and (b) CO-RO Food A/S of Denmark Invoice No. 1619409 dated January
27, 2003.[6]
Marina computed and paid the duties under Tariff Harmonized System Heading H.S.
2106.90 10 at 1% import duty rate.
This time, however, the BOC examiners contested the tariff classification of Marinas
Import Entry No. C-33771-03 under Tariff Heading H.S. 2106.90 10. The BOC
examiners recommended to the Collector of Customs, acting as Chairman of the
Valuation and Classification Review Committee (VCRC) of the BOC, to reclassify
Marinas importation as Tariff Heading H.S. 2106.90 50 (covering composite
concentrates for simple dilution with water to make beverages) with a
corresponding 7% import duty rate.
The
withheld
importation
being
necessary
to
its
business
operations, Marina requested the District Collector of the BOC to release Import
Entry No. C-33771-03 under its Tentative Release System. [7] Marina undertook to
pay the reclassified rate of duty should it be finally determined that such
reclassification was correct. The District Collector granted the request.
On April 15, 2003, the VCRC directed Marina to appear in a deliberation on May 15,
2003 and to explain why its shipment under Import Entry No. C-33771-03 should not
be classified under Tariff Heading H.S. 2106.90 50 with import duty rate of 7%. [8]
On May 15, 2003, Marina, through its Product Manager Rowena T. Solidum and
Customs Broker Juvenal A. Llaneza, attended the VCRC deliberation and submitted
its explanation,[9] dated May 13, 2003, along with samples of the importation under
Import Entry No. C-33771-03.
On May 21, 2003, another importation of Marina arrived at the MICP
designated as Import Entry No. C-67560-03. It consisted of another 1 x 20 container
STC with a total of 80 drums: (a) 55 drums of 225 kilograms of Sunquick Orange
Concentrate; (b) 1 drum of 225 kilograms of Sunquick Tropical Fruit Concentrate; (c)
17 drums of 225 kilograms of Sunquick Lemon Concentrate; (d) 3 drums of 225
kilograms of Sunquick Ice Lemon Concentrate; and (e) 4 drums of 225 kilograms
Sunquick Peach Orange Concentrate. The said importation was accompanied by the
following documents: (a) Bill of Lading No. KKLUCPH060291 dated April 17, 2003;
[10]
and (b) CO-RO Foods A/S Denmark Invoice No. 1619746 dated April 15, 2003.[11]
Again, the BOC examiners disputed the tariff classification of Import Entry No. C67560-03 and recommended to the VCRC that the importation be classified at Tariff
Heading H.S. 2106.90 50 with the corresponding 7% duty rate.
In order for Import Entry No. C-67560-03 to be released, Marina once again signed
an undertaking under the Tentative Release System. [12]
In a letter dated July 7, 2003, the VCRC scheduled another deliberation
requiring Marina to explain why Import Entry No. C-67560-03 should not be
classified under Tariff Heading H.S. 2106.90 50 at the import duty rate of 7%. [13]
On July 17, 2003, Marina again attended the VCRC deliberation and submitted its
explanation[14] dated July 17, 2003 together with samples in support of its claim that
the imported goods under Import Entry No. C-67560-03 should not be reclassified
under Tariff Heading H.S. 2106.90 50.
Thereafter, the classification cases for Import Entry No. C-33771-03 and Import
Entry No. C-67560-03 were consolidated.
On September 11, 2003, as reflected in its 1st Indorsement, the VCRC
reclassified Import Entry No. C-33771-03 and Import Entry No. C-67560-03 under
Tariff Heading H.S. 2106.90 50 at 7% import duty rate. [15]
On October 7, 2003, Marina appealed before the Commissioner challenging
VCRCs reclassification.[16]
In its 1st Indorsement of November 13, 2003,[17] the VCRC modified its earlier
ruling and classified Marinas Import Entry No. C-33771-03 and Import Entry No. C67560-03 under Tariff Heading H.S. 2009 19 00 at 7% duty rate, H.S. 2009.80 00 at
7% duty rate and H.S. 2009.90 00 at 10% duty rate.
Apparently not in conformity, Marina interposed a petition for review before
the CTA on February 3, 2004, which was docketed as CTA Case No. 6859.
On October 31, 2007, the CTA Second Division ruled in favor of Marina[18] holding
that its classification under Tariff Heading H.S. 2106.90 10 was the most appropriate
and descriptive of the disputed importations. [19] It opined that Marinas importations
were raw materials used for the manufacture of its Sunquick products, not ready-todrink juice concentrates as argued by the Commissioner. [20] Thus, the decretal
portion of the CTA - Second Division reads:
WHEREFORE, finding merit in petitioners Petition for Review, the same
is
hereby
GRANTED. Accordingly,
the
Resolution/Decision
dated November 13, 2003 of the Valuation and Classification Review
Committee of the Bureau of Customs is hereby SET ASIDE and
petitioners importation covered by Import Entry Nos. C-33771-03 and
C-67560-03 are reclassified under Tariff Harmonized System Heading
H.S. 2106.90 10 with an import duty rate of 1%.
SO ORDERED.
The Commissioner disagreed and elevated the case to the CTA-En Banc via a
petition for review.[21]
In its Resolution of April 11, 2008, the CTA En Banc dismissed the
petition. The pertinent portions of the decision including the fallo read:
A careful scrutiny of the record of this case showed that
petitioner failed to file before the Second Division the required Motion
for Reconsideration before elevating his case to the CTA En Banc.
Section 1, Rule 8 of the Revised Rules of the Court of Tax
Appeals provided for the following rule, to wit:
RULE 8
PROCEDURE IN CIVIL CASES
SECTION 1. Review of Cases in the Court en banc.- In
cases falling under the exclusive appellate jurisdiction of
the Court en banc, the petition for review of a decision or
resolution of the Court in Division must be preceded by
the filing of a timely motion for reconsideration or new
trial with the Division.
In statutory construction, the use of the word must indicates
that the requirement is mandatory. Furthermore, the word must
connote an imperative act or operates to simply impose a duty which
may be enforced. It is true the word must is sometimes construed as
may permissive but this is only when the context requires it. Where the
context plainly shows the provision to be mandatory, the word must is
a command and cannot be construed as permissive, but must be given
the signification which it imparts.
It is worthy to note that the Supreme Court ruled that a Motion
for Reconsideration is mandatory as a precondition to the filing of a
Petition for Review under Rule 43 of the Rules of Court.
WHEREFORE, applying by analogy the above ruling of the
Supreme Court and taking into consideration the mandatory provision
provided by Section 1 of Rule 8 of the Revised Rules of the Court of Tax
Appeals and considering further that petitioner did not file a Motion for
Reconsideration with the Second Division before elevating the case to
the Court En Banc, which eventually deprived the Second Division of
an opportunity to amend, modify, reverse or correct its mistake or
error, if there be, petitioners Petition for Review is hereby DISMISSED.
SO ORDERED.[22]
The Commissioner sought reconsideration of the disputed decision, but the CTA En
Banc issued a denial in its July 14, 2008 Resolution.[23]
Hence, this petition.
In his Memorandum,[24] the
resolution:
Commissioner
submits
the
following
issues
A.
WHETHER THE DISMISSAL BY THE COURT OF TAX APPEALS EN
BANC
OF
PETITIONERS
PETITION
BASED
ON
MERE
for
TECHNICALITY WILL RESULT IN INJUSTICE AND UNFAIRNESS TO

