Castro vs. Collector of Internal Revenue, 4 SCRA 1093, No. L-12174.

April 26, 1962

Reyes, J.B.L., J.
-----------------------------supra-----------------------------
Facts:
On November 22, 1947, Criminal Case No. 4976 was filed against her in the
Court of First Instance of Manila for violation of Section 4, in connection with
Section 8, of the War Profits Tax Law, for allegedly defrauding the Republic of
the Philippines in the total amount of P1,048,687.76. The criminal action, was
filed at the instance of respondent and simultaneous with the filing of said action,
the petitioner received for the first time the notice of assessment dated
November 19, 1947 by registered mail from the Collector of Internal Revenue.
The said letter of demand was based on the report of Supervising Examiner
Felipe Aquino of the Bureau of Internal Revenue, who recommended that the
petitioner be assessed and made to pay the sum of P1,048,687.76 as war profits
tax and surcharge
On February 9, 1948, the motion of petitioner to quash the information was
denied by the Court of First Instance of Manila. At the scheduled hearing of the
case on the merits on March 7, 1949, the City Fiscal of Manila manifested in
open court that after a re-investigation of the case "the amount of the tax due and
for which the accused stands charged for evading payment is only about
P700,000.00, instead of P1,048,687.76 as stated in the information." However, at
the continuation of the hearing of the case on February 22, 1950, Supervising
Examiner Felipe Aquino of the Bureau of Internal Revenue, who testified for the
prosecution, declared in answer to questions propounded by the City Fiscal "that
as a result of a detailed reinvestigation conducted by his office, it was found out
that no war profits tax was due from the accused in connection with the present
case." Whereupon, City Fiscal Angeles moved for the dismissal of the case.
Finding the petition for dismissal to be well taken, the Court of First Instance of
Manila, in an Order dated February 22, 1950, dismissed Criminal Case No. 4976
against petitioner.
After the dismissal of the Criminal Case, another report was submitted by the
same Supervising Examiner Felipe Aquino to his superiors wherein he changed
his previous stand taken before the Court of First Instance of Manila, on the basis
of which report another letter of demand for P2,008,293.53 as war profits tax was
issued against petitioner on January 24, 1950. Barely one month thereafter,
another report was again submitted by the same Supervising Examiner Felipe
Aquino to his superiors, on the basis of which another letter of demand for war
profits tax was issued by respondent against petitioner for the sum of
P2,229,976.94 or an increase of P221,683.31 over that assessment of January
24, 1950. The case was again referred to the City Fiscal's Office for another
prosecution based on the earlier demand but the same was again dropped.
Assignment of error and the decision of the Court:
(c) The third main ground of appeal is predicated on the acquittal of petitioner in
case No. 4976 of the Court of First Instance of Manila, wherein she was
criminally prosecuted for failure to render a true and accurate return of the war
profits tax due from her, with intent to evade payment of the tax. She contends
(Assignments of Error II to IV) that the acquittal should operate as a bar to the
imposition of the tax and specially the 50% surcharge provided by section 6 of
the War Profits law (R.A. No. 55), invoking the ruling in Coffey v. U.S., 29 L. Ed.
436.
With regard to the tax proper, the state correctly points out in its brief that
the acquittal in the criminal case could not operate to discharge petitioner
from the duty to pay the tax, since that duty is imposed by statute prior to
and independently of any attempts on the part of the taxpayer to evade
payment. The obligation to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a mere civil liability
derived from crime that would be wiped out by the judicial declaration that
the criminal acts charged did not exist.
As to the 50% surcharge, the very United States Supreme Court that rendered
the Coffey decision has subsequently pointed out that additions of this kind to the
main tax are not penalties but civil administrative sanctions, provided primarily as
a safeguard for the protection of the state revenue and to reimburse the
government for the heavy expense of investigation and the loss resulting from
the taxpayer's fraud (Helvering vs. Mitchell, 303 U.S. 390, 82 L. Ed. 917; Spies
vs. U.S. 317 U.S. 492). This is made plain by the fact that such surcharges are
enforceable, like the primary tax itself, by distraint or civil suit, and that they are
provided in a section of R.A. No. 55 (section 5) that is separate and distinct from
that providing for criminal prosecution (section 7). We conclude that the defense
of jeopardy and estoppel by reason of the petitioner's acquittal is untenable and
without merit. Whether or not there was fraud committed by the taxpayer
justifying the imposition of the surcharge is an issue of fact to be inferred from the
evidence and surrounding circumstances; and the finding of its existence by the
Tax Court is conclusive upon us. (Gutierrez v. Collector, G.R. No. L-9771, May
31, 1951 ; Perez vs. Collector, supra).
 CASE SYLLABI:
Same; Same; Taxpayer not discharged from duty to pay tax by his acquittal
from criminal action.—The acquittal of a taxpayer in a criminal case cannot
operate to discharge him from the duty to pay tax, because that duty is imposed
by statute prior to and independently of any attempt on the part of the taxpayer to
evade payment.
Same; Same; 50% surcharge not a penalty.—Addition ike the 50% surcharge
to the main tax are not penalties but civil administrative sanctions, provided
primarily as a safeguard for the protection of the state revenue and to reimburse
the government for the heavy expense of investigation and the loss resulting
from the taxpayer's fraud. (Helvering vs. Mitchell, 303 U.S. 390, 82 L. Ed. 917;
Spies vs. U.S., 317 U.S. 492). This is made plain by the fact that such
surcharges are enforceable, like the primary tax itself, by distraint or civil suit,
and that they are provided in section 4, of Repub lic Act No that is separate and
distinct from that providing for criminal prosecution (Section 7).

