Criminal Case No.

20685, March 2, 2001

PEOPLE OF THE PHILIPPINES, plaintiff

vs.
BIENVENIDO A. TAN, JR. JUANITO P. URBI, JAIME MAZA, NAZARIO L. AVENDANO & JAIME
J. DLEA CRUZ, accused,

PALATTAO, J.:

In resolving this case, the Court calls to mind Plato’s immortal words:

"Access to power must not be conferred to

those who are not in love with it."

This is a case for Violation of Section 3 (e) R.A. 3019 filed against accused Bienvenido A. Tan, Jr.,
former Commissioner of the Bureau of Internal revenue, Juanito P. Urbi, Chief Prosecution Division,
BIR, Jaime Maza, Asst. Commissioner, Legal Service Division, BIR Nazario L. Avendano, Senior
Vice-President, Comptroller, San Miguel Corporation and Jaime J. Dela Cruz, Asst. Vice-President,
SMC committed on December 22, 1988 in Quezon City, Philippines, the corresponding Information
textually reading as follows:

"That on or about December 22, 1988 and for sometime prior or subsequent hereto
in Quezon City, Philippines, and within the jurisdiction of this Honorable Court, the
above-named accused, BIENVENIDO A. TAN, JR, being then the Commissioner,
Bureau of Internal Revenue, JUANITO P. URBI, Chief Prosecution Division, BIR,
JAIME MAZA, Asst. Commissioner, Legal Service Division, BIR, all public officers
while in the performance of their official functions, conspiring and confederating with
the accused private individuals NAZARIO AVENDANO, Senior Vice-
President/Comptroller San Miguel Corporation and JAIME G. DELA CRUZ, Asst.
Vice-President, San Miguel Corporation, through evident bad faith and manifest
partially, did then and there willfully, unlawfully and criminally cause undue injury to
the Government by effecting a compromise of the tax liabilities of San Miguel
Corporation in the total amount of THREE HUNDRED TWO MILLION, NINE
HUNDRED FIFTY-ONE THOUSAND, FORTY-EIGHT PESOS and NINETY-THREE
CENTAVOS (P302, 951, 043.93) Philippine Currency for TEN MILLION PESOS
ONLY (P10,000,000.00), which compromise is grossly disadvantageous to the
Government and thus, giving unwarranted benefits to San Miguel Corporation in the
amount of TWO HUNDRED NINETY TWO MILLION NINE HUNDRED FIFTY ONE
THOUSAND FORTY EIGHT PESOS AND 93/100 (P292, 951, 043.93), to the
damage and prejudice of the Government in the aforesaid amount.

Contrary to Law."
Upon being arraigned on July 22, 1994, accused Bienvenido A. Tan entered a plea of "NOT
GUILTY".

Commissioner Tan was originally charged in this case with Juanito P. Urbi, Chief prosecution
division, BIR, Jaime Maza, Asst. Commissioner, Legal Service Division, Nazario L. Avendano,
Senior Vice President/Comptroller of the SMC and Jaime Dela Cruz, Asst. Vice President, SMC.
However, said accused, invoking their right granted under Republic Act No. 6770 of the Ombudsman
Law, sought a reinvestigation of their cases, so that on January 31, 1994, the Office of the
Ombudsman recommended that the four other accused be dropped from the charges and which
recommendation was approved by the Sandiganbayan on November 27, 1995 which approval was
affirmed by the decision of the Supreme Court in G.R. No. 128764 promulgated on July 10, 1988 so
that only accused Bienvenido Tan stands as the sole remaining accused.

During the pre-trial conference, the public prosecutor marked the following exhibits:

Exhibits "A" A certified true copy of the letter of

Bienvenido A. Tan, Jr. to San Miguel Corp. (SMC)
dated July 13, 1987, consisting of two (2) pages;

"B" A certified true copy of the letter of Jaime J. Dela

Cruz, Assistant Vice-President of SMC to Bienvenido
A. Tan, Jr. dated August 10, 1987, consisting of six
(6) pages;

"C" A certified true copy of the letter of Bienvenido A.