PETITIONER.
B.
WHETHER THE CHALLENGED DECISION OF THE COURT OF TAX
APPEALS SECOND DIVISION HOLDING THAT RESPONDENTS
IMPORTATION ARE COVERED BY IMPORT ENTRY NOS. C-3377103
AND
C-67560-03
ARE
CLASSIFIED
UNDER
TARIFF
HARMONIZED SYSTEM HEADING H.S. 2106.90 10 WITH AN
IMPORT DUTY RATE OF ONE PERCENT (1%) IS NOT CORRECT.[25]
The Commissioner argues that the dismissal of his petition before the CTA-En
Banc is inconsistent with the principle of the liberal application of the rules of
procedure.[26] He points out that due to the dismissal of the petition, the government
would only be collecting 1% import duty rate from Marina instead of 7%.[27] This, if
sanctioned, would result in grave injustice and unfairness to the government. [28]
The Commissioner also contends that the testimony of Marinas expert
witness, Aurora Kimura, pertaining to Sunquick Lemon compound shows that it
could be classified as heavy syrup [29] falling under the category of H.S. 2190.90 50
with a 7% import duty rate.[30]
The Court finds no merit in the petition.
On the procedure, the Court agrees with the CTA En Banc that the
Commissioner failed to comply with the mandatory provisions of Rule 8, Section 1 of
the Revised Rules of the Court of Tax Appeals [31] requiring that the petition for review
of a decision or resolution of the Court in Division must be preceded by the filing of
a timely motion for reconsideration or new trial with the Division. The word "must"
clearly indicates the mandatory -- not merely directory -- nature of a requirement.[32]
The rules are clear. Before the CTA En Banc could take cognizance of the
petition for review concerning a case falling under its exclusive appellate
jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or
moved for a new trial with the concerned CTA division. Procedural rules are not to
be trifled with or be excused simply because their non-compliance may have
resulted in prejudicing a partys substantive rights. [33] Rules are meant to be
followed. They may be relaxed only for very exigent and persuasive reasons to
relieve a litigant of an injustice not commensurate to his careless non-observance of
the prescribed rules.[34]
At any rate, even if the Court accords liberality, the position of the
Commissioner has no merit. After examining the records of the case, the Court is of
the view that the import duty rate of 1%, as determined by the CTA Second Division,
is correct.
The table shows the different classification of Tariff import duties relevant to
the case at bar:
TARIFF HEADING
IMPORT
COVERAGE
H.S. 2106.90 10
DUTY RATE
1%
H.S. 2106.90 50
7%
H.S. 2009. 19 00
H.S. 2009.80 00
7%
7%
H.S. 2009.90 00
10%
Covers flavouring materials, nes., of kind

used in food and drink industries; other
food preparations to be used as raw
material
in
preparing
composite
concentrates for making beverages
Covers composite concentrate for simple
dilution with water to make beverages
Covers orange juice, not frozen
Covers juice of any other single fruit or
vegetable
Covers mixtures of juices
The Commissioner insists that Marinas two importations should be classified

under Tariff Heading H.S. 2106.90 50 with an import duty rate of 7% because the
concentrates are ready for consumption by mere dilution with water.
The Court is not persuaded.
As extensively discussed by the CTA Second Division, to fit into the category
listed under the Tariff Harmonized System Headings calling for a higher import duty
rate of 7%, the imported articles must not lose its original character. In this case,
however, the laboratory analysis of Marinas samples yielded a different result.
[35]
The report supported Marinas position that the subject importations are not yet
ready for human consumption. Moreover, Marinas plant manager, Rebecca
Maronilla, testified that the juice compounds could not be taken in their raw form
because they are highly concentrated and must be mixed with other additives
before they could be marketed as Sunquick juice products. If taken in their
unprocessed form, the concentrates without the mixed additives would produce a
sour taste.[36] In other words, the concentrates, to be consumable, must have to lose
their original character. To quote the CTA Second Division:
Verily, to fall under the assailed Tariff Harmonized System
Headings, petitioners (herein respondent) articles of importation, as
fruit juices/mixtures, should not have lost its original character, in spite
of the addition of certain standardizing agents/constituents. Contrary
thereto, We find the subject importations categorized as non-alcoholic
composite concentrates to have apparently lost their original character
due to the addition of ingredients in such quantity that the
concentrated fruit juice mixture only comprises a small percentage of
the entire compound.
This was clearly explained by the VCRC in its subsequent
Resolution/Decision (1st Indorsement) issued on February 17, 2005
pertaining to subsequent similar importations of petitioner, effectively
correcting its findings in the assailed Resolution/Decision dated
November 13, 2003 concerning the same party-importer, issues and
articles of importation,[37] to wit:
SUB-GROUP OBSERVATIONS/FINDINGS:
The classification issue was divided into two regimes. The era
under the old Harmonized Commodity Description and Coding
System, while the other is the latest revised edition, the Asean
Harmonized Tariff Nomenclature.
The previous committee resolution was promulgated
technically not on the merit of the case but failure on the part
of the importer to submit their position paper/arguments within
the prescriptive period given by the committee.
Importer submitted samples of subject shipment for laboratory
analysis to Philippine Customs laboratory to validate the
veracity of product information given by the supplier and to
determine the correct tariff classification.
Xxx xxx xxx
Based on the report of the Laboratory Analysis, compound is
made up to water 57.9%, Invert Sugar 34.34%, Citric Acid
2.94%, Vitamin C (Ascorbic Acid) 105 mg.
Since the item is compound which is composed of water, sugar,
concentrated juice, flavourings, citric acid, stabilizer,
preservatives, vitamins C and colouring to produce beverage
ready to drink. Consequently the concentrated citrus
juice has lost its original character due to the fact that
it comprises only 12% of the total compound.[38]
Items (fruit juices) classifiable under HS 2009 are fruit juices
generally obtained by pressing fresh, healthy and ripe fruit. Per
item 4 of the Explanatory Notes to the Harmonized Commodity
Description and Coding System apparently subject article has
lost its original character as concentrated fruit juice drink to
the compounding ingredients which reduces the fruit juices to
12% of the total compound.
In view of the foregoing subject article is classifiable under
Tariff Heading H.S. 2106.90 10 at 1% for entries filed under the
old regime. For those filed under the new regime tariff heading
AHTN 2106.90 51 at 1% where the item are specifically
provided.
RESOLUTION: To apply sub-group recommendation which is to
adopt H.S. 2106.90 10 at 1% for entries filed under the
old regime and for those filed under the new regime,
AHTN 2106.90 51 at 1% where the item are specifically
provided.[39]
To manufacture is to make or fabricate raw materials by hand, art or