Republic vs. Enriquez, 166 SCRA 608, No. L-78391. October 21, 1988
Padilla, J.
Facts:
On 28 January 1985, the petitioner, through the Commissioner of Internal
Revenue, served a Warrant of Distraint of Personal Property on the Maritime
Company of the. Philippines to satisfy various deficiency taxes of said company
in the total amount of P17,284,882.45, pursuant to unappealed and final tax
assessments. On 4 October 1985, the corresponding Notice of Seizure of
Personal Property, a copy of which was received by a respresentative of the
Maritime Company of the Philippines, was issued by the Commissioner of
Internal Revenue. 3 Among the properties seized were six (6) barges, Barge
MCP-1 to Barge MCP-6.

On 11 June 1986, respondent sheriff levied on two (2) barges of the Maritime
Company of the Philippines, pursuant to a writ of execution issued on 19
February 1986 by the Regional Trial Court of Manila, Branch 31, in Civil Case
No. 85-30134, entitled "Genstar Container Corporation vs. Maritime Company of
the Philippines", in favor of the plaintiff therein. Respondent sheriff scheduled a
public auction sale, of the levied barges on 23 June 1986. The barges,
particularly Barge MCP-1 and Barge MCP-4, were among the aforementioned
properties distrained and seized by petitioner, through the Commissioner of
Internal Revenue.

On 18 June 1986, the Commissioner of Internal Revenue wrote respondent

sheriff informing the latter that Barge MCP-1 and Barge MCP-4 were no longer
owned by the Maritime Company of the Philippines as said barges had been
distrained and seized by the Bureau of Internal Revenue in satisfaction of various
deficiency taxes of Maritime Company of the Philippines, thereby registering its
adverse claim over said barges.

On 23 June 1986, respondent deputy sheriff sold at public auction the two (2)
barges, MCP-1 and MCP-4, and issued the corresponding sheriffs certificate of
sale on the same date to the highest bidder which was the levying creditor. On
24 July 1986, petitioner filed before the Court of Appeals the aforementioned
petition for prohibition with preliminary injunction, alleging that respondent sheriff,
Ramon G. Enriquez, acted in excess of his authority or with grave abuse of
discretion when he levied on execution and subsequently auctioned the
abovesaid two (2) barges which were the subject of a warrant of distraint and
notice of seizure by the Commissioner of Internal Revenue. Petitioner prayed
that respondent be ordered to desist and refrain from further proceedings in
connection with the execution and that respondent's notice of levy be declared
null and void.

In its decision, dated 30 April 1987, the Court of Appeals dismissed the petition
after finding that "(H)e appears to have acted in accordance with law and in
keeping with his duties. There is no perceived abuse of authority or grave abuse
of discretion." Hence, this appeal.

Issue:

Whether or not the writ of execution issued by the RTC is more superior than the
BIR’s warrant of distraint and notice of seizure of personal property.

Held:

It is settled that the claim of the government predicated on a tax lien is superior to
the claim of a private litigant predicated on a judgment. The tax lien attaches not
only from the service of the warrant of distraint of personal property but from the
time the tax became due and payable. 5 Besides, the distraint on the subject
properties of Maritime Company of the Philippines as well as the notice of their
seizure were made by petitioner, through the Commissioner of Internal Revenue,
long before the writ of execution was issued by the Regional Trial Court of
Manila, Branch 31. There is no question then that at the time the writ of execution
was issued, the two (2) barges, MCP-1 and MCP-4, were no longer properties of
the Maritime Company of the Philippines. The power of the court in execution of
judgments extends only to properties unquestionably belonging to the judgment
debtor. Execution sales affect the rights of the judgment debtor only, and the
purchaser in an auction sale acquires only such right as the judgment debtor had
at the time of sale. It is also well-settled that the sheriff is not authorized to attach
or levy on property not belonging to the judgment debtor.