Tan, Jr, to San Miguel Corporation dated October 8,
1987, consisting of two (2) pages;

"D" A certified true copy of the letter of Jaime J. dela

Cruz, Assistant Vice-President of SMC to Beinvenido
A. Tan, Jr. dated November 2, 1987, consisting of
eight (8) pages;

"E" A certified true copy of the letter of Nazario L.

Avendano, Senior Vice-President and Comptroller to
Bienvenido A. Tan Jr. dated August 31, 1988,
consisting of four (40 pages;

"F" A certified true copy of the letter of Bienvenido A.

Tan, Jr. to San Miguel Corporation dated December
20, 1988;

"G" A certified Xeroxed copy of the copy on file with

the BIR of the confirmation Receipt No. B 15514605
dated December 26, 1988; and

"H" The original of the Motion for Reconsideration of

Bienvenido A. Tan, Jr. dated April 8, 1994, consisting
of six (6) pages.
The defense admitted the existence and genuineness of Exhibits "A" to "H", but manifested that it
will contest the correctness of the figures and computations contained therein.

In view of the admissions made by the herein accused, the prosecution manifested that it will no
longer present testimonial evidence.

Although the parties did not into any stipulation of facts, they nevertheless agreed that in resolving
the case at bar, the facts established by the exhibits of the prosecution and that of the defense, both
documentary and testimonial will be considered and that the Court shall limit itself limit itself to the
following issues:

"1. Whether the amount of the final tax assessment on San Miguel Corp., subject of
this case, is P302, 951, 043.93 as alleged in the Information, or only P8, 001, 977.97,
exclusive of interests and penalties, as claimed by the accused;

"2. Whether or not the accused as the then BIR Commissioner acted in evident bad
faith and manifest partiality in entering into a compromise with the San Miguel
Corporation, as taxpayer, in the reduction of the latter’s tax liability, subject of this
case, to only P10, 000, 000.00 including interest and penalties.

On February 19, 1999, the public prosecutor formally offered Exhibits "A" to "H" as heretofore
described.

On February 24, 1999, the accused submitted his comment/objection thereto. On March 5, 1999 the
court resolved to admit the documentary exhibits of the public prosecutor. Thus, the prosecutor
formally rested his case.

Thereafter, the accused filed a request for admission under Rule 26 of the Rules of Court for the
public prosecutor to agree on the genuineness and truth of the following documents and matters:

"1. That, as can be gleaned from the Fact Finding report of the Office of the
Ombudsman dated August 24, 1992, before the BIR informed SMC in a letter
dated December 20, 1998 that its offer to pay P10 million was accepted, the
study and review of the SMC tax case passed thru the following:

a. Letter of SMC to BIR dated April 9, 1986;

b. Letter of SMC to BIR dated May 5, 1986;
c. Reply of the BIR to SMC dated May 5, 1986;
d. Memorandum of Authority dated March 6, 1986;
e. Pricilla Puno’s Report dated December 8, 1986;
f. Pre-Assessment Notice from Mr. Larin (undated);
g. Letter of SMC to Mr. Larin dated June 9, 1987;
h. BIR letter dated July 13, 1987;
i. Memorandum of Jesus Bundag to BIR Commissioner dated August 21, 1987;
j. 1st Endorsement of Mr. Larin dated October 8, 1987;
k. BIR letter dated November 8, 1987;
l. BIR letter dated November 2, 1987;
m. SMC letter dated November 17, 1987;
n. Memorandum of Mr. Larin dated June 27, 1988;
o. 1st Endorsement of Mr. Paningbatan dated June 28, 1988;
p. Referral to Legal Service dated October 27;
q. SMC letter dated November 2, 1987;
 r. Memorandum of Alicia P. Clemeno to BIR Commissioner dated June 1,
1988;
s. SMC letter to BIR dated August 31, 1988;
t. Memorandum of Alicia Clemeno to BIR Commissioner dated September 29,
1988;
u. 2nd Endorsement dated November 14, 1988;
v. 1st Endorsement of Mr. Larin dated November 25, 1988 attaching Bundag
memo dated November 25, 1988;
w. Memorandum of Mr. Urbi to BIR Commissioner dated December 20, 1988.