machinery, and work into forms convenient for use. [40] Stated differently, it is to
transform by any process into another form suitable for its intended use. Marina, as
the manufacturing arm of CO-RO Food A/S of Denmark, transforms said juice
compounds, being raw materials, into a substance suitable for human
consumption. This is evident from the Commissioners Report [41] of Executive Clerk of
Court II, CTA, Jesus P. Inocando, Jr., who conducted an ocular inspection of Marinas
manufacturing plant in Taguig City. Pertinent excerpts of the Commissioners Report
are herein reproduced:
On our ocular inspection of the manufacturing plant of
petitioner, Ms. Solidum and Mr. Domingo showed us the sample of the
imported compounds (raw materials), showed to us the step by step
manufacturing process of petitioner and even showed us the bottling
and packaging of the finished product.
Per observation of the undersigned, the imported compounds
(raw materials) are very sticky, the plant is clean and that the
personnel of petitioner in the plant strictly following the manufacturing
process as presented in Annex A and Annex B of this report.
Upon questioning by the counsel for respondent, Mr. Domingo
said that while the imported compounds (raw materials) can be mixed
with water and may be drinkable, he is not sure if the same is suitable
for human consumption. None of us dared to taste the sample of
imported compounds (raw materials) diluted in water. The imported
compounds (raw materials) mixed with water produces bubbles on top
of the mixture, not like the one that has gone through the
manufacturing process. Counsel for respondent requested for the
marking of Label of Sunquick Lemon (840 ml.), [Annex C], as Exhibit 1
for the respondent.[42]
Contrary to the Commissioners assertions, empirical evidence shows that the
subject importations would have to undergo a laborious method, as shown by its
manufacturing flowchart[43] and manufacturing process,[44] to achieve their
marketable juice consistency. Accordingly, the 1% tariff import duty rate under Tariff
Heading H.S. 2106.90 10 was correctly applied to the subject importations.
In any case, the VCRC in its 1st Indorsement[45] of February 17, 2005 (a
subsequent proceeding involving the same type of importation) rectified the
disputed tariff reclassification rate. Thus, in Marinas succeeding importations, the
VCRC already adopted the 1% import duty rate as paid by Marina in the past.
WHEREFORE, the petition is DENIED.
SO ORDERED.
22. Fishwealth Canning Corporation v. CIR, GR No. 179343, January 21, 2010
FIRST DIVISION
FISHWEALTH
CORPORATION,
Petitioner,
- versus -
CANNING
G.R. No. 179343

Present:
CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
VILLARAMA, JR., JJ.
Promulgated:
January 21, 2010
REVENUE,
Respondent.
x--------------------------------------------------x
DECISION
CARPIO MORALES, J.:
The Commissioner of Internal Revenue (respondent), by Letter of Authority
dated May 16, 2000,[1] ordered the examination of the internal revenue taxes for the
taxable year 1999 of Fishwealth Canning Corp. (petitioner). The investigation
disclosed that petitioner was liable in the amount of P2,395,826.88 representing
income tax, value added tax (VAT), withholding tax deficiencies and other
miscellaneous deficiencies. Petitioner eventually settled these obligations on August
30, 2000.[2]
On August 25, 2000, respondent reinvestigated petitioners books of accounts and
other records of internal revenue taxes covering the same period for the purpose of
which it issued a subpoena duces tecum requiring petitioner to submit its records
and books of accounts. Petitioner requested the cancellation of the subpoena on the
ground that the same set of documents had previously been examined.
As petitioner did not heed the subpoena, respondent thereafter filed a criminal
complaint against petitioner for violation of Sections 5 (c) and 266 of the 1997
Internal Revenue Code, which complaint was dismissed for insufficiency of evidence.
[3]
Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice

of income tax and VAT deficiencies totaling P67,597,336.75 for the taxable year
1999,[4] which assessment petitioner contested by letter of September 23, 2003. [5]
Respondent thereafter issued a Final Decision on Disputed Assessment dated
August 2, 2005, which petitioner received on August 4, 2005, denying its letter of
protest, apprising it of its income tax and VAT liabilities in the amounts
of P15,396,905.24 and P63,688,434.40 [sic], respectively, for the taxable year 1999,
[6]
and requesting the immediate payment thereof, inclusive of penalties incident to
delinquency. Respondent added that if petitioner disagreed, it may appeal to the
Court of Tax Appeals (CTA) within thirty (30) days from date of receipt hereof,
otherwise our said deficiency income and value-added taxes assessments shall
become final, executory, and demandable.[7]
Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a
Letter of Reconsideration dated August 31, 2005.[8]
By a Preliminary Collection Letter dated September 6, 2005, respondent
demanded payment of petitioners tax liabilities, [9] drawing petitioner to file
on October 20, 2005 a Petition for Review[10] before the CTA.
In his Answer,[11] respondent argued, among other things, that the petition was
filed out of time which argument the First Division of the CTA upheld and accordingly
dismissed the petition.[12]
Petitioner filed a Motion for Reconsideration [13] which was denied.[14] The
Resolution denying its motion for reconsideration was received by petitioner
on October 31, 2006.[15]
On November 21, 2006, petitioner filed a petition for review before the CTA En
Banc
which, by Decision[17] of July 5, 2007, held that the petition before the First
Division, as well as that before it, was filed out of time.
[16]
Hence, the present petition,[18] petitioner arguing that the CTA En Banc erred
in holding that the petition it filed before the CTA First Division as well as that filed
before it (CTA En Banc) was filed out of time.
The petition is bereft of merit.
Section 228 of the 1997 Tax Code provides that an assessment
x x x 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. (underscoring supplied)
In the case at bar, petitioners administrative protest was denied by Final
Decision on Disputed Assessment dated August 2, 2005 issued by respondent and
which petitioner received on August 4, 2005. Under the above-quoted Section 228 of
the 1997 Tax Code, petitioner had 30 days to appeal respondents denial of its
protest to the CTA.
Since petitioner received the denial of its administrative protest on August 4,
2005, it had until September 3, 2005 to file a petition for review before the CTA
Division. It filed one, however, on October 20, 2005, hence, it was filed out of
time. For a motion for reconsideration of the denial of the administrative
protest does not toll the 30-day period to appeal to the CTA.
On petitioners final contention that it has a meritorious case in view of the
dismissal of the above-mentioned criminal case filed against it for violation of the
1997 Internal Revenue Code,[19] the same fails. For the criminal complaint was
instituted not to demand payment, but to penalize the taxpayer for violation of the
Tax Code.[20]
WHEREFORE, the petition is DISMISSED.
Costs against petitioner.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
23. CS Garment Inc. v. CIR, GR No. 182399, March 12, 2014

G.R. No. 182399
March 12, 2014
CS
GARMENT,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
INC.,* Petitioner,
DECISION
SERENO, CJ:
Before the Court is a Rule 45 petition for review on certiorari, assailing the
respective Decision1 and Resolution2 of the Court of Tax. Appeals (CTA) en bane in
EB Case No. 287. These judgments in turn affirmed the Decision 3 and the
Resolution4 of the CTA Second Division, which ordered the cancellation of certain
items in the 1998 tax assessments against petitioner CS Garment, Inc. (CS Garment
or petitioner). Accordingly, petitioner was directed to pay the Bureau of Internal
Revenue (BIR) the remaining portion of the tax assessments. This portion was
comprised of the outstanding deficiency value-added tax (VAT) on CS Garments
undeclared local sales and on the incidental sale of a motor vehicle; deficiency
documentary stamp tax (DST) on a lease agreement; and deficiency income tax as
a result of the disallowed expenses and undeclared local sales. However, while the
present case was pending before this Court, CS Garment filed a Manifestation and
Motion stating that the latter had availed itself of the governments tax amnesty
program under Republic Act No. (R.A.) 9480, or the 2007 Tax Amnesty Law.
FACTS
We reproduce the narration of facts culled by the CTA en banc 5 as follows:
Petitioner [CS Garment] is a domestic corporation duly organized and existing under
and by virtue of the laws of the Philippines with principal office at Road A, Cavite
Ecozone, Rosario, Cavite. On the other hand, respondent is the duly appointed
Commissioner of Internal Revenue of the Philippines authorized under law to
perform the duties of said office, including, inter alia, the power to assess taxpayers
for [alleged] deficiency internal revenue tax liabilities and to act upon
administrative protests or requests for reconsideration/reinvestigation of such
assessments.
Petitioner is registered with the Philippine Economic Zone Authority (PEZA) under
Certificate of Registration No. 89-064, duly approved on December 18, 1989. As
such, it is engaged in the business of manufacturing garments for sale abroad.
On November 24, 1999, petitioner [CS Garment] received from respondent [CIR]
Letter of Authority No. 00012641 dated November 10, 1999, authorizing the
examination of petitioners books of accounts and other accounting records for all
internal revenue taxes covering the period January 1, 1998 to December 31, 1998.
On October 23, 2001, petitioner received five (5) formal demand letters with
accompanying Assessment Notices from respondent, through the Office of the
Revenue Director of Revenue Region No. 9, San Pablo City, requiring it to pay the
alleged deficiency VAT, Income, DST and withholding tax assessments for taxable
year 1998 in the aggregate amount of P2,046,580.10 broken down as follows:
Deficiency VAT
Basic tax due
P 314,194.00
Add: Surcharge
157,097.00
Interest
188,516.00
Total Amount Payable
P 659,807.00
Deficiency Income Tax (at Normal Rate of 34%)

Basic tax due
P 78,639.00
Add: Surcharge
39,320.00
Interest
43,251.00
P 161,210.00
Deficiency Income Tax (at Normal Rate of 34%)

Basic tax due
P 78,639.00
Add: Surcharge
39,320.00
Interest
43,251.00
P 161,210.00
Deficiency DST
Basic tax due
P 806.00
Add: Surcharge
403.00
Interest
484.00