CASE SYLLABI:

Taxation; Tax liens; Claim of the government predicated on a tax lien is

superior to the claim of a private litigant based on a judgment.—It is settled
that the claim of the government predicated on a tax lien is superior to the claim
of a private litigant predicated on a judgment. The tax lien attaches not only from
the service of the warrant of distraint of personal property but from the time the
tax became due and payable.
Same; Same; Execution of judgment; Power of the court in execution of
judgments extends only to properties belonging to the judgment debtor;
The sheriff is not authorized to attach or levy on property not belonging to
the judgment debtor.—Besides, the distraint on the subject properties of
Maritime Company of the Philippines as well as the notice of their seizure were
made by petitioner, through the Commissioner of Internal Revenue, long before
the writ of execution was issued by the Regional Trial Court of Manila, Branch
31. There is no question then that at the time the writ of execution was issued,
the two (2) barges, MCP-1 and MCP-4, were no longer properties of the Maritime
Company of the Philippines. The power of the court in execution of judgments
extends only to properties unquestionably belonging to the judgment debtor.
Execution sales affect the rights of the judgment debtor only, and the purchaser
in an auction sale acquires only such right as the judgment debtor had at the time
of sale. It is also well-settled that the sheriff is not authorized to attach or levy on
property not belonging to the judgment debtor.
Commissioner of Internal Revenue vs. NLRC, 238 SCRA 42, G.R. No.
74965. November 9, 1994
Mendoza, J.
Facts:
On January 12, 1984, the CIR demanded payment from private respondent
Maritime Company of the Philippines of deficiency common carrier’s tax, fixed
tax, 6% commercial broker’s tax, documentary stamp tax, income tax and
withholding tax totalling P17,284,882.45. The assessment became final and
executory, and with private respondent’s failure to pay the tax liabilities, the
CIR issued warrants of distraint of personal property and levy of real property
which were duly served on January 23, 1985. On April 16, 1985, a “receipt of
goods, articles and things” was executed covering, among others, 6 barges
as proof of constructive distraint of property but the same was not signed by
any representative of private respondent because of the refusal of the
persons actually in possession of the barges
It appeared that 4 of the barges constructively distrained were also levied
upon by a deputy sheriff of Manila on July 20, 1985 and sold at public auction
to satisfy a judgment for unpaid wages and other benefits of employees of
private respondent.
Issue:
Who has the better right- the BIR, or the workers?
Held:

This case arose out of the same facts involved in Republic v. Enriquez, in which
we sustained the validity of the distraint of the six barges, which included the four
involved in this case, against the levy on execution made by another deputy
sheriff of Manila in another case filed against Maritime Company. Two barges
(MCP-1 and MCP-4) were the subject of a levy in the case. There we found that
the "Receipt for Goods, Articles and Things Seized under Authority of the
National Internal Revenue Code" covering the six barges had been duly
executed, with the Headquarters, First Coast Guard District, Farola Compound
Binondo, Manila acknowledging receipt of several barges, vehicles and two (2)
bodegas of spare parts belonging to Maritime Company of the Philippines.

Accordingly, what we said in the prior case in upholding the validity of distraint of
two of the six barges (MCP Nos. 1 and 4), fully applies in this case:

It is settled that the claim of the government predicated on a tax lien

is superior to the claim of a private litigant predicated on a judgment.
The tax lien attaches not only from the service of the warrant of
distraint of personal property but from the time the tax became due
and payable. Besides, the distraint on the subject properties of the
Maritime Company of the Philippines as well as the notice of their
seizure were made by petitioner, through the Commissioner of the
Internal Revenue, long before the writ of the execution was issued
by the Regional Trial Court of Manila, Branch 31. There is no
question then that at the time the writ of execution was issued, the
 two (2) barges, MPC-1 and MCP-4, were no longer properties of the
Maritime Company of the Philippines. The power of the court in
execution of judgments extends only to properties unquestionably
belonging to the judgment debtor. Execution sales affect the rights of
the judgment debtor only, and the purchaser in an auction sale
acquires only such right as the judgment debtor had at the time of
sale. It is also well-settled that the sheriff is not authorized to attach
or levy on property not belonging to the judgment debtor.