1. That on August 31, 1992, Christopher S. Soquilon, Graft Investigation Officer II, and
Agapito B. Rosales, Director of the FFIB recommended the creation of a panel ‘to
investigate irregular and anomalous compromise of the tax liabilities of SMC which
were perpetrated by Bienvenido A. Tan, Jr., Jaime Maza, Juanito Urbi, Nazario
Avendano and Jaime Dela Cruz."
2. That on January 25, 1993, Agapito B. Rosales executed a Complaint-Affidavit
against the five persons named in the preceding paragraph for "anomalous and
irregular compromise settlement of the deficiency specific and ad valorem tax
liabilities of SMC."
3. That Reply to Counter-Affidavit dated July 5, 1993 made under oath by Agapito B.
Rosales and Christopher S. Soquilon the following statements were sworn to:

"There is a clear conspiracy in this case."

"The records are replete with sufficient evidence to show the malfeasance and
conspiracy in this case."

4. That in a Sur Rejoinder dated August 1, 1993 made under oath by Agapito Rosales
and Christopher Soquilon, said affidavit stated "We believe that Clemeno was not a
party to such conspiracy."
5. That in Resolution dated November 26, 1993 the Office of the Ombudsman thru Jose
S. Santos, Virgillo D. Gongon and Christopher C. Garvides stated:

a. On page 5: "FFIB concluded that all the respondents participated in the

orchestration of said anomalous compromise."
b. On page 18: "The surrounding facts in the case are clear and undebatable."
c. On page 20: "The expediente shows that conspiracy existed between
respondent BIR Officials and private respondents x x x restoring to the
strange, convoluted and imaginative interpretation of Sec. 124 of the Tax
Code."

1. That on January 31, 1995, Robert E. Kallos, Special Prosecution Officer, III signed
and issued an Order finding that:

a. a) On page 10: "

 1. That on January 31, 1995, Robert E. Kallos, Special Prosecution Officer, III signed
and issued an Order finding that:

a. On page 10: Avendano and de la Cruz merely acted to serve what is best for
their corporation. They did not stand to personally benefit from their acts. All
that the prosecutor has is a mere suspicion that they acted in conspiracy with
former Com. Bienvenido A. Tan, Jr.,"
b. On page 5: "The study was made by Millard Mansequiao, Atty. IV of the law
Division of the BIR. This study was adopted by the Division Chief, Atty. Alicia
P. Clemeno. Mansequiao in fact prepared the draft recommendation. It was
this result of study that Maza and Urbi recommended to accused BIR
commissioner."
c. On page 10: "There is no sufficient probable cause to continue the
prosecution of accused Jaime Maza, Juanito Urbi, Nazario Avendano and
Jaime.

1. That on February 24, 1995 Mr. Aniano Desierto, Special Prosecutor, issued a
Memorandum for Manuel C. Domingo, Deputy Ombudsman for Luzon, in which was
stated:

"The other accused, Maza and Urbi, who were lower ranking officials merely
performed their assigned task of having the better studied and of making their own
conclusions therefrom which at the most had only persuasive effect.

And the record is bereft of evidence to show that Tan connived with his subordinates.
The study of Atty. Alicia Clemeno was merely an act of compliance of duty.

"x x x there is no legal or factual basis to include Urbi and Maza as accused because
they merely based their recommendatory actions on the study of Atty. Clemeno.
These circumstances certainly conspiring with accused Tan."

"On the part of the accused SMC officials, there is absolutely no showing that the
reduction of the tax liability of SMC was to their personal benefit. IT is highly
improbable for them, therefore, to have conspired with accused Tan. The act of
SMC’s asking for the reduction of tax liability cannot be considered as evidence of
conspiracy because it is natural for every company or individual taxpayer to seek a
reduction of its tax liability."