P 1,693.00
Deficiency EWT
Basic tax due
P 22,800.00
Add: Surcharge
11,400.00
Interest
13,680.00
P 47,880.00
GRAND TOTAL
P 2,046,580.10
On November 20, 2001, or within the 30-day period prescribed under Section 228 of
the Tax Code, as amended, petitioner filed a formal written protest with the
respondent assailing the above assessments.
On January 11, 2002, or within the sixty-day period after the filing of the protest,
petitioner submitted to the Assessment Division of Revenue Region No. 9, San Pablo
City, additional documents in support of its protest.
Respondent failed to act with finality on the protest filed by petitioner within the
period of one hundred eighty (180) days from January 11, 2002 or until July 10,
2002. Hence, petitioner appealed before [the CTA] via a Petition for Review filed on
August 6, 2002 or within thirty (30) days from the last day of the aforesaid 180-day
period.
The case was raffled to the Second Division of [the CTA] for decision. After trial on
the merits, the Second Division rendered the Assailed Decision on January 4, 2007
upon which the Second Division cancelled respondents assessment against CS
Garments for deficiency expanded withholding taxes for CY 1998 amounting
toP47,880.00, and partially cancelled the deficiency DST assessment amounting
to P1,963.00. However, the Second Division upheld the validity of the deficiency
income tax assessments by subjecting the disallowed expenses in the amount
of P14,851,478.83 and a portion of the undeclared local sales P1,541,936.60
(amounting to P1,500,000.00) to income tax at the special rate of 5%. The
remainder of undeclared local sales ofP1,541,936.06 (amounting to P41,936.60)
was subjected to income tax at the rate of 34%. The Second Division found that
total tax liability of CS Garments amounted to P2,029,570.12, plus 20% delinquency
interest pursuant to Section 249(C)(3), and computed the same as follows:
Income Tax
Deficiency
Tax
VAT
DST
at 5%
at 34%
TOTAL
Basic
Due
Tax P
314,194.00
P 145.00
P
817,573.94
P 1,789.44
25%
78,548.50
Surcharge
36.25
204,393.49
447.36
20%
Interest
188,516.00
102.02
422,898.52
925.6
P
581,258.50
=======
======
P
P
283.27 1,444,865.9
======= 5
======
=======
======
P
P
3,162.40
2,029,570.12
=======
=======
======
======
On January 29, 2007, CS Garments filed its "Motion for Partial Reconsideration" of
the said decision. On May 25, 2007, in a resolution, the Second Division denied CS
Garments motion for lack of merit. (Citations omitted)
Petitioner appealed the case to the CTA en banc and alleged the following: (1) the
Formal Assessment Notices (FAN) issued by the Commissioner of Internal Revenue
(CIR) did not comply with the requirements of the law; (2) the income generated by
CS Garment from its participation in the Cavite Export Processing Zones trade fairs
and from its sales to employees were not subject to 10% VAT; (3) the sale of the
company vehicle to its general manager was not subject to 10% VAT; (4) it had no
undeclared local sales in the amount of P1,541,936.60; and (5) Rule XX, Section 2 of
the PEZA Rules and Regulations allowed deductions from the expenses it had
incurred in connection with advertising and representation; clinic and office
supplies; commissions and professional fees; transportation, freight and handling,
and export fees; and licenses and other taxes.
The CTA en banc affirmed the Decision and Resolution of the CTA Second Division.
As regards the first issue, the banc ruled that the CIR had duly apprised CS Garment
of the factual and legal bases for assessing the latters liability for deficiency
income tax, as shown in the attached Schedule of Discrepancies provided to
petitioner; and in the subsequent reference of the CIR to Rule XX, Section 2 of the
Rules and Regulations of R.A. 7916. With respect to the second issue, the CTA
pronounced that the income generated by CS Garment from the trade fairs was
subject to internal revenue taxes, as those transactions were considered "domestic
sales" under R.A. 7916, otherwise known as the Special Economic Zone Act. With
respect to the third issue, the CTA en banc declared that the sale of the motor
vehicle by CS Garment to the latters general manager in the amount of P1.6 million
was subject to VAT, since the sale was considered an incidental transaction within
the meaning of Section 105 of the NIRC. On the fourth issue, the CTA found that CS
Garment had failed to declare the latters total local sales in the amount
of P1,541,936.60 in its 1998 income tax return. The tax court then calculated the
income tax liability of petitioner by subjecting P1.5 million of that liability to the
preferential income tax rate of 5%. This amount represented the extent of the
authority of CS Garment, as a PEZA-registered enterprise, to sell in the local market.
The normal income tax rate of 34% was then charged for the excess amount
of P41,936.60. Finally, as regards the fifth issue, the CTA ruled that Section 2, Rule
XX of the PEZA Rules which enumerates the specific deductions for ECOZONE
Export Enterprises does not mention certain claims of petitioner as allowable
deductions.
Aggrieved, CS Garment filed the present Petition for Review assailing the Decision of
the CTA en banc. However, on 26 September 2008, while the instant case was
pending before this Court, petitioner filed a Manifestation and Motion stating that it
had availed itself of the governments tax amnesty program under the 2007 Tax
Amnesty Law. It thus prays that we take note of its availment of the tax amnesty
and confirm that it is entitled to all the immunities and privileges under the law. It
has submitted to this Court the following documents, which have allegedly been
filed with Equitable PCI BankCavite EPZA Branch, a supposed authorized agentbank of the BIR:6
1. Notice of Availment of Tax Amnesty under R.A. 9480
2. Statement of Assets, Liabilities, and Net worth (SALN)
3. Tax Amnesty Return (BIR Form No. 2116)
4. Tax Amnesty Payment Form (Acceptance of Payment Form or BIR Form No.
0617)
5. Equitable PCI Banks BIR Payment Form indicating that CS Garment
deposited the amount of P250,000 to the account of the Bureau of Treasury
BIR
On 26 January 2009, the Office of the Solicitor General (OSG) filed its Comment
objecting to the Manifestation and Motion of CS Garment. 7
The OSG asserts that the filing of an application for tax amnesty does not by itself
entitle petitioner to the benefits of the law, as the BIR must still assess whether
petitioner was eligible for these benefits and whether all the conditions for the
availment of tax amnesty had been satisfied. Next, the OSG claims that the BIR is
given a one-year period to contest the correctness of the SALN filed by CS Garment,
thus making petitioners motion premature. Finally, the OSG contends that pursuant