Nor is there any merit in the contention of the NLRC that taxes are absolutely
preferred claims only with respect to movable or immovable properties on which
they are due and that since the taxes sought to be collected in this case are not
due on the barges in question the government's claim cannot prevail over the
claims of employees of the Maritime Company of the Philippines which, pursuant
to Art. 110 of the Labor Code, "enjoy first preference."

In addition, we have held that Art. 110 of the Labor Code applies only in case of
bankruptcy or judicial liquidation of the employer. This is clear from the text of the
law. This case does not involve the liquidation of the employer's business.

CASE SYLLABI:

Taxation; National Internal Revenue Code; Remedies for collection of

delinquent taxes.—The National Internal Revenue Code provides for the
collection of delinquent taxes by any of the following remedies: (a) distraint of
personal property or levy of real property of the delinquent taxpayer and (b) civil
or criminal action.
Same; Same; Constructive Distraint.—With respect to the four barges in
question, petitioner resorted to constructive distraint pursuant to § 303 (now §
206) of the NIRC. This provision states: Constructive distraint of the property of a
taxpayer.—To safeguard the interest of the Government, the Commissioner of
Internal Revenue may place under constructive distraint the property of a
delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any
business subject to tax, or intends to leave the Philippines, or remove his
property therefrom, or hide or conceal his property, or perform any act tending to
obstruct the proceedings, for collecting the tax due or which may be due from
him.
Same; Same; Same; It is settled that the claim of the government
predicated on a tax lien is superior to the claim of a private litigant
predicated on a judgment.—Accordingly, what we said in the prior case in
upholding the validity of distraint of two of the six barges (MCP Nos. 1 and 4),
fully applies in this case: It is settled that the claim of the government predicated
on a tax lien is superior to the claim of a private litigant predicated on a judgment.
The tax lien attaches not only from the service of the warrant of distraint of
personal property but from the time the tax became due and payable. Besides,
the distraint on the subject properties of Maritime Company of the Philippines as
well as the notice of their seizure were made by petitioner, through the
Commissioner of Internal Revenue, long before the writ of execution was issued
by the Regional Trial Court of Manila, Branch 31. There is no question then that
at the time the writ of execution was issued, the two (2) barges, MCP-1 and
MCP-4, were no longer properties of the Maritime Company of the Philippines.
The power of the court in execution of judgments extends only to properties
unquestionably belonging to the judgment debtor. Execution sales affect the
rights of the judgment debtor only, and the purchaser in an auction sale acquires
only such right as the judgment debtor had at the time of sale. It is also well-
settled that the sheriff is not authorized to attach or levy on property not
belonging to the judgment debtor.
Same; Same; NLRC; No merit in the contention of the NLRC that taxes are
absolutely preferred claims only with respect to movable or immovable
properties on which they are due.—Nor is there any merit in the contention of
the NLRC that taxes are absolutely preferred claims only with respect to movable
or immovable properties on which they are due and that since the taxes sought
to be collected in this case are not due on the barges in question the
government’s claim cannot prevail over the claims of employees of the Maritime
Company of the Philippines which, pursuant to Art. 110 of the Labor Code, “enjoy
first preference.”
Labor Law; Money Claims; Worker’s Preference; Civil Law; Preference of
Credits; Article 110 of the Labor Code does not purport to create a lien in
favor of workers or employees for unpaid wages either upon all of the
properties or upon any particular property owned by their employer.—
Article 110 of the Labor Code does not purport to create a lien in favor of workers
or employees for unpaid wages either upon all of the properties or upon any
particular property owned by their employer. Claims for unpaid wages do not
therefore fall at all within the category of specially preferred claims established
under Articles 2241 and 2242 of the Civil Code, except to the extent that such
claims for unpaid wages are already covered by Article 2241, number 6; “claims
for laborers’ wages, on the goods manufactured or the work done;” or by Article
2242, number 3: “claims of laborers and other workers engaged in the
construction, reconstruction or repair of buildings, canals and other works, upon
said buildings, canals or other works.” To the extent that claims for unpaid wages
fall outside the scope of Article 2241, number 6 and 2242, number 3, they would
come within the ambit of the category of ordinary preferred credits under Article
2244.
Same; Same; Same; Same; Same; Article 110 of the Labor Code applies
only in case of bankruptcy or judicial liquidation of the employer.—In
addition, we have held that Art. 110 of the Labor Code applies only in case of
bankruptcy or judicial liquidation of the employer. This is clear from the text of the
law: ART. 110. Worker preference in case of bankruptcy.—In the event of
bankruptcy or liquidation of an employer’s business, his workers shall enjoy first
preference as regards wages due them for services rendered during the period
prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may
establish any claims to a share in the assets of the employer.