2. That on une 26, 1996 the Daily Inquirer published a news item that Ombudsman
Desierto refused to prosecute Commissioner Liwayway Chato of the Bureau of
Internal Revenue for her refusal to collect the amount of P302, 051, 043.93.
3. a) The Affidavit of Gregorio A. Sabayle, Chief of the Appellate Division of the Bureau
of Internal Revenue, dated January 17, 1995 and attachments thereto reciting the
procedure followed in matters of a disputed tax cases and in particular the San
Miguel case.
 b) The Affidavit of Millard Mansequiao, Atty. IV Bureau of Internal Revenue, Assistant
Chief, Law Division dated January 17, 1995 with attachments certifying to the fact
that he prepared both memorandum dated June 1, 1988 and September 29, 1988
upon referral by Atty. Alicia P. Clemeno.

4. That, as reported on the Philippine Star issue of September 27, 1998, President
Estrada approved the Ad Hoc Council on Taxation "Dream Team" – according to the
President "the best and the brightest" in the field of taxation and of proven integrity,
expertise and wisdom and that the accused is a member of the said team.

The public prosecutor submitted his Comment on march 24, 1999, and the Court in a Resolution
adopted on April 8, 1999, denied the same for lack of merit, considering the prosecution’s comment
thereon which reads, to wit:

"1) The documents listed in paragraph 1 of the Request for

Admission are admitted as attachments of the Fact Finding Report of
the FFIB of the Office of the Ombudsman dated August 24, 1992,
with the qualification that only the SMC’s letter to the BIR dated
August 31, 1988 and the Memorandum of Mr. Urbi to the BIR
Commissioner dated December 20, 1988 were considered by the
accused that lead to his acceptance of the P10,000,000.00 in
compromise settlement of the tax liabilities of SMC in the amount of
P302, 051, 043.93"

On April 21, 1999, the accused took the witness stand and upon the termination of his testimony, he
formally offered his documentary exhibits and prayed the Court for the admission of the following:

Exhibit "I" Order dated January 31, 1995 in Criminal

Case No. 20685 issued by the Special Prosecutor.

"1-A" Submarkings in Exhibit "1".

"1-B"

"1-C" and

"1-D"

"2" Memorandum dated February 24, 1995 issued by

Special Prosecutor Aniano A. Desierto.

"2-A" Submarkings in Exhibit "2"

"2-B"

"2-C" &

"2-D"
"3" Rejoinder-Affidavit of Messrs. Nazario L.
Avendano and Jaime de la Cruz dated August 20,
1993.

"4" Letter of Commissioner Jose U. Ong addressed to

the Senate Blue Ribbon Committee dated may 8,
1989.

"4-A" Paragraph 1, page 2 of Exh. ‘4"

"4-B" Item 2, page 3 Exh. "4"

"4-C" Page 3 of Exh. "4".

"4-D" Concluding paragraph of Exh. "4’

"5" June 1, 1988 Memorandum of Atty. Clemeno to

the BIR Commissioner

"5-A" Page 2 of Exh. "5"

"5-B" Last paragraph in Page 6 of Exh. "5"

"6" September 29, 1988 Memorandum of Atty. Alicia

P. Clemeco.

"6-A" Concluding paragraph of Exh. "6".

"6-B" page 2 of Exh. "6".

"7" Certified true copy of the letter of Bienvenido Tan,

Jr. to SMC dated December 20, 1986;

"8" Letter of SMC addressed to the Commissioner of

Internal Revenue dated April 9, 1986;

"9" SMC letter to SMC dated May 5, 1986.

"10" BIR letter to SMC dated May 5, 1986;

"11’ Certified true copy of the letter of Bienvenido Tan,

Jr. to SMC dated July 13, 1987.

"12" Memorandum of Jesus Q. Bundang, Supervising

Revenue Enforcement Officer of the BIR addressed to
the Commissioner of Internal Revenue dated August
21, 1987.