to BIR Revenue Memorandum Circular No. (RMC) 19-2008, petitioner is disqualified
from enjoying the benefits of the Tax Amnesty Law, since a judgment was already
rendered in favor of the BIR prior to the tax amnesty availment. The OSG points out
that CS Garment submitted its application for tax amnesty only on 6 March 2008,
which was almost two months after the CTA en banc issued its 14 January 2008
Decision and more than one year after the CTA Second Division issued its 4 January
2007 Decision.
On 8 February 2010, the Court required both parties to prepare and file their
respective memoranda within 30 days from notice. 8 After this Court granted the
motions for extension filed by the parties, the OSG eventually filed its Memorandum
on 18 May 2010, and CS Garment on 7 June 2010. It is worthy to note that in its
Memorandum, the OSG did not raise any argument with respect to petitioners
availment of the tax amnesty program. Neither did the OSG deny the authenticity of
the documents submitted by CS Garments or mention that a case had been filed
against the latter for availing itself of the tax amnesty program, taking into account
the considerable lapse of time from the moment petitioner filed its Tax Amnesty
Return and Statement of Assets, Liabilities, and Net Worth in 2008.
On 17 July 2013, the parties were ordered 9 to "move in the premises" 10 by informing
the Court of the status of the tax amnesty availment of petitioner CS Garment,
including any supervening event that may be of help to the Court in its immediate
disposition of the present case. Furthermore, the parties were directed to indicate
inter alia (a) whether CS Garment had complied with the requirements of the 2007
Tax Amnesty Law, taking note of the aforementioned documents submitted; (b)
whether a case had been initiated against petitioner, with respect to its availment of
the tax amnesty program; and (c) whether respondent CIR was still interested in
pursuing the case. Petitioner eventually filed its Compliance 11 on 27 August 2013,
and the OSG on 29 November 2013.12
According to the OSG,13 CS Garment had already complied with all documentary
requirements of the 2007 Tax Amnesty Law. It also stated that the BIR Litigation
Division had not initiated any case against petitioner relative to the latters tax
amnesty application. However, the OSG reiterated that the CIR was still interested
in pursuing the case.
ISSUE
The threshold question before this Court is whether or not CS Garment is already
immune from paying the deficiency taxes stated in the 1998 tax assessments of the
CIR, as modified by the CTA.
DISCUSSION
Tax amnesty refers to the articulation of the absolute waiver by a sovereign of its
right to collect taxes and power to impose penalties on persons or entities guilty of
violating a tax law.14 Tax amnesty aims to grant a general reprieve to tax evaders
who wish to come clean by giving them an opportunity to straighten out their
records.15 In 2007, Congress enacted R.A. 9480, which granted a tax amnesty
covering "all national internal revenue taxes for the taxable year 2005 and prior
years, with or without assessments duly issued therefor, that have remained unpaid
as of December 31, 2005."16 These national internal revenue taxes include (a)
income tax; (b) VAT; (c) estate tax; (d) excise tax; (e) donors tax; (f) documentary
stamp tax; (g) capital gains tax; and (h) other percentage taxes. 17Pursuant to
Section 6 of the 2007 Tax Amnesty Law, those who availed themselves of the
benefits of the law became "immune from the payment of taxes, as well as
additions thereto, and the appurtenant civil, criminal or administrative penalties
under the National Internal Revenue Code of 1997, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable year 2005 and prior
years."
Amnesty taxpayers may immediately enjoy the privileges and immunities under the
2007 Tax Amnesty Law, as soon as they fulfill the suspensive conditions imposed
therein
A careful scrutiny of the 2007 Tax Amnesty Law would tell us that the law contains
two types of conditions one suspensive, the other resolutory. Borrowing from the
concepts under our Civil Code, a condition may be classified as suspensive when
the fulfillment of the condition results in the acquisition of rights. On the other hand,
a condition may be considered resolutory when the fulfillment of the condition
results in the extinguishment of rights. In the context of tax amnesty, the rights
referred to are those arising out of the privileges and immunities granted under the
applicable tax amnesty law.
The imposition of a suspensive condition under the 2007 Tax Amnesty Law is
evident from the following provisions of the law:
2007 Tax Amnesty Law Republic Act No. 9480
SECTION 2. Availment of the Amnesty. Any person, natural or juridical, who
wishes to avail himself of the tax amnesty authorized and granted under this Act
shall file with the Bureau of Internal Revenue (BIR) a notice and Tax Amnesty Return
accompanied by a Statement of Assets, Liabilities and Networth (SALN) as of
December 31, 2005, in such form as may be prescribed in the implementing rules
and regulations (IRR) of this Act, and pay the applicable amnesty tax within six
months from the effectivity of the IRR.
SECTION 4. Presumption of Correctness of the SALN. The SALN as of December
31, 2005 shall be considered as true and correct except where the amount of
declared networth is understated to the extent of thirty percent (30%) or more as
may be established in proceedings initiated by, or at the instance of, parties other
than the BIR or its agents: Provided, That such proceedings must be initiated within
one year following the date of the filing of the tax amnesty return and the SALN.
Findings of or admission in congressional hearings, other administrative agencies of
government, and/or courts shall be admissible to prove a thirty percent (30%)
under-declaration.
SECTION 6. Immunities and Privileges. Those who availed themselves of the tax
amnesty under Section 5 hereof, and have fully complied with all its conditions shall
be entitled to the following immunities and privileges:
(a) The taxpayer shall be immune from the payment of taxes, as well as
additions thereto, and the appurtenant civil, criminal or administrative
penalties under the National Internal Revenue Code of 1997, as amended,
arising from the failure to pay any and all internal revenue taxes for taxable
year 2005 and prior years.
(b) The taxpayers Tax Amnesty Return and the SALN as of December 31,
2005 shall not be admissible as evidence in all proceedings that pertain to
taxable year 2005 and prior years, insofar as such proceedings relate to
internal revenue taxes, before judicial, quasi-judicial or administrative bodies