"13" Certified true copy of the letter of Bienvenido

Tan, Jr. to SMC dated October 8, 1987.
"14" SMC letter to the Commissioner of Internal
Revenue dated November 2, 1987.

"15" Certified true copy of the Memorandum of

Priscila Puno to the Commissioner of Internal
Revenue dated December 8, 1986.

"15-A" & The amounts of P212, 698, 934.18,

respectively, in the second to the last page of Exhibit
"15"

"16-A" The amount of P255, 378, 194.01 in page 2 of

Exhibit "16"

"17" Certified true copy of SMC letter to Asst. Officer

Aquilino Latin dated June 9, 1987.

"18" Certified true copy of SMC letter to Beinvenido

Tan. Jr., dated August 10, 1987.

"19" Certified true copy of a handwritten note of

Beinvenido Tan. Jr. addressed to Atty. Maza under
date of October 27, 1987.

"20" Certified true copy of the 1st Endorsement of

Aquilino Larin dated November 25, 1988.

"20-A" Attachments to Exhibit "20"

"20-B"

"20-C" The final figure P8, 001, 977.97 arrived at by

Jesus Q. Bundang dated November 21, 1988
appearing at the bottom portion of Exh. "20-B"

"21" Certified true copy of SMC letter to Beinvenido

Tan, Jr. dated August 31, 1988.

"22" Certified true copy of the memorandum of

Juanito Urbi to the BIR Commissioner dated
December 20, 1988.

"22-A" Concluding paragraph of Exhibit ‘22"

"22-B" Name and signature of Juanito P. Urbi, Chief

Prosecution Division.

"22-C" name and signature of Jaime M. Maza, Asst.

Commissioner for Legal Services of the BIR.
 "22-D" Name and signature of Bienvenido Tan, Jr.,
BIR Commissioner.

On July 26, 1999, the court ordered the admission of the same over the objection prosecutor.

This case is an off-shot of a complaint filed by Congressman Bonifacio Gillego regarding alleged
irregularities committed by some BIR officials. The fact-finding and Intelligence Bureau (FFIB) of the
Office of the Ombudsman prepared the complaint. In the subsequent investigation, it was revealed
that the reported tax compromise was consummated during the time of the herein accused
Bienvenido Tan, Jr., and that a tax assessment of P302, 951, 043.93 was compromised for only
P10, 000, 000.00. The case was later denominated as Case No. OMB-1-93-0295.

Culled from the evidence of both the prosecution and defense, are the following facts:

Pursuant to Letter of Authority No. ATD-035-STO dated January 2, 1986 and Memorandum of
Authority dated March 3, 1986, an investigation was conducted by BIR examiners on the ad valorem
and specific tax liabilities of SMC covering the period from January 1, 1085 to March 31, 1986. The
result of the investigation showed that SMC-San Miguel Corp. has a deficiency on specific and ad
valorem taxes totaling P342, 616, 217.88 broken down as follows:

Specific Tax - - - - - - - - - - - - - - P 33, 817, 613.21

Ad Valorem Tax - - - - - - - - - - - P 308, 798, 604.67

On the basis of these findings, the BIR sent a letter dated July 13, 1987 to SMC demanding the
payment of its deficiency tax in the amount of P342, 616, 217.88. Apparently the letter was received
by the SMC, as it protested the assessment in its letter dated August 10, 1987 with the information:
1) that the alleged specific tax deficiency was already paid when the BIR approved SMC's request
that its excess ad valorem payments be applied to its specific tax balance; 2) that the computation of
the ad valorem tax deficiency was erroneous since the BIR examiners disallowed the deduction of
the price differential (cost of freight from brewery to warehouse) and ad valorem tax.

The protest was denied by the BIR thru a letter dated October 10, 1987 signed by accused
Commissioner Bienvenido Tan, Jr., but the original assessment of P342, 616,217.88 was reduced to
P302, 951,048.93 due to the crediting of the taxpayer's excess ad valorem tax deposit of P21, 805,
409.10 with a reiteration of the payment of the assessment of the assessed specific and ad valorem
tax as reduced.