in which he is a defendant or respondent, and except for the purpose of
ascertaining the networth beginning January 1, 2006, the same shall not be
examined, inquired or looked into by any person or government office.
However, the taxpayer may use this as a defense, whenever appropriate, in
cases brought against him.
(c) The books of accounts and other records of the taxpayer for the years
covered by the tax amnesty availed of shall not be examined: Provided, That
the Commissioner of Internal Revenue may authorize in writing the
examination of the said books of accounts and other records to verify the
validity or correctness of a claim for any tax refund, tax credit (other than
refund or credit of taxes withheld on wages), tax incentives, and/or
exemptions under existing laws.
All these immunities and privileges shall not apply where the person failed to file a
SALN and the Tax Amnesty Return, or where the amount of networth as of
December 31, 2005 is proven to be understated to the extent of thirty percent
(30%) or more, in accordance with the provisions of Section 3 hereof.
SECTION 7. When and Where to File and Pay. The filing of the Tax Amnesty Return
and the payment of the amnesty tax for those availing themselves of the tax
amnesty shall be made within six months starting from the effectivity of the IRR. It
shall be filed at the office of the Revenue District Officer which has jurisdiction over
the legal residence or principal place of business of the filer. The Revenue District
Officer shall issue an acceptance of payment form authorizing an authorized agent
bank, or in the absence thereof, the collection agent or municipal treasurer
concerned, to accept the amnesty tax payment.
Department of Finance Order No. 29-07: Rules and Regulations to Implement R.A.
9480
SECTION 6. Method of Availment of Tax Amnesty.
xxxx
3. Payment of Amnesty Tax and Full Compliance. Upon filing of the Tax Amnesty
Return in accordance with Sec. 6 (2) hereof, the taxpayer shall pay the amnesty tax
to the authorized agent bank or in the absence thereof, the Collection Agent or duly
authorized Treasurer of the city or municipality in which such person has his legal
residence or principal place of business.
The RDO shall issue sufficient Acceptance of Payment Forms, as may be prescribed
by the BIR for the use of or to be accomplished by the bank, the collection
agent or the Treasurer, showing the acceptance of the amnesty tax payment. In
case of the authorized agent bank, the branch manager or the assistant branch
manager shall sign the acceptance of payment form.
The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax
Amnesty Return shall be submitted to the RDO, which shall be received only after
complete payment. The completion of these requirements shall be deemed full
compliance with the provisions of R.A. 9480. (Emphases supplied)
In availing themselves of the benefits of the tax amnesty program, taxpayers must
first accomplish the following forms and prepare them for submission: (1) Notice of
Availment of Tax Amnesty Form; (2) Tax Amnesty Return Form (BIR Form No. 2116);
(3) Statement of Assets, Liabilities and Net worth (SALN) as of December 31, 2005;
and (4) Tax Amnesty Payment Form (Acceptance of Payment Form or BIR Form No.
0617).18
The taxpayers must then compute the amnesty tax due in accordance with the
rates provided in Section 5 of the law,19 using as tax base their net worth as of 31
December 2005 as declared in their SALNs. At their option, the revenue district
office (RDO) of the BIR may assist them in accomplishing the forms and computing
the taxable base and the amnesty tax due. 20 The RDO, however, is disallowed from
looking into, questioning or examining the veracity of the entries contained in the
Tax Amnesty Return, SALN, and other documents they have submitted. 21Using the
Tax Amnesty Payment Form, the taxpayers must make a complete payment of the
computed amount to an authorized agent bank, a collection agent, or a duly
authorized treasurer of the city or municipality. 22
Thereafter, the taxpayers must file with the RDO or an authorized agent bank the
(1) Notice of Availment of Tax Amnesty Form; (2) Tax Amnesty Return Form (BIR
Form No. 2116); (3) SALN; and (4) Tax Amnesty Payment Form. 23 The RDO shall only
receive these documents after complete payment is made, as shown in the Tax
Amnesty Payment Form.24 It must be noted that the completion of these
requirements "shall be deemed full compliance with the provisions of R.A.
9480."25 In our considered view, this rule means that amnesty taxpayers may
immediately enjoy the privileges and immunities under the 2007 Tax Amnesty Law
as soon as the aforementioned documents are duly received.
The OSG has already confirmed26 to this Court that CS Garment has complied with
all of the documentary requirements of the law. Consequently, and contrary to the
assertion of the OSG, no further assessment by the BIR is necessary. CS Garment is
now entitled to invoke the immunities and privileges under Section 6 of the law.
Similarly, we reject the contention of OSG that the BIR was given a one-year period
to contest the correctness of the SALN filed by CS Garment, thus making
petitioners motion premature. Neither the 2007 Tax Amnesty Law nor Department
of Finance (DOF) Order No. 29-07 (Tax Amnesty Law IRR) imposes a waiting period
of one year before the applicant can enjoy the benefits of the Tax Amnesty Law. It
can be surmised from the cited provisions that the law intended the immediate
enjoyment of the immunities and privileges of tax amnesty upon fulfilment of the
requirements. Further, a reading of Sections 4 and 6 of the 2007 Tax Amnesty Law
shows that Congress has adopted a "no questions asked" policy, so long as all the
requirements of the law and the rules are satisfied. The one-year period referred to
in the law should thus be considered only as a prescriptive period within which third
parties, meaning "parties other than the BIR or its agents," can question the SALN
not as a waiting period during which the BIR may contest the SALN and the
taxpayer prevented from enjoying the immunities and privileges under the law.
This clarification, however, does not mean that the amnesty taxpayers would go
scot-free in case they substantially understate the amounts of their net worth in
their SALN. The 2007 Tax Amnesty Law imposes a resolutory condition insofar as the
enjoyment of immunities and privileges under the law is concerned. Pursuant to
Section 4 of the law, third parties may initiate proceedings contesting the declared
amount of net worth of the amnesty taxpayer within one year following the date of
the filing of the tax amnesty return and the SALN. Section 6 then states that "All
these immunities and privileges shall not apply x x x where the amount of networth
as of December 31, 2005 is proven to be understated to the extent of thirty percent
(30%) or more, in accordance with the provisions of Section 3 hereof." Accordingly,
Section 10 provides that amnesty taxpayers who willfully understate their net worth
shall be (a) liable for perjury under the Revised Penal Code; and (b) subject to
immediate tax fraud investigation in order to collect all taxes due and to criminally
prosecute those found to have willfully evaded lawful taxes due.
Nevertheless, in this case we note that the OSG has already Indicated 27 that the CIR
had not filed a case relative to the tax amnesty application of CS Garment, from the
time the documents were filed in March 2008. Neither did the OSG mention that a
third party had initiated proceedings challenging the declared amount of net worth
of the amnesty taxpayer within the one-year period.
Taxpayers with pending tax cases are still qualified to avail themselves of the tax
amnesty program.
With respect to its last assertion, the OSG quotes the following guidelines under BIR
RMC 19-2008 to establish that CS Garment is disqualified from availing itself of the
tax amnesty program:28
A BASIC GUIDE ON THE TAX AMNESTY ACT OF 2007
The following is a basic guide for taxpayers who wish to avail of tax amnesty
pursuant of Republic Act No. 9480 (Tax Amnesty Act of 2007).
Who may avail of the amnesty?
xxxx
EXCEPT:
[x] Withholding agents with respect to their withholding tax liabilities
[x] Those with pending cases:
Under the jurisdiction of the PCGG
Involving violations of the Anti-Graft and Corrupt Practices Act
Involving violations of the Anti-Money Laundering Law
For tax evasion and other criminal offenses under the NIRC
and/or the RPC
[x] Issues and cases which were ruled by any court (even
without finality) in favor of the BIR prior to amnesty availment
of the taxpayer.(e.g. Taxpayers who have failed to observe or follow
BOI and/or PEZA rules on entitlement to Income Tax Holiday Incentives
and other incentives)
[x] Cases involving issues ruled with finality by the Supreme Court
prior to the effectivity of R.A. 9480 (e.g. DST on Special Savings
Account)
[x] Taxes passed-on and collected from customers for remittance to the
BIR
[x] Delinquent Accounts/Accounts Receivable considered as assets of
the BIR/Government, including self-assessed tax (Emphasis supplied)
To resolve the matter, we refer to the basic text of the Tax Amnesty Law and its
implementing rules and regulations, viz:
Republic Act No. 9480
SECTION 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not
extend to the following persons or cases existing as of the effectivity of this Act:
xxxx
(f) Tax cases subject of final and executory judgment by the courts.
DOF Order No. 29-07: Rules and Regulations to Implement R.A. 9480
SECTION 5. Exceptions. The tax amnesty shall not extend to the following
persons or cases existing as of the effectivity of R.A. 9480:
xxxx
7. Tax cases subject of final and executory judgment by the courts. (Emphases
supplied)
We cull from the aforementioned provisions that neither the law nor the
implementing rules state that a court ruling that has not attained finality would
preclude the availment of the benefits of the Tax Amnesty Law. Both R.A. 9480 and
DOF Order No. 29-07 are quite precise in declaring that
"[t]ax cases subject of final and executory judgment by the courts" are the ones
excepted from the benefits of the law. In fact, we have already pointed out the
erroneous interpretation of the law in Philippine Banking Corporation (Now: Global
Business Bank, Inc.) v. Commissioner of Internal Revenue, viz:
The BIRs inclusion of "issues and cases which were ruled by any court (even
without finality) in favor of the BIR prior to amnesty availment of the taxpayer" as
one of the exceptions in RMC 19-2008 is misplaced. RA 9480 is specifically clear
that the exceptions to the tax amnesty program include "tax cases subject of final
and executory judgment by the courts." The present case has not become final and
executory when Metrobank availed of the tax amnesty program. 29 (Emphasis
supplied)
While tax amnesty, similar to a tax exemption, must be construed strictly against
the taxpayer and liberally in favor of the taxing authority, 30 it is also a well-settled
doctrine31 that the rule-making power of administrative agencies cannot be
extended to amend or expand statutory requirements or to embrace matters not
originally encompassed by the law.1wphi1 Administrative regulations should
always be in accord with the provisions of the statute they seek to carry into effect,
and any resulting inconsistency shall be resolved in favor of the basic law. We thus
definitively declare that the exception "[i]ssues and cases which were ruled by any
court (even without finality) in favor of the BIR prior to amnesty availment of the
taxpayer" under BIR RMC 19-2008 is invalid, as the exception goes beyond the
scope of the provisions of the 2007 Tax Amnesty Law. 32
Considering the completion of the aforementioned requirements, we find that
petitioner has successfully availed itself of the tax amnesty benefits granted under
the Tax Amnesty Law. Therefore, we no longer see any need to further discuss the
issue of the deficiency tax assessments. CS Garment is now deemed to have been
absolved of its obligations and is already immune from the payment of taxes
including the assessed deficiency in the payment of VAT, DST, and income tax as
affirmed by the CTA en banc as well as of the additions thereto (e.g., interests and
surcharges). Furthermore, the tax amnesty benefits include immunity from "the
appurtenant civil, criminal, or administrative penalties under the NIRC of 1997, as
amended, arising from the failure to pay any and all internal revenue taxes for
taxable year 2005 and prior years."33
WHEREFORE, the instant Petition for Review is GRANTED. The 14 January 2008
Decision and 2 April 2008 Resolution of the Court of Tax Appeals en banc in CTA EB
Case No. 287 is hereby SET ASIDE, and the remaining assessments for deficiency
taxes for taxable year 1998 are hereby CANCELLED solely in the light of the
availment by CS Garment, Inc. of the tax amnesty program under Republic Act No.
9480.
SO ORDERED.
MARIA LOURDES P. A. SERENO
Chief Justice, Chairperson