On October 27, 1987, herein accused referred the matter to Jaime M. Maza, Assistant BIR
Commissioner, Legal Service Division and thereafter different BIR officials also reviewed the case of
SMC and rendered varying legal opinions on the issue such as:

On the part of Alicia P. Clemeno, Chief, Legislative Ruling and Research Division, she
recommended the reduction of SMC's tax liability, first to P21,856,985.29, and later to P22, 000,
000.00. Balbino E. Gatduala, Jr., Assistant Revenue Service Chief, Legal Service, supported the
demand for ad valorem tax deficiency from SMC. In a letter dated August 31, 1988, SMC, thru a
certain Avendano offered the amount of P10, 000, 000.00 for the settlement of the assessment. This
was concurred in by Juanito Urbi, Chief, Prosecutor Division, BIR in a Memorandum dated
December 20, 1988. Jaime Maza, Assistant Commissioner, Legal Service, BIR, also gave his
concurrence to the recommendation that the offer of SMC for P10, 000, 000.00 in compromise
settlement be accepted. Accused Bienvenido Tan approved the recommendation; and accordingly,
in a letter dated December 20, 1988, SMC was informed that its offer to compromise was accepted.

From the foregoing facts, the public prosecutor is now claiming that the circumstances surrounding
the controversy was tainted with irregularity and that the compromise appears to be manifestly and
grossly disadvantageous to the government. Accordingly, by accepting the compromise settlement,
herein-accused Bienvenido Tan, Jr., has given unwarranted benefits to San Miguel Corporation in
the amount of P292, 951, 048.93 to the damage and prejudice of the government.

The Court agrees with the public prosecutor.

The assessment dated July 13, 1987 was protested by SMC and as a result of which, after
considering relevant matters on the issue, the amount was protested by SMC and as a result of
which, after considering relevant matters on the issue, the amount was reduced to P302, 951,
048.93. It was on the basis of this reduced amount that the herein accused, in his letter dated
October 8, 1987, demanded the payment of the assessed specific tax and ad valorem tax
deficiencies. While apparently, the matter of assessment was made final and executors, yet
strangely enough and for unexplained reasons accused Tan on October 27, 1987, referred the
matter to his Assistant Jaime Maza, Assistant Commissioner, Legal Service Division, BIR, even
though SMC did not protest the assessment as reduced. Hence, such referral of the matter to Mr.
Maza for the latter's opinion appears to be an ugly exhibition of raw power and is considered by the
court as uncalled for since the matter has already been resolved. The assessment was supposed to
be final and executory. And to extend legality to the act, the officials went into the charade of further
investigation. But what the BIR officials actually did was not to find ways of coming out with the truth
regarding SMC's tax liability. Instead, they sought ways to help SMC not to pay taxes.

We also find it strange how the matter of referral came to the knowledge of SMC. Using the referral
as a basis, SMC now assails the demand letter of the herein accused dated October 8, 1987
claiming the same as being premature since the matter is still under investigation. The letter of SMC
is dated November 17, 1987.

On the witness stand, the accused maintained that the decision to compromise was arrived at after a
long and serious study; that he was convinced that the assessment was unjust and excessive after
concluding that the opinions of Ms. Clemeco, respondent Urbi and respondent Maza had more merit
than those of Messrs. Bundang, Gatdula and Larin. That under Section 204 of the National Internal
Revenue Code, his discretion as Commissioner of Internal Revenue cannot be questioned even by
the Supreme Court. This position of the accused calls to mind Lord Action's immortal words:

"power tends to corrupt and absolute

power corrupts absolutely. Responsibility

is the symbolic twin of power."

There is no dispute that SMC was assessed a deficiency of specific tax in the amount of P33, 817,
613.21 and ad valorem tax amounting to P308, 798, 604.67 for the period covering January 1, 1985
to March 31, 1986. A demand letter for the payment of these taxes was sent by the herein accused
and the same was protested. On October 8, 1987 the herein accused denied the protest, although,
the amount was reduced to P302, 951, 048.93 without any protest coming from SMC. The herein
accused in his hand-written not dated October 27, 1987 referred the matter to the Office of his
Assistant Mr. Maza for the latter's opinion.
The court finds the referral to Mr. Maza as unusual since there was no request for a reconsideration
of the BIR demand letter dated October 8, 1987. The act was uncalled for. By going out of his way to
help San Miguel Corporation obtain a reduction of its tax liability in the government suffered undue
injury while at the same time undue preference was given to a taxpayer like San Miguel Corporation.

In his memorandum, accused maintains that insofar as the specific tax deficiency is concerned, the
same was already paid when the BIR allegedly agreed on the application of SMC's excess ad
valorem tax deposits to its unpaid specific tax. As to the ad valorem tax, he claims that a reasonable
doubt exists as to the correctness o the deficiency assessment.

The court finds no merit in the claim of the accused that the specific tax assessment of P33, 817,
613.21 has already been paid through the application of SMC's excess ad valorem tax deposits to its
unpaid specific tax. In fact no evidence was introduced by the accused to show that he authorized
SMC to apply its excess ad valorem deposits in payment of its specific tax deficiency. It is significant
to note that the deposits for the specific ad valorem taxes are separately recorded. The letter dated
May 5, 1986 sent by the BIR Commissioner to SMC, which the accused claims as the authority
given to SMC for the application of its excess ad valorem payment to the specific tax shortfall, does
not at all contain or refer to any authority given to the taxpayer to do so. There is nothing in the letter,
which shows the approval given by the BIR Commissioner for SMC to apply the ad valorem deposit
to its specific tax deficiency. On the contrary, the letter contains conditions requiring SMC to pay any
additional specific tax or ad valorem tax, which the BIR may discover in its final computation. This
piece of evidence will show that the specific tax deficiency has not been paid, and consequently, the
act of the accused in abating the subject assessment is unlawful or is illegal and has caused undue
injury to the government.

On the matter of the BIR's cancellation of the ad valorem tax deficiency, the abatement was claimed
to be based on the ground that there exits a reasonable doubt as to the correctness of the
assessment. Accused cited Section 124 of the National Internal Revenue Code, which provides as
follows:

"Section 124. Specific and ad valorem tax on fermented liquors: ad valorem tax – in
addition to the specific tax herein imposed there shall be levied, assessed and
collected an ad valorem tax equivalent to ten percent of the brewer’s selling price,
net of specific tax of the products enumerated under subsection (h) hereof."

The Court finds the cancellation of the ad valorem tax deficiency to be juvenile and estranged from
the language of the law, which is very clear on the matter. The law speaks only of the specific tax to
be deducted from the selling price. For the accused to claim that the differential price in the ad
valorem tax should be deducted from the selling price is an obvious attempt to create uncertainty
where there is none. To further justify his claim that the ad valorem tax and price Executive Order
No. 273. But the law cited by the herein accused was not yet in effect at the time the assessment
was made considering that E.O. No. 273 took effect only on January 1, 1988 whereas the
assessment was made on July 13, 1987. Apparently, the same was resorted to only to becloud the
provision of the law and to create a situation of doubt that would justify the BIR Commissioner’s
exercise of his authority to compromise the assessment.

Finally, on the argument concerning the power of the BIR Commissioner to abate or compromise a
tax assessment, which according to the accused is purely discretionary and cannot be interfered
with by anybody, even by the courts, the relevant provision of the law on the matter is Section 204 of
the NIRC.
 "Section 204 – Authority of the Commissioner to Compromise, Abate and
Refund/Credit Taxes – The Commissioner may compromise the payment of any
internal revenue tax when; (a) a reasonable doubt as to the validity of the claim
against taxpayer exists; 2) Abate or cancel a tax liability when – (a) a tax on any
portion thereof appears to be unjustly or excessively assessed; or (b) The
administration and collection costs involved do not justify the collection of the amount
due."