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Contents

1. CIR v. Gonzalez, GR No. 177279, October 13, 2010.........................................2

1. CIR v. Gonzalez, GR No. 177279, October 13, 2010

INTERNAL G.R. No. 177279

CARPIO MORALES, J.,

VILLARAMA, JR., J.:

Termination Letter Under EWT - P 6,000.00

ERAP Program pursuant

VAP Program pursuant

In the Details of Discrepancies attached as Annex B of the PAN, [42] private

Certificate of Immunity From Audit issued on December 6, 1999 pursuant to RR No.

errors of certain administrative officers should never be allowed to jeopardize the

the taxpayer. No such administrative protest was filed by private respondents

2. RCBC v. CIR, GR No. 168498, April 24, 2007

RIZAL COMMERCIAL G.R. No. 168498

CONTRARY TO THIS HONORABLE COURTS DECISION, AND FOLLOWING THE

CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE,

Petitioners motion for reconsideration is denied for lack of merit.

We are not persuaded.

In our Decision, we held that:

Negligence to be excusable must be one which ordinary diligence and prudence

Petitioners arguments fail to persuade us.

Sec. 7. Jurisdiction. The CTA shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

WHEREFORE, in view of the foregoing, petitioners motion for reconsideration

COMMISSIONER OF INTERNAL G.R. No. 166387

ENRON SUBIC POWER

January 19, 2009

A notice of assessment is:

[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a

We disagree. The advice of tax deficiency, given by the CIR to an employee of

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

Respondent is engaged in the business of sub-contracting work for service

3. Whether or not petitioners right to collect the creditable withholding tax

deficiency assessment through a preliminary five-day letter and furnished Enron a

On the strength of the foregoing observations, we ought to reiterate our earlier

FIRST EXPRESS PAWNSHOP

G.R. Nos. 172045-46

Respondent received the assessment notices on 3 January 2002. On 1 February

respondent is liable to pay P12,328.45 as DST on deposit on subscription of capital

owed by respondent to its stockholders. For these deposits to be

(P1.50) on each Two hundred pesos (P200), or fractional part thereof,

blank, or by delivery, or by any paper or agreement, or memorandum or other

Authorized Capital Stock

Paid-up Capital Stock

Mr. Rosario Jr.

under Section 228 of the Tax Code

6. Lascona Land Co., Inc. v. CIR, GR No. 171251, March 5, 2012

LASCONA LAND CO., INC.,

G.R. No. 171251

VELASCO, JR., J., Chairperson,

Subject: LASCONA LAND CO., INC.

If the Commissioner or his duly authorized representative fails to act on the

Dissatisfied, the CIR filed an appeal before the CA. [9]

Thus, the instant petition, raising the following issues:

Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case of

SEC. 228. Protesting of Assessment. x x x

Within a period to be prescribed by implementing rules and regulations, the

Respondent, however, insists that in case of the inaction by the Commissioner on

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

x x x to adopt the interpretation of the respondent will not only sanction