Parenthetically, the exercise by the BIR Commissioner of his power to compromise becomes
justified only when the above-enumerated situations exist. As earlier stated, the court cannot
perceive any doubt on the validity of the assessment. From all appearances, herein accused tried to
create doubt in the assessment when there was none and to escape criminal liability, he invoked his
discretionary power which he claimed to be unlimited even though it is not so. The provision of the
law on the matter is clear. We cannot likewise overlook the earlier position taken on the assessment
by senior BIR officials led by Mr. Aquilino Larin, Assistant Commissioner for Specific Tax. In
response to SMC’s contention that its method of computing its ad valorem tax liability was, in
principle, with the prior approval of the BIR and that said computation was done by excluding from
the base of the ad valorem tax the following: (a) the price differential, which allegedly represents cost
of freight from place of production to distribution point; and (b) the ad valorem tax, Asst.
Commissioner Larin had this to say:

"This office cannot agree to the contention of the taxpayer considering that first, there
is no record or at least the tax docket do not show, that conference were held
between the representatives of the SMC, on one hand, and Messrs. Calaguio and
Florenza on the other hand to attest that the computation followed by the taxpayer
bears the approval of this office. And even assuming that such meeting took place,
undersigned is certain that if a verbal agreement was reached on such a substantive
precept of taxation, t is almost certain that such agreement would have been
documented in the form of query by SMC and a reply or ruling from the BIR
upholding such theory as asserted to by the SMC. Moreover, the tax theory adopted
by the SMC is not supported by law, specifically the provisions of Sec. 147 (now Sec.
124) of the NIRC, as implemented by Revenue Regulations No. 1584 x x x x ."

"San Miguel operates three (3) breweries in the country, and that the sales of beer is
affected not within the premises of these breweries but at various distribution points
throughout the country. Obviously the freight costs are passed on the customers and
therefore, form part of the gross selling price of the product being sold. Such freight
cost should form part of the tax base. As regard the exclusion of the ad valorem tax
from the gross selling price of the beer, it is believed such exclusion is without basis
in law since the pertinent provision allows only the exclusion of specific tax, not ad
valorem tax".

Notably, either by coincidence or with legal significance, the compromise was done on December
23, 1988, just two days before Christmas. The letter of accused to SMC, accepting the offer to
compromise its deficiency specific and ad valorem tax liabilities for 1985 and 1986, had the
concurrence of Jaime Maza, Assistant Commissioner, BIR Legal Service Division, which
concurrence is dated December 20, 1988. While the court concedes that the procedure of reviewing
and examining a multi-million tax case observed by the herein accused speaks of unusual efficiency
for which he should, under normal circumstances, be commended, nonetheless, we cannot ignore
the fact that the same had been resorted to in order to give unwarranted advantage, preference and
benefit to a taxpayer. It was not done to benefit the government. On the contrary, the compromise of
the tax case resulted in undue injury to the government and must therefore be condemned.
Indubitably, there was a lawless exercise of discretion to prejudice the government.

WHEREFORE, premises considered, judgement considered, judgement is hereby rendered

convicting the accused for Violation of Section 3 (e) of Republic Act No. 3019 as amended, and
appreciating in his favor the presence of the mitigating circumstance of age, accused being over
seventy (70) years old, and in the absence of aggravating circumstances to offset the same,
applying the Indeterminate Sentence Law, he is hereby sentenced to suffer imprisonment of six (6)
years and one (1) month as minimum to fifteen (15) years as maximum. He is further disqualified
perpetually from holding public office.

As the Court finds the compromise agreement to have been entered into illegally, the Bureau of
Internal Revenue is hereby ordered to collect from San Miguel Corporation the amount of P292, 951,
048.93 representing its tax liabilities covering the period from January 1, 1985 to March 31, 1986.

SO ORDERED.